The Dividend Trade Still Looks Good

 | Jan 03, 2012 | 12:20 PM EST
  • Comment
  • Print Print
  • Print
Stock quotes in this article:


















People always want to know what sectors are going to work in a new year. Makes sense, as a great deal of a stock's move does depend on its sector -- perhaps too much, because of what I've been calling the "ETF-ization" of stocks, where the group a company belongs to hangs together by an ETF instead of trading separately, even a little bit, on the merits.

That's why I think the sector that will perform the best, again, in 2012, is the dividend sector, the segment of companies that reward you, that pay you to wait, while the company gets it act together or just simply puts on more cream to the cake. If anything, what we've seen lately is that the cream has been the source of a huge part of the performance of a stock, and that will continue.

Jeremy Siegel, the brilliant Wharton professor of business, has been chronicling stocks for years, and he has always stressed the importance of the total return from stocks, because some 40% of the performance over time has come from dividends.

In an era when you can have sharp swings, which seem to have disappeared for the moment in this era of good feelings, but which deeply influenced stocks in 2011, dividends saved the day. The combination of a Fed chairman who has point-blank said he's leaving rates low for a couple of years and the dastardly swings from program trading and double- and triple-leveraged ETFs made dividends the safest and most lucrative plays out there. It actually paid to take less risk, not more, as defined by whether a payout was good or not.

Stocks such as Kinder Morgan Energy Partners (KMP), Verizon (VZ) and Consolidated Edison (ED), names I came back to again and again, just delivered superb performance, as did Big Pharma. Was it really a coincidence that Bristol-Myers Squibb (BMY), Eli Lilly (LLY) and Pfizer (PFE) all generated amazing returns? No, given their phenomenal return compared with Treasuries.

I am sure that there will be people who say, "Jim, the trade is over." To them I say, do you really think that this beginning-of-the-year move can last when we will still have scare after scare coming out of Europe and the possibility that earnings estimates remain too high?

Dividends bore people. But this holiday, I bumped into enough people who talked about their butts being saved -- their term -- by my dividend names. I know that many of the yields are too puny for the moment, but there are plenty that aren't, like Nordic American Tankers (NAT), with dayrates still climbing, or Southern Copper (SCCO) or Energy Transfer Partners (ETP).

I like to contradict Gordon Gekko. Greed, as defined by the need to have no capital preservation, just capital gains, is not good. Boring is good. Count me as a boring guy, at least when it comes to selecting stocks with dividends as key to the future performance.



News Breaks

Powered by


Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data provided by Interactive Data. Company fundamental data provided by Morningstar. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by Interactive Data Managed Solutions.

TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

IDC calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.