By Brian Nelson, CFA
The market rallied hard this month and seemed to leave a lot of the Dividend Growth Newsletter portfolio ideas behind. I’m not going to sugarcoat the results: The Dividend Growth Newsletter portfolio disappointed this month, and for that I’m sorry.
A lot of it may be “explainable” in light of what happened on Election Day 2016, however. I think a lot of investors have shifted capital from the stronger dividend payers to the more-speculative ones in hopes that a new, pro-business Trump administration will be their saving grace. We hope so, but Trump cannot be President forever, and dividend growth investors should consider a long-term perspective, in my opinion, especially when it comes to compounding payouts over time.
While it’s possible Trump can overturn Dodd-Frank (to the benefit of banks), implement tariffs to protect domestic industry (positive for materials), overturn Obamacare (adding uncertainty to healthcare stocks), encourage domestic tech manufacturing (disrupting technology supply chains) and pursue pro-fossil fuel initiatives (helping Big Oil)–all of which may be detrimental to our dividend growth exposures in the near term–we’re sticking to our long-term game plan.
Altria (MO) is rock-solid. Apple (AAPL), Cisco (CSCO), and Microsoft (MSFT) are overflowing with cash. Cracker Barrel (CBRL) had a fantastic month. General Electric (GE) and the Energy Select Sector SPDR ETF (XLE)—ancillary benefits of the aforementioned developments—did well. Hasbro’s (HAS) and Coach’s (COH) equities advanced, and while we’ve reduced our position in Medtronic (MDT) by half (alert today), it and J&J (JNJ) remain strong healthcare holdings. Procter & Gamble (PG) faced some modest but expected weakness, while PP&L (PPL) held its ground as most other utilities faced pressure from a rising 10-year Treasury yield.
Realty Income (O) and the Vanguard REIT ETF (VNQ) were also hurt by rising Treasury rates, and while a widening yield curve speaks to good times to come, we’re not sure the market has yet factored in higher borrowing costs (and discount rates). After the “Trump rally,” a sobering correction could be coming to the markets, but we didn’t generate a near-12% compound annual return since inception in a dividend growth setting by chasing fads or ups and downs. We’re not going to chase the banks, nor are we going to lever up on energy in the Dividend Growth Newsletter portfolio. We are, however, going to stick with underpriced, strong yielders. General Motors (GM) is now the latest addition to the Dividend Growth Newsletter portfolio (alert today), already a big winner in the Best Ideas Newsletter portfolio. Be sure to check out its latest earnings note here.
I hope you enjoy this edition of the Dividend Growth Newsletter!
(The December edition of the Dividend Growth Newsletter was released December 1).
Alerts: Removed 79 shares of MDT at $71.88; added a 2.5% weighting in GM (119 shares at $36.43).
