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Is A Harsh Test For Dividend Growth Investors Ahead?

Jun. 29, 2015 5:18 PM ETXOM, COP, MMM, KO, JNJ2 Comments
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The true test of Dividend Growth Investing maybe on our doorsteps.

In the grid below there are an assortment of dividend paying stocks that most DGI investors would consider as suitable for their strategy.

There will no doubt be nitpicking over the list. PEP vs KO is a popular debate. But this examination isn't about what issues to choose. Its about the possibility that the bear market has begun, and that it has been in stealth mode for some time, obscured by flashy news and a mostly horizontal DJIA.

The grid below is an interesting sampling of stocks, which could easily make up the portfolio of any number of us.

The grid uses today's low, to make things easy. The highs are based on the high within the last year. As you can see all the stocks were higher at some point in the recent past.

Interestingly, the group averages a 16% pull back, as does the Dow Jones Utility Average.

The Industrial Average shows only a 4.15 retracement.

Everyone in the industrial world is aware that oil has had a collapse in price, and this is reflected in the larger than average decline for XOM and COP. By an large, their peers have had similar setbacks. No surprise there.

KMB, JNJ, and MMM have all seen about 10% "correction" and only TGT has kept the decline to low single digits. Even KO has slipped 12%.

But the fact of this correction is not what is most concerning. After all, the facts are the facts.

The Charts

The most alarming aspect of this correction is two fold. First, the fact that today's 350 point selling frenzy represents an acceleration in the downward direction, and secondly that the charts show broken support for many, many issues.

I know many, including SA, seek to avoid charts, but again, facts is facts and charts are the photographs of past behavior. So here goes:

The DJIA appears dinged but not broken. But we do have lower lows and lower highs since mid-May. 17,500 still holds.

The DJU looks pretty well strained, and the 15% decline is harsh. But there is no apparent price support in sight until 525. The trend since the first of the year is still down. While dividends are high right now, caution in buying is probably wise for a bit.

XOM is one of my favorites, and with a mid 3% dividend at the moment, it is tempting. But that chart cracked support.

Another oil, COP has taken a beating also, and while it is above recent lows, I'm holding the next 401K deposit in cash while these two stocks settle down and show some kind of support. That nearly 5% dividend is tempting.

A stock with a less dramatic pullback, MMM still looks to have broken support. Its downtrend remains intact.

Even the mighty JNJ, down about ten bucks and almost 11%, from its high, seems to be on unsteady feet.

Yet each of these companies in the grid is arguably a solid, strong and durable company whose prospects for the future are sound.

Could we see Ms. Market replace unreasonable optimism with unreasonable pessimism as Greece, Europe and other parts of the world are on the verge of unraveling?

How are you reacting and how are you defending your portfolio?

Analyst's Disclosure: I am/we are long MOST OF THESE STOCKS.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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