A Keen Eye for Dividends
More S&P 500 (MHP) companies cut dividends in 2008 than in any year since 2001. But Rick Helm, manager of Cohen & Steers Dividend Value Fund, (DVFAX) noses out gems: He topped the broader market by almost 10 percentage points during the worst of the tech bust. BusinessWeek's Tara Kalwarski asked Helm how he plans to navigate the rest of a rough year.
What distinguishes your strategy?
We don't buy high-yielding stocks as a policy. If a company is paying out a high percentage of earnings, it may not have the money to grow its business. Instead, we focus on companies with histories of modest--15% to 20%--dividend growth each year. Companies that consistently raise dividends are communicating that there is a strong outlook to the market.
But aren't most companies cutting dividends?
Outside of financials, we're not seeing a lot of reductions. But it's natural that as earnings growth slows, dividend growth will, too.
Then what will you do?
Buy the best quality names we can get, companies like IBM (IBM) and Johnson & Johnson (JNJ). Higher-quality companies will go down when the market goes down. But they tend to find a floor more quickly. And after a prolonged downturn, money doesn't first come back into the speculative names: It comes into quality names.
Data That's on the Money
Most money managers have an indicator they say gives them an edge in reading the markets. For Dan Shaffer of Shaffer Asset Management in Harrison, N.Y., it's the Commitments of Traders (COT) reports published by the government at cftc.gov/marketreports/index.htm each Friday.
The reports essentially disclose whether businesses are on the long or short side of the market-that is, whether they expect the stock market to rise or fall. (The data are based on futures contracts these businesses purchase to hedge against their actual use of a commodity or against an inventory of stocks.)
So far, Shaffer has found the indicator to be on the money: In the early summer of 2000, the reports indicated that businesses were expecting the market to move 25% to 30% lower, prompting Shaffer to move client money into cash. In 2000's second half, Shaffer's portfolio returned more than 25% while the S&P 500 fell nearly 10%. (Shaffer has returned an average 7.6% a year since inception in 2000 vs. the S&P 500's 0.3%.)
What do the reports tell Shaffer now? "We've been looking at a pattern very similar to the COT reports we saw in 2000," he says. "We're targeting a low of 1060 for the S&P 500 by the second half of 2010," or about a 15% drop from today.
Dusting Off Savings Bonds
A lot of old savings bonds are collecting nothing but dust, according to the Bureau of the Public Debt.
The value of matured but unredeemed savings bonds climbed to an all-time high of more than $16 billion at the end of the second quarter, or about 8% of the $195 billion outstanding in the government securities. That's up from $10 billion, or 5% of the total, at the end of 2002.
Reinvested back in savings bonds, that $16 billion would earn at least $227 million a year in interest. Visit treasurydirect.gov to check the status of your bonds.