Dividend Yields Going up—the Outlook for Stocks, Not So Good
Dividend yields are creeping higher, and in a lot of stocks, they are pretty darn hefty. The problem, of course, is that as a stock market investor, you have no idea what’s going to happen to your capital. The dividend income is secure, but the stock market isn’t.
The way I look at this stock market and the global economy, I figure an equity investor with a diversified portfolio can really only expect a rate of return just slightly above dividends earned. That is to say, with all the current information, I don’t expect the stock market to advance materially in 2013. It could easily be a down year for the main stock market indices.
E. I. du Pont de Nemours and Company (NYSE/DD), otherwise referred to as du Pont, just broke the four-percent dividend yield barrier, as the company’s share price recently tumbled after reporting a tough third quarter. According to the company, its 2012 third-quarter revenues fell nine percent to $7.4 billion. About half of this decrease was due to changes in currency values. Earnings dropped significantly to only $10.0 million, or $0.01 per diluted share, down from $452 million, or $0.48 per diluted share. The company has instituted a new restructuring plan to control costs. Management reduced its 2012 full-year earnings-per-share (EPS) outlook to between $3.25 and $3.30, down from the previous range of $4.20 to $4.40 per share. In the first quarter of this year, du Pont increased its regular quarterly dividend by five percent to $0.43 per share. The company’s stock chart is featured below:
Chart courtesy of www.StockCharts.com
You might say that it’s a good time for an income-seeking investor to be buying stocks with dividend yields so strong; but like I say, you can’t really expect much more return other than the dividend itself, because there’s so much uncertainty in the stock market.
Of course, the one way to increase your wealth with dividend paying stocks is to reinvest those dividends in the form of new shares. Most large-cap, blue chip companies offer some form of a dividend reinvestment plan, which allows you to buy new shares without paying commissions. If you don’t require the income, this is a good way to build wealth. More shares equal more dividends, and your investment return compounds over time.
Right now, with so many brand-name technology stocks trading down on the stock market, dividend yields are very attractive. Intel Corporation (NASDAQ/INTC) for example is now yielding over 4.5%, which is quite exceptional. In May, this stock hit a high of just over $29.00 a share; now, it’s just over $19.00. (See “Intel’s Share Price Says It All.”)
Dividends will become a much more important component of stock market returns going forward, because I don’t expect the stock market to go up next year. Despite the attractive yields, I still wouldn’t be buying in this market.
About the Author | Browse Mitchell Clark's Articles
Mitchell Clark is a senior editor at Lombardi Financial, specializing in large- and micro-cap stocks. He’s the editor of a variety of popular Lombardi Financial newsletters, including Micro-Cap Reporter, Income for Life, Biotech Breakthrough Stock Report, and 100% Letter. Mitchell has been with Lombardi Financial for 17 years. He won the Jack Madden Prize in economic history and is a long-time student of equity markets. Prior to joining Lombardi, Mitchell was a stockbroker for a large investment bank. In the... Read Full Bio »
Forecasts Aug. 27, 2015
Immediate term outlook:
The bear market rally in stocks that started in March 2009, extended because of unprecedented central bank money printing, is coming to an end. Gold bullion is up $1,000 an ounce since we first recommended it in 2002 and we are still bullish on the physical metal.
Short-to-medium term outlook:
World economies are entering their slowest growth period since 2009. The Chinese economy grew last year at its slowest pace in 24 years. Japan is in recession. The eurozone is in depression. With almost half the S&P 500 companies deriving revenue outside the U.S., slower world economic growth will negatively impact revenue and earnings growth of American companies. Domestically, America’s gross domestic product grew by only a meager 2.3% in the second quarter, which will negatively impact an already overpriced equity market.
Estimates Aug. 27, 2015
|Trailing 12-month EPS for Dow Jones companies (Most Recent Quarter)||$1014.15|
|Trailing 12-month Price/earnings multiple (Most Recent Quarter)|
|Dow Jones Industrial Average Dividend Yield||2.71%|
|10-year U.S. Treasury Yield||2.14%|