Wednesday, November 1, 2017

Dividend Investors Should Focus On Stocks, Not The Market

The election may be settled, but investors fears are not. When Trump was first elected, the market plunged on worries of what he would do.  Since then the markets have gone up and down based on what crazy news story came out that day, but the overriding direction has been up over the last year. Is it a stock market, or a yo-yo?
Looking at this CNN Money chart might lead you to believe that "yo-yo" is the more appropriate term:

Fear & Greed Index

Chart courtesy of CNN Money

Where's The Market Going From Here?

In one form or another, I routinely get this question, "What do you think of the market? Where's it headed?" Normally, I politely respond as expected, but occasionally I will startle the person with a reply like, "I don't know. For me it really doesn't matter much." My investing goals are not defined by movements in the market.

Many people define the market broadly as the S&P 500. Very little of my total portfolio is in a S&P 500 index. Its movements up or down have minimal effect on my goals. As a value-based investor in dividend growth stocks, it is in my best interest to have stocks depressed and yields high, at least for the short-term. This provides a choice between worthy investments, unlike the market boom years when it was a struggle to find fairly priced stocks.

Focus On Solid Dividend Stocks, Not The Market

Instead of looking at the market and its direction, investors in dividend growth stocks should focus on quality, price and ultimate value. Below are several quality dividend stocks selling below their calculated fair value:

AbbVie Inc (ABBV) is a global research-based pharmaceuticals business that emerged as a separate entity following its spin-off from Abbott Laboratories at the start of 2013.
- Calculated Fair Value: $132.60
- Recent Price: $91.22
- Yield: 2.8%

CVS Health Corp (CVS) is the largest pharmacy health care provider in the U.S.
- Calculated Fair Value: $143.38
- Recent Price: $68.35
- Yield: 2.8%

Cisco Systems, Inc. (CSCO) offers a complete line of routers and switching products that connect and manage communications among local and wide area computer networks employing a variety of protocols.
- Calculated Fair Value: $51.13
- Recent Price: $33.97
- Yield: 3.4%

The Coca-Cola Company (KO) is the world's largest soft drink company, KO also has a sizable fruit juice business.
- Calculated Fair Value: $48.28
- Recent Price: $45.85
- Yield: 3.9%

AT&T Inc. (T) provides telephone and broadband service and holds full ownership of AT&T Mobility (formerly Cingular Wireless).
- Calculated Fair Value: $46.64
- Recent Price: $33.47
- Yield: 5.9%

Markets go up. Markets go down. Over time they tend to drift higher. Recently we have seen higher stock prices. In these times when we struggle to find fairly priced stocks, we look back and regret not buying more when the market was crashing all around us.

Full Disclosure: Long ABBV, CVS, CSCO, KO, T. See a list of all my Dividend Growth Portfolio holdings here.

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