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.