Tuesday, March 15, 2011

Income Investors in a down market

Investors never like to open their brokerage account and see losses
that are inevitable when outside factors like the events in Japan send the market down significantly.  But income investors know that these are opportunities to add to income producing positions.  This is why we keep cash around.

  This is why we set stops.  This is why we take profit. This is why we spend less than we make in income so that when buying opportunities present, we have extra cash to put to work.
Now what to do with the money we have around.  The easiest way, I think, is to look through your list of dividend machines.

 I did just that.  I looked through the eighteen dividend machines profiled so far on this website and I found two stocks I would like to buy.  Each is trading at a price below the stock price quoted when I profiled the company.  Each company continues to maintain all the characteristics of a dividend machine in that they have increased the dividend every year; yield more than 3% and have a good balance sheet as measured by D/E (debt to equity) ratio.

Johnson and Johnson, JNJ is trading at about $58.40 which is a discount of about 8.5% from where it was when I profiled it.  JNJ’s current yield is 3.7%.  I have a lot of experience with JNJ and I know it is going to go back up to the 60’s.  Moreover its foray into biotechnology makes JNJ not just dependant on selling band aids. JNJ may have a block buster drug in the wings.  If the price goes down again and I have money to invest, I would buy more up to a total of 4-5% of my total income investing portfolio. 

Another defensive stock to consider is Kimberly Clark, symbol KMB.  KMB’s stock slide is not as significant as JNJ as it is trading at about $63.70 down a couple of points from the price of $65.85 when I profiled it.  Current dividend yield on KMB is 4.4%.

Finally, income investors, you need to look through your income stocks and consider reinvesting your dividends.  If the market continues to swoon as a result of the Japanese economic effect on the world’s economy, reinvesting dividends is a way to buy low without adding new capital.
Keep enough cash around that if (and we do not hope for this) one or more of the nuclear reactors does explode and the market takes a huge plunge, you have enough cash to live on and some left over to buy low.  Remember, one man’s trash is another man’s treasure.

Very Truly Yours,