LONDON -- Patient investors rejoice. Finally, high-yielding blue-chip shares are seeing a bit of action. Everybody has been banging on about how cheap these giants look for some time now, but so far to no avail.
But perhaps the worm is turning. Perhaps investors are waking up to the merit of investing in such boring companies.
I'll talk a little more about some of the shares on my radar a little further down, but first some context.
Making millions from pennies
The day-to-day movements of the market and individual share prices are dominated by traders working at investment banks and hedge funds. Much of the trading is done by computers using highly sophisticated software programs, the goal being to make a penny or two on thousands of high-frequency trades.
(As an aside, if you decide to actively trade shares for a living, understand what you are up against. Day traders sitting at home have little chance against such resources. Don't do it, would be my advice.)
All this computerized trading can result in share prices moving in weird and wonderful ways. For example, some days you might find the share price of your favorite blue chip is down 3% or 4%, for no apparent reason.
Taking no prisoners
That's computers for you. They take no prisoners. They don't care about the collateral damage. They trade the share price, not the company.
People with slightly longer investing perspectives than a few seconds should not be worried by the faceless computerized traders. All they do is change share prices. They don't change businesses.
As all true investors will know, ultimately it's the performance of the company that drives the share price, not the other way around.
Bagging yourself a bargain
True investors will also know they can use the irrationality of faceless computers to their advantage. Should the computers have it in for one of your favorite companies, marking the share price down to an irrational low, you can calmly step in and make a purchase -- and bag yourself a bargain in the process.
Then, you simply wait. Presuming you bought a good company at a good price, over time, you should be rewarded with a rising share price.
Time is the key here, and the luxury of time is the biggest advantage individual investors enjoy over the faceless computers. You see, we are only accountable to ourselves. We aren't under any short-term pressure to generate exceptional profits. We aren't going to be fired if we have a bad week, month or quarter.
The people behind the faceless computers don't have the luxury of time. Perform now, or be sacked.
Blue chips on the march
Individual investors can sit back and wait for our investments to come good. If you bought a good quality company at a cheap enough price, providing the company performs to expectations, over time, the share price should rise.
Over the past few weeks, a time in which the market (the faceless computers) has been somewhat nervous, the share prices of some generous-dividend blue chips have been on the march. For instance, during the last month:
-
AstraZeneca
(LSE: AZN.L) -
Aviva
(LSE: AV.L) -
BAE Systems
(LSE: BA.L) -
Resolution
(LSE: RSL.L) -
J Sainsbury
(LSE: SBRY.L)
They were significant price moves for such large companies, especially when the FTSE 100 moved just 3% higher.
In fact, looking at those five shares again:
- AstraZeneca raised its latest dividend by 10% and, at 2,958 pence, still yields a forecast 6.2%.
- Aviva lifted its latest dividend by 2% and, at 292 pence, still yields a forecast 8.6%.
- BAE Systems upped its latest dividend by 7% and, at 304 pence, still yields a forecast 6.4%.
- Resolution increased its latest dividend by 10% and, at 223 pence, still yields a forecast 9.1%.
- J Sainsbury improved its latest dividend by 7% and, at 314 pence, still yields a forecast 5.2%.
Dividend yields of 5% or more can only last for so long when cash and gilts yield next to nothing. Eventually, something has to give.
On the downside, either the economy tanks, the company disappoints or interest rates rise. We can all rule out the latter, with interest rates set to stay at their emergency low levels for some time to come.
As for the economy, the great fear among investors and the people behind the faceless computers is the dreaded eurozone collapse and/or a global depression. I contend it's unlikely to happen, and even if it does, I'll still be here, rubbing my hands as the market crashes and buying top-notch shares at rock-bottom prices.
Finally, there is company risk. There is always company risk. But with large, established blue chips, especially those selling repeat purchase goods and services, the risk is lowered. But there are no guarantees. There never are.
Putting the odds in your favor
Investing offers you choices. Right now, you can choose to sit on the sidelines and do nothing, fearful of a eurozone collapse, an economy that never recovers and/or another lost decade for leading shares.
Or you can choose to bet on good-value, good-quality shares that should slowly but surely recover in the years ahead.
Obviously, what you decide is up to you. But for what it's worth, you might want to consider the actions of investment ace Neil Woodford.
You see, Woodford certainly knows a thing or two about successful share-picking. His Invesco Perpetual funds now total some 20 billion pounds after trouncing the wider stock market over the last five, 10 and 15 years.
Right now, Woodford is backing a collection of dependable, defensive dividend-paying FTSE 100 names -- the identities of which can be discovered in this free Motley Fool report.
True, Woodford admits he is not 100% certain about the economy, but he, like me, has weighed up the odds and placed his bets accordingly.
Whatever you decide, I wish you the best of luck.
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