January 3, 2012

Last week we said goodbye to 2011, a year with plenty of sturm und drang but, at the end, little net change. At the closing bell last Friday it was a mixed bag of results for US markets. Here are the final numbers for the year:

Dow Jones Industrial Average: +5.53% (DJIA for short)

Standard & Poors 500: -.002% (let's call that "unchanged")

Nasdaq Composite: -1.8%

The financial media will tell you how the Dow Jones is unrepresentative of our markets, because it is an index made up of just 30 large companies. That last part is true, of course. But the kind of companies that make up the index are (mostly) stable, dividend-paying businesses. Names like Exxon, Procter & Gamble, McDonalds, and 3M are what you'll find there, and those kind of companies have been steadily recovering from the global recession. Another thing common to most of them is that they pay regular cash dividends to their shareholders - and raise those dividends frequently. By contrast the 500 companies that make up the S&P index are a necessarily very mixed bag, and the Nasdaq index is tech-heavy. Both of those indices have many of what would traditionally be called "growth stocks." As in "I don't mind if they don't pay me a dividend because I'm looking for growth."

If that's your plan, you'll need to look hard. The last ten year's average annual return for the S&P 500 Index is just over 2%. By contrast, the current average annual cash dividend yield for the 30 stocks of the DJIA is now 3%. I think the chances of making money in 2012 look pretty good if I can expect 3% just for showing up. The directors and officers of most public companies seem to take pretty good care of themselves. I expect them to consider their shareholders by paying cash dividends. In most cases, if they do not, then I will not consider them.

GTC

(This article contains the current opinions of the author but not necessarily those of Brighton Securities Corp. The author's opinions are subject to change without notice. This blog post is for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. References to specific securities and their issuers are for illustrative purposes only and are not intended and should not be interpreted as recommendations to purchase or sell such securities).