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Dividend Investors Should Focus On Stocks, Not The Market

 December 04, 2012 09:22 AM
 


The election may be settled, but investors fears are not. After Obama was elected, the market plunged on worries of the looming Fiscal Cliff and European concerns. Budget negotiations began on Capitol Hill, optimism returned and the market responded. Is it a stock market, or a yo-yo? Looking at this CNN Money chart might lead you to believe that "yo-yo" is the more appropriate term:

Fear & Greed Index

Chart courtesy of CNN Money

Where's The Market Going From Here?

In one form or another, I get the question daily, "What do you think of the market? Where's it headed?" Normally, I politely respond as expected, but occasionally I will startle the person with a reply like, "I don't know. For me it really doesn't matter much." My investing goals are not defined by movements in the market.

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Many people define the market broadly as the S&P 500. Very little of my total portfolio is in a S&P 500 index. Its movements up or down have minimal effect on my goals. As a value-based investor in dividend growth stocks, it is in my best interest to have stocks depressed and yields high, at least for the short-term. This provides a choice between worthy investments, unlike the market boom years when it was a struggle to find fairly priced stocks.

Focus On Solid Dividend Stocks, Not The Market

Instead of looking at the market and its direction, investors in dividend growth stocks should focus on quality, price and ultimate value. Below are several quality dividend stocks selling below their calculated fair value:

Walgreen Co. (WAG) is the largest U.S. retail drug chain in terms of revenues, this company operates more than 8,000 drug stores throughout the U.S. and Puerto Rico.

- Calculated Fair Value: $54.67

- Recent Price: $34.29

- Yield: 3.2%

Aflac Incorporated (AFL) provides supplemental health and life insurance in Japan (80% of earnings) and the U.S. Products are marketed at work sites and help fill gaps in primary coverage.

- Calculated Fair Value: $61.44

- Recent Price: $52.95

- Yield: 2.6%

Exxon Mobil Corp. (XOM), formed through the merger of Exxon and Mobil in late 1999, is the world's largest publicly owned integrated oil company.

- Calculated Fair Value: $108.42

- Recent Price: $87.54

- Yield: 2.6%

Microsoft (MSFT), the world's largest software company, develops PC software, including the Windows operating system and the Office application suite.

- Calculated Fair Value: $31.36

- Recent Price: $26.48

- Yield: 3.5%

General Dynamics (GD) is the world's fifth largest military contractor and also one of the world's biggest makers of corporate jets.

- Calculated Fair Value: $70.71

- Recent Price: $65.76

- Yield: 3.1%

Intel Corporation (INTC) is the world's largest manufacturer of microprocessors, the central processing units of PCs, and also produces other semiconductor products.

- Calculated Fair Value: $29.89

- Recent Price: $19.51

- Yield: 4.6%

IBM's (IBM) global capabilities include information technology services, software, computer hardware equipment, fundamental research, and related financing.

- Calculated Fair Value: $198.68

- Recent Price: $189.17

- Yield: 1.8%

Markets go up. Markets go down. Over time they tend to drift higher. Recently we have enjoyed some lower stock prices. The time will come at sometime in the future where we once again struggle to fairly priced stocks. At that point, we will likely look back and regret not buying more when we had the opportunity.

Full Disclosure: Long AFL, MSFT, GD, INTC in My Dividend Growth Portfolio. See a list of all my dividend growth holdings here.

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