In the stock market you get paid from capital appreciation and dividends. Of the two, the only one with any certainty is dividends, explains blue chip stock expert Kelley Wright, editor of Investment Quality Trends.
If you use dividends, the dividend pattern, and the dividend trend as your guide, however, capital appreciation almost always follows. Everyone wants to buy low and sell high, but what is low, what is high, and how do you know whether you’re somewhere in between? The answer lies with the dividend pattern and dividend trend.
High-quality stocks tend to trade between two dividend yield extremes: One that is low-price and high-yield; the other is a high-price and low-yield.
More from Kelley Wright: Book-Value Bank Buys
Obviously acquiring shares at their repetitive low-price/high-yield area has greater upside potential and less downside risk than acquiring shares at a higher-price and lower-yield area. So, if you truly want to buy low and sell high this is how you do it. If you understand this, you have the keys to the kingdom.
So, what is my outlook? The usual chaos and mayhem, none of which you need to worry about if you focus on what you can control, which is limiting your investment considerations to high-quality shares at Undervalue, holding them through their Rising Trend and selling at Overvalue. Rinse and repeat.
Whether you are looking to build a portfolio from scratch, are partially invested and looking to add new positions, or are fully invested and merely in need of some affirmation and hand holding, The Timely Ten represents our top ten recommendations from the Undervalued category as of each issue.
Short of utilizing the personal investment management services of our sister company, IQ Trends Private Client Asset Management, this is as close to real time advice you can get. Traditionally we have suggested the following criterions for Subscribers to consider in their investment considerations:
• An S&P Dividends and Earnings Quality Ranking of A- or better
• Outstanding long-term annual dividend growth of 10% over the last twelve years
• A price/earnings ratio (P/E) of 15 or less
• A payout ratio (percentage of earnings paid out as a dividend) of 50% or less (75% for Utilities)
• A debt level of 50% or less (75% for Utilities)
Here are our latest Timely 10:
Comerica Inc. (CMA) — 4.09%
Wells Fargo (WFC) — 4.11%
Raymond James Financial (RJF) — 1.66%
Cummins Inc. (CMI) — 3.16%
Cracker Barrel OCS (CBRL) — 3.33%
McKesson Corp. (MCK)— 1.13%
Omnicom Group (OMC) — 3.44%
Eastman Chemical (EMN) — 3.39%
Harley Davidson (HOG) — 4.10%
International Business Machines (IBM) — 4.56%
Historically, Subscribers that have relied solely on these criterions in their stock selection process have been handsomely rewarded over time. The only critique is that some stocks remain in the Undervalued area for a significant amount of time before they begin to demonstrate price appreciation.
For the investor with a long-term investment time-horizon this is not an issue, as they are getting paid to wait from consistent dividend payments and dividend increases.
For the investor with a shorter-term investment time-horizon, the discipline and patience required to let the full value of a company be expressed in its stock price may prove too difficult, and result in them abandoning this time-proven strategy, which is unfortunate.
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