Those who have read my articles for the last 4 years are well aware that I have been bullish on stocks for a very long time. That being said, there are times that one has to be a bit foolish to ignore nasty headwinds that I believe will push the market down further.
As a dividend growth investor, I can point to a wide range of dividend aristocrat stocks that are well within my buy zone, but that is not an automatic trigger for me to buy a bunch of shares now, since I believe that as we move through earnings season, there will be even better opportunities to buy income at cheaper prices.
For my own personal accounts as well as our Team Alpha Retirement Portfolio, I am officially on the sidelines for now. I am always long-term bullish, but I think I can pick at better bargains in the weeks to come.
Nasty Headwinds Should Not Be Ignored
For the last 6-7 years, the Fed has been propping up the markets with its zero interest rate policy. That in and of itself took a lot of risk out of the equity markets, for nothing else but the availability of cheap money for companies to borrow and reinvest in themselves by buying back shares, and propping up sagging balance sheets.
All bets are off now that the Fed has moved, and the headwind of continued rate increases has begun to affect both equities and investors. The litany of issues investors are facing MUST be taken into consideration when making any investment decisions. Here is a brief list of just the most obvious problems our markets face.
- A rising interest rate environment created by the Fed.
- Retail sales so weak that Wal-Mart (NYSE:WMT) is now going to close over 250 stores globally, 150 of them here in the USA.
- The apparent slowdown in China. I say apparent because I can never be certain of the veracity of anything that is announced by the country. The numbers will be sure to show up in our mega-cap, global blue chips with large economic footprints within China, and this earnings season should show any negative impact if any.
- The continued strong dollar will hamper the sales of our global mega-cap blue chip stocks that have significant positions outside of the USA.
- Oil has not reached a bottom, as I thought it would months ago, and this could have far-reaching implications on our economy -- from weak earnings within the sector, to bankruptcy issues with the weakest links, to the labor force reductions and capex spending by the mega oil majors.
- Iran will be pumping oil ASAP and that could erode prices even further and faster.
- A cascade effect on the US economy simply by adding up all of the above, which could lead to a recession in 2016.
I am not making any predictions here, folks; I am just looking at the facts and I just do not like what I see. It would not be the first nor last time I would be wrong, but I won't ignore the nose on my face. Time will tell.
But As A Dividend Growth Investor, Isn't It All About The Income?
Yes, I subscribe to this philosophy and never worry about daily price fluctuations. What I am seeing is not a daily price fluctuation, but a trend that continues to head down, with selling into any rebound, which is the exact opposite of what I have seen over the last 7 years or so.
If I had a longer time horizon, with a job (not as a retired 66-year-old), I could make a case for slowly adding shares even now, since I still would have a paycheck as well as maybe 25 years before I retire. Since I write for all ages and level of investors, however, not everyone will have the same size shoe!
For now, those who are in my age group and retirement status should consider capital preservation as the number one priority, as well as keeping an eye on dividend-generated income to make certain it remains reliable.
While NOTHING has changed with the income generated by the Team Alpha Retirement Portfolio, I will be taking a do-nothing strategy for this portfolio. No buying, no selling, and no movement of money for now. I am pretty sure the dividend aristocrats will pay a bit more this year, but that will be the only increases I will be looking for.
As of now, the portfolio consists of the following stocks: Exxon Mobil (NYSE:XOM), Johnson & Johnson (NYSE:JNJ), AT&T (NYSE:T), Franklin Street Properties (NYSEMKT:FSP), Coca-Cola (NYSE:KO), Omega Healthcare (NYSE:OHI), Procter & Gamble (NYSE:PG), Realty Income (NYSE:O), General Motors (NYSE:GM), Ford (NYSE:F), Microsoft (NASDAQ:MSFT), Consolidated Edison (NYSE:ED), Altria (NYSE:MO), Main Street Capital (NYSE:MAIN), PetMed Express (NASDAQ:PETS), BGC Partners (NASDAQ:BGCP) , Ohio Valley Banc Corp. (NASDAQ:OVBC), HCP, Inc. (NYSE:HCP), Old Republic International Corp. (NYSE:ORI), Starwood Property Trust (NYSE:STWD), Mattel (NASDAQ:MAT) and Annaly Capital (NYSE:NLY).
You can be sure that I will be monitoring these stocks, even the aristocrats, very closely this earnings season.
One Glance At This Chart And You Can See That The Trend Is NOT Your Friend
^DJI data by YCharts
There are those to choose to ignore this simple chart, and in ordinary times, so would I. This time IS different, given the headwinds I have noted, and I believe prudence is the word of the day.
There will be plenty of time to shop for bargains as SOME of the headwinds die down. Now is not the time for me.
Secure your retirement and seek capital preservation right now.
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Disclaimer: The opinions and the strategies of the author are not intended to ever be a recommendation to buy or sell a security. The strategy the author uses has worked for him and it is for you to decide if it could benefit your financial future. Please remember to do your own research and know your risk tolerance.
Disclosure: I am/we are long BGCP, ED, F, FSP, GM, HCP, JNJ, KO, MAIN, MAT, MO, MSFT, NLY, O, OHI, ORI, OVBC, PETS, PG, STWD, T, XOM.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
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