Trading Strategies: Playing Europe in the Near Term

But given the nagging possibility of a deep market swoon, it also makes sense to keep a little more cash on hand than usual.

I would be comfortable with a portfolio that is about 75% invested in high-quality, dividend-paying stocks.  As a nice rule of thumb, I’d like to see companies that have raised their dividends for a minimum of 5-10 consecutive years.

My reasoning here is easy enough to understand.  A company that was able to raise its dividend throughout the turmoil of the past 5 years is a company you know can survive Armageddon because frankly, it already has.

For a good fishing pond of high-quality dividend payers, check out the holdings of the Vanguard Dividend Appreciation ETF (NYSE:VIG).  It’s loaded with blue chips like Wal-Mart (NYSE:WMT), Coca-Cola (NYSE:KO) and McDonalds (NYSE:MCD) among many other household names.

If the market turns around as I expect, VIG should enjoy roughly the same upside as the broader S&P 500.  But if I’m wrong and the market takes a swan dive, you can at least rest easy knowing that you’re holding a portfolio of stocks that will almost certainly continue to raise their dividends in the years ahead. And you’ll enjoy a cash return that is better than what you would have gotten had you left your funds in Treasuries or in the bank.

And for the roughly 25% you hold in cash, I have a few recommendations for that as well.

In a recent article (See “How to Invest for a European Armageddon”), I suggested selling out-of-the-money puts on some of Europe’s battered blue chips.  But if this is too complicated, simply dripping into high-quality names on dips will work nearly as well.  I mentioned Spanish-listed Telefonica (NYSE:TEF) and Banco Santander (NYSE:STD) and I continue to view both as attractive today.

Disclosures: Sizemore Capital is long VIG, WMT and TEF.