Millions of People Will Be Blindsided in 2022. Will You Be One of Them?

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Tue, December 7 at 7:00PM ET

The Dividend Stock You Can Rely On

Believe it or not, it’s spring!  The sun is shining outside my office window, the air is warm — and the stock market is fast approaching the end of what has historically been the calendar’s “best six months” (Nov. 1 to April 30).


What should we look for now?  More importantly, what should we do?

First, a quick glance back.  Through yesterday’s close, the Dow Jones Industrial Average (without dividends) has risen 3.2% since Oct. 31 — about half the average for all November – April periods since 1942.  The broader S&P 500 index has gained 3.9%, marginally more than the Dow.

Given the fundamental backdrop, it’s not hard to understand why the market has made only modest headway over the past six months.  Corporate earnings have struggled.

Tumbling oil prices have decimated profits in the energy sector, and the soaring dollar has put a damper on overseas profits of U.S. multinational companies.  According to FactSet, Wall Street analysts now expect that, when all is said and done, the S&P 500 companies, in aggregate, will post a 4.1%  decline in Q1 earnings (versus a year ago).

As we move into the summer months, it seems likely that the earnings picture, at least in the U.S.,will brighten a little.  Both business and consumer spending will likely bounce back as the effects of severe winter weather in the northeast and upper midwest are reversed.  The nation enjoyed just such a spurt in commerce during the second and third quarters a year ago.

Thus, I don’t foresee any threat to the current business expansion over the next few quarters.  With the Federal Reserve signaling that it may postpone raising interest rates until autumn (because of “international developments,” i.e., the strong dollar), there doesn’t appear to be much of a case yet for a serious downturn in equities.

Still, the market’s gradually slowing upward velocity, together with the above-average level of valuations, should put us on guard.  According to the aforementioned FactSet report, the S&P 500’s price-to-earnings ratio, calculated on analyst estimates of the next 12 months’ earnings, now stands 20% above its 10-year average.

When stocks are expensive and the market’s upward trajectory is flattening, accidents are prone to happen.  Even if the “accident” turns out to be nothing more than a 5% – 10% summertime pullback in the headline indexes, it will behoove us to proceed cautiously with new purchases and to sell stocks or funds that look vulnerable to a deeper decline than the indexes.

On the buy side, I’m still keen on Procter & Gamble Co (NYSE:PG) after Friday’s 3% dividend hike.  Yes, the increase was skimpy compared with what Procter & Gamble has delivered in past years, but I think the PG board was prudent to hold back on a larger boost until we see fruit from the massive restructuring PG is undertaking right now.  PG has raised its dividend every year since 1957.

Keep buying Procter & Gamble. PG stock’s current yield is 3.2%.

What to sell?  We’ve owned iShares MSCI Emerging Markets Minimum Volatility ETF (NYSEARCA:EEMV) since October 2012, a turbulent period for emerging markets.  Over that time frame, EEMV has delivered a 15.2% return, while comfortably outperforming its broader-based rival, iShares MSCI Emerging Markets ETF (NYSEARCA:EEM).

However, low-volatility stocks in the developing world are no longer cheap.  In fact, the components of the EEMV fund are now trading at a rich 22 times the past year’s earnings.

Granted, expensive stocks can become more expensive, even ridiculously expensive, but that’s not the way to bet.  Let’s wave good-bye to EEMV.

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 nine Best Financial Advisory awards from the Specialized Information Publishers Foundation.

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