Join        Login             Stock Quote

Dividends and Consumers: Hanging with the Seniors

 June 16, 2008 12:27 PM

Today's WSJ has a data packed piece on why the US market is at "fair value." Translated, this means a few things, if we assume that the WSJ article is right.

First, indexers should expect volatility that goes no where. Perhaps the ride will be interesting.

Second, for active managers, moving sideways is known as a stock pickers' market. But as all stock pickers know, every market is a stock pickers' market. That is why we wake up without alarms and run to our computers in the morning, and get to work before everyone else. It is what we do. Pick stocks with the intent of beating the market.

Third is my real topic: how important is the stock market to consumers. Not the speculative consumers who live life paycheck to paycheck even as their income rises. I mean the "silent majority" types. This weekend I went to the beach where I found myself discussing various topics with fellow visitors, many of whom are regulars, and about one third are retirees.

[Related -Savings Glut and Financial Imbalances]

One senior described how she rides out market volatility. She is no multimillionaire with a huge cushion. Most of my fellow beach people are teachers, social workers and middle managers.

She struck me with the wisdom of her buy and hold strategy. She is a Warren Buffet type investor not selling on volatility. She would only sell if either she no longer trusts the firm, or the stock deteriorates beyond reconciliation.

"I'm OK waiting for the market to return." She says. "It's the dividends: if they cut those, then I'm not sure what to do."

She lives off social security, a very modest pension and her dividends. Her holdings and her home will hopefully be passed onto her kids and grandchildren, and she will not ever have to sell them for necessities. Inflation cuts heavily into her earnings and she recognizes that. If the market goes higher, and she realizes capital appreciation, that will offset some of her erosion, and she is aware that the market rising is no reason to go out and spend. The best way for her to keep up with inflation is higher dividends.

[Related -A Dividend Aristocrat Is Now On Sale]

Buy and hold and take the dividends. Not a bad investment philosophy.

This year we will see how the market and the big cap stocks hold up. We will also see how and if these firms can actively affect consumer spending through their dividend policy. The big question and source of anxiety for my friend and thousands like her is dividends, not 6-18 month market fluctuations. She is the type of consumer that is the backbone of the economy. She pays her bills on time. She eats out and goes to the movies with her grandchildren. She travels to see relatives and for pure adventure.

She is a core consumer. Let's see if public companies cut her pay. They may be cutting off their noses to spite their face.

iOnTheMarket Premium


Comments Closed

rss feed

Latest Stories

article imageSavings Glut and Financial Imbalances

Martin Wolf in today's Financial Times discusses the reasons for low interest rates and suggests some read on...

article imageA Dividend Aristocrat Is Now On Sale

The bear market investors have been dreading is already here for many individual stocks. While the S&P 500 read on...

article imageTwo Picks to Play Defense in a Slowing Economy

Is the economy slowing? Last Thursday the Institute for Supply Management (ISM) reported that its read on...

article imageUS Jobless Claims Fall, Moving Closer To Multi-Decade Low… Again

US jobless claims continue to cast a positive glow on the outlook for the labor market. Today’s weekly read on...

Popular Articles

Daily Sector Scan
Partner Center

Fundamental data is provided by Zacks Investment Research, and Commentary, news and Press Releases provided by YellowBrix and Quotemedia.
All information provided "as is" for informational purposes only, not intended for trading purposes or advice. iStockAnalyst.com is not an investment adviser and does not provide, endorse or review any information or data contained herein.
The blog articles are opinions by respective blogger. By using this site you are agreeing to terms and conditions posted on respective bloggers' website.
The postings/comments on the site may or may not be from reliable sources. Neither iStockAnalyst nor any of its independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. You are solely responsible for the investment decisions made by you and the consequences resulting therefrom. By accessing the iStockAnalyst.com site, you agree not to redistribute the information found therein.
The sector scan is based on 15-30 minutes delayed data. The Pattern scan is based on EOD data.