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Thursday, May 16, 2013

Why The Stock Market Will Not Tumble or Crash - Plus Why the Historical Charts on The DJIA, COMP and SPX must be thrown out.

The dividend market has expanded and changed the landscape of investing... forever.
It will go on forever, I bet.  People, even analysts who work within the financial industry ( okay, definitely sales persons, but maybe an analyst or two) seem to miss the fundamental change that has taken place in the equity market.

There is a major difference between the stock market that lived in 2000...2005...2008.  Our current stock market has evolved and can no longer be interpreted through technical analysis.

One word serves as the reason for this fact: dividends.

Across all industries and market sectors, publicly traded companies have been establishing, if not increasing dividend payouts to shareholders.  With domestic interest rates near zero, dividends, on an annual basis, can offer an investor a one year holding period return of 5% -sometimes less, sometimes more.  Now, price movement will impact the return, but the presence of the dividend will strengthen the case for being long any name, at any time.

If a dividend intensive portfolio is constructed, an investor can realize attractive returns. 

The difference this has concerns ownership. An investor or money manager will think twice about trimming a position or selling it all when they factor in the fixed return the dividend yield offers.  Without a dividend, selling stock become an easy task - there isn't much more to consider.

This Dividend Program Expansion within U.S stock market has achieved an important accomplishment.

We see it with tech names - the companies that were not expected to pay dividends because the excess cash would be required to be applied to research and development...these days are over.  All big tech and small tech names are employing dividend payment plans for their stockholders.  Even Biotechnology names are getting with the program - what better way to lure equity capital than by dishing out a healthy piece of dividend pie.

Then we have the companies like PG, WMT, C, all the big names that during the nineties paid out $0.65 - $0.90 annually to investors... now have created an investment setting for a shareholder to earn $3.50 to $5 per share - per year (paid quarterly for all of you in academia).  IN perecentage terms, the equity market has now established itself as a must for any portfolio.  Why keep any of your assets in cash when you can buy a stock that has a 6% dividend yield... and a beta of 0.5?  An inelastic stock will minimize your risk and reduce the standard deviation linked to that dividend yield.

So get out there, buy some stock!!

The next time you hear anyone mention "oh, we are going to crash," or "we are due for a correction," remind them that times have changed... and so have 52-week high levels (recently) evidencing this quite explicitly.


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