Dividends Keep on Flowing

 | Oct 04, 2013 | 11:00 AM EDT
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The U.S. federal government may be shut down, but the flow of dividends is not. The shutdown is going to create a refreshing void of macroeconomic data, which may cause investors to refocus on what really matters: earnings and cash flow. Naturally, I am focused on dividend income, which is the corollary to cash flow. Whether the government shuts down for a week or a month, whether the economy slows or accelerates, you can't argue with a check showing up every few months -- or, in the case of my dividend rotation strategy, every few days.

Source: FactSet

Although October will be slow for dividends (as the first month of the quarter always is), there are a handful coming next week that are worth some attention. The most challenging are the telecom names, Verizon (VZ) and AT&T (T). The payouts are fat, and this group is a stalwart for dividend income. The names are owned for income, however, so my success has always been hit or miss. Sometimes I am out in a few days, and other times I am stuck in them (with my capital locked up and not working for me) for a month or more. As an example, I played CenturyLink (CTL) last month, and am still sitting and waiting about 5% below my purchase price.

Still, I am playing VZ and T this quarter for a couple reasons. First, because October will be such a thin dividend month, those fat payouts help me reach my income goal for the month. Second, and more importantly, I think these stocks will perform better this month given the macro turmoil. With all the fear around shutdowns and defaults, these names are a bit of a safe haven due to the size of the payout and stability of the business.

In addition, I am playing some consumer names that will also be perceived as safe havens, although the consumer sector is not necessarily robust at the moment. Darden (DRI) has struggled lately but the issues are in the stock for now, and the accidental high yield reflects investor concerns. Kraft (KRFT) is a similar consumer name that usually works every quarter. I also include Accenture (ACN), the global consulting company, which is an "old reliable." I play that one quarter-in and quarter-out with success; it is truly not owned for the yield, despite its healthy payout. Being perceived as a growth stock makes it a safer dividend capture play.

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