Trend Alert: From Band Geek To Prom King
Ever notice how as time passes, things go in and out of style?
My 17-year-old daughter loves wearing jean jackets. Ray-Ban sunglasses are making a comeback. Even the fanny pack is supposedly trendy now!
As dividend investors, we often watch fads in the market come and go.
For a short time, some investors loved “cloud technology” stocks. And then they shifted focus and moved all their capital into cryptocurrency plays. It’s possible that the next hot investment idea could be artificial intelligence or self-driving car platforms.
I don’t have any problem investing in great companies that are in sync with the current popular trends. But I only want to put my hard-earned cash to work if I can be confident that the companies I invest in will give me a healthy return — with plenty of income along the way.
By taking this approach, we’ve been able to collect reliable income payments month after month while avoiding a lot of the drama and uncertainty that comes with investing in the latest fad.
Today, I’m a little bit amused to see that our tried-and-true strategy of investing in quality stocks that pay reliable dividends is becoming more “popular.” In fact, dividend stocks are showing signs of becoming the new “fad” as investors look for ways to protect their capital and grow their income.
That’s all well and good with me. This new fad (or old fad, depending on your perspective) is giving new life to some of my favorite income opportunities…
A Resurgence in Consumer Staples Stocks
After years of being some of the most overlooked stocks on Wall Street, consumer staples stocks are now showing up in headlines and even being discussed on shows like CNBC’s Fast Money. How’s that for ironic?
To refresh your memory, consumer staples companies are the “boring” businesses that provide all of the things that you need for day-to-day living.
We’re talking about things like cleaning supplies, cosmetics, personal products and basic food items.
In other words, these are the things that you buy regardless of whether the economy is doing great or in a slump. And because these companies have very steady businesses, investors haven’t been interested in owning shares.
After all, you’re not going to double your money in a year with one of these stocks. (At least, that’s the prevailing wisdom.)
With so much attention on blockchain technology, self-driving cars and media entertainment, trendy investors have moved money out of consumer staples stocks. There isn’t anything wrong with the businesses (or with the income they pay to investors). But the stocks simply haven’t been “sexy” enough to hold investors’ attention.
That’s one of the main reasons shares of consumer staples companies like one of my favorite income plays, Procter & Gamble (PG), have pulled back.
Fortunately, the steady income payments investors received from PG have more than offset the pullback in the stock price. That’s the beauty of income investing… Even with the market’s back-and-forth, shareholders still get paid real cash, which is theirs to keep regardless of what stock prices do.
Today, the newest investment fad is to buy shares of companies with stable earnings and reliable dividends. Does that sound familiar?
This new fad is helping to drive shares of consumer staples higher, which is great news for many of The Daily Edge’s favorite income positions!
Now, to be clear, I’m not saying you should be in these names because they’re now more popular. Buying and holding quality stocks that pay great dividends is something we do year-round. Whether it’s in fashion or not.
But I am saying that if you’re not yet invested in PG or other consumer staples stocks on your radar, now is a great time to buy these names. After all, the stocks are still very cheap and now we have momentum on our side.
In fact, I’d go as far as to recommend adding to your position since the stock price is very low, the dividend yield is over 3.6% and the momentum is in our favor.
Stalking Utilities for New Opportunities
Another great area for dividend stocks that has been overlooked is the utility sector.
Shares of utilities have historically been considered safe and boring places to park your money. In fact, many people dubbed these investments “widow-and-orphan stocks” because they were only good for protecting the assets of people who couldn’t afford to take much risk.
Today, utility stocks are on the move and headed higher.
The same forces that are helping to push consumer staples stocks higher are also propelling the stocks of stable utility companies. In other words, investors are looking for safe places to earn income, and utility stocks offer the perfect advantages.
If you’re interested in investing in a wide assortment of utility opportunities, the Utilities Select Sector ETF (XLU) is a good place to start. This fund currently pays a 3.4% yield, and it’s a great way to profit from the rebound in this sector.
Here’s to growing and protecting your wealth!