What a difference a few short months can bring. As 2016 was getting underway, negativity surrounding the marketplace was mounting. It seemed that with each passing day and week all the major averages were getting decimated as we saw the DOW and S&P fall from their late 2015 highs and all the talking heads and financial headlines beginning to tout the beginning of a brutal bear market and the worst start to a new year for the averages, ever! With new lows being set for January and most of February, it was relatively easy to find great bargains in the market. Energy, industrial and even financial names were starting to trade at amazing prices, value and yield. Names like Caterpillar Inc. (NYSE:CAT) were trading with a 5% yield, as other names like Emerson Electric Co. (NYSE:EMR), Archer Daniels Midland Company (NYSE:ADM) and the large Canadian banks, the Toronto-Dominion Bank (NYSE:TD), the Bank of Nova Scotia (NYSE:BNS) and Royal Bank of Canada (NYSE:RY) were sporting some eye popping yields north of 3.5% and even 4%. Of course, we cannot forget the health REITs all falling of a cliff too because of the weak HCP, Inc. (NYSE:HCP) earnings and guidance, and… as I opened this post, what a difference a few short months can bring.
The DOW and S&P are both back to their similar highs at the start of the year. These events and market uncertainty just further prove to me that no one can predict the future with any degree of certainty. It's really all a guess. I can just imagine the poor investors that got shaken out of the market in mid-February, at the worst possible time, only to see the markets rise with a vengeance. Knowing that market predictability is all a guess, all I can really do is diversify my investments among companies that sport safe and reliable yields all the while simply holding and averaging down my cost should prices fall dramatically and make monthly buys no matter what's going on in the world or market. I can say with confidence that a market drop of 50% or more would not give me reason to sell my stocks.
One of the benefits of starting as a dividend growth investor in 2007 was my real world test of how I'd react to a financial crisis. I did not have to wait long as the financial crisis of 2008/09 was just around the corner, and after watching my entire portfolio go deep in the red, I remained calm, continued to make buys every month and did not sell one single share. Almost every stock I hold in my current portfolio has been with me during those dark financial days. The point I'm trying to make… I will continue to make monthly buys at market highs and market lows as over time it all averages out, and being a dividend growth investor, I'm looking to take advantage of time in order to maximize my compounding returns. With that being said, let's take a look at my April stock considerations.
Without sounding too repetitive, I will continue to look at the large Canadian banks, Toronto-Dominion Bank, Bank of Nova Scotia and Royal Bank of Canada in April. Though all three banks have come up quite a bit from their February lows, they each currently offer attractive, safe yields and good value. I realize that stock prices may swoon once again for this sector as Canada as a whole is still facing serious headwinds from multiple fronts, but my main focus with the Canadian banks will continue to be their dividend sustainability. Based on the current information, all three dividends remain sustainable.
Looking elsewhere, I am considering adding to my HCP, Inc. holding. We all saw how HCP's earnings and guidance essentially brought down the entire health REIT sector in February which no doubt created some interesting buying opportunities within the space as stock price swoons created some very enticing yield. As with the other names mentioned, a significant bounce in the health REIT space has occurred in the last month making many of the other health REITs less attractive than in days past; however, HCP still remains relatively weak for a variety of reasons and presents the best value (and risk) for potential returns.
On a side note, I really would love to add to my consumer staples but not at current valuations and yield. Perhaps I'll get that chance as I always qualify these posts with the notion that Mr. Market may offer up some new opportunities not mentioned here. I still find value in these "considerations" posts as they provide a road map to the month ahead and point me in a direction that I can simply act upon instead of having to go through a decision making process which may delay me taking action.
What do you think about my potential stock picks for April? Are any of the above names on your monthly watch list? Please let me know below.
Disclosure: Long CAT, EMR, ADM, TD, BNS, RY, HCP