Our central belief is that in a low interest-rate world, retirees are experiencing dwindling incomes from their risk-free assets (e.g. government bonds and cash equivalents). With ultra easy monetary policy the Federal Reserve will continue to "pick the pockets" of savers by keeping rates low.
We do not foresee interest rates at the short end of the curve rising any time soon as U.S. debt burdens are simply too high.
Stable Income Streams
With a diversified portfolio of high-quality dividend paying stocks (like the ones on the list below), retirees can generate a stable income stream that will perform well in bull or bear markets.
While this is not an exhaustive list of high-quality dividend stocks, this sample portfolio would yield 6.1% with an average beta of 0.48. In addition, all of these stocks are in defensive industries and they have P/E ratios below 20.
Due to the current market rally (which we believe will be short lived), investors should consider waiting for a pullback in these stocks to enter a new position or to add to an existing position.
Most of the stocks above are currently in a positive uptrend. As such, investors should be looking for near-term areas of support as potential entry points.
Annaly Capital Management (NLY) recently broke above the top part of its recent trading range. This breakout was driven by the Fed's recent announcement to keep interest rates low through the end of 2014, which is positive for mREITs. Since then the stock has retreated as the company announced that spreads have narrowed (due to a reduction in leverage). The stock should get near-term support from its 50-day ($16.22) and 200-day ($16.23) moving averages.
Buy Zone: $16.00-$16.50
Consolidated Edison (ED) is in a very strong uptrend, and we think that it should continue on this path for the foreseeable future. The stock has recently pulled back below the 50-day moving average ($59.47), and we would be a buyer on any further pullback.
Buy Zone: $55.00-$57.00
Although Johnson & Johnson (JNJ) is still in a long-term uptrend, the stock has been trading in a range the past few months. On a market pullback, we expect JNJ to test the bottom part of its recent range again, and we would look to enter a position around this level.
Buy Zone: $61.00-$62.00
Click to enlargePhilip Morris (PM) treated investors very well in 2011 and we think that 2012 could be just as good for the stock. While PM is currently hovering around the 50-day moving average ($76.19), the long term is still very strong. We believe that the stock will get further downside support around the 200-day moving average ($69.34) and we would be a buyer at that level.
Buy Zone: $69.00-$71.00
Click to enlargeVerizon (VZ) also has a very nice uptrend in place. The stock should find near-term support around the 200-day moving average ($36.11), but we think that this level will be tested on a pullback.
Buy Zone: $35.50-$36.50