Dividend Investors Should Focus On Stocks, Not The Market

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Nov 18, 2014

The election may be settled, but investors fears are not. When Barack Obama was first 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. More recently, Obama's popularity plunged, then the Republicans regained control of the Senate. 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 routinely get this question, "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.

Many people define the market broadly as the S&P 500. Very little of my total portfolio is in an 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:

The Coca-Cola Company (KO, Financial) is the world's largest soft drink company, KO also has a sizable fruit juice business.
- Calculated Fair Value: $47.90
- Recent Price: $42.86
- Yield: 2.9%

AT&T Inc. (T, Financial) provides telephone and broadband service and holds full ownership of AT&T Mobility (formerly Cingular Wireless).
- Calculated Fair Value: $40.59
- Recent Price: $35.85
- Yield: 5.1%

Microsoft (MSFT, Financial), the world's largest software company, develops PC software, including the Windows operating system and the Office application suite.
- Calculated Fair Value: $59.42
- Recent Price: $49.52
- Yield: 2.5%

Cisco Systems, Inc. (CSCO, Financial) offers a complete line of routers and switching products that connect and manage communications among local and wide area computer networks employing a variety of protocols.
- Calculated Fair Value: $33.28
- Recent Price: $26.40
- Yield: 2.9%

IBM's (IBM, Financial) global offerings include information technology services, software, computer hardware equipment, fundamental research, and related financing.
- Calculated Fair Value: $213.95
- Recent Price: $164.60
- Yield: 2.7%

Exxon Mobil Corp. (XOM, Financial), formed through the merger of Exxon and Mobil in late 1999, is the world's largest publicly owned integrated oil company. See full analysis here.
- Calculated Fair Value: $132.17
- Recent Price: $94.88
- Yield: 2.9%

Markets go up. Markets go down. Over time they tend to drift higher. Recently we have enjoyed somewhat lower stock prices. In the future, when we struggle to find fairly priced stocks, we will likely look back and regret not buying more when we had the opportunity.

Full Disclosure: Long XOM, IBM, CSCO, MSFT, T, KO in my Dividend Growth Portfolio. See a list of all my dividend growth holdings here.

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