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PRIMARY OBJECTIVE: ... Income Replacement! Escape velocity is the speed that an object needs to be traveling to break free of the planet's gravitational pull and leave it without further propulsion. This portfolio is looking for the point where the income being generated can allow the holder of... More
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  • Dow Theory Forecast 38 comments
    Jun 2, 2014 7:57 PM

    This was posted by Dow Theory on May 28 and I thought I would pass it along.

    -------------------------------------------------

    You can find income everywhere

    Every sector of the S&P 1500 Index paid out more in dividends last year than it did three years earlier. And if profits grow as fast as expected, that trend should continue over the next three years.

    According to Standard & Poor's, in the March quarter U.S.-traded stocks declared 9,802 dividends, up nearly 7% from the same period in 2013 and the highest number in at least 11 years. That kind of expansion suggests a broader swath of stocks is playing the dividend game.

    Traditionally dividend-heavy sectors such as consumer staples, industrials, telecom, and utilities each account for a similar percentage of the S&P 1500's total dividends today as they did at the end of 2004. However, the financial sector has charted a different course.

    At the end of 2004, financial stocks accounted for 29.1% of the S&P 1500 Index's dividends, versus 14.6% today. In contrast, sectors not known for dividends - consumer discretionary (9.0% today, 6.2% in 2004), energy (11.6%, 7.9%), and technology (15.2%, 5.1%) - have seen their contributions rise.

    In general, more companies have started to pay dividends (66% of the S&P 1500 today versus 59% in 2004), and the average yield has increased to 1.5% from 1.1% in 2004.

    Over the last decade, the percentage of energy, health-care, industrial, and technology stocks paying dividends has risen. Increased participation drove up the average yield, but the average dividend-payer's yield has also risen. The payout power of the three upstart sectors suggests the financial sector won't get back to 29% of the index's dividends soon, if ever.

    In each of the last five calendar years, the S&P 500 Index delivered an income return of at least 2.1%. We haven't seen such a five-year stretch since 1993 through 1997, and last year's 2.8% income return is well above the 15-year average of 2.0%.

    Fortunately, it's never been easier to construct a diversified portfolio of dividend-paying stocks.

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Comments (38)
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  • Miz Magic DiviDogs
    , contributor
    Comments (4818) | Send Message
     
    Very interesting! Looks like dividends can be contagious! :)

     

    Miz
    2 Jun 2014, 08:43 PM Reply Like
  • Chowder
    , contributor
    Comments (10315) | Send Message
     
    Author’s reply » I don't know what the people who don't like dividends are going to do. This is really going to screw up their book value evaluations. ... Ha!
    2 Jun 2014, 08:52 PM Reply Like
  • Robert Allan Schwartz
    , contributor
    Comments (16309) | Send Message
     
    "Looks like dividends can be contagious! :)"

     

    Robert: "Doctor, I think I've been infected."

     

    Doctor: "Don't worry, it's not fatal."

     

    :-)
    2 Jun 2014, 10:56 PM Reply Like
  • User 27700303
    , contributor
    Comments (89) | Send Message
     
    Author’s reply » I don't know what the people who don't like dividends are going to do. This is really going to screw up their book value evaluations. ... Ha!

     

    user303: Nothing wrong with dividends but then again they are not the Panacea some ascribe to them either.

     

    Obviously they are very attractive to retirees seeking to replace employment income. bondish attributes with equity exposure.

     

    I found the following interesting especially after reading the associated paper.
    http://seekingalpha.co...
    4 Jun 2014, 10:13 AM Reply Like
  • Chowder
    , contributor
    Comments (10315) | Send Message
     
    Author’s reply » 277, you are correct. Dividends are not a Panacea and neither is the dividend growth investing strategy.

     

    I'm of the opinion that quite a few people who have adopted the dividend growth strategy will abandon the strategy when we are faced with another meaningful market correction.

     

    The dividend growth investing strategy is like any other strategy. It depends on how one manages it as to whether they receive a favorable outcome or not.

     

    One of the reasons I announce my buy or sell actions in advance is because I want people to see how I manage a portfolio using the dividend growth strategy. From this, people can learn from my mistakes and successes which I'm hoping will smooth their learning curve, and help them become even more successful as a self-directed investor.

     

    I don't read Swedroe and have no intention of reading the article linked above. I have one of Swedroe's books and I think it's the only investment book I never finished reading.

     

    I don't mind others commenting on the article linked above or of commenting on Swedroe's work. I only mention this so others won't ask me to comment on the article.
    4 Jun 2014, 01:17 PM Reply Like
  • Bob Wells
    , contributor
    Comments (6510) | Send Message
     
    Don't all these companies know this is hurting them?

     

    I think its these companies that Larry S, really needs to save rather than the poor DG investor being victimized by all these dividends.
    2 Jun 2014, 09:08 PM Reply Like
  • kolpin
    , contributor
    Comments (1343) | Send Message
     
    Chowder--I don't know if you're read the June issue of Morningstar's Dividend Investor newsletter, but Josh Peters made an observation about the string of rather disappointing dividend increases in stocks within his portfolios this year (bottom of page 4, then continued on page 6). He wonders if this is the reflection of our economy's current low earnings growth (which theoretically we'll eventually break out of) coupled with stocks' already high payout ratios, or is it the start of a more worrisome trend?

     

    he seems to conclude that it's the former, but I'm curious if you had any thoughts on that? while it may be true that more and more stocks pay dividends (as you mentioned above), does the much sought after combination of high yield and high dividend growth ultimately hit a mathematical glass ceiling? T for example, has topped out, and perhaps other stocks will follow suit?
    2 Jun 2014, 10:05 PM Reply Like
  • Chowder
    , contributor
    Comments (10315) | Send Message
     
    Author’s reply » kolpin, I had the data that explained this but I accidentally deleted it.

     

    Anyway, to make a long story short, most of the market upside over the last couple of years is based on expectations and momentum. Earnings have not kept up dividend growth over this time frame.

     

    As we move forward, I think most companies will announce dividend growth adjustments based on forward looking earnings and return rates.

     

    For example, KMB posted a very disappointing 3.8% dividend growth rate this year. Looking forward, the 5 year estimated total return number for KMB is 4.7%.

     

    I think we're beginning to see companies tempering forward expectations to where it's better for them to exceed lower expectations as opposed to missing by a couple of cents on higher expectations.

     

    Back around 2001 KMB did the same thing. Lowered the dividend growth for a couple of years, got the expectations down to a lower level and then came back with several years of double digit dividend growth.

     

    PEP did the same thing the last couple of years. They came out with a low ball 4.6% dividend growth number in 2012, then 5.6% in 2013 and then announced an increase of 15.4% for this year.

     

    When the payout ratio reaches a certain point, you must look to estimated earnings to confirm future dividend growth.

     

    I think this is what we are seeing with KMB.
    2 Jun 2014, 10:34 PM Reply Like
  • kolpin
    , contributor
    Comments (1343) | Send Message
     
    thanks chowder--that makes a lot of sense. it's kind of the finesse part of investing where you have to look beyond one set of numbers to see the big picture. I found myself frustrated with MCD's numbers (comp sales etc), but I think they're just another example of a behemoth of company that might take a couple of years to turn things around. Setting my expectations accordingly makes me a more patient investor and look at things in a much more long term light.
    3 Jun 2014, 10:27 AM Reply Like
  • Jaques Straw
    , contributor
    Comments (38) | Send Message
     
    Chowder - I believe KMB acknowledged the lower dividend increase in their press release when they announced the increase. They were taking the planned spin off into account.

     

    Thanks for all your commentary and posts. They are very informative.
    3 Jun 2014, 06:42 PM Reply Like
  • Chowder
    , contributor
    Comments (10315) | Send Message
     
    Author’s reply » Thanks for that Jaques. I forgot about the spinoff.
    3 Jun 2014, 07:49 PM Reply Like
  • maybenot
    , contributor
    Comments (4988) | Send Message
     
    kolpin -- you bring up a good point with T, about being topped out, it seems.

     

    But, I would counter it would seem most people would be content with a T which had a yield of 4ish and a DGR of 4-5ish.

     

    With a solid company like T, I would be content with that.
    2 Jun 2014, 10:47 PM Reply Like
  • Chumpmenudo
    , contributor
    Comments (666) | Send Message
     
    I agree maybenot, I think of T as a utility, and an undervalued one at that!

     

    Chump
    3 Jun 2014, 02:14 PM Reply Like
  • Chumpmenudo
    , contributor
    Comments (666) | Send Message
     
    Chowder:

     

    Thanks for the post. Given your comment above to Kolpin, do you give companies a few years "slack" like KMB regarding the Chowder Rule, or is it one and out?

     

    Chump
    3 Jun 2014, 02:16 PM Reply Like
  • Chowder
    , contributor
    Comments (10315) | Send Message
     
    Author’s reply » Chump, if I do my job properly, I expect the Chowder Rule number to come down after I own the company. As share price rises, yield drops and that causes the Chowder Rule number to drop.

     

    The Chowder Rule applies to the purchase. Once I own a company, I will then look at historical information for guidance. For example, in 2001 and 2009 KMB had a very low dividend growth rate and then bounced back nicely. Therefore, I will allow KMB some slack. This isn't un-chartered waters for them.

     

    If KO had come out with a dividend growth rate as low as KMB, I would be concerned. They haven't dropped below a 5% dividend growth rate in over 20 years.
    3 Jun 2014, 02:56 PM Reply Like
  • misscbd
    , contributor
    Comments (1019) | Send Message
     
    Chowder : First, thank you for all the information and insight you provide to SA.
    re "As share price rises, yield drops and that causes the Chowder Rule number to drop."

     

    So, after purchase besides Div.Drop or Freeze, do you ever use Total Return as a barometer? I've been looking at Current Yield + Y on Current Cost (not necessarily original cost since I don't always drip). But, I don't have a percentage/rule in place using those figures.

     

    Tot.Ret. helps me see the total picture and not get too focused on dividend percentage if the price of the stock has risen -- ie: LMT has nearly doubled in value since my Buy in 2013 but the dividend is only 3.25%.

     

    I wondered if/how TR is a factor in your decisions.
    4 Jun 2014, 01:44 PM Reply Like
  • Chowder
    , contributor
    Comments (10315) | Send Message
     
    Author’s reply » miss, I suppose it depends on your situation. A person already in retirement may want to rotate out of a position once the yield drops below a certain percentage, perhaps 2.5% or 2.0%. It's a personal decision.

     

    I focus more on the dividend growth. For most companies I start to monitor a lot closer and determine if changes need to be made when the dividend growth drops below 5%, I use 3% for utilities.

     

    I don't automatically sell if these targets are hit, if I'm getting adequate capital appreciation in return, I'll let the position ride.

     

    So, to answer your question, yes I do use total return as a factor in my decisions.

     

    I too own LMT and have seen its value double. However, based on historical performance, LMT is fairly valued. I'm not going to sell shares of a company who raises the dividend at double digit growth rates when it's just fairly valued. It would have to be grossly overvalued for me to lock in profits in this situation.

     

    LMT has an expected 5 yr estimated total return number of 10.5%.

     

    I'll settle for a 3.2% yield and a total return number of 10.5%. I'd settle for a 2% yield under the same circumstances unless I was already in retirement and had to count on monthly income to pay the bills.
    4 Jun 2014, 07:24 PM Reply Like
  • misscbd
    , contributor
    Comments (1019) | Send Message
     
    Chowder -- thank you for the suggestion to incorporate "fairly vs over valued" concept prior to selling. In the past I've sold portions of an investment in order to recoup my investment but left $$ on the table because of the sufficient dividend (and apparent increase of stock price). DUK is all "their" money now and I reinvested my original $$$ elsewhere while continuing to participate in the 4+% div -- dripping it at this time.
    Looking at the M* value of DUK I see it is undervalued -- but since I used the $$ to purchase another stock I'm okay with the decision...Thank you again for your help with additional factors to consider in the future.
    5 Jun 2014, 03:59 PM Reply Like
  • Chowder
    , contributor
    Comments (10315) | Send Message
     
    Author’s reply » miss, you made me think about an important aspect of investing and how I approach it.

     

    I am strongly opposed of recouping my investment on a position when it has shown to be successful enough to double in size.

     

    This is a trading concept which has no place in investing from my perspective. I'm not trading anymore. I'm investing, and as an investor I am not going to trim positions that are showing a great deal of success as long as the company is confirming forward earnings expectations or raising them.

     

    The strong often get stronger! In management, I was taught to work with my strengths. As a trader I was taught to average up on my winners.

     

    We spend too much time and effort to find something that works to allow our fears or bias to cut those winners short.

     

    I understand the concept of excessive valuations, but I also understand the concept of earnings growth and how sometimes valuations are raised as opposed to price reverting to the mean.

     

    Let me provide a real example!

     

    I own MMP and it is up 190% for me so far. I haven't sold a single unit, nor do I intend to do so.

     

    Anyone with an ounce of common sense would probably state that MMP is grossly overvalued. It's current price per cash flow is 23.4. It's normal price per cash flow is 11.8. I'm using a 15 year time frame here. That looks grossly overvalued to me!

     

    Those overvalued numbers would cause a lot of people to take profits, get their initial investment off the table and claim that nobody went broke taking a profit.

     

    Let's take it a step further though and look at the BIG picture.

     

    The cash flow growth rate for MMP has been 11.6%. According to S&P Capital IQ, the forward expectations over the next 5 years for cash flow growth is 14.1%.

     

    MMP raised the distribution by 20% this year and is committed to 15% next year.

     

    With an expected increase in cash flow streams and the commitment to exceptional distribution growth, price is going higher. I've been saying this for months.

     

    Why would I want to cut myself short because MMP has performed better than expected? This babee is going to be allowed room to grow!
    5 Jun 2014, 07:13 PM Reply Like
  • misscbd
    , contributor
    Comments (1019) | Send Message
     
    Chw -- I see ...and in general agree with holding winners... but selling for me "depends"...since I am semi-retired the picture adjusts. I sold about 40% of DUK not only because it rose but it was a perfect opportunity to use the proceeds to invest in VZ - got it on a dip. DUK had also given me SE on a spin-off so I felt I could hold part of it and since I do not have telecom this gave me a new sector.

     

    Your example of MMP mirrors mine of LMT...nearly double in a little more than a year -- and it is definitely a longtime keeper. I have a few others like that...one of which is a REIT (WFC)...all keepers.

     

    Thank you for the reminder that it's okay not to get trigger happy and lock in gains...let 'm ride :)
    6 Jun 2014, 12:56 PM Reply Like
  • maybenot
    , contributor
    Comments (4988) | Send Message
     
    chowder -- you have mentioned this before and I consistently see it in action. That is, I see the Chowder Rule number drop after I make a purchase.

     

    IF I do my homework and pick companies who are undervalued, that is.

     

    It is a wonderful barometer before and after a purchase. And simple to use. Which is perfect for me.

     

    Thanks so much.
    3 Jun 2014, 04:37 PM Reply Like
  • scubastevo80
    , contributor
    Comments (286) | Send Message
     
    I too wonder if these lower dividend increases will lead the less committed investors to leave the "DG" asset class. It seems that while the US was coming out of the recession, most people were in disbelief while companies like MCD, CSX, WMT and IBM were raising their dividends by 10%+ for the last three years. At some point, those on the sidelines had to get on the DG bus as the risk/return profile was phenominal.

     

    Fast forward to the S&P up 30% in 2013, and expectations are, as Chowder mentioned, through the roof. Based on this, earnings and divvy increases will be lower than in the past few years. I feel there is a good chance a certain crowd leaves the DG space due to its lack of glamour and we committed investors will have a better chance to obtain high quality names at lower entry points.

     

    That being said, I'm certainly not sitting on the sidelines and waiting, but rather constantly looking to find undervalued companies (eg. IBM and DE) that I can accumlate.
    4 Jun 2014, 08:02 AM Reply Like
  • emac99
    , contributor
    Comments (441) | Send Message
     
    Chowder,

     

    Excellent point that even long-term steady dividend growers (KMB, PEP, etc.) periodically stray outside "normal" DG rates. Your concept of "on probation" below 5% (or normal) really resonates with me. In the absence of a macro event like 2008-2009 that hits everywhere, there's usually a more specific reason: industry cycle; major spinoff or acquisition; significant new investment opportunity, etc.

     

    Along with KMB and PEP, WMT is another example - paltry 2014 dividend increase after a huge 2013 increase - but attributable to the still-sluggish economy and a $600M+ investment in convenience stores. So while I put WMT on probation and trimmed my holdings a bit, I expect them to return to a more "normal" DG range in future and thus am not eliminating them from my stable of satellites.

     

    emac
    4 Jun 2014, 01:48 PM Reply Like
  • scubastevo80
    , contributor
    Comments (286) | Send Message
     
    emac - I think looking out past next years numbers helps one decide whether or not probation is even the right thing to do. All companies have hiccups along the way, but the longer term projections (and ultimately results) are what drive dividends and prices higher. Finviz has an "EPS growth next 5yrs" data point, as does Morningstar. Looking at these in conjuction with the current or next year's estimates can help frame our decision to sell or put a stock on probation.

     

    WMT, for example, has a 5yr expected growth rate of 8%. If they are meeting that target, I expect dividend increases of somewhere around 8%, not the 2% we got in Feb. But like you, I will revisit WMT at next year's raise to ensure the future EPS growth is still there and dividend increases are a management priority.
    4 Jun 2014, 03:04 PM Reply Like
  • emac99
    , contributor
    Comments (441) | Send Message
     
    scubastevo80,

     

    Great point. As an income investor (vs. trader) I do try to take the longer view in any hold vs. sell decision. I do track FinViz 5-year forward EPS consensus as well as payout ratio on all my holdings.

     

    Since earnings drives dividend growth, I require a minimum of 5% forward EPS on my investments (with exceptions, like regulated utilities). Most are in the 7-9% range, so WMT at 8% is in range.

     

    That, plus the 36% payout ratio, shows there's still room to grow the dividend. The wild card, of course, being the outsized influence of the Walton family. :)

     

    emac
    4 Jun 2014, 04:28 PM Reply Like
  • Sun Rising
    , contributor
    Comments (63) | Send Message
     
    Yes, I also become a little worry if DGI became so very popular. It is just a matter of time for it to go out of favor, and then, when most people will be chasing something else - will be the best time to buy more DGI stocks. Most things are cyclical and stock market is the prime example of it.
    If I am not mistaken, gold and AAPL were "screaming buys" right at the top. And then they go down, people sell, with climactic selling at the very bottom. Then people lose interest for a while and then it goes up again.
    And the cycle repeats over and other :)
    I will be holding my DGI stocks, without even thinking of selling them, and I will patiently wait to add more aggressively when they are in the least favor.
    Thanks
    4 Jun 2014, 02:20 PM Reply Like
  • Chowder
    , contributor
    Comments (10315) | Send Message
     
    Author’s reply » Sun, the greatest danger to the dividend growth strategy, in my opinion, for people to abandon this style of investing would be if interest rates rose high enough to make bonds a much better choice on a risk-adjusted basis.

     

    When this happens, and I'm assuming it will one day, we may see share prices drop as money rotates into bonds, but nothing is going to change via the Blue Chip companies that have been paying dividends for decades. We'll continue to get our annual pay raises via dividend growth if we are properly positioned with our portfolios.

     

    We'll have an opportunity to reinvest those dividends into falling share prices, meaning we will be able to obtain more shares than previously, thus increasing our income at faster and higher rate of growth.

     

    The key is to stick with the companies who have the stronger financial strength ratings and are positioned to weather any storm headed its way.

     

    What isn't going to change is the need for retired people to generate an income in retirement, and record numbers of people are retiring every day.
    4 Jun 2014, 07:35 PM Reply Like
  • misscbd
    , contributor
    Comments (1019) | Send Message
     
    Chw re: "When this happens, and I'm assuming it will one day, we may see share prices drop as money rotates into bonds, but nothing is going to change via the Blue Chip companies that have been paying dividends for decades."

     

    Does this mean you expect problems with BDC's (I have PSEC and MAIN), REITS and MLPs? I especially wonder about REITS (retail and health) when interest rates change.

     

    This is actually one of the reasons I still invest in some Funds (they all have increased dividends -- total return of my ETFs average above 30% with mutuals at around 18%). I tend to believe scaredy cats will stick with funds that are have been doing well and sell out of other investments first. Thoughts?
    5 Jun 2014, 04:09 PM Reply Like
  • Chowder
    , contributor
    Comments (10315) | Send Message
     
    Author’s reply » miss, I wouldn't touch a BDC or mREIT with a 10 foot poll. I'm not interested, I won't own them, and I don't care what the yields are.

     

    I won't try to talk others out of it though. If it meets their objectives, I think that's fine.

     

    I'm not like those Indexers who try to tell you what to do. I simply share what I do and allow others to decide for themselves.

     

    BDC's and mREIT's can't get past my first criteria screen of high quality. I want to see a 1 or 2 Safety rating by Value Line or a BBB+ or better credit rating by M* or S&P.
    5 Jun 2014, 07:19 PM Reply Like
  • Chowder
    , contributor
    Comments (10315) | Send Message
     
    Author’s reply » As to interest rates, they will affect nearly all segments of the investment world.

     

    The reason I focus on high quality companies with solid credit ratings is because they will get more favorable terms when borrowing money.

     

    The strong not only survive regardless of economic conditions, they also acquire the weak on the cheap.

     

    The survivors will eventually pass on the higher cost of borrowing money to their customers. Always have, always will. We simply have to be patient to let it play out.

     

    Think quality!
    5 Jun 2014, 07:23 PM Reply Like
  • misscbd
    , contributor
    Comments (1019) | Send Message
     
    Chw...I totally understand and agree with your feelings about MREITs...I was talking about Health and Retail triple net...I've done so well with WPC, O and others that collectively have a Tot. Ret of about 25% in 1.5 years.
    I don't reinvest in all of them regularly wishing to lower my cost basis and protect principle...the decision to do so "depends":) and varies on each one.

     

    I knew you weren't a fan of BDC's but didn't realize it was such a BIG no-no for you. Again, I totally understand. I dipped my toe in, selected two that invest in different areas and kept the investment to only 2.4% of my portfolio. I guess I feel safer with those than I do with growth stocks -- mostly because I got burned in the past.

     

    BTW, my personal big no-no relates to Banks, and Insurance companies...and yes, Mreits (altho I did dip a 1% toe into DX -- seemed like the best of the lot to me) and helped my goal of generating income from my portfolio for future use.

     

    However, with those exceptions, I totally follow your Buy criteria and in fact have it copied and prominent on my computer. The addition for me is the investment must have 3+% income at the outset -- again, because I don't have 20 years for it to grow.

     

    Thank you, thank you for all your help. You've given me a much clearer understanding of what I'm doing -- the choices are made with awareness now.
    6 Jun 2014, 01:07 PM Reply Like
  • scubastevo80
    , contributor
    Comments (286) | Send Message
     
    Miss - I just sold my only mREIT today - MFA. Since rotating it into my Roth last June, the security was up 10.3% including dividends. It's also now trading a premium to book value, so I saw this as an opportune time to exit into a safer utility play. Frankly, mREITs are volatile, and because of their leverage use and interest rate sensitivity, they can move around quite a bit. I watched quite a few people buy NLY at $17, only to have the security fall to $10-12 in order to chase the yield it and some of the other mREITs were offering. I was lucky in my patience with MFA, but I could easily see rates go up, spreads down, and price and yield follow.

     

    To reinvest, I purchased an additional 2% in XEL shares so that I now have a full position. I'm also looking to add to O, SO or VZ, or initiate a HCN or OHI position if they pull back. As Chowder can attest to, utilities, as boring as they may seem, have beaten the S&P over the longer time frames.
    6 Jun 2014, 03:56 PM Reply Like
  • misscbd
    , contributor
    Comments (1019) | Send Message
     
    Scuba -- My only mreit (DX) will probably get sold soon (end of year)...it's down 3% so I'm taking dividends and watching it carefully -- lesson learned :(....

     

    I too am looking at OHI and currently own XEL, O and VZ (new purchase). My former broker advised selling HCN when it went up in $$$ -- so much for broker advisors :0 -- somehow can't bring myself to jump back in - silly reason, I know.

     

    And, yes I agree about utes...but looking at ED..
    thnx for commenting.
    7 Jun 2014, 03:25 PM Reply Like
  • Chowder
    , contributor
    Comments (10315) | Send Message
     
    Author’s reply » For several years now I have been pounding the table about buying utilities. I can't imagine having a dividend growth portfolio that isn't well-represented in the utility sector.

     

    Utilities have been on fire. Dow Jones Theory Forecasts had this to say today:

     

    When a sector known for stodgy, high-yield companies becomes so fleet of foot, we take notice — especially because utilities are distinguishing themselves by more than their price action. The average utility stock in the S&P 1500 earns a Quadrix® Overall score of 67, the highest of the 10 sectors and well above the index average of 61. Last month marked the first time the sector has managed an Overall score of 67 since the index's inception; not in 20 years have utilities enjoyed such strong fundamentals.

     

    On average, utilities lead all sectors in Momentum (62), Value (69), Earnings Estimates (64), and Performance (68) score.

     

    This doesn't mean one should run out and purchase them today. Valuations are rather rich for this sector right now, but WEC, SCG and SO are worthy of consideration right now.
    16 Jul 2014, 12:55 PM Reply Like
  • maybenot
    , contributor
    Comments (4988) | Send Message
     
    chowder -- thanks for sharing.

     

    Why do you think it has been the "...first time the sector has managed an Overall score of 67 since the index's inception..." ?

     

    Just wondering. I like what the utes are doing. Just like science, just wondering what causes the utes to get this score for the "first time."

     

    Or maybe it's just the score of 67. Maybe they have had a 65 or 66 before.
    16 Jul 2014, 01:46 PM Reply Like
  • Chowder
    , contributor
    Comments (10315) | Send Message
     
    Author’s reply » According to Dow Theory, utilities have never been a leading sector. They have been a strong performer, for example, during the Lost Decade they were the third best performing sector behind MLP's and REIT's.

     

    It's just that this time they have scored well in all categories, well enough to have them as the leading sector.
    16 Jul 2014, 02:35 PM Reply Like
  • StepUp
    , contributor
    Comments (506) | Send Message
     
    Utilities have been doing well for the same reason DGI has grown in popularity; they are a good bond replacement.

     

    Do not overpay for a utility. Most of these companies have basically fixed earnings streams. There is a great Chuck Carnevale article on valuation for utilities but sorry I can't find it. But basically the premise is you don't want to overpay because they can't grow earnings.
    27 Aug 2014, 11:42 AM Reply Like
  • Chowder
    , contributor
    Comments (10315) | Send Message
     
    Author’s reply » Chuck did a 4 part series on utilities and he did a terrific job I might add. One of the most important take-aways from from that series for me was to focus on the most financially sound utilities.

     

    Financial strength and valuation are probably more important in the utility sector than other sectors.

     

    Part 1
    http://seekingalpha.co...

     

    Part 2
    http://seekingalpha.co...

     

    Part 3
    http://seekingalpha.co...

     

    Part 4
    http://seekingalpha.co...
    27 Aug 2014, 02:50 PM Reply Like
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