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Lulupoopsalot (85.64)

Know when to own dividend paying stocks

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September 12, 2012 – Comments (6) | RELATED TICKERS: JNJ , AAPL , DB

I went through the blogs home page this morning and found tons and tons of articles about dividend payers.  I object to all this dividend talk.

Right now we've had one of the most obvious and forecasted (see my article "Are you ready for this Foolish rally") melt ups and the last thing one wants to be involved in during this time is sluggish dividend payers.

Over the last 13 weeks stocks cited as great dividend payers have drastically underperformed.  Let's look for ourselves at some of the more popular dividend plays.

JNJ up 3.3%

T up 5.3%

WFC up 5.2%

PFE up 6.9%

RAI up 3.2%

DE up 3.8%

MMM up 4.3%

WM up 5.1%

GE up 8.0%

Meanwhile the S&P 500 has gained a healthy 9%.  Even with the dividend payments for the last quarter you'd be underperforming the market with this basket of stocks.

Recovering and growing companies have been the outperformers lately.  Let's take a look at a few growth stocks.

KORS up 35.8%.

CF up 28%

PSX up 30.6%

GOOG up 22.6%

AGU up 23.6%

SNDK up 20.8%

AMZN up 17.1%

ORCL up 16.7%

AAPL up 15.1%

This is just the tip of the iceberg when it comes to growth companies that will continue to outperform dividend payers in this market.

Then there were those stocks due for a recovery.

S up 61.8%

SAN up 26.7%

LYG up 22.4%

GS up 22.0%

MS up 20.6%

PBR up 20.5%

SI up 19.7%

TOT 18.7%

DB up 16.7% 

Notice a mix of mostly financials and energy here.  This was a no brainer in terms of value investing.

What's been left out of this rally?  Basic materials which has not recovered from it's beating.  Though it may be looking like there is a light at the end of the tunnel for these stocks with the infrastructure plan China put forward recently, which I believe could top the 400 billion dollar mark with local projects added in to the mix.  Though I remain on the sidelines till I see real demand pick up, inventories down, and earnings increasing.

My point is simple.  Dividends may be relatively safe but will not always lead to the best returns, or as seen in this recent rally may actually underperform the broader market.

6 Comments – Post Your Own

#1) On September 12, 2012 at 1:22 PM, EnigmaDude (87.24) wrote:

Sure, if you are working in short time frames like you are talking about, dividend payers will underperform.  But most of the dividend payers you mention should be long-term holds (5-10 years plus) and should not be judged based on a 13 week period when the market has been rallying. 

Hindsight is 20-20.  What will happen in the next 13 weeks?

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#2) On September 12, 2012 at 1:45 PM, edwjm (99.87) wrote:

Future dividends are the whole point of owning stocks.  Suppose there was a company that openly declared that it would never ever pay a dividend.  What would be worth?  Not much.  The only hope for someone owning stock in that company would be that it might some day be bought out for cash or for stock in a company that paid or would some day pay a dividend.

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#3) On September 12, 2012 at 3:50 PM, Lulupoopsalot (85.64) wrote:

To cover the first two comments....and thank you for commenting :D

To EnigmaDude:  I am only talking about short to mid term hence the 13 week time frame of this first analysis.  My original article (cited above) was published on Aug. 5th and was a year end forecast, which covers the next 13 weeks as well.  You are correct in assuming that these trades are not for those who just want to buy and hold forever.  So thank you for pointing that out.  My point is that sometimes all this dividend talk that we are experiencing might make us lose sight of where the real returns are happening and will continue to happen.

To edwjm: I have to disagree with you about the whole point of owning stocks.  What about BRK.A which doesn't pay a dividend?  Are those shares worthless?  Hardly not at $130,000 per share.  Are you going to tell Buffett that he's missing the point of why people own his shares?  By your logic you would not have purchased AAPL till its recent announcement of a dividend, missing out on one of the greatest growth stories ever.  GOOG, PCLN and AMZN also come to mind.  There are many more but that's not the point.  My point is profits are not just realized from dividends.  Some of us buy low and sell high.  That is also a profit and sometimes a much faster way to make a buck than sitting around for a 5% dividend to do it's job over time.

Thank you all for reading and your comments.  I really do enjoy them.  As always I'm not going to pretend to be right....these are just my thoughts. 

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#4) On September 12, 2012 at 8:41 PM, rd80 (98.14) wrote:

Might want to double check the returns on your popular dividend plays.  Based on comparison charts at Yahoo, WFC and GE have beat the S&P over the past 13-wks.

Here are a few more that show you can outperform with popular dividend stocks. MMP, MKC, GE and CVX if you don't want to click the links. One of 'em even beat AAPL (which is now both popular and a dividend stock) over the span. 
http://caps.fool.com/Blogs/two-new-high-ku/753910
http://caps.fool.com/Blogs/down-day-two-for-52-week/759464

Interesting blog.  I do jump on some short-term trades every now and then, but will be sticking with stodgy, old dividend growth for the core of my portfolio.

As always I'm not going to pretend to be right....these are just my thoughts. - Same here :)

Disclosure:  Long WFC, GE, MMP, MKC and CVX.

 

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#5) On September 13, 2012 at 7:57 AM, Lulupoopsalot (85.64) wrote:

Hello rd80 and thank you for your comment.  I obtained all my original info on the date of publication from motley and verified it through google finance.  I didn't use yahoo or charts to obtain the numbers so maybe that's where our little difference comes in to play.  I do have to agree that not all popular dividend players have underperformed (just the popular majority) and for the record I think WFC and GE are great and two you can probably buy and hold "forever".  My point with this article, and you seem to already have a very firm grasp on it, was that being dividend focused can sometimes cause you to ignore short term trades that can be very profitable.  Once again thank you for taking the time to comment :D

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#6) On September 13, 2012 at 8:34 AM, SuntanIronMan (99.93) wrote:

Many of the popular dividend-paying healthcare stocks are above that 9% threshold. As are many of the popular master limited partnerships. As are the major integrated oil and gas companies. As are the telecoms. As are...

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