Posts filed under “Dividends”
Although markets have already rallied strongly in 2012, the move is still early if current price ratio trends behave similarly to recent history. The chart shows the price ratio of the SPDR S&P Dividend Index ETF (SDY) relative to the S&P 500 (SPY). A rising price ratio means dividend-oriented stocks are outperforming (risk-off), while a downtrend suggests the opposite (risk-on). Much like a pendulum that swings from fear to hope, investor sentiment goes through cycles in terms of what type of returns are preferred at any moment in time.
Notice the far right of the chart. When we last put the post up on January 10th, the rally was just getting started, and dividend-oriented sectors such as Utilities (XLU), Healthcare (XLV), and Consumer Staples (XLP) started underperforming in a meaninful way. The persistance in the downtrend could result in further weakness in dividend stocks and strength in more cyclical/capital appreciation sectors. The estimated underperformance in SDY relative to SPY should the ratio return back to its support range is a bit under 5% on a spread trade basis. Either way, the point is that a downtrend in SDY/SPY is the bull investor’s friend, and there is likely much more room to fall in terms of the movement away from income and into growth. I discussed this idea at length in an interview I did on Bloomberg Radio last week (here)
The contrarian trade is no longer about markets going up or down, but about the length of time the trend persists.
Michael A. Gayed, CFA is Chief Investment Strategist at Pension Partners, where he structures portfolios. Prior to this role, Michael served as a Portfolio Manager for a large international investment group, trading long/short investment ideas in an effort to capture excess returns. In 2007, he launched his own long/short hedge fund, using various trading strategies focused on taking advantage of stock market anomalies. Michael earned his B.S. from New York University, and is a CFA Charterholder.
“We remain concerned over their ability to withstand stress in an uncertain economic environment. We strongly encourage [that the Fed’ delay any dividends or compensation increases until they can show that their earnings are strong and their assets sound. Given the continued uncertainty in the markets, we do not believe it is the right time…Read More
Nice SocGen expression of how the search for yield has manifested itself in different asset classes: > Click to enlarge Source: Societe General – Cross Agent Research The Global Income Investor January, 30, 2012
From this weekend’s Barron’s, a look at stocks that do — and don’t — have decent dividends: “The benchmark Standard & Poor’s 500 index has a dividend yield of just 2%, one of the lowest of any major global market. European stocks yield an average of nearly 5%, and even the historically low-yielding Japanese stock…Read More
The Wall Street Journal – Dividend Stocks Become the Heroes This year, the 100 stocks in the Standard & Poor’s 500-stock index with the highest dividend yields are up an average of 3.7% before dividend payouts, according to Birinyi Associates. The 100 lowest-yielding stocks are down an average of 10%. Dividend yield is calculated by…Read More
Seeking Alpha – Why Dividends Matter In A Changing Market Lately, it seems that dividend investing has become all the rage. Articles are being written at just about every financial site, talking about dividends. When you look at Money Watch, MSN Money, Kiplinger, Money Magazine, Forbes, Smart Money, and even here at SA, there is…Read More
Mike Santoli disusses valuation in this weeks Barron’s: “With those earnings coming, the question is whether the market has already paid for good results in returning to the upper end of its 2011 range. That’s another way of asking how stocks are valued here. The answer probably is fairly at best, and thus the market…Read More
The Fed is giving the green light to banks to resume paying divvies. I guess this means things are okay, everything is getting back to normal. This must also mean their extraordinary accommodation via zero interest rates should be ending soon as well, right? “The Federal Reserve cleared some of the 19 largest U.S. banks…Read More
MarketBeat (WSJ Blog) – Here’s Why You Should Care about Dividends: ‘Bladder Theory’ A particularly pesky commenter has been tagging some our recent flurry of dividend-focused posts with this question: “Why do people care about the dividend yield? Doesn’t Modigliani-Miller imply we shouldn’t care except for tax reasons? And for tax reasons, it seems no…Read More