{"id":28356,"date":"2012-03-19T07:00:37","date_gmt":"2012-03-19T11:00:37","guid":{"rendered":"http:\/\/countingpips.com\/fx\/2012\/03\/19\/dividends-one-stock-one-etf-and-one-mutual-fund\/"},"modified":"2012-03-19T07:00:37","modified_gmt":"2012-03-19T11:00:37","slug":"dividends-one-stock-one-etf-and-one-mutual-fund","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/fx\/2012\/03\/19\/dividends-one-stock-one-etf-and-one-mutual-fund\/","title":{"rendered":"Dividends: One Stock, One ETF, and One Mutual Fund"},"content":{"rendered":"

By The Sizemore Letter<\/a><\/p>\n

If you are a bond investor looking for current income, you have to be feeling a little down these days.\u00a0 With the 10-year Treasury barely yielding 2%, the only way to get a decent return is by dipping into more exotic territory like high-yield junk bonds or emerging market bonds.\u00a0 In most bond offerings, you\u2019re looking at a stream of income that is too low to meet current needs yet promises to actually get worse<\/em> with the passing of time.\u00a0 This isn\u2019t investing; it\u2019s slow-motion lifestyle suicide.<\/p>\n

For a stream of income that is both tolerably high today and likely to keep up with inflation tomorrow, you need to invest in dividend-paying stocks.\u00a0 The yields on the stocks of many world-class, blue chip companies are higher than what you can get in the bond market, and unlike bonds\u2014whose coupon payments are fixed\u2014healthy companies can and do raise their dividends with time.<\/p>\n

So, in the spirit of bluesman John Lee Hooker\u2014and his classic One Bourbon, One Scotch, One Beer\u2014I\u2019d like to offer one dividend stock, one dividend ETF, and one dividend mutual fund.<\/p>\n<\/p>\n

We\u2019ll start with the stock.\u00a0 I can think of nothing to cure the low-yield blues than a fat 9% dividend, and that is exactly what Spanish telecom giant Telef\u00f3nica\u00a0 (NYSE: $<\/span>TEF<\/a>) <\/strong>is offering at current prices.<\/p>\n

Telef\u00f3nica has taken a beating in recent years due primarily to weakness in the Spanish fixed-line market.\u00a0 Yet Telef\u00f3nica\u2019s promising Latin American markets\u2014which make up nearly half of revenues\u2014continue to grow.\u00a0 While mobile phones are already ubiquitous in Latin America, many consumers still use simple prepaid plans or share a single phone with multiple family members.\u00a0 The upgrade cycle to smart phones with expensive data plans is just beginning, and Telef\u00f3nica is in excellent position to capture this trend.<\/p>\n

Telef\u00f3nica cut its dividend last year to conserve cash during the Eurozone debt crisis; yet even after the cut, the yield stands at 9%, and I believe that the payout is likely to significantly rise again within a year.\u00a0 Telef\u00f3nica is a stock that you can plan to hold for years, milking the dividend all the way.<\/p>\n

Moving on, with the market looking at risk of a short-term correction, having some part of your portfolio allocated to more defensive sectors would seem prudent.\u00a0 And the iShares Dow Jones Select Dividend ETF (NYSE: $<\/span>DVY<\/a>) <\/strong>fits the bill quite nicely.\u00a0 Nearly half of the ETF is invested in utilities and consumer staples, and all of the companies included have a long history of consistent dividend payouts.\u00a0 This was the first ETF formed with a specific dividend-focused mandate, and it remains one of the best.<\/p>\n

At current prices, DVY yields 3.33%, which is considerably more than what you will find in the bond market.\u00a0 This ETF is a fine investment option for yield-hungry investors irrespective of what happens in the broader market.<\/p>\n

Finally, for the mutual fund, I\u2019m going to go a slightly different direction.\u00a0 Rather than focus on high yield today, I recommend that investors buy shares of the Vanguard Dividend Appreciation Fund (VDAIX) <\/strong>with a mind towards tomorrow.\u00a0 The Vanguard fund follows the investment methodology of the Dividend Achievers Index, meaning that it only buys shares of companies that have raised their dividends for a minimum <\/em>of ten consecutive years.<\/p>\n

We\u2019ve had a pretty rough go of it over the past ten years, and particularly the last five.\u00a0 If a company was able to raise its dividend through something like the 2008 meltdown, you know that it has the ability to survive Armageddon.\u00a0 And VDAIX is loaded full of companies that meet that description.<\/p>\n

Currently, the fund yields just shy of 2%, within basis points of the 10-year Treasury.\u00a0 But unlike that Treasury note, the Vanguard fund will almost certainly pay you a larger check next year\u00a0 and every year after that.\u00a0 In addition to being a reliable source of income, this is a fund that you can make the core of your growth portfolio.<\/p>\n

So, dear reader, don\u2019t despair.\u00a0 There are income options out there besides traditional bonds.\u00a0 And if these three don\u2019t lift your spirits, perhaps putting on an old John Lee Hooker record will help.<\/p>\n

Charles Sizemore is editor of the Sizemore Investment Letter<\/em><\/a> <\/em>and principal of Sizemore Capital<\/a>. \u00a0TEF and DVY are held by Sizemore Capital clients.<\/p>\n","protected":false},"excerpt":{"rendered":"

By The Sizemore Letter If you are a bond investor looking for current income, you have to be feeling a little down these days.\u00a0 With the 10-year Treasury barely yielding 2%, the only way to get a decent return is by dipping into more exotic territory like high-yield junk bonds or emerging market bonds.\u00a0 In … <\/p>\n

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