The first three months of 2012, with the exception perhaps for Tesco (TSCDF.PK) investors, were very much a one-way ride for equity investors her in London, as share prices rose almost across the board.
However, since closing at 5,966 on 16 March, the FTSE 100 index has taken a dive. The Footsie closed at 5,267 this Friday, down almost 700 points - 699 to be precise -, or nearly 11.7% from its March high. That represents a formidable sell-off in my book.
Big fallers include mining companies, such as BHP Billiton (BHP), Rio Tinto (RIO) and Anglo American (AAUKY.PK) - hard landing prospects in China -, banks and insurance firms, such HSBC (HBC) and Barclays (BCS) - Grexit? Euro implosion? - as well as companies with heavy exposure to both consumer spending in the UK and overseas (obviously consumers are spending less everywhere).
Perversely you may think, but as a long-term Dividend Income Investor, I am rather enjoying this sell-off. Mind you, not that I am shorting stocks or indices… I am not playing that 'game' any longer.
No...I like share prices to be lower. Significantly lower, in fact.
Nevertheless, for long-term dividend income-seeking investors not 'particular' bothered about their entree prices there are now some increasingly attractive priced blue-chips to be had. Let me mention a few:
Insurance companies like Aviva (AV) and RSA Insurance (RSAIF.PK) yielding both well above 9%, military hardware manufacturer BAE Systems (BAESY.PK) yielding at 6.9%, pharma group AstraZeneca (AZN) yielding at 6.7%, energy utilities National Grid (NGG) and SSE (SSEZF.PK) yielding around 6%.
Am I tempted at these kind of dividend yield levels?
Just consider this . . . .
- What about the impact of next month's second general election in Greece?
- What about the €450 billion of debt Italy has to roll over this year?
- What about the near-12% yield on 10-year Portuguese bonds or the 6%+ Spain is being forced to pay now?
- What about the strong possibility of another Eurozone downturn?
- Is Facebook ridiculous IPO value a clear signal of technology markets overheating….again?
- Will the USA be able to cut the Budget in this important presidential election year, later this Autumn?
In short, while the FTSE 100 has fallen by 699 points (almost 12%!) from its March high, we may well be at the cusp of another leg down, later this Summer.
With still more than 50% in my Dividend Income Portfolio in cash, as a net buyer of high quality dividend paying shares, I would love it for share prices to go much lower than they currently are.
You may be surprised to hear this, even after the recent sell-off.
From our perspective, many high quality dividend paying companies are still priced well above their historical undervalued price levels, i.e. when they are priced to buy. So we wait...and wait for the inevitable to happen.
Are you waiting?
Additional disclosure: We run the Dividend Income Portfolio, which owns a shareholding in Tesco, BHP Billiton, BAE Systems, AstraZeneca and National Grid purchased when the shares were historically undervalued as per our valuation methodology