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Dividend Investing Still a Win in a Rising Rate Setting

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All indications are that the Feb will be raising interest rates later this year.

For those of you who are worried this may mean dividend investing, with its' consistently positive source of return, is over, fear not!   Read on to learn why and how to continue to reap all the benefits that dividend investing has to offer.
 
Warm regards,
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Catherine Maniscalco Avery
 
The backbone of CAIM is to employ a classic long term investment strategy including dividend paying stocks. CAIM is an independent, women owned investment management firm specializing in managing investment portfolios for women and baby boomers.

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February 27, 2017  Issue No. 79
In This Issue
Dividend Investing Still a Win
4Q 2016 Market Update
Holiday Stocks 2016
Quick Links
Find Out More
Call me at 203.966.2712
or visit www.caimllc.com.

 


Dividend Investing Still a Win in a Rising Rate Setting
 
Interest Rates Will Rise

The news is in - the Federal Reserve is once again preparing to raise interest rates later this year. For many this news may bring up the fear that dividend investing, with its' consistently positive source of return, is over.  
Fear not. According to Jay Jacobs, director of research at New York City-based Global X Research, during rising rate periods from 1960 to 2014, high dividend stocks continued to outperform the market 7 times out of 10 and by an annualized 0.78 percent.   Financial writer Debbie Carlson concurs in:  "Dividend Investing Still Works in a Rising Rate Environment," but adds that it will become more important than ever for investors to maintain a broad focus in selective and quality stocks.

Attributes that Count - a stellar track record, stability, manageable debt & growth

So, what to look for in your dividend investing within this new environment?   Companies with a long track record of at least 25 years of raising dividends (so called 'dividend aristocrats') are the best bet, according to Ellen Chang at TheStreet.com in her article "Investing in Dividend Stocks in a Rising Rate Environment."  Couple that with management teams that are shareholder friendly, companies like Johnson & Johnson with a 20-50 year track record.   Also recommended are stable industries like conservative banks, telecoms, pharmaceutical and health care companies, and large oil companies.
Another important attribute in your future dividend investments should be companies with manageable debt levels, meaning they have enough money left over after they make the interest payments on their debt each month. Find out a company's debt ratio i.e. how much they owe versus how much they generate in sales.
And investors should also focus on dividend growth, the amount of the dividend, versus yield according to Chang. So look out for those stocks with perhaps a middling current yield but stellar growth, says Charles Sizemore, CIO at Sizemore Capital Management in the same article.

What to Avoid

Stay away from industries that are shrinking but offer high yields and steer clear of high yield sectors like utilities.
Also, watch out for bond substitutes like REITs and master limited partnerships that tend to underperform during times of rising interest rates, according to Richard Convy, president at AAFMAA Wealth Management & Trust.   Perhaps most importantly, make sure you have a strategic asset allocation plan that aligns with your particular risk tolerance and investment horizon, advises Jay Jacobs.
 
CAIM's Philosophy

Historically, more than half of the total returns investors received by investing in the S&P 500 have come from dividends.  Since the 1930s, dividends have comprised 51.5% of the total returns received by investors in the best-known index.  Dividends also accounted for more than half (62.5%) of investors' total returns during five of the last eight decades, and since the index was actually down during the 1930s and 2000s, dividends were the only source of return during those years.
However, as we have always said, not all dividend paying stocks are created equal.  The key to companies that can sustain a long term history of paying dividends, is their low debt and strong cash flow. These particular companies, with their geographic diversity, balance sheet strength, history of long term earnings and dividend growth, and strong brands, are naturally hedged against geopolitical and macroeconomic risks.
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4Q 2016 Market Update

2016 was not always easy street for the financial markets and many would have expected the market to be unchanged, if not down.  Financial markets had to cope with... Read more
  
 
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Holiday Stocks 2016 
 
No matter how topsy turvy the times, there are certain values that we here at CAIM continue to adhere to.  Investing in high quality companies that consistently pay and increase their dividends is ... Read more
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Disclaimer: NO CONTENT PUBLISHED AS PART OF THE CAIM LLC NEWSLETTER CONSTITUTES A RECOMMENDATION THAT ANY PARTICULAR INVESTMENT, SECURITY, PORTFOLIO OF SECURITIES, TRANSACTION OR INVESTMENT STRATEGY IS SUITABLE FOR ANY SPECIFIC PERSON.  TO THE EXTENT ANY OF THE CONTENT PUBLISHED AS PART OF THE BLOG MAY BE DEEMED TO BE INVESTMENT ADVICE, SUCH INFORMATION IS IMPERSONAL AND MAY NOT NECESSARILY MEET THE OBJECTIVES OR NEEDS OF ANY SPECIFIC INDIVIDUAL OR ACCOUNT, OR BE SUITABLE ADVICE FOR ANY PARTICULAR READER.  EACH READER AGREES AND ACKNOWLEDGES THAT ANY SPECIFIC ADVICE OR INVESTMENT DISCUSSED IN THE BLOG MUST BE INDEPENDENTLY EVALUATED BY THE READER AND HIS OR HER ADVISER IN VIEW OF THE READER'S INVESTMENT NEEDS AND OBJECTIVES.