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Strategies & Market Trends : Strictly: Drilling II -- Ignore unavailable to you. Want to Upgrade?

To: Joan Osland Graffius who wrote (4126)	11/17/2001 1:29:05 PM
From: isopatch	Read Replies (2) \| Respond to of 36161

Joan <folks are not looking at total returns> True across the board. From Greenpump on down to the average newbie investor with 2 yrs experience, they're trying to relive the bubble. Cap gains, easy money, buy and hold, trees growing to the sky, yada, yada<g>. Every time we rally? We've seen it over and over since March 2000. And the lemmings STILL pile back into the fallen tech angels near the top or every rally and get wipsawed. IMO we have to expect that. The learning curve for new investors is always slow and painful when they hit their 1st Bear Market. The are very slow to understand big picture concepts, or how to identify emerging new trends and the investment themes that will profit from same. Of course, the trick with any major theme is to get it right and get in early. The new deflation cycle began on 9/11. Until then inflation still had the edge. So posters on CFZ (and elsewhere) who called it months earlier? Called it wrong<g> So? To my avid readers under the porch, I'd say once again >>>>>>> The idea, kiddies<g>, is to arrive just after the party begins. NOT stand out in the rain for 6 months waiting for the band and the punch bowl to arrive<lol> TIMING TIMING TIMING. There were people shouting deflation in 1982. Should we give them credit because they called it before any of us?<g> OK now that's out of the way. Here's an excerp from my Oct 5th post pounding the table about the forgotten component of total return investing. Whatcha think, Joan? Maybe I should post it once a month on about 20 different SI and Yahoo threads as a public service announcement.<GGG>. <What about DIVIDENDS? They seem to be the forgotten component of investing. Not only by investors spoiled by a mega boom, bubble, parabolic tech mania market. Heck if I showed up on most Web threads even after the Mar 2000 tech peak taking about dividends, I'd have been run outta town on a rail<g> It was easy money time. Who needed to be conservative. That was passe'. Nor were issuing corporations interested. Dividend growth languished as corporate cash flow was instead directed into years of ambitious stock buy back plans. Without digging up specific research papers, suffice it to say that numerous PB (pre-Bubble) studies of overall investment returns covering many decades of market data consistently show dividends to be a large %age component of the total return investors receive on their capital. If top economists like Steven Roach and others are on the right track about the unfolding era we face, both investors and corporations are (or will soon be) recognizing that new strategies and tactics are required in a LT slower growth investment environment. Here's a prediction for those of you who enjoy them. I promise you<g> that in the months ahead, WS Investment Strategy and Market Analysis Departments as well as financial publications like Barrons, Institutional Investor, Forbes and IBD will be falling all over themselves echoing this theme: THE REDISCOVERY OF DIVIDENDS AKA, "Who ya gonna call" now the parabolic profits party is O-V-E-R.<g> The income produced by dividends will slowly resume it's traditional role as an an important component of the total return investors earn over the long term in their stock portfolios. But with current dividend yields on common stocks still new historic lows across the market, a little creative thinking is needed to achieve our objective for the safe money we want to earn income on. IMHO, preferred stocks, after being off the table for years, look like an idea that's coming back into the limelight. My recent recommendation here of the Newmont Mining Convertible Preferred is one example. But before you set out on search mode, I'm going finish with only 2 more suggested screens. You should be able to develop additional screens specific to your investment objectives as you dig through the various sectors and stocks: 1. Look at balance sheets. And avoid heavily indebted companies. That puts your dividend at risk during a severe recession and more so if we are moving into a mildly to moderately deflationary environment. 2. Look at revenue, earnings and cash flow and their trends. Shrinkage in those key numbers could endanger adequate dividend coverage. If a company is paying out almost all their profit in dividends, the risk of a significant dividend cut is very real. I've seen it happen many times. Although Conagra has several preferred issues that pays a high dividend. finance.yahoo.com finance.yahoo.com Conagra is also a classic example of an interesting speculative income play. But it's leveraged balance sheet and poor dividend coverage present a higher level of risk than conservative investors would want assume in putting their safe, income capital to work. siliconinvestor.com If you scroll down the profile, notice debt is almost twice equity. And CAG is paying out approx 90% of their TTM earnings just to maintain the dividend. This isn't what I'd consider an investment quality income investment. Look forward to hearing what kind of ideas people come up with. Good luck with the search. It's fun. Cheers, Isopatch" Closed end muni bond funds are another good idea if your tax bracket makes 6 to 6 1/4% free of federal taxes attractive. A quick look at a comparative yields table for the different marginal tax rates will give you a quick answer as to whether they are competitive with the taxable alternatives in the above quoted post. Iso>. Message 16463806