Yesterday's implosion brought to a screeching halt a great run in the market for dividend captures. You should be counting up your profits, though, as the October bounce not only produced capital gains but was an environment extremely conducive to rotating through dividend payments. No news there, but as you assess your performance you should find that in good markets you are making hay while the sun shines and generating a ton of income. In my fund, I target generating 2% in dividend income each quarter -- and at this point in the quarter I am essentially done, so everything I collect for the next six weeks will be excess return.
As the markets get rocky -- and I believe they are going to get much rockier as Italy enters the denouement -- you should be pulling back your activity a bit, and focusing on names in highly-defensive sectors like consumer staples. A couple coming soon that qualify are Microsoft (MSFT) and American Water Works (AWK).
You all know Microsoft's business, of course. With its low valuation, sustainability of cash flows even in a weak economy and potential for far larger payouts, the stock should hold up well in a market downdraft. Microsoft is set to pay 0.74% on Nov. 15. American Water Works, meanwhile, is a $5 billion water utility serving 30 states with drinking and waste water services. The company screens very well on earnings revisions, and its business promises to be hugely stable in all economic environments. American Water Works is due to pay 0.74% on Nov. 16.
Now, for those of you who believe the market volatility is "transitory," a few are dividends coming whose stocks are leveraged to the economy. Southern Copper (SCCO) will pay a huge 2.14% on Nov. 14. Copper prices, and thus SCCO, will move down on any economic weakness -- but would also move up on a sense of greater inflation coming, which I think is a sure thing. International Paper (IP) will be similarly whipped around, but is set to offer you a 0.89% dividend on Nov. 14. I am in these two, but bought them a week or two ago. I would not risk them now -- at this point I would rather stay with the defensive names.