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I hope you hate stocks. I really do.
I hope that 10% unemployment, a shaky housing market, and the threat of a double-dip recession makes you never want to invest in the market again. When you think of investing abroad, I hope the sovereign debt crisis worries you, and that Chinese corporate governance makes you more worried than you've been in the decades past.
In fact, considering the massive vault of economic and political woes worldwide, maybe you should just sell all your stocks and call it a day.
We'll be sitting at different tables
When it's time to choose our seat assignments, one thing is for sure, and it's that you and I will be sitting at different investing tables. I'll be the guy loving stocks, and you'll be the one parked in cash and bonds. And that's fine with me.
Because it's times like these, when there is no shortage of bad news or global uncertainty, that a contrarian investor can prove his or her prowess in the market. When Warren Buffett famously advised to "be fearful when others are greedy and greedy when others are fearful," I believe he was referring to moments such as this. Despite some ups and downs, the market has gone basically nowhere this year. Investor confidence is plummeting and by one measure now sits at its lowest point since January 2009.
The point is that the more you hate stocks, the lower prices fall. And the lower they fall, the more opportunities I have to pick up quality stocks at basement prices. In late 2008 and early 2009, savvy investors had an even more striking opportunity, and I wish I had benefited like so many others did.
Had I been a bit more confident and aggressive, I could have made a killing. Despite it being the leading distributor of DVDs and an online disruptor, fearful investors sold Netflix (Nasdaq: NFLX ) down all the way to $19 per share. Now it has cemented its role in entertainment, and with its ability to stream movies and with Blockbuster affirmatively out of the way, Netflix shareholders are holding onto a $155 stock. Similarly, Las Vegas Sands (NYSE: LVS ) was pummeled from a high of $138 down to $4 -- penny stock status. Sure, gambling got crushed during the recession; but with some of the best hotels and casinos in the country, and with fantastic Macau exposure, was it really ever worth $4? According to today's investors, not really, because the stock is now sitting pretty at $37.
Sure, it's easy in retrospect to cherry-pick the winners from the losers and exclaim victory for all stocks. But really my point is that had I not been so fearful, maybe I would have actually purchased some great companies at dirt cheap prices, instead of just holding onto what I already had.
Different scenario today?
Today's environment is not exactly the same as it was two years ago, but it still seems like a wonderful time for contrarian investors.
- Stocks seem tremendously cheap relative to bonds. As the yield on 10-Year Treasuries drops to its lowest point in decades, the earnings yield of the S&P 500 remains solid.
- Technology stocks are at their lowest valuations in more than two decades.
- By the end of the year, U.S. non-financial companies could be holding near $2 trillion in cash. This indicates that companies have money to burn, which could trigger additional mergers and acquisitions, share buybacks, or increased dividends. Already we've seen plenty of tech companies boost their payouts, and others like Cisco are offering a dividend for the first time.
All these points indicate that today is an excellent time to add stocks to your portfolio. It doesn't, of course, mean you should go out guns-a-blazing and snatch up any old stock. What it does mean, however, is that U.S. stocks look pretty cheap, and for investors looking at blue chips, there may be many ways to gain shareholder value (through buybacks and dividends).
Let me suggest five companies that pay dividends above the 10-year Treasury's yield of 2.3%, that are trading at valuations below or close to the broad market, and that have been increasing their dividends over time, in some cases every year:
Consecutive Dividend Increases
|CenturyLink (NYSE: CTL )||7.3%||36 years||11.9|
|Exelon (NYSE: EXC )||4.8%||3 years||11.3|
|Sysco (NYSE: SYY )||3.5%||33 years||14.4|
|ExxonMobil (NYSE: XOM )||2.8%||27 years||12.1|
|General Dynamics (NYSE: GD )||2.7%||15 years||9.9|
Source: Capital IQ, a division of Standard & Poor's; DividendInvestor.com.
Let me be clear: These are not stocks, similar to Netflix or Las Vegas Sands, that are so incredibly undervalued that an investor can expect to reap 100%-plus gains in short periods of time. They are incredibly solid investments, though; most of these stocks are trading below their five-year historical valuations and have great competitive advantages. ExxonMobil and Sysco lead their industries, while Exelon and General Dynamics sport particularly attractive valuations, and CenturyLink has carved out a niche in the rural telecom field to generate tons of cash flow. While you wait for the rest of the market to return to sanity and stop being so incredibly fearful, take comfort in these juicy dividends and let the capital appreciation begin.
Have any questions on the stocks above? Let me hear it in the comments below, or feel free to add them to Your Watchlist to get all the latest Fool news and analysis.