Stay Alert! But Participate. by Brian Nelson, CFA
The markets set a new high…again. We like that the Dividend Growth portfolio continues to perform fantastically, but we also think that prudence and caution are still in order. The past 14 months have simply been incredible for equity holders (please see the performance of the S&P 500 in the graph below).
Last month, we outlined how the broad market indices are overvalued on the basis of historical forward price-to-earnings measures, especially after factoring in the current pace of expansion and how far we are into the ongoing economic recovery. We’re not making any abrupt changes to the Dividend Growth portfolio at this juncture, but we think staying alert is always a good strategy, especially when the markets get a little “stretched” to the upside. Conceptually, for example, the intrinsic values of large bellwethers such as 3M, Boeing, Honeywell, etc, haven’t changed that much in 14 months, but yet their stocks have advanced more than 50% in some cases. These are BIG moves for BIG companies that have been around for decades.
We’re not saying to run for the exit, as patience in letting winners run (the Valuentum process) has helped the Dividend Growth portfolio exceed goals, but we do think being tactical in taking profits where appropriate makes sense. Nobody was ever really hurt by taking profits, to my knowledge. In coming periods, you may see us do so on a few of the companies in the portfolio, which have experienced fantastic performance as of late. Emerson and Medtronic are two firms that come to mind. Still, we’ll jump at adding underpriced dividend growth gems to the portfolio, if appropriate.
We know you know that markets don’t go straight up forever. But we do think it is important for us to do the best we can to put all of this recent market euphoria into perspective. A correction to 1670 on the S&P 500 index (from 1863) is not outside the realm of possibilities in coming years. Please stay alert!
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INSIDE THIS ISSUE
1 Stay Alert! But Participate.
2 Patience Almost Always Pays Off (tickers: HAS, MAT)
3 PotashCorp’s 2014 Earnings Will Decline Due to Pricing Pressure (ticker: POT)
4 Seadrill’s 10%+ Annual Dividend Yield Is a Long-term Fantasy (ticker: SDRL)
5 Our Dividend Growth Portfolio
6 Altria’s Long-term Dividend Growth Remains Intact (ticker: MO)
6 Boardwalk Pipeline Highlights Unique Risks of MLPs (tickers: BWP, ETP, KMP)
8 Deciphering Valuentum’s Dividend Lingo (see article for tickers)
10 Stocks with High VBI Ratings and Strong Dividend Growth Prospects (see article for tickers)
11 Our Dividend Growth Watch List
12 Yields to Avoid
14 AT&T Is Not a Position in Valuentum’s Dividend Growth Portfolio (ticker: T)
16 Realty Income Still One of Our Favorite Dividend-Focused REITs (ticker: O)
17 Medtronic: A Dividend Growth Gem (ticker: MDT)
19 About Our Dividend Cushion™
22 Featured Reports: MDP, GE, PFE, LMT
26 Our Valuentum Buying Index
29 Valuentum Definitions