Portfolio Reviews

In dividend-growth investing, you are relieved from watching the market every day and agonizing over its every move. However, dividend-growth investing is not "buy and forget." It is "buy and monitor." I monitor my portfolio in two ways.

• I keep up with news on my stocks. If a catastrophe happens, such as last year's oil spill by BP, I want to know about it and decide if it is likely to threaten the company's dividend.
• Twice per year, I conduct formal Portfolio Reviews. These are methdocial, stock-by-stock examinations that come from a higher, strategic point of view. I want to know if each stock is successfully fulfilling its role in the portfolio or whether it is a candidate for sale or swap. 

I have written several articles on actual portfolio reviews for my Dividend Growth Portfolio. These articles illustrate the information examined and the kind of thinking involved.

Portfolio Forensics (August 3, 2010). This first article in the series explained that during a Portfolio Review, the burden is placed on each company to prove why it should be kept. I described the sorts of questions that I ask about each company. This review led to the selling of three positions.

Dividend Growth Portfolio Review: Sherwin Williams Is Out (April 26, 2011). The review last April led to the decision to sell Sherwin Williams, because its dividend increases and yield had stagnated but its price had ballooned. I was able to redeploy the money to better advantage elsewhere.

Dividend Growth Portfolio Semi-Annual Review: Pretty Boring Stuff... The Dividends Just Keep Increasing (Yawn) (October 11, 2011). As the title of this article implies, this Portfolio Review led to no changes. Everything is working to my satisfaction.
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The complete methodology for Portfolio Reviews is explained in my annual eBook on dividend-growth investing. Top 40 Dividend Growth Stocks for 2012 is now being prepared. I'm working on it nearly every day, and I hope to release it in mid-January after I get my hands on year-end numbers. In addition to the Top 40 list (and complete analysis of each stock), the eBook will contain a comprehensive guide to the investing strategy, from how to pick stocks to how to manage your portfolio. Some readers have told me that the investment guide is more important than the list and analyses of the Top 40 stocks. In fact, I considered changing the title this year (to How to Create and Maintain a Dividend-Growth Portfolio), but I feel that the Top 40 title is now well established, so will leave it alone.

As soon as the new edition is available, I will announce it in this newsletter first.

Dividend Growth Investing and Retirement

I am continuing here with my Seeking Alpha articles organized by topic. This post's subject is retirement. I have written several articles on the subject of dividend growth investing's relationship to investing for retirement.

I have become frustrated with the retirement and investment advisory industries' failure to include dividend-growth investing as worthy of consideration for retirement planning. The "standard" industry approach to retirement funding goes something like this:

1. Invest all your life to reach "The Number." That's as big a collection of assets as you can amass. There are various ways to compute Your Number. One common method, and one which is usually extremely misleading, is to say that you will need retirement income equal to 70% of your final working year's salary.
2. As you approach retirement, convert a large portion of your assets from riskier to "safer." Safety is invariably associated with bonds, completely ignoring the fact that bond interest (and the principal itself) is powerless against inflation, because it stays static for the life of the bond.
3. In retirement, withdraw from your assets to create the income you need. That is, you sell your assets--you liquidate them.
4. Hope that you don't outlive your money. 

You can immediately see why I believe that dividend-growth investing should be considered as an alternative to the conventional approach to retirement planning. For one thing, while I too believe you should focus on a number, it is not the largest pile of assets you can assemble, but rather it is the annual income you will need each year in retirement. For another, if you have been accumulating assets that themselves produce income, then you don't have to convert them--thus sidestepping market risk during the conversion. Yet another point is that each dollar your assets produce as income wipes out a dollar that you would have to create by selling something off. In the ideal case, if your investments produce enough income each year that you do not ever have to sell anything, you guarantee that you won't outlive your money. Finally, dividend-growth portfolios produce income that rises each year, usually faster than inflation. Thus inflation is wiped out as a worry factor.

Topic: Retirement

The following series of four articles are the most highly-read articles that I have published on Seeking Alpha. The 4% Rule referred to in each title is the conventional rule for withdrawing assets in retirement: Withdraw 4% in Year 1, then increment that each year by 3% to account for inflation. (You wouldn't believe what that makes your withdrawal amounts in the later years of retirement.)

Retirement's 4% Rule: Surprising Answers You Need to Know About the Inflation Factor (July, 2011) This Editor's Pick article generated more than 350 comments. It introduces Mr. and Mrs. Growth, who plan their retirement according to conventional financial advice. Even though they save a cool $1,000,000 for retirement, they get surprised by how inflation (at 3% per year) forces them to withdraw more and more money each year. Despite similar-sized returns on their assets, their money runs out in Year 25 of a planned 30-year retirement. In other words, they're screwed.

Retirement's 4% Rule: The Importance of Return Sequence (August, 2011) In this article, we try some different withdrawal and return scenarios to see if they help Mr. and Mrs. Growth or hurt them even more. Along the way, we see how damaging it can be to need to make withdrawals early in retirement if that happens to coincide with a bear market. People who retired in 2008 can relate to this. So can people who retired in 2000-2001. The combination of a declining market and making withdrawals to fund retirement is a recipe for disaster.

Retirement's 4% Rule: Why Mr. & Mrs. Income Don't Need It (Part 1) (August, 2011) This article introduces Mr. and Mrs. Income, who saved for retirement by relying largely on dividend-growth concepts instead of amassing a Giant Number. They went to a financial planner who advised them on shooting for The Number, but they rejected that advice. Instead, they decided to do it themselves, creating a portfolio of some bonds and lots of dividend-growth stocks. This article was an Editors Pick and drew more than 300 comments.

Retirement's 4% Rule: Why Mr. & Mrs. Income Don't Need It (Part 2) (August, 2011) This article follows Mr. and Mrs. Income through their retirement. Using the same scenarios that destroyed Mr. and Mrs. Growth, we discover that the Incomes' portfolio worked wonderfully. The total income needed by the couple in 30 years of retirement was a little over $1.9 million. Their portfolio actually delivered more than $2.5 million. This article drew more than 450 comments, which as far as I know is the record on Seeking Alpha. I have never seen an article there with more comments.

The following series of articles appeared in 2010. The titles are pretty self-explanatory.

Financing Retirement: It's All About Income (July, 2010)

Financing Retirement: What's Your Real Number? (July, 2010) Hint: It's how much income you'll need.

Financing Retirement: Turning Capital into Income (July, 2010)

Financing Retirement: Asset Allocation (August, 2010)

Financing Retirement: The Cistern Analogy (August, 2010) I love this metaphor for visualizing retirement. It's better than "nest egg," because a cistern is dynamic, with inflows (dividends, interest, Social Security, pension payments), outflows (taking the income for spending money), and a leak (inflation).

The following articles are on various retirement subjects.

A Sampling of Investment Advisers Seeking Dividend Growth for Your Retirement Portfolio (May, 2011) Not all investment advisers follow the conventional path. There are a few who 'get it" about dividend growth approaches. This article drew more than 140 comments.

You're Retiring: Where Is Your Income Going to Come From? (March, 2011). This Editors Pick article was directed at professional financial planners. I asked them to tell me: "Why are the unique characteristics, benefits, and risks of dividend-growth portfolios ignored? Why are dividend-growth stocks never singled out as an investment category well suited to the needs of retirees, instead of being lumped in with all other stocks? Why are the rising-income-generating qualities of dividend-growth stocks never mentioned? Why is the dollar-for-dollar offset of dividend income against capital withdrawals never discussed?" There were nearly 400 comments.

Top 40 Dividend Growth Stocks for 2012

I have been receiving inquiries daily about whether there will be a 2012 edition of Top 40, and if so, when will it come out?

The answers are yes and mid-January. Readers of this newsletter will be the first to know, as I will announce the launch here. Thanks for your interest!!

Where Have I Been?

I had hoped to write some original material for this newsletter after I stopped the Timing Outlook in June, but that hasn’t worked out. Keeping up with articles on Seeking Alpha (SA), plus other activities, have burned up all of my available time.

I am in the process of preparing the 2012 edition of Top 40 Dividend Growth Stocks for 2012. A new feature I want to add in 2012 is a guide to all of the articles I have written over the years on dividend-growth investing. I think that will provide a library of sources for people who want to delve deeper into certain subjects. I already work the major points from articles into the eBook itself—that is a primary reason that the text changes from year to year. But I can’t work everything in—the text would become too long. Hence the desire to provide a guide to source articles.

I thought that I would start that work now, and provide it to you here prior to publishing Top 40 in January. My thinking right now is to present the guide in logical clusters of articles. It’s natural to start with the basics. So here is the first installment in next year’s guide to articles about dividend growth investing.

Dividend Growth Investing: The Basics

Here’s What Mr. Market Says: “Ban Dividends” A fun interview with Mr. Market, the fictional(?) fellow that controls all market movements. An Editors’ Pick that has picked up more than 115 comments. (October 31, 2011)

Debating Dividends: What Would You Want Your Company to Do With Its Excess Cash? Is it better for a company to retain all of its earnings or to send some of the earnings to shareholders as dividends? It depends on several factors that are discussed in this article. An Editors’ Pick that attracted more than 230 comments. (June 2, 2011)

Are Dividend-Growth Stocks a Distinct Asset Class? Asset classes are the major categories of investments, such as stocks and bonds. This article explores whether dividend-growth stocks are unique enough in their own right to comprise their own asset class. There are more than 100 comments to the article. (May 5, 2011)

The 5-Year Rule in Dividend Growth Investing. I require 5 straight years of dividend increases for a stock to be eligible for the Top 40 list. This article explains why. 123 comments. (April 15, 2011)

Portrait of a Beautiful Dividend Growth Stock. This article examines the stocks that have made every Top 40 list since I began the series in 2008 and investigates what they have in common. 89 comments. (March 23, 2011)

Why I Love Dividends. This article marked my entry into an age-old debate that continues to the current day. Some people love dividends and others do not. This article explains why I do. 139 comments. (February 9, 2010)

Dividends: A Company’s Leading Indicator. This article concludes from other studies that the amount by which a company raises its dividend is often a leading indicator of how it sees its own fortunes playing out over the next few years. (May 18, 2009)

Why Dividend Investors View Stocks Differently. The difference between traders and investors. (September 3, 2008)

4 Qualities of the Best Dividend Stocks. An Editors’ Pick. What to look for in a good dividend stock. (August 17, 2008)

Final Timing Outlook

I have decided to stop publishing the Timing Outlook. I have had increasing difficulty keeping up with the bi-weekly publication schedule. I also have had insufficient time to analyze capital-gains stocks for more than a year, with the result that I only use SPY (which tracks the S&P 500) as an investment vehicle for my Capital Gains Portfolio. I feel that I am doing my readers a disservice with such paltry informatkion.

Since I became seriously interested in dividend-growth investing in 2008, I have found that pursuit to be more fun and rewarding personally. Most of my original articles are now about dividend investing, and most of them are published on Seeking Alpha. I have even fallen behind on posting summaries of them here, which is another reason to drop the Timing Outlook. With the time freed up, I hope to catch up on the summaries here and maybe also post some original content here.

Thanks for all the emails--questions, kudos, and criticisms--about the Timing Outlook and market commentaries. I have really appreciated them. I hope that the Timing Outlook has demonstrated that market timing is possible if not perfectible. I also hope that it has illustrated a way to keep emotions out of investing. That's an important trait for any investor no matter what the strategy.

The Timing Outlook is not copyrighted or trademarked, so if anyone wants to pick it up, feel free to do so. All of the indicators are available for free on the Internet. If anyone picks it up and publishes the results, please let me know.

Thanks again for reading. Please continue your subscriptions to this newsletter as I go through this transition. I hope to keep the newsletter useful and attractive as I change its focus.

Regards,
Dave

Timing Outlook Hanging in There, Barely Positive

1. Summary

The S&P 500 closed last week down about 1% from the last Timing Outlook report two weeks ago. The index is now at 1331. All of the indicators stayed the same, except for The Conference Board’s Index of Leading Economic Indicators, which declined after 9 consecutive monthly increases. This shaves another half point off the Timing Outlook, lowering it to 7.5. That is still in positive territory. (Click chart to enlarge.)

In the chart above, you can see that the S&P 500 is just a little above where it was three months ago, but that it fell about 2% in May. The old “sell in May and go away” aphorism looks like good advice right now, but that could change by Halloween, which by tradition is when one is supposed to re-enter the market. The market is up 6% for the year.

I continue to remain 100% invested in SPY (an ETF that tracks the S&P 500) in my Capital Gains Portfolio. The holding is protected to the downside with a trailing 6% sell-stop that applies to all shares. The stop sits now about 4% below Friday’s close.

My Dividend Growth Portfolio remains 100% invested except for accumulating dividends waiting to be invested. I reinvest dividends when they accumulate to $1000, and the total right now is just less than that, so I anticipate making a purchase in June after one or two more dividend payments are received. I love reinvesting dividends, because the inevitable result is that the dividend stream increases: More shares, more dividends. The increase in the dividend stream means that the yield on my original cost ($40,000) goes up. That’s the math of dividend-growth investing in a nutshell.

If you would like to learn more about dividend-growth investing—building wealth slowly or creating an ever-growing dividend stream that stays ahead of inflation—check out this page: TOP 40 DIVIDEND STOCKS FOR 2011: How to Generate Wealth or Income from Dividend-Growth Stocks.

2. Market Performance Since Last Outlook
(“now” figures are as of close Friday, May 27, 2011)

Last Outlook (5/15/11): 8.0 (positive)

S&P 500 last time (5/15/11): 1338
S&P 500 now: 1331 Change: -1%

S&P 500 at beginning of 2011: 1258
S&P 500 now: 1331 Change in 2011: +6%

S&P 500 at close 3/9/09 (beginning of bull market): 677
S&P 500 now: 1331 Change since 3/9/09: +97% (in about 27 months)

3. Indicators in Detail

• Conference Board Index of Leading Economic Indicators: After 9 consecutive monthly increases, the report on May 19 showed a decline in this indicator. That lowers it from positive to neutral. I require three straight increases or declines to rate this indicator as positive or negative, otherwise it is ambiguous and therefore neutral. +5

• Fed Funds Rate: No change at 0% to 0.25%. More attention is now being paid to the scheduled June termination of “QE2”—the Fed’s $600 B program of purchasing Treasury bonds. Some speculate that the Fed will be forced to start a QE3 program to help the still-sluggish economy along, but the majority seem to believe that the Fed will stop QE on schedule. Positive. +10

• S&P 500 Market Valuation (P/E): Morningstar’s operating P/E of the S&P 500 remains at 16.4. They do not seem to be recalculating this number as often as they used to. But the value is well within the positive range of being <17.3. Positive. +10

• Morningstar’s Market Valuation Graph. Morningstar’s proprietary market valuation graph is 1.00, down from 1.02 last time. That makes it exactly neutral, which it has been for well over a year. +5

• S&P 500 Short Term Technical Trend: The market’s downward tilt in May has it flirting with its 50-day simple moving average (SMA) and has taken it below its 20-day SMA. So the configuration is 20-day > Index > 50-day. If the market falls below its 50-day SMA, which it did earlier this week only to climb back up, this indicator will turn negative. Right now it’s neutral. +5

• S&P 500 Medium Term Technical Trend: This indicator remains positive, but just slightly as the S&P 500 index is barely over its 50-day SMA. The configuration is Index > 50-day SMA > 200-day SMA. +10

• DJIA Short Term Technical Trend: The Dow’s configuration is the same as the S&P 500’s. Neutral. +5.

• DJIA Medium Term Technical Trend: Same as the S&P 500 chart. Positive. +10

• NASDAQ Short Term Technical Trend: Same as the other two. Neutral. +5

• NASDAQ Medium Term Technical Trend: Same as the other two. Positive. +10

TOTAL POINTS: 75
NEW READING: 75 / 10 = 7.5 = POSITIVE

Timing Outlook Still Positive at 8.0 as Market Meanders

1. Summary

The S&P 500 closed last week down about 2% from the last Timing Outlook report two weeks ago. The downward move pulled all three short-term momentum indicators into neutral territory, lowering the Timing Outlook to 8.0. That is still in positive territory.

If you were to place a ruler on this chart connecting the bottom edge of the March 16 low of 1257 to the bottom edge of Friday’s close at 1338, you would have a line sloping upward 6% in about 2 months. That is the upward trend reflected by the positive Timing Outlook. However, if you follow the rolling terrain day by day, it’s a little like climbing a mountain. Overall you are going up, but there are peaks and dips along the way. A pattern like this is called “higher highs and higher lows.”

As I’ve often stated in the past, I think the market is news-driven. What’s in the news? Steep gasoline prices impact everybody as individuals and the costs of doing business for most corporations. Prices paid by producers and consumers are rising at their fastest 12-month clip in more than two years. Economists are thus keeping a sharp eye on inflation. If “core” inflation (excluding food and fuel costs) begins to climb upward, the Fed, whose job it is to control inflation, will need inevitably to raise interest rates. The last statement from the Fed a couple of weeks ago suggested that they did not see any rate-raising for a couple of meetings (about 7 weeks), if then. Rate increases are not usually good for the market, except initially they can have a positive impact if investors see them as confirmation that the economy is improving enough that the Fed needs to slow it down a little.

As it is, the Fed is about to end its “quantitative easing” program in June. Some pundits refer to QE as the punchbowl that has fueled the last several months of the stocks market’s performance. Earnings season is just about over, and it was good but not great. The overall “beat rate” of companies reporting earnings fell to just a little over its historical average of 62%. With earnings season ending, attention will turn to other news.

We are also entering the “sell in May and go away” months, the dog days of summer, when the market has historically performed its worst. Let’s hope for some good news to tide us over to the next earnings season, which starts in July, and that the news from that season is good.

I continue to remain 100% invested in SPY (an ETF that tracks the S&P 500) in my Capital Gains Portfolio. The holding is protected to the downside with a 6% sell-stop that applies to all shares. Since the stop moves up when the market moves up but stays put when the market moves down, it is actually sitting about 4% below Friday’s close. As long as we continue to get higher highs and higher lows, it won’t get triggered.

On the dividend-investing side, my Dividend Growth Portfolio remains 100% invested, as it always is (except for accumulating dividends waiting to be invested), because the focus is on building the dividend stream, not on capital gains.Since last time, one stock in the portfolio announced a dividend increase: Pepsico raised their dividend by about 7%.

If you would like to learn more about dividend-growth investing—building wealth slowly or creating an ever-growing dividend stream that stays ahead of inflation—take a look at TOP 40 DIVIDEND STOCKS FOR 2011: How to Generate Wealth or Income from Dividend-Growth Stocks.

2. Market Performance Since Last Outlook
(“now” figures are as of close Friday, May 13, 2011)

Last Outlook (4/29/11): 9.5 (positive)
S&P 500 last time (4/29/11): 1364
S&P 500 now: 1338 Change: -2%

S&P 500 at beginning of 2011: 1258
S&P 500 now: 1338 Change in 2011: +6%

S&P 500 at close 3/9/09 (beginning of bull market): 677
S&P 500 now: 1338 Change since 3/9/09: +98% (in about 26 months)

3. Indicators in Detail

• Conference Board Index of Leading Economic Indicators: No new report since last time. This indicator has increased 9 months in a row. Positive. +10

• Fed Funds Rate: No change at 0% to 0.25%. The Fed remains committed to a loose money policy until the economy is well into recovery or they become concerned with inflation. Attention is now starting to turn to what the market’s reaction will be at the end of June. That is when “QE2”—the Fed’s $600 B program of purchasing Treasury bonds—will end. While not a rate hike per se, it does mean that the stimulative effect of the Fed being an active bidder for US bonds will come to an end, and that probably will be seen as the first step in the Fed’s tightening process that practically everyone thinks is coming as inflationary pressures seep back into the economy. Positive. +10

• S&P 500 Market Valuation (P/E): Morningstar’s “stuck” operating P/E of the S&P 500 has become unstuck, currently reading 16.4, up from 16.1. This slight increase does not move the needle on this indicator, because it is still well below the lower edge of the 17.3 – 21.1 neutral range. Positive. +10

• Morningstar’s Market Valuation Graph. Morningstar’s proprietary market valuation graph is 1.02, down from 1.05 last time. Any value within +/- 10% of 1.00 is neutral. This indicator has not strayed outside that neutral range for over a year, despite the market’s considerable increase in value over that time. The reason is the simultaneous growth in corporate earnings. +5

• S&P 500 Short Term Technical Trend: The short-term technical trends keep bouncing from positive to neutral and back as the market meanders up and down. The market’s decline on Friday took the S&P 500 index value below its own 20-day simple moving average (SMA). The day before, it had been above it. Whereas last time I reported that the S&P 500 had traded up on 10 of the last 12 trading sessions, as of Friday it has traded down on 6 of the last 10 sessions. The index is now just below its 20-day SMA. So the configuration has moved from a positive Index > 20-day > 50-day last time to a neutral 20-day > Index > 50-day this time. +5

• S&P 500 Medium Term Technical Trend: No change from last time: Index > 50-day SMA > 200-day SMA. This configuration is the most positive you can have. +10

• DJIA Short Term Technical Trend: The Dow’s configuration is the same as the S&P 500’s. Neutral. +5.

• DJIA Medium Term Technical Trend: Same as the S&P 500 chart. Positive. +10

• NASDAQ Short Term Technical Trend: The volatile NASDAQ finished Friday just slightly below its 20-day SMA, dropping this indicator to neutral along with the other two short-term trend indicators. +5

• NASDAQ Medium Term Technical Trend: Same as the other two. Positive. +10

TOTAL POINTS: 80
NEW READING: 80 / 10 = 8.0 = POSITIVE

Who's Who of Wall Street

An organization called Wall Street Economists has published the results of a research project on influential persons and opinion leaders. As announced in a news release dated May 04, 2011, yours truly made the list. According to Wall Street Economists, their researchers spent hundreds of hours analyzing the most important news stories, articles, interviews, and blog posts about the financial crisis and its impact on Wall Street.

My name appeared on the list in a category of Top Wall Street Experts and Opinion Leaders.

I don't think of myself as working "on" Wall Street, but I am certainly part of the investment industry. Many of the things I write about--like market timing and dividend-growth investing--are anti-Wall Street in the sense of going opposite to much mainstream thinking. But it is nice to be recognized as an opinion leader.

Market Breaks Out of Trading Range, Timing Outlook Remains at 9.5

1. Summary

The S&P 500 closed the week up 2% at a level not seen in two years. The index is now 101% above the March 9, 2009 low. In other words, it has more than doubled on price alone. The index has now climbed to within 13% of its all-time high of October 9, 2007. In the past few days, the S&P 500 broke out of a trading range that it had been in for more than three months.

Here is an interesting chart from Doug Short, who creates great market graphics in his articles on Seeking Alpha. (Click the chart to enlarge it.) It’s good to get a long-term perspective sometimes.

In this chart, the red area depicts a 20% decline from that all-time high—the usual definition of a bear market is a 20% decline from a recent high. We can see that that point (-20%) was reached in July, 2008, and the market stayed in the red zone until January of this year. Of course, what we’ve had since the all-time high is two distinct market trends. First a bear market pulled the S&P 500 down almost 57% by March 9, 2009 (17 months), then a bull market has pulled the market back up more than 100% by last Friday (26 months). By all appearances, the bull market trend is still intact.

Earnings season is in full swing. The “beat rate” is running around 70% so far, compared to a historical average of about 62%. The good earnings reports seem to be the major factor influencing investor behavior, with the market advancing steadily almost daily for the past couple of weeks. There was one nasty day (right after the last Timing Outlook) when S&P issued a “negative outlook” on the long-term credit situation in the USA, but the market bounced back almost immediately from that. With the steady rise in the past couple of weeks, I have invested the last 25% back into SPY (an ETF that tracks the S&P 500) in my Capital Gains Portfolio, which is now 100% invested again. The holding is protected to the downside with a 6% sell-stop that applies to all shares.

On the dividend-investing side, where the focus is on creating an ever-increasing stream of dividends rather than accumulating capital, I made a couple of changes to my Dividend Growth Portfolio as the result of an overdue Portfolio Review. With the changes, the portfolio’s yield on cost has now reached 5.1%. If you’d like to read an article about the Portfolio Review, go here: “Dividend Growth Portfolio Review: Sherwin Williams is Out.” Since last time three more stocks in the DG Portfolio have announced dividend increases: Chevron 8%, Johnson & Johnson 6%, and Procter & Gamble 9%.

If you would like to learn more about getting wealthy slowly through dividend-growth investing, take a look at TOP 40 DIVIDEND STOCKS FOR 2011: How to Generate Wealth or Income from Dividend-Growth Stocks.

2. Market Performance Since Last Outlook
(“now” figures are as of close Friday, April 29, 2011)

Last Outlook (4/15/11): 9.5 (positive)
S&P 500 last time (4/15/11): 1320
S&P 500 now: 1364 Change: +3%

S&P 500 at beginning of 2011: 1258
S&P 500 now: 1364 Change in 2011: +8%

S&P 500 at close 3/9/09 (beginning of bull market): 677
S&P 500 now: 1364 Change since 3/9/09: +101% (in about 26 months)

3. Indicators in Detail

• Conference Board Index of Leading Economic Indicators: New report April 21 increased marginally, bringing the streak to 9 monthly increases in a row. Positive. +10

• Fed Funds Rate: No change at 0% to 0.25%. The Fed is clearly committed to a loose money policy until the economy is well into recovery or they become concerned with inflation. Ben Bernanke, in his press conference last week, said that he does not see any rate tightening for at least two more Fed meetings (about 4 months). Note that at the end of June, “QE2”—the Fed’s $600 B program of purchasing Treasury bonds—will end. While not a rate hike, this will have the effect of tightening up the money supply as time goes on and may lead to bond-market and mortgage interest rates rising. Positive. +10

• S&P 500 Market Valuation (P/E): Morningstar pegs the current operating P/E of the S&P 500 at 16.1. This marks four readings in a row at that level, which makes me think that Morningstar has an error in its system. The computed number usually changes more frequently. However, since that number is well below the lower edge of the 17.3 – 21.1 neutral range, I will still consider this indicator positive while I look into the matter. +10

• Morningstar’s Market Valuation Graph. Morningstar’s proprietary market valuation graph is 1.05, up from 1.03 last time. Any value within +/- 10% of 1.00 is neutral. The indicator has not strayed outside that neutral range for over a year, despite the market’s considerable increase in value over that time. The reason is the simultaneous growth in corporate earnings. +5

• S&P 500 Short Term Technical Trend: After the one-day drop just after the last Timing Outlook, the market has risen steadily. The S&P 500 has traded up on 10 of the last 12 trading sessions. The index has distanced itself from its 20-day simple moving average (SMA), which has also put some distance between itself and the 50-day SMA. This configuration of Index > 20-day > 50-day is the most positive lineup. +10

• S&P 500 Medium Term Technical Trend: Index > 50-day SMA > 200-day SMA. This configuration is the same as last time and is also the most positive you can have. +10

• DJIA Short Term Technical Trend: The Dow’s configuration is the same as the S&P 500’s. Positive. +10.

• DJIA Medium Term Technical Trend: Same as the S&P 500 chart. Positive. +10

• NASDAQ Short Term Technical Trend: The NASDAQ is always more volatile than the other two indexes. For a brief time, the 20-day SMA had dropped below the 50-day. But that condition reversed itself on April 15, and the configuration is now the same as the other two short-term indicators. Positive. +10

• NASDAQ Medium Term Technical Trend: Same as the other two. Positive. +10

TOTAL POINTS: 95
NEW READING: 95 / 10 = 9.5 = POSITIVE

Four New Articles on Seeking Alpha

In the past couple of weeks, I have posted these articles on Seeking Alpha. Use the article title to link directly to any of the articles.

Dividends in Danger? This is a monthly series in which stocks that might have dividends at risk are discussed. One of the stocks examined in the first article (Hudson City Bancorp) did, in fact, cut its dividend a couple of weeks later. The articles have proved very popular, and they draw lots of comments and suggestions for stocks to consider.

The Five-Year Rule in Dividend-Growth Investing. This article received Editors Pick recognition. It discuses a rule that I follow in dividend-growth investing: The five-year rule. Simply stated, I will not consider a stock that has not compiled a record of at least five consecutive years of dividend growth. I explain why I use the rule and discuss several stocks that fall on one side or the other of the dividing line, including big banks and technology companies. I nominate two stocks as Dividend Champions of the future. Go to the article to see who they are.

Periodic Table of Dividend Champions--New and Improved. Dividend Champions are stocks that have raised their dividends for at least 25 consecuttive years. Believe it or not, there are 100 such stocks. The Periodic Table arranges them visually by their current yields and dividend growth rates. It is a quick way to identify interesting dividend-growth stock ideas.

Dividend Growth Portfolio Revew: Sherwin Williams is Out. I recently completed a review of my Dividend Growth Portfolio and decided to sell Sherwin Willliams and replace it with two other stocks. This article explains the Portfolio Review process and why I reached the specific decision about Sherwin Williams. (In a nutshell, their dividend growth rate slowed to a crawl.)

Timing Outlook Drops After Bad Day on Wall Street

Well, it only took one day. I felt that I should let you all know that today's little stock-market slide, following S&P's "negative outlook" on U.S. debt, took all three of the short-term trend indicators from positive yesterday to neutral today.

I have reproduced here a single-month graph of the S&P 500 so that you can see clearly how close the 20-day (green) and 50-day (blue) simple moving averages are to the index level itself. Whereas yesterday they lined up Index > 20-day > 50-day, tonight they are 20-day >50-day (by a whisker) > Index. That means they are jumbled and ambiguous. The NASDAQ and Dow charts look more or less the same, meaning that all three short-term trend indicators fall from positive to neutral. That pulls the entire Timing Outlook  down by 1.5 points, bringing it to 8.0.

That's still positive, but as you can see, another bad day or two could quickly pull the 20-day SMA (which reacts fairly quickly) below the 50-day SMA, which would make the configuration 50-day > 20-day > Index, which is upside down from what you want. That would lop another 1.5 points off the Timing Outlook.

This is S&P's own summary of its press release today. I'm sure discussion of this will be all over the news tonight and that the status of U.S. budget and debt-ceiling negotiations will be at the top of a lot of agendas for the next few weeks and months.

•We have affirmed our 'AAA/A-1+' sovereign credit ratings on the United States of America.
•The economy of the U.S. is flexible and highly diversified, the country's effective monetary policies have supported output growth while containing inflationary pressures, and a consistent global preference for the U.S. dollar over all other currencies gives the country unique external liquidity.
•Because the U.S. has, relative to its 'AAA' peers, what we consider to be very large budget deficits and rising government indebtedness and the path to addressing these is not clear to us, we have revised our outlook on the long-term rating to negative from stable.
•We believe there is a material risk that U.S. policymakers might not reach an agreement on how to address medium- and long-term budgetary challenges by 2013; if an agreement is not reached and meaningful
implementation is not begun by then, this would in our view render the U.S. fiscal profile meaningfully weaker than that of peer 'AAA' sovereigns.

Timing Outlook: If There’s Such a Thing as a Weak 9.5, This Is It

1. Summary

The Timing Outlook has improved from 8.0 to 9.5, or strongly positive. That’s on the numerical scale. From a subjective point of view, this has to be the weakest, least-inspiring 9.5 I have ever seen. All three short-term technical indicators are just barely positive. If we have a couple of down days, they could turn neutral or even negative in a heartbeat. That would drop the Timing Outlook from 9.5 to 6.5.

The market has been moving up and down within a range of about 80 points on the S&P 500 for around 3 months. On the 3-month graph (above, click to enlarge), this looks like volatility. Indeed, the volatility was enough to take me out of the market via a 5.5% sell-stop. Then it was enough in the other direction to get me 75% back into the market in my Capital Gains Portfolio. All I am buying these days is SPY, an ETF that tracks the S&P 500. I am currently protecting to the downside with a 6% sell-stop that applies to all shares.

On the 2-year long-range graph, it looks like we are in a sideways market. Indeed, Friday’s trading (April 15) was around the same area as on March 29, March 7, March 3, March 1, February 25, February 22, February 10-11, and February 7-8. Since the last report, the market has gone up on 7 days and down on 6.

In the coming few weeks, earnings season will be in full swing. Major companies reporting this coming week include Johnson & Johnson and GE. S&P estimates that Q1 earnings will be up 13% from Q1 2010. The earnings news will compete for attention with macro events, such as the nuclear situation in Japan, Middle East developments, European sovereign debt, the looming end to the Fed’s stimulus program known as “quantitative easing” or QE2, struggles over the federal budget and debt ceiling, continuing high unemployment, and the general impact on consumer spending of high oil prices. Life being what it is, the major story will probably be something other than what I have just listed.

Life is more relaxed in dividend-growth investing, where the focus is on creating an ever-increasing stream of dividends. My Dividend Growth Portfolio always remains 100% invested except for dividends that I am accumulating to purchase more shares. So far in 2011, several stocks in the portfolio have already announced dividend increases: Abbott Labs (9%), Alliant Energy (8%), AT&T (2%), Kinder Morgan Energy Partners (2% so far—they may increase more than once this year), Realty Income (<1% so far, they will increase each quarter), and Sherwin-Williams (1%). I am overdue to give this portfolio its semi-annual Portfolio Review. If you want to learn more about getting wealthy slowly through dividend-growth investing, take a look at TOP 40 DIVIDEND STOCKS FOR 2011: How to Generate Wealth or Income from Dividend-Growth Stocks.

2. Market Performance Since Last Outlook
(“now” figures are as of close Friday, April 15, 2011)

Last Outlook (3/29/11): 8.0 (positive)

S&P 500 last time (3/29/11): 1319
S&P 500 now: 1320 Change: +0%

S&P 500 at beginning of 2011: 1258
S&P 500 now: 1320 Change in 2011: +5%

S&P 500 at close 3/9/09 (beginning of bull market): 677
S&P 500 now: 1320 Change since 3/9/09: +95% (in about 25 months)

3. Indicators in Detail

• Conference Board Index of Leading Economic Indicators: No new report since last time. The streak stands at 8 monthly increases in a row. Positive. +10

• Fed Funds Rate: No change at 0% to 0.25%. The Fed continues to be clearly committed to a loose money policy until the economy is well into recovery or they become concerned with inflation. Positive. +10

• S&P 500 Market Valuation (P/E): Morningstar pegs the current operating P/E of the S&P 500 at 16.1. This marks three readings in a row at that level, which is well below the lower edge of the 17.3 – 21.1 neutral range. Positive. +10

• Morningstar’s Market Valuation Graph. Morningstar’s proprietary market valuation graph is 1.03, same as last time. Any value within +/- 10% of 1.00 is neutral. +5

• S&P 500 Short Term Technical Trend: The market’s swings back and forth have brought this indicator to positive. Barely. The close Friday was just slightly above the 20-day simple moving average (SMA), which is just above the 50-day SMA. All three are so close that they are practically touching. Nevertheless, the configuration of Index > 20-day >50-day is the most positive lineup. +10

• S&P 500 Medium Term Technical Trend: Index > 50-day SMA > 200-day SMA. This configuration is the same as last time. Positive. +10

• DJIA Short Term Technical Trend: The Dow’s configuration is the same as the S&P 500’s. Positive. +10.

• DJIA Medium Term Technical Trend: Same as the S&P 500 chart. Positive. +10

• NASDAQ Short Term Technical Trend: On the NASDAQ’s chart, the index, 20-day SMA, and 50-day SMA literally are touching—both SMAs are within the small range that the index traded within on Friday. But when you look really close, the configuration is the same as the other two indicators. Positive. +10

• NASDAQ Medium Term Technical Trend: Same as the other two. Positive. +10

TOTAL POINTS: 95
NEW READING: 95 / 10 = 9.5 = POSITIVE

Three New Articles (and Comments) Available on Seeking Alpha

In the past couple of weeks, I have posted the folowing articles on Seeking Alpha. The comment streams have been lively and informative:

• Portrait of a Beautiful Dividend Growth Stock. This article identifies the 10 stocks that have made my Top 40 Dividend Growth Stocks list every year since I began publishing it (2008-2011). It takes common characteristics from those 10 stocks to form a "portrait" of what a great dividend-growth stock looks like. The article generated 89 comments.
• Dividends in Danger? This article is the first in a monthly series that will compile Seeking Alpha's readers' ideas and comments about companies whose dividends may be in danger of being frozen or cut. Companies discussed in the first article include Sysco, Hudson City Bancorp, and Pitney-Bowes. The article has generated 142 comments. The second article in the series will appear later this week.
• 10 by 10: The Interaction of Dividend Yield and Growth. This is an update and expansion of one of the most popular articles I have ever published. It discusses what combinations of yield and dividend growth rates (DGR) will lead to achiving the "10 by 10" goal": Delivering a yield on cost of at least 10% within 10 years. The article achieved "Editors Pick" status on Seeking Alpha. The original article's contents have been expanded to include a table showing how many years it takes to double your dividend stream at various DGRs, plus another table that illustrates how many years it takes a stock with low yield + high DGR to surpass the income stream of another stock that starts out with a hgher initial yield. The article has received 130 comments so far.

Timing Outlook Strengthens a Little, Remains Positive

1. Summary

The Timing Outlook has improved from 7.5 to 8.0, remaining in positive territory.

On February 22, the market began a fairly steady and quick descent, fueled by such things as the unrest in Northern Africa and the Middle East, which sparked concern about oil prices among other things. The market declined about 6% in 17 trading days. That was enough to take me completely out of the market in my Capital Gains Portfolio, where I was using 5.5% sell stops. (Click this image to enlarge it.)

You can’t win them all. Practically the very day that the sell stops were hit, the market reversed itself, for no apparent reason other than what is being called “remarkable resiliency.” In the last 10 trading sessions, it has recovered about two-thirds of its loss. I did not participate in that recovery, because I was in cash. If my stops had been just a little wider, I never would have been stopped out.

Does that make me question my approach? I always question my approach. It does not make me doubt the overall strategy of timing and surfing trends. It doesn’t even make me reconsider using sell stops, even though had I just relied on the Timing Outlook, which stayed positive the whole time, I would not have sold. I remain convinced that avoiding big losses is key to investing for capital gains.

But the width of the stops is always open for debate. A few years ago, I commonly used 15% stops as my default. For whatever reason—probably the severity of the 2008 crash—I have lately used much narrower ones. The slow steady nature of the bull market that began in March, 2009, made narrow stops easy to use. They only got hit twice; this was the third time. So, even though in the short term I lost 5.5% here, over the long term, big-loss avoidance (like the 50%+ losses that many suffered in 2008) has kept this portfolio well above the market itself.

I re-entered the market this morning by using 25% of my cash to purchase SPY, the ETF that tracks the S&P 500. If the market keeps going up, I will continue to make purchases until I am all-in again. I may widen my stops a little, I haven't decided yet.

The end of March is tomorrow, which means that another earnings season will soon be upon us. The market usually gets more volatile during earnings season. The year-over-year comparisons for the quarter just ending are getting harder, since companies were well into their recovery by this time last year. Hopefully, companies will generally report improving earnings, enough to fuel a continuation of the uptrend that began short-term a couple of weeks ago, but that began long-term two years ago.

As you know, the focus in dividend-growth investing is not on capital gains, it is on creating an ever-increasing stream of dividends. So my Dividend Growth Portfolio always remains 100% invested. If you want to learn more about getting wealthy slowly through dividend-growth investing, take a look at TOP 40 DIVIDEND STOCKS FOR 2011: How to Generate Wealth or Income from Dividend-Growth Stocks. Check out my Dividend Growth Portfolio’s performance by clicking here.

2. Market Performance Since Last Outlook
(“now” figures are as of close Tuesday, March 29, 2011)

Last Outlook (3/11/11): 7.5 (positive)
S&P 500 last time (3/11/11): 1304
S&P 500 now: 1319 Change: +1%

S&P 500 at beginning of 2011: 1258
S&P 500 now: 1319 Change in 2011: +5%

S&P 500 at close 3/9/09 (beginning of bull market): 677
S&P 500 now: 1319 Change since 3/9/09: +95% (in about 24 months)

3. Indicators in Detail

• Conference Board Index of Leading Economic Indicators: A new report was issued on 3/17/2011, and it registered another increase in this index. That makes 8 monthly increases in a row. Positive. +10

• Fed Funds Rate: No change at 0% to 0.25%. This sentence has not changed for several months: The Fed is clearly committed to a loose money policy until the economy is well into recovery or they become concerned with inflation. Positive. +10

• S&P 500 Market Valuation (P/E): Morningstar pegs the current operating P/E of the S&P 500 at 16.1, same as last time and well below the lower edge of the 17.3 – 21.1 neutral range. Positive. +10

• Morningstar’s Market Valuation Graph. Morningstar’s proprietary market valuation graph is 1.03, up a tiny bit from 1.02 last time. Any value within +/- 10% of 1.00 is neutral. +5

• S&P 500 Short Term Technical Trend: The market’s upward trend over the last couple of weeks has seemingly reversed the decline that started on February 22. The index and the two shorter moving averages (20-day and 50-day) have crossed back and forth through each other. The chart is still ambiguous, because the 20-day SMA has not yet crossed back up through the 50-day SMA, although the index is above both. Neutral. +5

• S&P 500 Medium Term Technical Trend: Index > 50-day SMA > 200-day SMA. This configuration is the same as last time but much more solid now. Positive. +10

• DJIA Short Term Technical Trend: The Dow’s configuration is the same as the S&P 500’s. Thus it is ambiguous and neutral: +5.

• DJIA Medium Term Technical Trend: Same as the S&P 500 chart. Positive. +10

• NASDAQ Short Term Technical Trend: The NASDAQ, as usual, has been the most volatile of the three indexes. Its present configuration is the same as the other two. Neutral. +5

• NASDAQ Medium Term Technical Trend: Last time, the Index had dropped below its 50-day SMA, but now it is back above it, boosting this indicator to positive from neutral. +10

TOTAL POINTS: 80
NEW READING: 80 / 10 = 8.0 = POSITIVE

Two New Dividend Investing Articles

In the past week, I posted two new articles on Seeking Alpha. They both may be of interest to dividend investors.

In "The Highest Yielding Dividend Champions by Cap Size," I used a table to position all of the Dividend Champions, Challengers, and Contenders according to their market capitalizations. Surprisingly, nearly half the stocks were small-caps. Most people automatically assume that dividend-paying stocks are those of huge companies like Coca-Cola or GE. But there are many good smaller companies that pay dividends too.

For those who are not familiar with Dividend Champions, Challengers, and Contenders, they are stocks that have increased their dividends every year for 25, 10, and 5 years, respectively. There is a link in the article to that source document, which is updated monthly and is one of the best research tools for dividend investors.

"Do Dividend Increases Keep Up with Inflation?," just published this morning, illustrates that in the aggregate, dividend increases grow faster than inflation in most years. In the aggregate over many years, they crush inflation by a factor of around 1.7-to-1. The article is based on data from S&P about stocks in its S&P 500 index. The real picture is even better than shown in the article, because the S&P 500 is not a good proxy for a good dividend-growth portfolio--more than 100 of its stocks do not even pay dividends. So if the S&P 500's stocks' dividends grow faster than inflation, a serious dividend-growth portfoli will do even better.

Where Will Your Retirement Income Come From?

Last week, I posted an article about funding retirement on Seeking Alpha. I made the point that conventional retirement strategies based on slowly depleting your nest egg in retirement (via withdrawals, the 4% rule, and the like) may be more risky than building a retirement portfolio that itself throws off some or all of the income you need. The article has generated over 300 comments, many of which are quite educational. You can read the full article and the comment stream by clicking here. Its title is "You're Retiring: Where Will Your Retirement Income Come From?"

Timing Outlook Drops a Little More But Remains Positive

1. Summary

The unrest in Northern Africa and the Middle East has spilled over into the stock markets, mainly on concerns over oil prices. Other general economic data has been mixed. On Thursday the Commerce Department reported that the U.S. trade deficit had broadened well above estimates in January. China also showed a trade deficit, its first in nearly a year. However, consumer credit, retail sales, and business inventories all showed healthy increases. During earnings season, about 70% of companies reporting beat their earnings estimates compared to a historical average of about 62%. The next earnings season is about three weeks off.

The charts have broken out of their positive configurations. The action has moved from smoothly upward to jaggedly sideways, with much higher daily volatility than had been the case. After a couple of months of near-continuous up-weeks for the S&P, the last four weeks have been +1%, -2%, +0%, and -1%. The weekly totals mask some pretty severe daily volatility, which you can see on the chart (click to enlarge).

The Timing Outlook remains positive at 7.5 (compared to 9.0 the last time and 9.5 the time before that). The value is positive, but the direction is not. Overall, it’s an ambiguous picture. A strong case can be made that we are about to see a significant pullback or correction. An equally strong case can be made that the general upward trend since the bottom of the bear market two years ago can and will continue for a while longer.

As you know, I use the Timing Outlook to get me into the market but trailing sell-stops to get me out. My Capital Gains Portfolio remains 100% invested in SPY, an S&P 500 tracking ETF. The SPY shares are protected by a 5.5% trailing sell-stop. The “width” of the cushion has been cut in half by the overall 3% price decline over the past 4 weeks. Right now the stop sits about 2.9% below the value of SPY.

In contrast to the timing involved in the Capital Gains Portfolio, my Dividend Growth Portfolio remains 100% invested. Accumulated dividends are now about one-third of the way to an additional purchase, following the one just made in January. Thanks again to all of you who have purchased TOP 40 DIVIDEND STOCKS FOR 2011: How to Generate Wealth or Income from Dividend-Growth Stocks. Click here to see the description page for this annual e-book. Check out the Dividend Growth Portfolio’s performance by clicking here. I don’t use sell-stops (or any other form of hedging) in the dividend portfolio, because my focus is on the dividend stream, not stock prices.

2. Market Performance Since Last Outlook
(“now” figures are as of close Friday, March 10, 2011)

Last Outlook (2/27/11): 9.0 (positive)

S&P 500 last time (2/27/11): 1320
S&P 500 now: 1304 Change: -1%

S&P 500 at beginning of 2011: 1258
S&P 500 now: 1304 Change in 2011: +4%

S&P 500 at close 3/9/09 (beginning of bull market): 677
S&P 500 now: 1304 Change since 3/9/09: +93% (in about 24 months)

3. Indicators in Detail

• Conference Board Index of Leading Economic Indicators: No new report since last time. The 2/17/11 report showed a slight increase, the 7th increase in a row. Positive. +10

• Fed Funds Rate: No change at 0% to 0.25%. The Fed is clearly committed to a loose money policy until the economy is well into recovery or they become concerned with inflation. Positive. +10

• S&P 500 Market Valuation (P/E): Morningstar pegs the current operating P/E of the S&P 500 at 16.1, up from 15.7 last time, but well below the lower edge of the 17.3 – 21.1 neutral range. Positive. +10

• Morningstar’s Market Valuation Graph. Morningstar’s proprietary indicator is at 1.02, down from 1.04 last time and 1.06 the time before that. This is the lowest (that is, most positive) reading since last November. Any value within +/- 10% of 1.00 is neutral. +5

• S&P 500 Short Term Technical Trend: Last week’s action took the S&P 500 not only down through its 20-day simple moving average (SMA), but also briefly through its 50-day SMA. The S&P chart ended the week lined up like this: 20-day SMA > Index > 50-day SMA. This configuration is ambiguous and neutral. +5

• S&P 500 Medium Term Technical Trend: Index > 50-day SMA (just barely) > 200-day SMA. This is still positive but now it is living on the edge. +10

• DJIA Short Term Technical Trend: The Dow’s configuration is the same as the S&P 500’s. Thus it is ambiguous and neutral: +5.

• DJIA Medium Term Technical Trend: Same as the S&P 500 chart, with the index having dropped briefly below the 50- day SMA but then rallying Friday to finish just above it. Teetering but still positive. +10

• NASDAQ Short Term Technical Trend: The NASDAQ is usually the most volatile of the three indexes. Its picture is not as good as the other two. The configuration for the NASDAQ is 20-day SMA > 50-day SMA > Index > 200-day SMA. For the short-term indicator, this is still neutral, as the 20-day SMA is still above the 50-day SMA, although the Index has dropped below both. Neutral. +5

• NASDAQ Medium Term Technical Trend: Because the Index is now below its 50-day SMA, this medium-term indicator drops from positive to neutral. +5

TOTAL POINTS: 75
NEW READING: 75 / 10 = 7.5 = POSITIVE

Market & Timing Outlook Both Go Down (A Little)

1. Summary

Until last week, the market had continued to chug steadily upward. The unrest in Northern Africa, especially Libya, unsettled the markets last week, largely over concerns about oil supplies. The S&P 500 fell 2%, its first weekly loss since late November. The swoon took the index below its 20-day simple moving average (SMA), although Friday’s snap-back brought it back above. (Click on the chart to enlarge it.)

The Timing Outlook remains positive at 9.0 (compared to 9.5 last time). The Dow Short-Term Trend indicator moved from positive to neutral, as the Dow failed on Friday to finish above its 20-day SMA. Every other indicator remains positive except Morningstar’s Market Valuation Graph, which has been in neutral territory for some time now.

My Capital Gains Portfolio remains 100% invested in SPY, an index-tracking ETF. The SPY shares are protected by a 5.5% trailing sell-stop. “Trailing” means that I move the stop upward when the market advances but don’t move it downward when the market declines. I usually adjust the stop (if necessary) once per week (on Fridays). Because of last week’s decline in the S&P 500, there was no adjustment, and the stop is now about 3% below the index itself. So it’s now like a 3% sell-stop.

As I said last time, a correction or reversal in the long uptrend is inevitable, but we don’t know when it will happen. Last week’s drop could have been the inflection point where the market changed into a downward trend, but it also may have been nothing more than a little blip. To repeat an important point, I believe in “waiting for the turn.” That is, I don’t hedge or pull out of a rally in anticipation of a reversal, I wait for it to actually happen. Market trends sometimes can persist far longer than anyone would expect. We may see in the next week or two whether the market has reversed trend, resumes its upward trend, or just meanders sideways for awhile.

In contrast to the timing involved in the Capital Gains Portfolio, my Dividend Growth Portfolio remains 100% invested. Thanks to all of you who have purchased TOP 40 DIVIDEND STOCKS FOR 2011: How to Generate Wealth or Income from Dividend-Growth Stocks. Click here (or the book’s image to the right) to see the description page for this annual e-book, which was completely updated for 2011. Check out the Dividend Growth Portfolio’s performance by clicking here. The reason that I don’t use sell-stops (or any other form of hedging) in the dividend portfolio is because my focus there is on the dividend stream, not stock prices.

2. Market Performance Since Last Outlook
(“now” figures are as of close Friday, February 27, 2011)

Last Outlook (2/9/11): 9.5 (positive)

S&P 500 last time (2/9/11): 1321
S&P 500 now: 1320 Change: -0%

S&P 500 at beginning of 2011: 1258
S&P 500 now: 1320 Change in 2011: +5%

S&P 500 at close 3/9/09 (beginning of bull market): 677
S&P 500 now: 1320 Change since 3/9/09: +95% (in about 23 months)

3. Indicators in Detail

• Conference Board Index of Leading Economic Indicators: A new report on 2/17/11 showed a slight increase, the 7th increase in a row, suggesting continued expanson in the economy. Positive. +10

• Fed Funds Rate: No change at 0% to 0.25%. The Fed continues to be clearly committed to a loose money policy until the economy is well into recovery or they become concerned with inflation. Positive. +10

• S&P 500 Market Valuation (P/E): Morningstar pegs the current P/E of the S&P 500 at 15.7, same as last time. I have recalibrated the S&P’s average P/E to add 2010 data. The average P/E based on operating earnings over the period 1988 to 2010 was 19.2. (Before adjustment, the average was 19.4.) Any value within +/- 10% of that is considered neutral. Thus the new neutral range is 17.3 – 21.1. (The former range was 17.4 – 21.3.) Any value below neutral is considered positive, any value above neutral is considered negative. Thus this month’s value of 15.7 is positive. +10

• Morningstar’s Market Valuation Graph. Morningstar’s proprietary market valuation graph is 1.04, down from 1.06 last time, continuing to suggest that the market is slightly overvalued. This indicator has been hovering near 1.05 since the tail end of December. I consider any reading within +/- 10% of 1.00 to be neutral. +5

• S&P 500 Short Term Technical Trend: All of the six technical indicators had been in the same positive configuration for at least a couple of months: Index > 20-day SMA > 50-day SMA > 200-day SMA. Last week’s swoon took all three briefly below their 20-day SMAs, but Friday’s rally brought two of them back—only the Dow failed to close above its 20-day SMA. Thus all trend indicators except the Dow Short-Term are positive. +10

• S&P 500 Medium Term Technical Trend: Positive. +10

• DJIA Short Term Technical Trend: The Dow’s configuration is 20-day SMA > Index > 50-day SMA. This is an ambiguous picture. Neutral: +5.

• DJIA Medium Term Technical Trend: Positive. +10

• NASDAQ Short Term Technical Trend: Positive. +10

• NASDAQ Medium Term Technical Trend: Positive. +10

TOTAL POINTS: 90
NEW READING: 90 / 10 = 9.0 = POSITIVE

Road Map for Managing a Dividend Growth Portfolio

I have posted an article on Seeking Alpha with the title above. The article discusses how to map out an investment plan. The general principles are applicable to any type of planning. I used my Dividend Growth Portfolio as a specific example. The general principles are summarized in the diagram below, which the article discusses in detail. To read the full article, click here.

Seeking Alpha: Why the Market Doubled

I want to let all my subscribers know that I also write for an excellent investment site called Seeking Alpha (SA). I have been posting articles on SA since July, 2008. Most of those aticles have been reproduced in this Newsletter. In fact, many of them appeared here first, then were adapted for SA.

Recently, Seeking Alpha instituted payments to authors for articles (based on page views), provided that the article is not provided for free elsewhere. After much soul-searching, I have decided to submit occasional articles exclusively to SA and not reproduce them here. When I do that, I will provide a brief summary of the article here along with a link to the full article on SA.

Many of you may find SA to be a very interesting site. It provides over 200 articles per day on every conceivable investing topic. Articles can be accessed for free. They provide a comment system, plus a scoring system (thumbs up and thumbs down) for comments. (I do not allow comments here, preferring to keep this Newsletter as clean as possible.) If you want to comment or vote on comments, you must register with SA. Registration is free (they have over 600,000 registered users). You can also sign up for daily emails notifying you of articles by favorite authors, articles about subjects you have designated, and so on. You can "follow" your favorite authors and receive notifications whenever they post a new article. (I have over 1300 followers on SA.)

Here is a link to Seeking Alpha's home page: http://seekingalpha.com/ .

Yesterday, I posted my first exclusive article on Seeking Alpha, "4 Reasons the Stock Market Has Doubled." In the article, I lay out the reasons that I think have been behind the stock market's doubling since its low on March 9, 2009 nearly two years ago. If you would like to read the full article (and people's comments about it), you can access it here: http://seekingalpha.com/article/252838-4-reasons-the-stock-market-has-doubled .

One topic that I have kept exclusively for readers of this newsletter are my periodic Timing Outlook updates and market commentaries. I currently have no plans to submit those articles to Seeking Alpha. For one thing, it would take too much background explanation to bring those readers up to speed on how the Timing outlook works. If I change that policy, I will let you know.

As always, best of luck with your investing!

Bored Yet? Timing Outlook Remains at 9.5

1. Summary

Since the last report about three weeks ago, the market has continued to chug steadily upward. It has now made gains in six straight months. Looking at the chart, you can see that there are only two periods (the second half of November and one day at the end of January) that the S&P 500 has fallen below its 20-day Simple Moving Average. (Click on the chart to enlarge it.)

The Timing Outlook remains elevated at 9.5. Similar to the past two readings, the only indicator that is neutral instead of positive is Morningstar’s Market Valuation Graph. Every other indicator is positive.

My Capital Gains Portfolio remains 100% invested in SPY, an index-tracking ETF. The SPY shares are protected by a 5.5% trailing sell-stop.

I read a lot of financial blogs and commentaries, and many are saying that the rally has gone on too long, it’s way past the length of the average rally, the market is far overvalued, the economy still stinks, and rising commodity costs spell doom. Warnings about an impending crash—or at least a correction (drop of 10% or more)—abound.

Well, maybe. In fact, a correction or reversal is inevitable—we just don’t know when. As long-time readers know, I believe in “waiting for the turn.” That is, I don’t hedge or pull out of a rally in anticipation of a reversal. I wait for it to actually happen. The sell-stops do that automatically—if SPY reverses by 5.5%, I am out, no questions asked and no regrets. Market trends sometimes have a way of continuing far longer than anyone would expect. This is probably already one of those times, but that does not mean that it is over. Wait for the turn.

If the commentators and bloggers invest the way they write, they have missed out on (or actually shorted) one of the most amazing money-making opportunities ever. They have been on the wrong side of the trade. The market has nearly doubled since March 9, 2009. There have been a few breaks in the action, but overall it has been a steady upward climb following one of the worst years (2008) in market history.

In one sense, the market’s rally has been remarkable. But in another sense, it is not surprising. After all, companies (not individuals) have been out of the recession for well over a year. Year-over-year profit growth has been a repeating story for at least seven quarters now. Many companies are awash in cash—as evidenced by the big upswing in merger-and-acquisition activity over the past few months. As I see it, there has been a massive transfer of wealth from individuals to corporations. The overall economy is still unsound, because of the high unemployment rate and a housing market that is still searching for its bottom. But the corporate economy is not unsound. On average, corporations could hardly be healthier. All the laid-off people represent cost savings for corporations, many of whose profit margins and profits are at all-time highs. Since the stock market represents the value of corporations—not individuals—it is to be expected that the stock market should rise roughly in step with those rising profits.

As usual, my Dividend Growth Portfolio is 100% invested. As reported last time, I reinvested dividends in January to grab some more Abbott Labs. Thanks to all of you who purchased TOP 40 DIVIDEND STOCKS FOR 2011: How to Create Wealth or Income with Dividend-Growth Stocks. Incredibly, sales from the e-book’s release in mid-January to the end of January—half a month—reached 50% of total sales for all of 2010! Click here (or the book’s image to the right) to see the description page for this annual e-book, which has been completely updated for the new edition.

2. Market Performance Since Last Outlook
(“now” figures are as of mid-day Wednesday, February 09, 2011)

Last Outlook (1/24/11): 9.5 (positive)

S&P 500 last time (1/24/11): 1287
S&P 500 now: 1321 Change: +3%

S&P 500 at beginning of 2011: 1258
S&P 500 now: 1321 Change in 2011: +5%

S&P 500 at close 3/9/09 (beginning of bull market): 677
S&P 500 now: 1321 Change since 3/9/09: +95% (in about 23 months)

3. Indicators in Detail

• Conference Board Index of Leading Economic Indicators: No new report since last time. January’s report showed the 6th increase in a row. Positive. +10

• Fed Funds Rate: No change. The Fed continues to be clearly committed to a loose money policy until the economy is well into recovery or they become concerned with inflation. Positive. +10

• S&P 500 Market Valuation (P/E): Morningstar pegs the current P/E of the S&P 500 at 15.7, up just slightly from 15.5 last time. This is well within positive territory (any value below 17.4). +10

• Morningstar’s Market Valuation Graph. Morningstar’s proprietary market valuation graph is at 1.06, up from 1.04 last time, continuing to suggest that the market is slightly overvalued. This indicator has been hanging around 1.05 since the tail end of December. It would need to reach 1.10 for me to consider it to be saying that the market is overvalued. Neutral. +5

• S&P 500 Short Term Technical Trend: All of the technical indicators have been in the same configuration for at least a couple of months: Index > 20-day SMA > 50-day SMA > 200-day SMA. This lineup is the best you can get, and all six of the technical indicators are positive. +10

• S&P 500 Medium Term Technical Trend: Positive. +10

• DJIA Short Term Technical Trend: Positive. +10

• DJIA Medium Term Technical Trend: Positive. +10

• NASDAQ Short Term Technical Trend: Positive. +10

• NASDAQ Medium Term Technical Trend: Positive. +10

TOTAL POINTS: 95
NEW READING: 95 / 10 = 9.5 = POSITIVE

Timing Outlook Remains High at 9.5

1. Summary

Since the last report about a month ago, the market has continued to go pretty steadily upward, making gains in 13 of the past 16 weeks through last Friday. Click on the chart to enlarge it.

The Timing Outlook remains elevated at 9.5. As last time, the only indicator that is neutral instead of positive is Morningstar’s Market Valuation Graph. Every other indicator is positive.

My Capital Gains Portfolio remains 100% invested in SPY, an index-tracking ETF. As explained in previous posts, most of my time recently has been devoted to working on the 2011 edition of TOP 40 DIVIDEND STOCKS, which I published on January 14. So I have not had time to evaluate individual stocks for the Capital Gains portfolio. The SPY shares are protected by a tight 5.5% trailing sell-stop. Incidentally, you may notice on the chart several red “down” days recently and be wondering why that is not a “sell” signal since it fails my 2/3 up-days requirement. The answer is that once the money is invested, any selling is determined by the sell-stop, not by the original entry requirements.

The rally is the kind I like—steady with little volatility. That makes it an easy trend to identify and to stay with. My confidence in the rally has improved as the trend has lengthened, but of course the 5.5% sell-stop represent my respect for the risk that any trend can reverse at any time.

My Dividend Growth Portfolio, as usual, is 100% invested. I accumulated enough dividends in early January to reinvest them, and I used the opportunity to pick up 20 more shares in Abbott Labs. If you are interested in learning more about TOP 40 DIVIDEND STOCKS FOR 2011, click here. The description page for this annual e-book has been completely updated on my website for the new edition.

2. Market Performance Since Last Outlook
(“now” figures are as of mid-day Monday January 24, 2011)

Last Outlook (12/4/10): 9.5 (positive)
S&P 500 last time (12/4/10): 1259
S&P 500 now: 1287 Change: +2%

S&P 500 at beginning of 2011: 1258
S&P 500 now: 1287 Change in 2011: +2%

S&P 500 at close 3/9/09 (beginning of bull market): 677
S&P 500 now: 1287 Change since 3/9/09: +90% (in about 23 months)

3. Indicators in Detail

• Conference Board Index of Leading Economic Indicators: January’s report, out last week, showed another increase, the 6th in a row. That keeps this indicator positive. +10

• Fed Funds Rate: No change. The Fed continues to be clearly committed to a loose money policy until the economy is well into recovery or they become concerned with inflation. Positive. +10

• S&P 500 Market Valuation (P/E): Morningstar pegs the current operating P/E of the S&P 500 at 15.5, up just slightly from 14.7 last time. This is well within positive territory (any value below 17.4). +10

• Morningstar’s Market Valuation Graph. Morningstar’s market valuation graph is at 1.04, down from 1.05 last time, continuing to suggest that the market is slightly overvalued right now. This is still well within my +/- 10% range of 1.00 for calling this indicator neutral. +5

• S&P 500 Short Term Technical Trend: All of the technical indicators are in the same configuration as last time. On the chart above, the 20-day simple moving average (SMA) is the green line, the 50-day is the blue line, and the 200-day is the red line. The short-term technical indicators use the two shorter (20-day and 50-day) simple moving averages (SMAs) of each index, and the current lineups are the best you can get: Index > 20-day > 50-day. +10

• S&P 500 Medium Term Technical Trend: The medium-term technical indicators use the two longer SMAs (50-day and 200-day) for each index. Right now all three indexes tell the same story: Index > 50-day >200-day. Positive. +10

• DJIA Short Term Technical Trend: Positive. +10

• DJIA Medium Term Technical Trend: Positive. +10

• NASDAQ Short Term Technical Trend: Positive. +10

• NASDAQ Medium Term Technical Trend: Positive. +10

TOTAL POINTS: 95
NEW READING: 95 / 10 = 9.5 = POSITIVE

TOP 40 DIVIDEND-GROWTH STOCKS FOR 2011 Is Now Available!

The new edition of the TOP 40 DIVIDEND-GROWTH STOCKS FOR 2011 was published on January 14, 2011. It is now available from my main website.  Click the cover image in the upper right corner of this Newsletter to go to a compalete description of the new edition.

Thanks again to all of you who sent me encouraging emails in the last few days of the homestretch of completing this year's edition! Additional and special thanks to those of you who talked me through my hard-drive crash and offered suggestions about how to back up my hard drive in the future. I will be enlisting a backup service shortly.

TOP 40 DIVIDEND STOCKS FOR 2011 Is Almost Complete

I am sitting in a condo in Naples, FL (my wife is out at the beach). Just as we were leaving for the 3-day drive down here on January 1, I discovered that my hard drive had crashed overnight. The technical term for this is "Happy New Year."

I couldn't do anything about it during the drive. As soon as we got here, we located a computer repair place. The verdict: Drive was broken. The data could be recovered. He didn't have my drive in stock but could get one overnighted. He had a "courtesy" computer that I could work on. So we moved two essential files from my busted hard drive onto a thumb drive and plugged it into the courtesy computer. The two essential files were the text and the document I was using to score the Finalists for the Top 40.

That's where I worked last week, at the repair shop. It took until Thursday for my laptop to be fixed and for all my data and programs to be moved over to it. So, each morning I went to the computer place, my wife did fun stuff. That's OK, I love producing this.

The good news is that no data was lost, and perhaps I worked more diligently under these conditions than I otherwise would have. It was a good week.

Here's where things stand:

• The Top 40 have been selected. I have gone throught their Easy-Rate sheets several times to check them for accuracy (tiny mistakes always creep in) and to fill in information from Yahoo that was not available from Morningstar. I have also created the four tables that help you find them (alphabetical; by Total Score; by Company Score; and by Yield).
• The text is essentially done. I need to update a couple portions of it, and I want to give it one more full reading before I let it go. I'm particularly focusing on two areas. First, I combined two chapters into one, and I want to be sure I did it without losing any essential information or creating redundancies. Second, the reason I combined the chapters was to create a little room for a new chapter on Retirement Funding. That chapter was created from my five-article series on retirement, so again I need to be sure I haven't lost any critical information. The new chapter presents things in a different order from the articles, so it was a complete re-write.

After the book itself is completed, I need to do some marketing and technical things. These include creating a jpeg of the cover to use as links throughout my web site and for display on other sites (I lost the little program I have always used for that conversion in the hard-drive crash). I want to update the "landing page" where the e-book is described on my web site. I need to combine the Top 40 pages (the Easy-Rate sheets and the tables) with the text itself to create the finished product. Then that document (which is in Word) needs to be converted to a pdf file. I need to remove the 2010 edition from Payloadz and upload the 2011 edition in pdf form. Finally, I need to make sure PayPal understands what is going on. Then my wife and I will make test purchases to be sure it all works as it should.

My target date to get this all done is a week at the most. That would mean availability on 1/18--last year's launch date was 1/19, so that would be about the same.

Two questions for anybody who cares to respond:

• A couple of people have expressed interest in having all four editions available for comparison and to see the "flow" of information as this series has developed over the years. I could work out some sort of combo package if there is enough interest. One thing I'd have to check would be size problems--the combined document would be well over 400 pages, which could create upload problems at my end or download problems at your end. Maybe just offer past editions individually at a big discount?
• My wife has offered to do the work required to offer a print version. She would get it printed at FedEx Office or somewhere, put a simple cover on it, and mail it out. I don't know the additional cost, I imagine it would be somewhere between $15-$20. I also don't know if Payloadz can take orders for a physical product rather than a pdf download.

OK. Writing this was my break for this morning. Time to get back to work. I want to thank the many of you who have sent encouraging notes and emails. They are really inspirational to me, and I appreciate them immensely. The same goes for the questions some of you have sent. They get me thinking and also give me great insights into the audience for this e-book. All of the messages I have received combine to form a sort of virtual focus group, and that helps me design the product in the way that will help the most people. Thanks very much.