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VIDEOA Healthy Dose of Dividends to Ease the Jitters
By
Nick Gwiazda Aug 30, 2010 12:10 pm
Growth stocks have run dry as of late, but these dividend stocks and ETFs will help investors preserve capital.
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Like Jim Cramer said, “This is a different kind of market.” Never before have the “animal spirits” of the markets been more dominant. Stocks' movements rely heavily on shreds of good news and over-analysis of bad news. What’s worse, it seems the fundamentals of great stocks continue to prove irrelevant to the average investor relative to GDP data and jobs reports.
Friday’s GDP data are no exception. GDP growth has slid from 3.7% growth in the first quarter of 2010 to last month’s 2.4% growth estimate for the second quarter to Friday’s second-quarter revision to 1.6% growth. Fragile GDP estimates continue to dwindle as stimulus money dries up. We’re at an economic tipping point, plain and simple.
Uncertainty and wild market gyrations (such as the 20-point swing in the S&P before and after the economic data release Friday) make it more difficult than ever to profit in this market. Even growth stocks, whose sales prove resilient in the face of this economic roller coaster, are suffering.
Just look at the almighty Apple (AAPL), with a 36% one-year EPS growth target, $46 billion cash hoard, and the revolutionary iPad; yet it can’t catch a break, down from $272 this year and flirting with $236 recently. The stock is simply unable to gain any traction between earnings reports. How about Intuitive Surgical (ISRG), falling from $358 on June 21 to its recent low of $262? Intuitive has unfaltering sales momentum thanks to its DaVinci Surgical System -- and a stock that does nothing to reflect that.
Yet nobody cares; bears are in control. It seems all ships rise in a rising tide, and all fall when the tide recedes, regardless of growth or prospects of the “ship”.
This is the exactly why dreadnought dividend stocks such as AT&T (T), Verizon (VZ), and Total (TOT) should be key parts of the average investor’s portfolio. Dividend stocks are the essential hedge against market volatility. And if individual stocks aren’t your cup of tea, consider a few ETFs that play off dividend-paying stocks, or treasury bonds. Such ETFs include, but aren’t limited to:
- Barclay’s 20-year Treasury bond (TLT)
- PowerShares Financial Preferred ETF (PGX)
- PowerShares Financial Preferred ETF (PGF)
- iShares S&P US Preferred Stock Index Fund (PFF)
It’s also important to consider preferred stocks, which are less vulnerable to the volatility the market has recently fallen prey to. Preferred stocks, which have significantly less volume and generous dividend yields, continue to look tempting.
Why not help yourself to a beaten-down dividend stock? Why not do some homework on companies that offer preferred stocks? While growth stocks have run dry as of late, dividend stocks are definitely “sponge-worthy”.
Positions in AAPL, VZ, and PFF
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