Everyone is excited about the FOMC minutes and Chairman Ben Bernanke’s follow-up speech discussing a century of the Federal Reserve.
Chairman Ben Bernanke indicated that the central bank probably would not take the punch bowl earlier than expected. The basic message from the Fed is that if the economy improves, it will reduce its bond-buying. If the economy remains sluggish, then it will expand quantitative easing if necessary. The Fed funds rate will remain very low for a very long time, according to the minutes, and that means investors still will be struggling to find income in a yield-starved world.
Investors need to be more careful than ever. Prior to today, the markets were getting a little jittery and the yield on the 10-year Treasury had spiked higher. The rally will continue — but it’s going to become more concentrated in those stocks with the best company fundamentals. That’s why it’s critical to avoid those with poor fundamentals — even higher-yielding ones, as they still could lose you more in stock depreciation than they pay out in dividends.
Fortunately, we have Portfolio Grader to help us eliminate the stocks at risk of serious underperformance over the next year.
DuPont (DD) is a classic American success story, and its products are used in a wide range of industries. DuPont’s chemicals show up in everything from fertilizer to electronics — and that’s a big part of why the stock is best avoided right now. You see, the global economy is growing at a very slow rate, and demand for DuPont’s products is suffering as a result. Sales growth is expected to decline this quarter, and earnings are likely going to fall below last year’s results. The company was downgraded to a “D” last October, and there has been no substantial fundamental improvement to warrant a change since then. The stock remains a “sell” despite its attractive 3.3% yield.
At first glance, the 6% dividend yield of telecom CenturyLink (CTL) looks very enticing. A look under the hood shows us that the stock is best avoided by most investors right now. Sales have been declining for the past five years, and they dropped again in the first quarter of the year. Analysts expect revenues to continue to fall well into 2014, too, and earnings are expected to come in pretty much flat for the year. Portfolio Grader noticed the declining fundamentals earlier this year and downgraded the shares to a “D” in May. Conditions have not improved, and the stock remains a “sell.”
It can be tempting to just dive into companies with juicy dividends, but doing so without the proper research can yield more trouble than income. Portfolio Grader can keep your income portfolio on track by leading you to the very best companies that can provide a reliable stream of cash.
Louis Navellier is the editor of Blue Chip Growth.