My Favorite Picks for After the Market Corrects

dividend paying stocksWhen we last looked at Alaska Air Group, Inc. (ALK), the position had pushed to a new record-high on the stock market, and it’s doing so again.

Many Dow Jones transportation stocks continue to exude price strength and in my mind, this action is one confirming factor that the broader stock market can go higher.

There has also been a spike in countless new initial public offerings (IPOs), which only makes sense with the stock market at an all-time high and the world awash in liquidity.

But it is difficult to consider buying stocks right at their highs. If one came into money and wanted to create a stock market portfolio, there’s not a lot of value for your investable dollar. Even income-seeking investors have to contend with high prices for the best dividend paying stocks.


Big investors have been buying dividend-paying blue chips all year and are likely to continue doing so unless there’s a catalyst to sell.

Automatic Data Processing, Inc. (ADP) just announced a solid 10% increase in its cash dividend to stockholders. The company will pay $0.48 a share, up from the previous $0.435 per share, on January 1, 2014 to shareholders of record on December 13, 2013. This is the company’s 39th consecutive year of increased dividends.

Not surprisingly, ADP has been a tremendous stock market winner this year. The position opened in January around $57.00 a share. Now it’s closing in on $77.00, with Street analysts continuing to increase the company’s earnings-per-share outlook for its next fiscal year. (See “Why Cash Is No Longer King.”)

For allocating new monies to the stock market, I’m a fan of sticking with existing winners—those dividend-paying blue chips that have already done well with strong balance sheets and burgeoning cash positions.

Institutional investors will buy rising payouts from corporations in a slow growth environment. And with the broader stock market very much in need of a major correction, dividend income is a very attractive cushion.

Many blue chips have shown uncharacteristically strong performances over the last several years, as institutional investors sought out the safest names following the financial crisis and the subsequent recession. The marketplace recently loosened up its purse strings for more speculative issues.

But while money does need to be put to work, whether saving for retirement or living off investment income, I’m still reticent to be a new buyer in a stock market that’s been running so strong all year.

One of the best things that could happen to equities is a full-blown, meaningful correction that would create much more attractive buying opportunities for long-term investors. This would make stocks like Johnson & Johnson (JNJ), Colgate-Palmolive Company (CL), and PepsiCo, Inc. (PEP) in the equity market universe genuinely worthwhile.