Substitute One Dividend Staple for Another (MDLZ, PG)

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The stock market looks as if it wants to rally a tad further. But I’m not expecting a lot of upside in the near term, and some signs are pointing to increased risk.

My suggestion: Let’s make a little room in our portfolios to hedge.

Why the caution? First, there’s some technical weakness, with the New York Stock Exchange’s advance/decline line now well below its peak registered in late April. A lagging A/D line tells us that many individual stocks have fallen by the wayside even as the S&P 500 index has held close to its highs for the year.

Historically, such a pattern usually means that the market as a whole needs to pull back and regroup before the next significant march forward can begin.

Furthermore, we’re now headed into the August-September “danger zone,” where many market accidents have occurred over the years. Here in 2015, the time slot may prove especially tricky, because the Federal Reserve is mulling an increase in short-term lending rates, perhaps as soon as mid-September. (The Fed’s press release Wednesday hinted that a rate hike may be near.)

Please understand: I’m not pressing the panic button. The odds of a recession — and with it, a market train wreck — still seem quite remote.

Nonetheless, we should dial back our risk ever so slightly.

Mondelez Is Overdone. Sub in This Staples Name Instead

One potential stock you could trim is Mondelez International (MDLZ). The cookie, chocolate and snack maker recently posted higher second-quarter earnings than Wall Street was expecting. As a result, MDLZ stock zoomed 5% to an all-time high.

At 23 times estimated year-ahead earnings, however, MDLZ is mighty expensive for a slow-growing food processor. Take your profits now, as we’re doing in our Total Return Portfolio — one of seven portfolios I offer with my Profitable Investing service. Investors have enjoyed some 80% in total return over the past three years, and 30% in the past 52 weeks alone, so don’t feel bad about taking this one off the board.

On the flip side, I think the Street took too dim a view of quarterly results from Procter & Gamble (PG). PG reported flat “organic” sales, stripping out currency moves and acquisitions and divestments, for the June quarter and only a 1% gain in the past year. The company also issued a tepid earnings forecast for the upcoming fiscal year.

I’m confident, though, that the maker of Tide, Pampers and Crest is following the right strategy by slimming itself down and concentrating on its most profitable businesses. In fact, from a contrarian point of view, I’m delighted with the panicky and ridiculous criticisms that several analysts raised after today’s results.

“Maybe P&G is just too big to run,” said one pundit. This is the type of empty-headed remark you often hear when a stock is forming a long-term base (before a huge upside breakout). Is Apple (AAPL) too big to run? Amazon (AMZN)?

It’s hard not to like this dividend aristocrat, especially at its current yield of 3.4%. Simultaneously, we just added to another 5%-plus yielder in the energy space. (You can get our thoughts on that on my blog.)

Richard Band’s Profitable Investing advisory service helps retirement savers outperform the market without losing a minute of sleep along the way. His straightforward style and low-risk value approach has won seven Best Financial Advisory awards from the Newsletter and Electronic Publishers Foundation.

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