A dividend is the payment that a company distributes to its shareholders as a percent of earnings. Management can decide whether to pay a dividend, how much it is, and the frequency of payments. Dividends are often distributed quarterly and are quoted as the amount of dividend per share. Companies that are growing fast tend not to issue a dividend, as they pour money back into the business.

Unless we get a major shock like war or something related to the sovereign debt crisis in Europe, I don’t think the stock market is going to experience a lot of further downside. Stock prices might drift and then trade range-bound for a couple more months, but stock market valuations are fair and this provides a lot of cushion.

I do think there is more downside potential in gold, silver and oil prices and it’s not just related to slower growth in the global economy. A lot of the price weakness in these commodities is related to strength in the U.S. dollar, which experiences renewed enthusiasm every time there’s an uncertain development in the eurozone.

There remains, in my view, an underlying strength to the stock market at this time. Institutional investors want to be buyers in this market; they only need a reason to do so. I fully expect that large-cap companies that pay dividends will continue to be the market leaders going into 2013, because, in a slow growth environment, dividends income is crucial. I think it’s fair to conclude that expectations for capital gains are fairly low among all stock market investors, so dividends become the only way to beat the inflation rate.

Because we’re now in the lull between earnings seasons, increased dividends announcements are reduced. I think we’ll get another round, however, during second-quarter earnings season, largely because companies can and want to keep shareholders happy. The cash hoard among most large-cap companies remains substantial.

When share prices go down, yields for dividends go up of course. Most of the stock market’s leaders haven’t actually pulled back in price to a very large degree and this contributes to my view that there is solid underlying strength in this stock market. (See Stock Market Correction’s Here—Put Dividend Paying Stocks on Your Radar Screen.) And the fact that stocks are fairly valued suggests to me that further downside will be modest.

Practically, the only thing that equity investors can really count on in this market is dividends income. Things could blow up in Europe, China’s economy could slow even further, or there could be another war in the Middle East. In any scenario I consider, I just don’t see GDP growth accelerating very much. This is why I’m so pro-dividends. Dividends income is the best bet for new investible money in the age of austerity. Everything else, like gold or oil stocks, you have to get timing right in order to make money. With large-cap dividend paying stocks, all you need is the patience.

This is the correction we’ve been expecting and it’s affecting stocks as well as commodities. The stock market has been due for a correction after a solid first-quarter earnings season and, because share prices moved so strongly since the beginning of the year. It doesn’t really matter what the catalyst is for the correction; it is well-deserved and a healthy development in my view.

I think the S&P 500 Index is vulnerable now to the 1,300 level and, if it gets there, this would be a meaningful correction and a good buying opportunity for higher dividend paying, large-cap companies. Generally speaking, I think we’re in a time now where the stock market will be more apt to reward income over growth. Large-cap, dividend paying stocks have been leading the stock market since last October and I think this trend will continue right into 2013.

Along with large-cap stocks, both smaller companies and commodities are also experiencing a pullback. Growth concerns in the global economy are real and whether it’s related to price inflation in China or sovereign debt problems in Europe, the new normal is slower economic growth rates, especially among mature economies.

I don’t see any reason why the U.S. stock market can’t reaccelerate this year, especially as we are likely to see sporadic improvement in the economic news. And, while the outlook for corporate earnings isn’t robust, it’s still solid and stock market valuations are reasonable. Investment risk remains high for all equities, but it’s been like this since the financial crisis.

I think that big corporations are keeping earnings expectations purposefully low, in order to outperform come earnings season. (See Earnings Reflect Expectations—the Stock Market Is Fairly Valued.) It’s a way of providing shareholders with “good news” in a slow growth environment. One thing we are getting though is increased dividends and this is great news if you like dividends income with the potential for capital gains. Intel Corporation (NASDAQ/INTC) was the latest brand-name company to up its dividends payment to shareholders and, with so much cash building up on corporate balance sheets, increasing dividends news should continue throughout the year.

As I’ve said, this stock market correction is healthy and well-deserved. The stock market is fairly valued and this gives us a lot of breathing room for a pullback. If I were an equity investor looking for new positions this year, I’d wait until the correction plays itself out and I’d be watching my favorite dividend paying stocks for a good entry point. I still like gold investments for speculators; but, to me, dividends are king in this kind of market.

I’d like to see a stock market correction so income investors could buy good dividend paying stocks at fair prices. I’m not rooting for disaster, of course, and I’m not fond of short selling. I just think that, if the stock market pulled back a normal three percent to five percent from its current level, it would make for a very good entry point for new positions.

Although the stock market has done very well since the beginning of the year, dividend yields have stayed about the same. This is due to dividends increases and, as expected, the news for income investors has been good and widespread among a number of industries. Corporations would still prefer to return excess cash in the form of dividends or share buybacks than invest in new plant, equipment and employees. It’s an easy strategy in an uncertain world and, at the end of the day, it keeps shareholders happy.

I expect more increased dividends announcements in the second quarter this year. I knew we were going to get lots of this in the first quarter (see Expect Big Increases to Dividends Over The Next Few Quarters), but when the second quarter ends, company managements have a good sense as to how the rest of the year is going to go. Increased dividends announcements during the first quarter resulted in solid institutional buying. Dividends news was actually an event-driven trade, which is quite remarkable. It would seem that, in the age of austerity, dividends paying blue-chips are once again all the rage. It’s pretty clear to me that, as a group, higher dividends paying large-cap companies will continue to be stock market leaders going into 2013.

The stock market is slowly breaking down at this time, but this isn’t really a worry. We just came off a very good first-quarter earnings season with decent visibility for the rest of the year. The best thing the stock market has going for itself now is its reasonable valuation. Fairly priced stocks can withstand a good degree of bad news. I’m not expecting any major surprises in upcoming economic news, but I do expect the second quarter to be slower than the first. We can already see this in retail spending data.

If a meaningful stock market correction were to occur, then it would be an attractive buying opportunity for new positions. Giving the uncertainty in the world, you really can’t expect much going into 2013. From my perspective, if the stock market were to finish the year where it’s at right now, then it would be a decent year for equity investors. I think this is a market where investors should focus on the leaders—those large-cap companies that have done well this year and pay higher rates of dividends to shareholders. Right now, a blue-chip company’s dividends payment is really the only reliable source of income an investor can find.

Bank stocks have been a hit in the market sell-off over the past few years. Many bank stocks are still selling at a discount to book value, even after this recent six-month increase in stock prices. Although many bank stocks have risen lately, one has not and continues in its own market sell-off: Banco Santander, S.A. (NYSE/STD). Banco Santander remains near its 52-week low and near the lows of the market sell-off in late 2008 early 2009.

While Banco Santander may appear cheap to some people, I would urge caution before putting money into this troubled firm. As the largest bank in Spain, Banco Santander faces a huge amount of headwinds. Current earnings showed a decline to €1.6 billion from €2.1 billion in the previous year for the first quarter. Part of the loss was €3.0 billion set aside to cover bad loans in Spain and other periphery countries. At the end of March, Banco Santander had nonperforming loans valued at €33.0 billion, or four percent of the total loan portfolio.

While four percent might seem large for bank stocks, it might not be enough, considering that Banco Santander has a huge amount of business in the Spanish real estate market, where Spain’s average net nonperforming loan ratio for other bank stocks is close to 10%.

There are some portions of Banco Santander that are doing very well, mainly its Latin American divisions. Unfortunately for investors in Banco Santander, the firm has already started selling the best portions off to try to raise more capital. The last thing you want in bank stocks during a market sell-off is for them to get rid of their best assets. You are left holding an empty shell with poor properties and a bleak future.

Billions more need to be raised and the Spanish real estate market sell-off continues. I worry about how Banco Santander is going to raise the funds. Several European bank stocks have done share issues, which cost shareholders dearly—some by issuing shares at such a drastic price that the bank stocks shares declined over 40%.

Why should American investors care? As we’ve learned with the downfall of Lehman Brothers, large bank stocks are intertwined worldwide. Banco Santander, with 15,000 branches, is the 19th largest bank worldwide when measured by assets. The ripple effects of one of these bank stocks going under would be truly damaging to the worldwide financial system. One thing that does worry me is a similarity that Banco Santander has with Lehman Brothers, in that a large part of its banking relies on wholesale debt and external funding to raise money for daily operations, as opposed to deposits. Meaning, if the wholesale funding market freezes like it did in 2008, this bank could be in serious trouble, causing an even bigger market sell-off.

I also don’t think the dividend yield will be maintained, so investors who buy now may be in for a shock if the dividends end up being cut. And, with the real estate bubble in Spain continuing to deflate in a market sell-off, considering Banco Santander is one of the largest lenders to construction firms and real estate development in Spain, the losses might be massive.

Banco Santander also has a total exposure to sovereign debt of approximately $77.0 billion, with approximately $3.0 billion in Portuguese debt and over $63.0 billion in Spanish sovereign debt. With such a large exposure to Spanish debt, any default or revision to the debt by the Spanish government could shut the entire firm down and wipe out shareholders’ equity completely in a massive market sell-off.

This, of course, means that Banco Santander is one of the bank stocks that “can’t fail,” with the Spanish government and the European Central Bank most likely willing to step in to support one of the biggest bank stocks in Europe. That’s a big bet that I’m not willing to make. If the firm does issue shares in its Latin American divisions like Chile or Mexico, I might be interested in those separate areas, as long as they have no connection to the European division.

My gut tells me that the stock market will soon come to a head in terms of its direction. The stock market is looking for a new catalyst and, whatever that is; share prices will advance or retreat. We’re at the beginning of the lull between earnings seasons (although many small-cap stocks are just starting to report) and economic news will take over from corporate news. I think a key stock market indicator to focus on remains the Dow Jones Transportation Average. This index keeps narrowing its trading range and just looks like it’s ready for a new direction, whatever that might be. Transportation stocks have held up incredibly well considering the price of diesel and gasoline and their earnings as a group continue to outperform.

Many view the Dow Jones Transportation Average as an “out of date” kind of index, but I view it as critical. For the most part, virtually everything in our lives comes to us by truck, rail, airplane or boat. (See My Favorite Benchmark Stocks That Lead the Stock Market.) It represents, in my view, the real pulse of the U.S. economy and, while vulnerable to the spot price of oil, strength in this index is strength in a consumer-driven economy.

Since the beginning of 2000, the Dow Jones Transportation Average has outperformed the NASDAQ, Dow Jones Industrials, and the S&P 500 Index. When technology shares imploded on the stock market beginning in 2000, the Dow Jones Transportation Average began to outperform. It did very well between 2004 and 2009, retreated with everything else during the financial crisis, then roared back to a new record high last year. Without question, this index is an important barometer on the U.S. economy and the stock market.

The Dow Jones Industrial Average is also looking pretty strong at this time. We have decent earnings growth among large-cap companies, reasonable valuations and, while the economic news continues to be mixed, I think institutional investors want to be buyers in this market. The fact of the matter is that there is nowhere else to put your money, while generating at least some return in the form of dividends in order to beat the rate of inflation. The commodity price cycle is real, but, for the most part, investing in it is higher risk and there is very little income to help cushion the exposure.

My technical analysis (which is not well-honed) views the Dow Jones Industrial Average as indicating that it wants to keep ticking higher. The Dow Jones Transportation Average looks like it’s getting tired and therefore is starting to show a bit of divergence. In the end, the stock market is going to go where institutional investors direct it. The stock market is due for a break, but, in an election year, anything is possible.