Dividend-Adjusted Return Since Aug. 2, 2011
|Mortgage REITs||Annaly Capital (NYSE: NLY )||15%||(5%)|
|Mortgage REITs||Chimera (NYSE: CIM )||18%||(1%)|
|Mortgage REITs||Crexus (NYSE: CXS )||14%||(4%)|
|Luxury||Coach (NYSE: COH )||1%||9%|
|Multinational||Intel (Nasdaq: INTC )||4%||13%|
|Multinational||Philip Morris (NYSE: PM )||5%||(2%)|
|Multinational||Coca-Cola (NYSE: KO )||3%||2%|
|Versus S&P 500||5.3%||0.2%|
Source: S&P Capital IQ.
Why these names? The biggest problem facing the U.S. economy is weak consumer spending. Households have high levels of debt they're still trying to pay off, and people are feeling insecure about their jobs or have already been laid off. Under these circumstances, it's easy to see why they're not spending. And when no one is buying goods and services, companies have more capacity to produce than demand for their products, so they have no reason to hire people.
It's a vicious cycle -- one that probably won't be cured for a long time unless we experience a new technology boom, a surge in exports, or additional stimulus spending to boost demand.
Dividend stocks have been shown to outperform nondividend payers, especially in bear markets. And there are particular reasons to think these categories of stocks will do well, too: Utilities provide a necessity product and tend to do well in periods of low inflation, mortgage real estate investment trusts are enjoying strong profit spreads in the current interest rate environment, luxury goods makers should do well as the wealthy continue to accumulate a greater and greater proportion of our nation's wealth, and multinationals can support domestic revenue with sales from emerging markets.
How're we doing?
On average, the 10 stocks are about in line with the S&P 500 (INDEX: ^GSPC), which is up a bit. Over time, I expect them to outperform -- particularly if a weak economy persists.
So far, that's been the case. The economy added 103,000 jobs in September, but unemployment has held pretty steady between 9% and 9.2% for most of the year as the jobs gains struggle to keep up with layoffs in the public sector, a growing population, and the huge number of discouraged workers. I also wrote a column last month explaining why this all means high inflation is pretty unlikely for the time being.
Here's the recent news and upcoming events:
- Mortage REITs may be starting to face additional risks. The Federal Reserve's "Operation Twist" has the potential to reduce interest income, and my Foolish colleague Anand Chokkavelu noted that the SEC is looking into whether all mortgage REITs should be able to keep their tax-exempt REIT status. At least for now, Annaly's CEO doesn't seem too worried about the SEC investigation. He suggested that most of the activities the SEC is looking into -- which may include the socially dubious practice of REITs buying synthetic collateralized debt obligations -- aren't as prevalent as they were during the bubble years. I'm going to be paying close attention to the increasing likelihood that the Fed may become more aggressive in trying to fix the economy, which would put additional pressure on mortgage REITs.
- Coach, Intel, Philip Morris, and Coke report earnings this week. Analysts expect 11%, 17%, 24%, and 11%, earnings-per-share growth, respectively.
Foolish bottom line
The current economic environment may be a difficult one for many companies, but the dividend payers listed above have some protection from these challenges, and, in some cases, could actually benefit from them.
If you're looking for even more dividend stock ideas, I suggest checking out The Motley Fool's special report, "13 High Yielding Stocks to Buy Today." You can download it today at no cost by clicking here.