Market volume has been low, though volatility has been high in recent weeks. For this unsettling paradigm, we can thank our distant primogenitors across the Atlantic.
Of course, I refer to the British. To be more specific, I refer to the British and their serious, if not daftly named, vote to bolt the European Union. Brexit has caused quite the stir. No one really knows its long-term implications to broad financial markets, much less to individual stocks.
Prices have been exceptionally “gappy” since the Brits voted to forsake their Continental overlords. By that, I mean the major market indices have frequently opened daily trading with a large gap either up or down from the previous close.
I blame the heightened volatility on focus, or rather lack of. Too many investors are focused on investment price when they should be focused on investment income.
Over the short haul, prices vary. They frequently resemble the flight path of a butterfly. As for the long haul, prices stabilize for reliable, high-yield income distributors; prices appreciate for proven dividend-growers.
For these reasons, dividends should be the focus. As long as the dividends continue to flow in unimpeded, I see no reason for investment dollars to flow out.
When we entered 2016, I predicted that investors would re-embrace high-yield investing. Through most of 2015 and the first quarter of 2016, investors shunned most high-yield investments. Interest rates were sure to rise, and high-yield values were sure to fall, so went the reasoning.
The reasoning was always specious: For one, rising rates frequently fail to correlate with falling values. Second, rising rates were far from a sure thing. Indeed, here we are with half of 2016 in the rear-view mirror and the Federal Reserve is even less inclined to raise rates in July than it was in January.
Dividend Investing: Keep Your Focus
For the past year, I’ve counseled High Yield Wealth readers to focus on dividends. As long as the high-yield dividend remained intact, I reasoned, the price would recover in due time.
Lo-and-behold, my prediction has come to fruition. I’ll unlock a few of my High Yield Wealth recommendations to prove my point.
|Recommendation||2016 High Yield||Yield Today|
|Nuveen Preferred Securities Income Fund (NYSEArca: JPS)||8.9%||7.8%|
|Energy Transfer Partners (NYSE: ETP)||22.7%||11.3%|
|Government Properties Income Trust (NYSE: GOV)||14.0%||7.4%|
|Macquarie Infrastructure (NYSE: MIC)||11.5%||8.8%|
The yield in the second column was the yield that prevailed at the market bottom, which occurred in the first quarter. The yield in the third column is the yield today. The dividend payouts haven’t changed; the market reaction has. The yield is lower because many high-yield investments surged in the second quarter.
My reasoning hardly required a Mensa IQ to understand: As long as these companies could maintain their dividend payout, I was confident that their prices would recover.
A similar line of reasoning applies to dividend growers: As long as the dividend payout grows, so, too, will the share price.
High Yield Wealth recommendations McDonald’s (NYSE: MCD) and Altria Group (NYSE: MO) are two case studies. Both are long-time High Yield Wealth recommendations. Since I initially recommended both stocks, their dividends have continually trended higher. Their share price has kept pace with the dividend; not necessarily over a month, or even a year, but over my recommended holding period.
Investors should always understand that price performance frequently fails to materialize as a trend; it frequently materializes as a “pop.” If we were to continually trade in and out of our income recommendations, you can be sure that we’d miss the pops and the returns they engender.
You could argue that we’d also miss price deflation, and perhaps that is true. But price deflation isn’t a concern if the dividends stream isn’t compromised. In dividend investing, as long as the dividend flows as expects, a price recovery is all but inevitable.
If you know a company’s dividends, and you focus on those dividends, you have little need to focus on much else.
Organize Your Dividends With One Step
Do you know when your next dividend stock pays out? Do you know when the dividend stock you want to buy more of pays out – and how much? We’ve put together a simple calendar that highlights many of the market’s best dividends into one easy to scan document. Read it once, and you’ll see how to set up a 12-month dividend stream to ensure income all year long.