High Dividend Stocks 101

Wow! No one I know thinks so. I guess maybe that’s because we’re all a lot closer to the end of the trail than to the beginning. In fact, The Dividend Guy says pretty much the reverse about his own position.  “I will be honest, I hope that 2009 is a better year from a returns perspective. However, at my wealth accumulation stage 2008 was a good year from a learning perspective.”   (See his full post here.)

Before that, though he made one point that shouldn’t be missed by ANYONE.  Number 1 in my mind?  The importance of asset allocation.  Asset allocation probably isn’t important to you if you know which moves the market will make or you’ll never need your money.  Of course I don’t know anyone like that.  Do you?

He continues with “I strongly believe that 2008 really showed investors their true colours when it came to their risk profile.”  I sort of agree with this one. 

I’m not sure how much a once-in-four generations event has to do with risk tolerance, at least as I think of it.  I can tell you this for sure though.  As I approach retirement I’ll be building cash and near-cash equivalents to a point where I shouldn’t ever be forced to liquidate stock investments.

Finally, he states that “The companies that made it out of 2008 alive are the strongest of the companies in my opinion.”   I hope he’s absolutely right on this.  I’ve read alot of his stuff, and I respect his opinion, but I’m just not sure about this.  How many companies are just alive due to bailouts received?  Worse still, how many are only alive due to the prospect of bailouts for themselves and unknown counterparties to various derivatives contracts?

stock strategy 2008 returns, asset allocation, risk tolerance

This headline fascinates me every time I read it.  Often, even the article following is an interesting read.  (Check out this article for instance.   OK, maybe I’m biased–I recently wrote up 2 of the 4 stocks mentioned.)  In truth though, I don’t believe anyone can really give us such a list–at least not one worth using.

For starters, how long should the list be?  I would say at least long enough to cover various sectors, market caps, and countries.  Otherwise an investor who follows it exclusively will have failed to allow for proper asset allocation, and that scares the hell out of me.  So, should the list include 20 stocks?  50?  80?  More?

I am also very reluctant to engage in market timing, but I think Alexander Green builds a very good case for stocks at the moment based on dividend yields vs. the yield on treasuries.

Two thoughts I urge you to keep in mind though, are that:

a) no amount of historical modeling can guarantee the future (Black Swan, anyone?)

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b) maybe current yields are really telling us that treasury yields should be much higher.

stock strategy asset allocation, dividend yield, market timing