Thursday, May 2, 2013

Dividend Growth Portfolio, April 2013

The stock market is soaring to new highs. Chasing yield is the new fad, like dotcoms around the turn of the century, and housing in 2005-2007. People are buying dividend paying equities without adequate research, believing that getting paid 10% somehow is a good return for low risk. On top of this, good securities are getting bid up, thus driving yields broadly lower. REITs are yielding where utilities used to be. Utilities are yielding where out-of-favor stocks used to be, etc.

As a dividend growth investor, I do invest in higher yielding assets, but my strategy does not revolve around absolute yield. Historical data shows the highest yielding equities do not even have average performance, let alone best. At best, yield chasing yields mediocre returns. At worst, its odds are not much better than roulette.

Where do I see the best value at the moment? I've mentioned these in the past, but I still continue to see good value in the defense and health care insurance industries. To add to those, now I also see attractive value propositions in energy and financials.

At these levels, be careful when committing new money. Buy in increments, and keep some cash on hand, continue to look for opportunities.