by Carla Pasternak
If you're looking for a steady direction in these markets, then forget it.
One day the news is great. Europe inked a deal, the U.S. economy is growing and jobs are being added. The Dow Jones Industrial Average edges toward its largest monthly percentage gain in a quarter-century. Investors cheer the news and rotate with a vengeance into stocks, no longer seeking the relative safety of U.S. Treasuries.
But the euphoria is short-lived. The next day, stocks fall and U.S. Treasuries soar. Questions about the eurozone deal and the agonizingly slow economic recovery in the U.S. weigh on investors. That's the bad news.
The good news is that, even in this market, dividend payers are proving themselves as one of the best places to invest. Many of the more conservative income securities are even seeing new highs. For instance, Magellan Midstream (NYSE: MMP) sits within $2 of its 52-week high.
And while this market may seem tough to navigate, a simple strategy lets you take advantage of the ups-and-downs we're seeing. Once you've assured yourself that the dividend appears safe, you can use the downturns to provide great entry points.
It's during times like these that high-yielding income payers with solid fundamentals and positive long-term outlooks can become even more attractive -- sometimes overnight. As the saying goes, you'll see investors "throw the baby out with the bathwater" when the market panics. As the price of these securities falls, yields rise, making them appealing to bargain-hunters.
For instance, back in September, I placed a buy-limit order below the market price for shares of ONEOK Partners (NYSE: OKS) -- a natural-gas pipeline carrier with a toehold in the hot natural-gas liquids market.
I didn't buy the shares right away, but about a week later, a downdraft in the market allowed me to add the shares to my High-Yield Investing portfolio at $43.50 each-- about 7% less than they closed at just two days before.
Since then, the shares have moved higher, closing at $49.11 on Tuesday, Nov. 15, for a gain of more than 12% in just a little more than a month.
When the market rallies, we have a choice. We can either use the rebounds to lock in gains and cut losses, or, if we're investing for income we can ride the volatility. So as long as the dividend appears safe, we can pocket the dividends even while the share price bobs up and down like a cork in a turbulent sea.
Of course, dividend payers aren't immune to the volatility. And they aren't as stable as cash in a savings account. But cash won't pay you 6%... 8%... even 10% or more year after year, and give you the chance to make a solid capital gain.
Disclosure: Neither C. Pasternak nor StreetAuthority, LLC hold positions in any securities mentioned in this article.