You know which benchmark stock has turned things around? It’s General Electric Company (NYSE/GE), which used to be the ultimate conglomerate company. GE’s second quarter was pretty decent, and while management expects a more difficult third quarter, earnings estimates are going up for this year and next. GE just hit a new 52-week high on the stock market and is currently yielding 3.3%.
Another benchmark stock that’s doing well on the stock market right now is Merck & Co., Inc. (NYSE/MRK). In early July, the shares had a real breakout on the stock market, and this is another Dow stock that just broke through to a new 52-week high and has a 3.8% current dividend yield.
I realize that a lot of investors are unenthused about the prospects for the stock market, but I’m really starting to notice a lot of benchmark stocks breaking out and going up. In fact, there are quite a lot of them, and this is a really good sign.
Verizon Communications Inc. (NYSE/VZ) has been doing great on the stock market since April, up about 10.0% on the year not including dividends. With a hefty dividend yield of 4.4%, this stock is on the verge of a major breakout from its 10-year trading range. I hope it happens.
Even more pronounced in the telecom sector, there’s AT&T Inc. (NYSE/T), which is having a great year on the stock market, up about 27.0% so far this year not including dividends. The stock is fully priced, but with a dividend yield just under 5.0%, institutional investors will continue to be keen on the position.
All these benchmark stocks that are doing well tell me something—that institutional investors continue to crave dividend income and that earnings growth doesn’t have to be robust, but just has to meet expectations.
Even if you don’t own shares in benchmark stocks, it’s important to follow them because they help hone your stock market view. There are buyers in this market today, and they don’t require outperformance, but just stability of performance for them to bid. It’s also pretty clear that in a slow-growth environment, dividend paying stocks are going to be the clear winners. (See “Dividends Income: From Bubbles to Crashes, It Always Wins in the End.”) In this kind of environment, I’d rather own a mature, dividend paying business than any Chinese stock.
Because the stock market is still fairly valued and earnings growth is flat, we’re likely to get an earnings multiple expansion for the rest of this year. A lot of the benchmark stocks that are breaking through to new 52-week highs right now have large domestic operations, and that’s what you want; you don’t really want to own international markets, because investment risk is too high.
As I wrote recently, I wouldn’t be surprised if the S&P 500 Index soon breaks 1,400. There seems to be renewed momentum in the stock market, and these benchmark stocks that are hitting new highs illustrate this perfectly.