A lot of good companies with solid investment prospects going into 2015 are pushing new highs in an otherwise trendless stock market before the end of another reporting period.
Market leaders have kept their momentum the last few years and are likely to keep doing so as earnings reliability and dividends keep investors buying.
Microsoft Corporation (MSFT) continues to tick higher in this market. The position was $35.00 a share at the beginning of the year and is now just short of $50.00.
What many of these established blue chips offer are good balance sheets, reasonable financial growth, and good prospects for rising dividends going forward. A stock like Microsoft is a simple, large-cap solution that continues to work in a slow-growth environment.
There’s no need for an equity market portfolio to be complicated at this stage of the business cycle. Dividend income is key, because that’s what institutional investors are buying.
And the good news with blue chip leadership is that it comes with less investment risk. The business cycle is not yet mature enough to support itself and therefore the investing marketplace remains somewhat risk averse.
Or at the very least, many institutional portfolios comprise dividend-paying blue chips, peppered with the stock market’s more aggressive names, like Facebook, Inc. (FB) and Chipotle Mexican Grill, Inc. (CMG). (See “Where You Can Find Value in Stocks Right Now.”)
This is a marketplace where you don’t need to be in the riskiest sectors in order to capture most of the stock market’s potential capital gains. Dividend reinvestment remains an excellent way in which to build wealth in a low interest rate environment. Corporations that have the cash and management teams are still risk averse. They continue to be reticent to invest in a new plant, equipment, or full-time employees; instead, it’s just easier to return excess cash to shareholders in the form of dividends and share repurchases.
So the current environment remains favorable for equity investors. The prospect of higher interest rates next year has been so well reported that the reality shouldn’t rattle the stock market too much.
Second-quarter earnings season was much better than the marketplace expected and earnings caught up to prices nicely.
I suspect we’ll get the same thing in third-quarter reporting. In recent quarters, a lot of companies weren’t able to beat Wall Street consensus on both revenues and earnings, but that was okay so long as previous guidance was reiterated.
Stock market leaders like The Walt Disney Company (DIS), Union Pacific Corporation (UNP), Johnson & Johnson (JNJ), and 3M Company (MMM) continue to look great in this market and they are poised for further capital gains going into 2015.
Blue chip investing used to be quite boring. But today, on the back of solid balance sheets, the cash flow is there and a lot of these dividend paying stocks have been tremendous wealth creators since the beginning of 2013.
I think these types of stocks are the place to be going into 2015. A stock market portfolio of brand-name businesses with rising dividends should be well positioned for further gains.