Ouija boards and tea leaves may work for soothsayers and day-traders, but as a conservative long-term investor, I'm looking for opportunities I can see and touch. The Dow is one week into the correction which many have anticipated (a typical correction last 2-3 weeks). I'm not one to venture a guess on how deep the pullback may be, but I do know that dividend stocks didn't fully participate in the march higher, and in like fashion, may not see their values retreat in lock-step with higher beta growth stocks.
I've described the first quarter of 2012 as being approached with painful patience. I took some early gains, only to see those issues move higher, and maintained allocations to dividend paying companies, as I watched growth stocks return with a vengeance. So, I have cash on hand. I see this current pause, pullback, correction, or timeout, as an opportunity to put a bit of that cash to work.
My eyes are typically focused on the dividend paying players with track records of rising dividends and yields north of 3%. Five names are sitting atop of my watch list: Abbott Labs (ABT), Pepsi (PEP), General Electric (GE), Johnson & Johnson (JNJ) and Intel (INTC). The yields on the first three range from 3.15% for PEP and ABT, to 3.51% for JNJ, with GE at 3.33%. The stocks have pulled back in trading after Easter, but I am hoping (tea leaves in hand) that there is more to come. Having no faith in those tea leaves, however, prudence would dictate picking up partial positions in all these names - about one-third position now, then another one-third on an additional 3% pullback. Pick your prices and make use of limit orders on the purchases. Though Intel is becoming more attractive by the day, tech has had quite a run and INTC needs to pull back closer to $23 to get me the 3% yield I seek. For that reason, I'm not yet interested in any partial positions.
ETFs represent a better comfort zone for some investors, and this pullback is putting the Consumer Staples Select SPDR (XLP) back on the radar. After being outpaced in the first quarter nearly 3:1 by its alter-ego Consumer Discretionary Select SPDR (XLY), XLP is drifting back to price territory for consideration. The price would need to really pull back in order to garner the 3% yield I demand for individual stocks, but I'll settle for the price drifting below $ 32.70 to give me a yield above 2.75%. The market may still have more room to run after the pullback, but the remainder of the year should be re-focused on value oriented positions, obtained with patience and appreciated for their dividends that will smooth the bumps of this election year market.
Disclosure: I am long positions in ABT, PEP, GE, JNJ, XLY
The above article has been written utilizing data from publicly available sources, which are believed to be reliable, and is provided for informational and educational purposes only. Investors should consider their personal situation and become intimately familiar with any investment, including its prospectus, before investing. Past performance and current yields are no guarantee of future results.