Get Paid to Wait
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October 29, 2011
All said, it looks like October will go down as having been a fairly good month for the stock market. In fact, the year hasn't done so poorly either. Last Wednesday the Dow finally inched past the 12,000 mark for the first time in at least two years. Will it keep going higher to year's end? Who knows? There's still unrest and uncertainty in the overall world market, and there's no question that this past weeks gains were mostly as a result of actions taken in Europe to quell some of their own economic woes. One thing I am wholly convinced of, however, is that the markets will go up eventually.
For that reason the concept of getting paid to wait just makes sense. Besides, no matter how you slice up where the U.S. economy stands right now, and how many people are still unemployed, one thing is certain. Companies, despite it all, are doing well. The fundamentals are strong. Businesses are sitting on mountains of cash. It's not like there isn't money to go places when things start heading toward better days.
Getting paid to wait is something Jim Cramer, host of Mad Money on CNBC has been talking about for some time, and I think he's right on the money with this idea. We really do have to see the forest for the trees when it comes to making sound investment choices. You look for the tried and trues, those companies that are out there that have products people need no matter what the state of the economy is. You look for those companies who have paid consistent dividends over time, and especially you look for those companies who have consistently paid, and increased their dividends since the start of the Great Recession.
Some stocks that I like a lot happen to be from companies like McDonald's (MCD), and International Paper (IP). Stocks like Proctor & Gamble (PG), and General Mills (GIS). Most of these stocks pay dividends in excess of 3%. That's far better than even a higher yield certificate of deposit is going to get you right now. Other stocks pay considerably higher dividends like Phillip Morris (PM) at around 4%, and Duke Energy at almost 5%.
One stock worth taking a close look at currently is also Ford, though Ford does not currently pay a dividend. But they are looking into it, which I think bodes very well for this stock. Will they pay the former dividend of 40 cents per share before they suspended it? I don't know. But I do know that Ford stock will pay off two-fold. For one thing, I think Ford stock is considerably undervalued so it has quite a bit of upside on its own. The dividend, should it be reinstated by the company's board would simply make this stock even more attractive. Buying shares now I think would be a very smart move, and if a dividend does get reinstated, I think this company's stock will go higher simply on such news. Ford is still the only U.S. automaker to come out ahead of the pack since the proverbial you-know-what hit the fan, and Ford paying a dividend will only serve to solidify Ford's standing as a solid company with great products Americans want, with a fantastic business model to boot.
I scoff at CEO pay quite often, but I'll tell you that as far as I'm concerned, Mulally has earned every penny he gets, and even maybe deserves more.
The thing is that unless you believe that the entire world economy is forever doomed, buying stocks right now, and especially buying strong stocks right now that pay hefty dividends is going to make you a ton of money in the coming years. Granted, it's going to require patience. It's going to require a little of intestinal fortitude. It's going to require having a pretty strong stomach. But it will all be worth it in the end.
When I used to help my mother with her budget I would always tell her when she got frustrated with the trials of the here and now, "The rewards are many, though not today." Today is the building process. Today is the hard part. Today is the work that gets you to the payoff. Work is never easy. But it does have its rewards if you do it right. The rewards are coming if you want them. The markets will rise. And while you wait, you can collect a paycheck in the form of dividends.
Full disclosure: Springboard's author, Jim Bauer, currently owns stock in International Paper, General Mills, and the Ford Motor Company. Currently he has no plans to buy shares in McDonald's, Proctor & Gamble, or Duke Energy.
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The year hasn't done so poorly? Clearly you didn't have any friends that had to endure the rollercoaster that is the Dow in August..
Imperalis, all I know is that on the first trading day of this year, which was the 3rd of January, the Dow closed at 11,670. Okay, that's less than 400 points in 10 months. BUT...We closed above 12,000 on Wednesday. Granted, we have a long way to go to get to the end of THIS year. But having read all of the disturbing news of the year, the unemployment numbers notwithstanding, and all of the trouble with the PIIGS, the fact that we can be higher than where we started is something to be considered. Short term ups and downs are to be expected. The finish line, however, is what I'm most interested in. And in my opinion, the finish line looks good. And as I pointed out, all of the fundamentals which are the true drivers of the markets look good. The amount of cash on the sidelines, not just of the companies, but of actual investors is staggering, and THAT looks good. If you are going to look at the market on a short term basis, then you will probably be disappointed. This article focuses on the longer term picture, and on buying on the dips to maximize profits tomorrow, not today, and cash in on the dividends while you wait for tomorrow to come.
The best time to buy the markets is when they are down. Not up.
Loanyi, I do think you'll make money in the future. What one need do is simply look at 1929-1933, and the state of the markets after, and the growth in the economy after. Then look at every single recession we've ever had, and the periods of growth after those recessions. Every single one of those periods tells us exactly the same story. If you bought when the economy was in the doldrums, you profited when the economy recovered from them. The story going forward from here will be exactly the same, and anyone buying stocks now is buying them on sale. If you buy stocks now that also happen to pay dividends, and then reinvest those dividends, the growth will simply compound. The fact that companies are doing well IN a recession, and are paying dividends consistently during that recession, and epecially those who have INCREASED those dividends during the recession means they will likely perform even better after all is said and done.
Right now the focus should be on strong, secular stocks. Not cyclical ones. When the economy improves, and things are back on track, you can take the profits you made playing it safe and take more risk on the cyclicals which will dominate the market performance down the road.
Thanks for the advice springboard.
Excellent advice, Jim, for those with money to invest in the long term. Since other investments these days carry such poor yields, finding strong stocks with healthy dividends seems to be the only intelligent way to invest. Thanks for the reinforcement of my beliefs.
WOW.
I'd thought the same thing as I'd perused nothing but the headlines of the Business section of the Dallas Morning News. Up - then down, then rinse and repeat. Someone is making money - that's for sure.
I wish I'd been a less foolish young man. I wish I'd held onto the stocks that I had years ago when I had money to invest. I wish I wish I wish.
Loanyi, glad to be any help. Of course, ALWAYS do your due dilligence before putting any money into any investment. Getting paid to wait also means putting only money into an investment that you can afford to get back when the time is right, not when the money is needed. In whatever you choose, I wish you the best.
The stock market now reminds me of OTB!
Glad to be of help Drbj. :)
Wesman, it's never too late to get some skin in the game again. You might be happy you did. Always a pleasure, my friend.
Pop, lol. It's sure one hell of a roller coaster these days.
I am glad there is a light at the end of very dark tunnel. Hopefully, it will get brighter. Gret hub.
Right now that light seems to be on, off, on, off, but once it shines constant it will shine brighter. I am wholly convinced of that, and so the time is now to be in and heavily so. I hope I can take that idea all the way to the bank...
Course, I guess it's entirely possible I could either be there to make a deposit, or to ask for a loan. :)
I am in the ultimate position to wait: Poor! But I agree that for strong and nonvolatile stocks, it is best to wait.The banks are not investing because they claim an inability to find investments that are not risky...that do not meet the "spread". In fact, they do not want any more deposits than they have. What do you think of that?
It depends on the type of deposits they are looking for. I mean, it's true that the current fed rate, which banks generally get for the money in our checking accounts as we move our own money around through other banks through the checks we write, is only at 1/4 percent, so they're not getting much for that money either, but ultimately it probably is the better return right now than using our savings and CD deposits for making loans (which they aren't making of course). If banks are taking on deposits they have to pay an interest rate to the depositor, and if they cannot then turn that money into loans at higher rates, it's money they simply pay for rather than earn on. So, I could see why they may be reluctant to do that. There's no question that when it comes to the banks, it's a bit of a mess.
People are repaying debt and increasing their savings rate, so it does put some pressure on the banks who rely on people holding debt.
loanyi 6 months ago
Do you really think that buying stocks right now will bring me money in the future. You know the stock market is stumbling right now and many people are afraid to buy stocks. What is your opinion besides what you said here??