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Sell In May? No Way!

|Includes: AROW, BCR, The Cato Corporation (CATO), CTWS, DBD, ED, EXPD, FDS, FRS, JW.A, MSFT, MYE, NWN, SBSI, SO, SYBT, TDS, WEYS

On March 29, 2013, we published a review of the one-year performance of our March Dividend Watch Lists for the prior 3 years to see if the old adage of "Sell in May and Go Away" had any merit. Our conclusion was as follows:

"Even with the view of 'Sell in May and Go Away,' the top five stocks on our U.S. Dividend Watch List have performed quite well. The average gain over the three periods [2010, 2011 & 2012] reviewed was +15.72% compared to average gain of the Dow Industrials at +10.20%."

In closing our piece on the topic of the one year performance of our U.S. Dividend Watch List, we said the following:

"…we recommend considering the top five stocks from our latest dividend watch list for potential investment, even if the mantra is 'Sell in May.'"

The latest watch list was our March 22, 2013 posting [found here] and had the following companies and the subsequent performance:

It is not every day that you could expect dividend increasing stocks to perform better than the leading high tech stock index in the form of the Nasdaq 100 (NDX). However, that is exactly what happened with 61% of the listed stocks. In addition, 72% of the stocks listed managed to exceed our preferred benchmark, the Dow Jones Industrial Average.

Among the three stocks of particular interest to us [(NYSE:CATO), (NYSE:FDS), (NYSE:MYE)], Myers Industries has been the top performer with a gain of +42% in the last six months. The average gain for the entire watch list was +16.47% as compared to the Nasdaq 100 index gain of +14.63%. The average gain for the top five stocks on our watch list [(CATO), (FDS), (NASDAQ:CTWS), (NASDAQ:EXPD) & (NYSE:BCR)] was +17.06%.

Is the six month period since our March 22, 2013 watch list a meaningful measure of performance? For investors with an understanding of Charles H. Dow's goal of "seeking fair profits" [more here], within a tax-deferred or tax-free retirement account, it is everything. Gains of +10% or more in a six month period require careful consideration of selling the principal. Additionally, gains in stocks that have exceeded the performance of the Nasdaq 100 (NDX) index in the same period of time should be sold (principal only for the purposes of compounding) as exceptional gains of this kind are proven not to be sustainable over extended periods of time.

The concept of selling in May could be correct, for those seeking average performance of their portfolio. However, since 2010, our late March U.S. Dividend Watch Lists have provided above average returns one year later. Because it is our nature to take these gains with a grain of salt, we're expecting that the one-year performance has to be far less than the six-month above average performance so far. We will reassess the actual one-year performance to see if, in fact, the March 22, 2013 list can retain such a "wide" margin of performance against the Dow Jones Industrial Average.

Disclosure: I am long CATO, FDS, CTWS, EXPD, BCR, DBD.