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Dividend stock picks and market outlook for 2016

I expect 2016 to be a bad year as we are heading towards a recession. I still believe FED had it wrong and raising rates was a bad move, although it was a minor hike, it will still do the damage.

Generally, higher rates is an economic brake preventing fast growing economy from overheating. We do not have fast growing economy. The growth is mediocre at best. Stepping on a break now is futile.

I have heard many saying that FED had to raise rates to save their credibility. What the heck is that? So are we saving our economy or FED’s credibility? We all know that FED has no credibility at all! All their economic predictions were always wrong in 70% of the occurrences.

I believe, FED actually lost the rest of their credibility by raising rates instead of saving it. Why? Yellen was always assuring us that she was data dependent. By raising rates now when incoming data are actually bad, GDP is slowing, PMI index is in recession (the index came in at 48.7 in November and 42.9 in December; any number below 50 is considered recessionary) proved she never was data dependent and she was actually lying! Or she increased rates just to please Wall Street’s expectations.

Yellen is truly a true Democrat dumb enough to raise rates into slowing economy. FED did this move in 1986, just to lower the rates again in 1987 as the recession hit the country. FED again didn’t foresee what was coming. They do not see it again today.

And once again the pundits on Wall Street are all optimistic and laughing at those who are warning about coming recession. I remember Peter Schiff warning about recession coming, warning since 2005 until 2008 about what FED, commercial, and investment banks were doing to the economy and mainly credit and housing market. Everybody laughed and mocked him.

I watched a video on Hedgeye website portraying a chief economist with BNP Paribas Senior U.S. Economist Laura Rosner predicting how great 2016 will be and that the growth will be driven by a consumer’s (thus us) spending. What spending was she talking about? All data on personal income and consumption point to slow growth (personal income grew only 1.7% annually during last seven years compared to 4.32% the pre-recession seven years, source FRED). In other words, people do not have enough income to spend these days! They do not feel comfortable spending (if they were spending their hard earned money, it would have had an impact on prices and consumer spending data).

I live in a region which sees economic growth and busy days in construction, yet I do not feel comfortable spending as I was before the Great Recession. It is also driven by the structure of jobs we are being told by this administration. Economists and FED are cheering about job reports, but when you take a look at the Labor Department, and see what was the jobs made of, the picture is actually sad and nothing to cheer about.

Involuntary part time workers increased, and most of the gains were in retail (15%) and healthcare (24%). The rest was construction (12%) and professional services such as book keeping or computer services (7.5%), etc. Most of the jobs are seasonal, part time jobs, and construction. The construction sector is quite related to the housing market growth which may actually be tampered by the recent interest hike and as a result slow down.

 

 · Dividend stock picks for 2016

 

Although, I am expecting 2016 year to be bad with either a major correction or a recession, it can be actually good for dividend growth investors.

A typical dividend growth investor does not look at the value of his portfolio. At least I do not look at it. I mean that it is not important to me whether my portfolio goes down or up. All I like to see is that my income from that portfolio is up and growing (or in bad years at least same). Then, I do not care much if my portfolio loses 15% in a a bad year. All what matter is that my dividend income is stable and growing.

The only time I look at the value of my portfolio and stock prices is when I can see an opportunity to buy my stocks cheap. If you are using DRIP and reinvest dividends, low stock prices are a blessing to every dividend investor. That’s the only reason why I would be concerned about stock prices and value of my portfolio.

Looking at the portfolio value also requires another perspective – time.

If you are at the beginning of the journey and started building your portfolio a few years ago or even starting this year, then every stock market collapse is actually your friend and you should welcome it with open arms.

It is easy said but gut wrenching to sit tight and watching your portfolio shrinking in front of your eyes. Many people panic and sell. If we see a blood bath in Wall Street this year, do not panic, take it as a great opportunity and invest into your stocks. Take your time consideration into account. Repeat to yourself that you are going to invest for the next 20 or 25 years and from that time horizon perspective any price collapse is insignificant. You can actually become very aggressive with your investing. You can even apply long term options strategies such as buying LEAPS calls or selling long term LEAPS puts (depends on your guts).

Just look at the market in 2008. When everybody was panicking, selling, and predicting end of the world, those who stayed calm and actually continued purchasing stocks at those beaten prices doubled or tripled their holdings.

SPX

The same goes with today’s energy stocks, mainly those involved in oil. They are beaten up, people are predicting more bad years to come, and end of the world. I even read a comment on Yahoo! from one commenter that oil is finished because of alternative renewable energy and that we will be using electric cars.

Quite laughable argument. Although cars are a significant segment using product from refined oil, it is not the only one. Military, large transportation (mainly maritime transportation – unless we go back using sails) will be using products made of refined oil; or can you imagine a large transoceanic carrier running on wind or solar panels?

Transocean

And what about other products which are made of crude oil? Our roads are made of by-product from crude oil (asphalt), lubricants, plastics, computers, paraffin vax, jet fuels (unless we start using hot air balloons again), and many pharmaceutical products. Yes, gasoline accounts for 46% of all crude oil consumption, but it cannot be eliminated whatsoever as the commenter assumed.

Thus I look at oil companies, mainly those dividend paying companies as a great opportunity to buy them cheap in 2016.

If you will be buying those companies, do not be however, discouraged by their price action. Remember, people will be panicking, selling them, running away, screaming, and predicting end of the world. When investing in those companies, consider your biggest friend – time. You are not investing for the next 12 months. You are investing for the next 20 years. No matter how depressive it may feel investing into crushing stocks today, you stay the course.

 
 
Here are my dividend picks for 2016 (not all are oil companies though):

Company Name Symbol Price Yield Growth Div. History (yrs)
Abbvie Inc. ABBV $59.24 3.85% 0.00% 2
Archer Daniels Midland Co. ADM $36.68 3.10% 13.52% 41
Ameriprise Financial Inc. AMP $106.42 2.50% 30.90% 10
BHP Billiton Plc BBL $22.65 10.90% 7.47% 13
Chevron Corporation CVX $89.96 4.80% 8.62% 20
Ford Motor Co. F $14.09 4.30% 48.33% 3
Cedar Fair LP FUN $55.84 5.50% 87.90% 5
GameStop Corp GME $28.04 5.10% 22.20% 3
Meredith Corp MDP $43.25 4.20% 15.30% 20
Magna International Inc. MGA $40.56 2.20% 28.22% 6
Potash Corp. of Saskatchewan Inc. POT $17.12 8.90% 69.84% 5
Southside Bancshares, Inc. SBSI $24.02 3.80% 8.33% 5
Targa Resources Corp. TRGP $27.06 13.50% 30.77% 4

 
 

I will not be necessarily investing to all of those stocks as I do not have enough cash, but they are my favorite list of stocks for this year to choose from. I think they can bring nice dividends and dividend growth.

What do you think about these stocks? Which would you choose to invest to?
 





2 responses to “Dividend stock picks and market outlook for 2016”

  1. DivHut says:

    Some interesting picks for 2016. I can get behind a few of them, ABBV, ADM, CVX and POT perhaps but not much else. At least from a dividend growth perspective I like the names I mentioned more so than that entire list. So far 2016 has proven to be quite a challenge. We’ll see how week two works out. Thanks for sharing.

    • Martin says:

      Keith,
      I agree with you. The list is compiled from my entire watch list and based on potential growth. There are good names and also some which may be a bit risky to invest in them. Although many of them have a good dividend history although their names are not familiar ones.
      Thanks for stopping by!

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