Dividend investing for Retirement and other $$ Gainers

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An Income Seeker's Dream Rida Morwa

Jan. 1, 2019 10:33 AM

Summary
Today's market is an income seeker's dream.
The recent pullback was based on fears rather than fundamentals and unlikely to last.
The market will see a recovery, and good stocks always bounce back.
The equities are significantly undervalued today even if we factor in a bad case scenario.
Why I am loading up on high divided stocks and what I am buying.

Summary
I’m buying as much as I can right now because the fact is, the recent downturn is merely a temporary pullback based on fears and not supported by fundamentals, which remain very strong. This bull market will continue and good stocks always bounce back. A lot of money will be made by smart investors who buy now, not later - especially high-dividend stocks and funds. I will make the case in this report why high dividend stocks are set to lead the markets in 2019.
?The markets have been driven down by irrational investor fears in addition to selling by high-speed trading firms using artificial-intelligence-driven algorithm sell programs that get triggered when markets see big moves. This results in the market indices overshooting to the downside during such periods. I think that the market regulators should put an end to these notorious programs.

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What is important to investors now is to keep focused on the big picture. Most of the underlying fundamentals of the economy and the markets continue to be positive. This has been clearly confirmed by Fed Chairman Powell in his FOMC press conference on December 23, 2018:

I would just point to 2018 being a very strong year and the Committee looking forward to 2019 and still having what amounts to a positive forecast. We still are forecasting, individually, growth a bit above its longer-run potential—2.3 percent is what we’re forecasting. We’re forecasting that growth will be strong enough that unemployment will drop still further...

Of course, a GDP growth rate of 2.3% is very healthy. Let us also look at consumer spending which makes up for the bulk of the U.S. economy.
Retail sales in the U.S. continue to be resilient. In the Census Department’s most recent report, November saw retail sales increase by 4.2% on an annual basis. This is pretty significant and double the growth seen two years ago in 2016. And while sales gains are slightly off from recent highs seen in July at 6.6%, they are still very robust. Forward-looking surveys confirm that consumers are still confident about their spending, even during the past month’s market declines. The Bloomberg Consumer Comfort Index is at 59.4, significantly higher than last December's reading.
Business confidence also remains high, with businesses continuing to expand their investments to meet expected consumer demand. This is confirmed by the Federal Reserve Bank of New York’s Business Leaders Future Capital Spending survey which shows a reading of 34.2 significantly above the five-year lows of 24.70.
Finally, corporate earnings growth remains very strong and is still at its highest levels in decades. For the current quarter, the consensus is for earnings to grow at a fast pace of 14.1%.
So the market pullback is unlikely to last long as it is not supported by either macroeconomics or market fundamentals.

Short-Term Outlook for Equities

Based on our technical analysis, we published a report last Monday, December 24, 2018, predicting that A Market Bottom Could Be Very Near. Despite the nice rally we have seen since my article was published, here we should note that we are not out of the woods yet. We could see the markets move sideways and not necessarily in a "V" shaped recovery. What I am looking for is an up-trend which is technically defined by higher highs and higher lows on the charts but this can happen anytime now, which will confirm that a bottom has been formed.

What is needed is immediate good news such as a trade deal with China, a confirmation from the Fed that interest rate hikes will be further reduced again to a single or no rate hikes in 2019, or good corporate earnings for Q4 to have confidence in an ongoing resumption of the uptrend. In fact, President Trump reported Saturday that he had a "long and very good call" with Chinese President Xi Jinping and that a possible trade deal between the United States and China was progressing well. That would be very bullish for equities.
Therefore, the month of January is pivotal. Not only we may get a trade deal confirmation, but we will also get more direction from the Federal Reserve (The next Fed meeting is due on Jan. 29-30). And of course we get the start of the new earnings season. What I will be looking for in this earnings season is the outlook for the coming quarters as the guidance is going to be crucial. I expect an overall strong guidance for the rest of the year which should also be a strong catalyst that could reverse the recent market declines and resume the long-term bull market uptrend.
More good news is that with the end of the month of December, the maximum pressure of year-end tax loss selling will be over. This should result in many stocks that were unfairly punished by this event to start seeing a nice recovery. This should happen as investors start picking up cheap "value" stocks created from this selling which has nothing to do with the fundamentals of these companies.

Longer Term Outlook

I would like to reiterate again that the stock markets are significantly undervalued todayeven if we assume that corporate earnings will be flat in 2019, which is an unlikely scenario. I remain bullish on equities for the year 2019 and the markets should see a resumption of the long-term bull cycle. Good stocks always bounce back. Still, I believe that market volatility will remain high throughout the year. In order to mitigate such volatility, investors are best served by being highly diversified across different sectors and by having a good allocation to quality stocks in defensive stocks and sectors. Some of the best sectors that can mitigate price volatility are Property REITs, Utility, and Healthcare. I would also recommend that investors get a good allocation to preferred stocks.

Why Dividend Stocks Will Lead the Markets Higher

As noted above, economic growth will remain strong but will decelerate in 2019. This isn’t too surprising considering the phenomenal GPD growth in 2018. For 2019, GDP growth in the United States is projected at 2.3%. That is still robust growth, but slower than 2018 growth rate of 3%.

Interest rate hikes will also decelerate. The Fed has reduced its rate-hike projections for 2019 from three increases to just two. Furthermore, the Fed left the door open for review of these rate hikes: this means that the actual number of rate increases next year might be zero. If we look at the 10-year treasury yields, they pulled back from 3.2% to 2.7%, meaning that investors are already factoring in both lower inflation and lower interest rate expectations.
This also means that there is a massive leadership change underway. Lower inflation and lower earnings growth coupled with lower interest rate expectations provide a very favorable backdrop for high-dividend stocks and sectors. So it will be imperative for income investors to identify those high-yielding stocks that can grow earnings and cover their dividends, even if economic growth slows. This is the kind of stocks we are currently targeting at High Dividend Opportunities and recommending to our investors.
With the 10-year treasury yields well below 3% and the dividend yield on the S&P 500 only 2%, high-yielding stocks of 6% and above will be in high demand. Yield-hungry investors will continue to pour into dividend stocks. Also, over the next few years, thousands of people in the United States and around the globe will reach retirement age and will be looking to re-allocate to high-dividend stocks. Increased demand over several years will lead to much higher prices. Soon, these great deals earning 8%, 9%, and 10% or more may just not be here. Today’s market is an income seeker’s dream. Instead of putting your money into low-return bank products, you can earn stable and high income despite any market volatility.
The aging population phenomenon is not only affecting the United States, but this is a global trend. Retirees across the globe are looking for yield, and there is no better place to invest than the United States.
For income investors and retirees, the pullback opens the door to lock in extremely generous yields. This Opportunity is not likely to last.
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Source

What Am I Buying?

As stated above, investors are best served by being diversified across several sectors. I have been buying Property REITs, Utilities, Midstream MLPs, Business Development Companies, Preferred Stocks, and dividend growth stocks.
Some of our best ideas come in the Preferred Stock space. While preferred stocks seldom go on sale, market volatility has created some unique buying opportunities. Preferred Stocks have not recovered despite the fact that the Fed stated that there will be less interest rate hikes going forward and despite the pullback in treasury yields from 3.2% to 2.7% - a massive percentage-wise, yet many preferred stocks are offered at discounts not seen in the past 10 years. For income investors, the preferred stock space is one of the most defensive and conservative ways to get exposure to high-yield stocks. Because all the dividends on preferred shares have to be paid before any dividends can be paid to common shareholders, the dividend payment is also safer on preferred shares. Furthermore, preferred stocks carry substantially less price volatility than common shares, and thus can be more suitable for conservative investors and retirees.
Another sector that has sold off hard following severe tax-loss selling pressures is the Midstream oil & gas sector. This sector will be a prime beneficiary from the end of tax harvesting, and today offers one of the most compelling valuations, in addition to yields that we have never seen in the history of this sector. The midstream sector ETF (AMLP) currently yields 9.3% and many of the midstream CEFs offer yields well north of 12%.

Bottom Line

Continued robust economic data indicates investors' fears of a recession are overdone, meaning it’s only a matter of time before equities find their bottom, if they have not done so yet. Worries of a recession were mostly the result of concerns that the Fed's relentless tightening would bring the economic expansion to its knees. Since then, the Fed has moderated its views on rate hikes and the economic data has remained on very solid grounds. Given the intensity of the recent declines which are not supported by economic fundamentals, I would say that we are either very close to a bottom or possibly the bottom is already behind us. If the market does move lower, it is not going to be much more from here.
I would expect that the year 2019 will be the last year that the Fed will be able to increase interest rates, and we may even see rates starting to decline as soon as 2020 which will be very bullish for dividend stocks.

But no matter what happens in the very short term, I believe that the best defense remains a strong offense of fundamentally superior high-dividend stocks. Once the market settles, which it will, the +8% yielders currently offered on quality companies will be in very high demand. These unusually high yields that we are seeing today are unlikely to last long, and for those who are sitting on some dry powder, this is a unique opportunity to lock in these yields.
I am looking forward for 2019 with great optimism, and a lot of money will be made from these levels. Today's market is an income seeker's dream. I have been loading up on high dividend stocks for my own retirement account because this sale is not going to last long. Even at these low prices and if they go lower they are still steals. The full list of my holdings is shared with our members along with a report entitled "Our Best Picks for 2019."
Wishing you a very Happy and Prosperous New Year 2019!

Disclosure: I am/we are long THE “HIGH DIVIDEND OPPORTUNITIES” CORE PORTFOLIO + T + LRET + LADR + EPR + IRM + GLP-P + UMH-C.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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