With Monday’s dividend announcement by both Game Stop Corp (ticker: GME) and ITC Holdings (ticker: ITC) we’ve now seen 33 straight days of dividend increases! In 2012 alone, we’ve seen well over 500 dividend increases with a number of companies announcing multiple increases.
The fact that we continue to see more and more companies increase their dividend payout is a good sign that the economy and the markets in general are continuing to improve.
On a regular basis I continue to read that more and more investors are pulling money out of the stock market and equity mutual funds – the belief is the markets can’t be trusted. You know, when you read about many of these Ponzi schemes it’s hard not to be cynical of the markets, but I’m not sure putting money in bonds at this point, or staying 100% in cash makes much sense either.
Any prudent investor will diversify their holdings across many asset classes to protect against catastrophic failure in any one investment type. Whether you choose gold, real estate, trading cards, art, collectible cars or just plain cash – for me placing some money in stocks not all bad.
As a matter of fact, if you were ever going to put money in stocks, I believe now is the time. Consider this: in the late 1990’s and early 2000 as the dot com bubble was heating up, we saw more people in the market than ever before, and yet new money kept piling in, searching for more and more profits.
During that bull market run, who made the most money? Was it the people that piled in last, or those that had been in the market since the downturn in the early 1990’s and beyond? Of course it was those who had patiently invested year after year even when times weren’t so good and when the bull market peaked it was the early investors who saw the greatest returns.
The average Joe or Jill who works a 9-5 job and just want’s to put away a little something for the future has only a few options.
They can keep their money in:
- Cash / CD’s / Money Market Funds – total return less than 1%
- Bonds – total return 2%
- Stocks – total return of 8% or more
Now where are most people putting their money right now? Cash and Bonds because they are scared, they just don’t want to lose any more money. Yet the reality is that with inflation at between 2-3%, currently they ARE losing money – they’re losing purchasing power and they’re getting poorer by the day, they just don’t feel it right now.
So at some point, perhaps very slowly and over time, people will move some of their money back into stocks. As a matter of fact, we may already be seeing this trend begining. Take a look at the one year chart of one of the main holdings of the DDI Portfolio, Realty Income (ticker: O):
Over the last year this stock has appreciated about 30% from the low $30’s to the low $40’s. It’s no secret that the money coming into the market is looking for cash-flow yield – and with the increasing monthly payments that Realty Income offers this is a stock that’s gotten a lot of attention. But as the share price rises and the yield slowly drops, new money is going to search for other “better” opportunities and as this continues to happen the broader market as a whole will start to rise.
While I’m not expecting the extreme appreciation that markets saw in early 2000, it does seem that the pessimism within the markets currently is providing a great opportunity for appreciation over the next few years. As always, since the focus of the DDI portfolio is dividend income, I can afford to wait while I continue to collect my daily income.
What do you think? Leave me a comment below.
Are markets going to zero? Is the next flash crash eminent? Or are we about to blast off on the next great bull-run of a lifetime?