Van Knapp Quoted in CNNMoney.com Article

On Friday, March 20, CNNMoney.com ran an article about dividends entitled "Counting on dividends? Not so fast."

I was interviewed for this article a couple weeks earlier, and some of what I said was used in the article. My thoughts were used as a voice of optimism:

It's too early to tell which firms will emerge from the economy on top, according to David Van Knapp, a private investor who focuses on dividend investing. But he added that companies with healthy balance sheets, good cash flow, and a standing tradition of boosting dividends are usually good bets. "Distributing and raising dividends is part of the culture at many companies, a practice embedded over decades. Only the most dire circumstances will cause such companies to cut their dividends," he said. "Despite the recession and economic situation, not all companies are in those dire circumstances - yet."

The article included statistics from Standard & Poor's, which tracks dividends for its S&P 500's stocks. S&P estimates that dividend payments will fall by 23% this year, marking the largest decline since a 36% slide in 1938. It also quoted an analyst from Morningstar who said, "People getting this are getting a pay cut."

Those of you who have read my books or articles about dividend investing know that I am generally optimistic about dividends from the best dividend companies. For that reason, I find the statistics from S&P about the decline in total dividends paid by all 500 companies to be interesting but only marginally useful. The vast majority of the dividend cuts have come (and will continue to come) from banks and other financial firms, for pretty obvious reasons. Only two banks made it onto my TOP 40 DIVIDEND STOCKS FOR 2009 list. One of those is Canadian, and neither is in the S&P 500. So the fact that big banks are cutting dividends is not relevant to the dividend investor who is not invested in them.

Several of the companies which made it onto my Top 40 list have already raised their dividends for 2009.

If you want to read the full CNNMoney.com article, it is posted here: http://money.cnn.com/2009/03/20/markets/dividend_caution/index.htm

If you want to learn more about THE TOP 40 DIVIDEND STOCKS FOR 2009, click here.

New Timing Outlook 3/20/09

1. Market Performance Since Last Outlook
New Outlook (3/20/09): 6.0 (NEUTRAL)
Last Outlook (3/4/09): 3.5 (NEGATIVE)
S&P 500 last time (3/4/09): 835
S&P 500 now: 767 Change: -8%
S&P 500 at beginning of 2009: 903

S&P 500 Now: 767 Change YTD: -15%

2. Indicators
· Conference Board Index of Leading Economic Indicators: The March report, covering February, showed a decrease, following 2 months of small increases, which had followed decreases in 6 of the preceding 7 months. This indicator stays neutral, because there are not 3 straight readings in one direction. Neutral. +5
· Fed Funds Rate: The most recent Fed action left rates unchanged. Overall the Fed Funds rate remains at 0.5%. There have been 10 cuts since 8/07 totaling 4.75%. There is nothing more the Fed can do with interest rates to make this indicator “better.” Of course, the stimulus bill was signed and money has started to flow; the Fed this week indicated intentions to inject > $1T into the economy; and the Fed, Treasury, and FDIC are implementing other bailout, helpout, and stabilization plans, so there is a lot going on in Federal policy. +10
· S&P 500 Market Valuation: The S&P 500’s P/E is 14, up from 12 last time. This indicator is positive because it is below 17.4. This metric cannot get “better.” +10
· Morningstar’s Market Valuation Graph is 0.74, up from 0.72 last time, but still well below the 0.90 threshold that would turn it neutral. (Historical data: All-time low = 0.55 on 11/20/08. Value at end of dot-com bear market = 0.78 in 10/02, which kicked off a 5-year bull market.) Again, this indicator cannot get “better.” +10
· S&P 500 Short Term Technical Trend: The S&P 500, which staged a rally in the past week, moved above its 20-day simple moving average (SMA), but both are below its 50-day SMA. That makes this indicator neutral. +5
· S&P 500 Medium Term Technical Trend: Even with the rally, the index is below both the 50-day and 200-day SMAs. Thus, this indicator is negative. +0
· DJIA Short Term Technical Trend: Same situation as S&P 500. Neutral. +5
· DJIA Medium Term Technical Trend: Same situation as S&P 500. Negative. +0
· NASDAQ Short Term Technical Trend: The NASDAQ rallied more than the other two, and the index is now above both its 20-day and 50-day SMAs. Positive. +10
· NASDAQ Medium Term Technical Trend: Index is above its 50-day SMA but below the 200. Neutral. +5

TOTAL POINTS: 60 NEW READING: 60/10 = 6.0 = NEUTRAL

3. New Rating
The Outlook jumps to neutral from negative on the strength of the rally over the past few days. The Timing Outlook is considered neutral anywhere between 4.0 and 7.0.

Two previous potential “bottoms” (11/10/08 and 11/20/08) were breached in late February, with a new potential “bottom” appearing on March 9, from which the market has rallied.

Despite today’s neutral reading, I would repeat that until a clear upward trend appears, I would not purchase any stock at this time, with the exception of a well-valued long term dividend stock or a very short-term trend play. The rally over the past few days does not yet constitute a "clear upward trend." I'd like to see 3+ weeks before venturing back in.