Biggest dividend-paying stocks are still the best
Large-cap growth shares guide investors through rocky market
CHICAGO (MarketWatch) — Among U.S. stocks nowadays, the bigger they are, the harder they work.
http://articles.marketwatch.com/2012-08-10/in...end-yields
The market’s giants have proven nimble and stable in the choppy global economy. Large-cap growth-stock mutual funds, for example, are up 12% so far this year, more than three percentage points above their small-cap growth counterparts, according to investment researcher Morningstar Inc.
Is there more upside? For investors who are selective, it sure looks that way.
“Large-cap stocks have shown a very persistent improving trend of relative strength recently, and with the public investor so paralyzed in today’s investment world, we believe that it will be the large pools of money that recognize there is no better ‘safe haven’ than U.S. stocks,” Don Hays of Hays Advisors wrote in his blog.
“And because the huge pool of money has to have trading liquidity, that also gives a huge advantage to these large-cap stocks,” he said.
Of course, there can be too much of a good thing; some large-growth names look overbought.
“Big growth-stocks like Chipotle ((US:CMG) , Starbucks (US:SBUX), Priceline (US
CLN) — these high growers are suffering high valuation in what realistically is still a lower [economic] growth environment,” said Gus Zinn, co-manager of the Ivy Core Equity Fund (US:WCEAX). “You have to be careful for any slip-ups,” he added. “It could be news out of Europe, something out of their control, not even an issue of competition.”
Zinn’s fund is invested almost entirely in blue chips, including top-holdings Apple Inc. (US:AAPL) , MasterCard Inc. (US:MA) , General Electric Co. (US:GE), Altria Group Inc. (US:MO) , and Monsanto Co. (US:MON) .
“The sweet spot right now is for growth companies, but not necessarily high-growth companies,” Zinn said. The fund, he added, looks for shares of companies with steady top-line growth in the single-digit range and a focus on returning close to 10% of their market cap to shareholders with dividends and buybacks.
Investors shouldn’t grab for the highest yield, Zinn cautioned. Instead, he advised, seek lower-priced stocks with dividend yields of around 2%-3% and the potential for that yield to grow.
“A very high yield often signifies that a company is distressed and may not actually be able to pay its dividend going forward,” said Richard Turnill and Stuart Reeve, managing directors and portfolio managers at BlackRock Inc., in a commentary.
“While an above-average yield is an important component of total return,” the managers added, “dividend growth — a company’s ability to consistently raise its dividends — is even more powerful over the long term, through the compounding of growth on growth.”
Some managers say investors, even income-seekers, may be overly infatuated with dividend stocks.
