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Why a Handful of Income Stocks Are Soaring Right Now

By Brian Hunt, Editor in Chief, Stansberry Research
Wednesday, June 13, 2012

A prediction I made early this year is turning out to be incredibly profitable for investors...
 
If you're worried about the European debt crisis... or a China slowdown... or anything else, it's important for you to know about this prediction... the idea behind it... and why the idea is working so well.
 
The idea is something I nicknamed "the dividend magnet." 
 
You see... over the past few years, we've stressed the importance of dividends and high-quality stocks dozens of times in DailyWealth. We practically went to your house and made you buy them.
 
In a world full of risk and fraud, getting paid steady cash dividends is one of the market's best strategies.
 
This idea was "stress tested" in 2011. The broad market went through huge swings... and was crushed during the summer panic. Some riskier stocks fell 25%-50% in just a few months. But most of our favorite dividend-payers – like Coke, Abbott Labs, and Altria – held up just fine. (Read about this phenomenon here.) 
 
This outperformance finally caught investors' attention. The big dividend-payers started to climb. And early this year, I wrote: 
 
Dividends are sizing up to be this year's momentum trade...
 
Our guess is that, in 2012, more and more people recognize the safety and income-producing power of basic dividend-payers. With interest rates low, the fashionable thing on Wall Street will be for fund managers to say, "I own blue-chip dividend-payers." 
 
This will send a flood of new money into these stocks. Corporate managers will see the share prices of dividend-payers rise... so they will hike payouts. This will create a "momentum" trade in dividends.
 
Wal-Mart was a prime candidate for the "dividend momentum" trade. The company has raised its dividend every year for the last 36 years. And its dividend has grown at an average of nearly 16% per year.  
 
Since last August, Wal-Mart shares have gone from $50 to $67.50. Dividends included, shareholders are up nearly 40% over the last 10 months.  
 
While the S&P 500 is up about 5% this year, Wal-Mart shares are up 14%.
 
 Wal-Mart (WMT) Shares Up 14% So Far This Year
 
Wal-Mart's not the only one. Software giant Microsoft started paying a dividend in 2003 and has raised it nearly 30% per year ever since. It's up 13.7% so far this year.
 
Cigarette maker Philip Morris has raised its dividend every year since 2008, when it was spun off from Altria Group, which has one of the world's greatest dividend records. Shares are up nearly 10% this year.
 
Semiconductor dominator Intel has raised its dividend every year for the past eight years at a 32% annual clip. It's up 10% this year... and over 20% since last August.
 
And of course, we're seeing the same pattern with the big dividend-payers we checked in with during the last market correction.  
 
Once again, while the broad market falters... and riskier stocks get crushed... Coke (blue line), Abbott (green), and Altria (red) are holding up just fine. Take a look...
 
 Dividend Stocks Holding Up Compared to Broader Market
 
My friend and colleague Dan Ferris calls his favorite blue-chip, dividend-paying stocks "World Dominating Dividend Growers." He's noted how these stocks, bought at the right price, are so safe... so reliable... and pay out such steady and growing income streams, they should be considered their own asset class.  
 
They are that much better than everything else... better than bonds... better than an index fund... even better than gold.
 
As an investment newsletter insider, I know one of the most frequent questions in the back of a reader's mind is, "Well, they say to do this thing, but what are they telling their friends and family to do? What are they actually doing with their own money?" 
 
This idea... of buying the world's best businesses at good prices... and enjoying huge streams of safe income, is what knowledgeable insiders do with their own money.  
 
With the world full of risks like the European debt crisis, more and more people are finally realizing these are the ultimate stocks to own.  
 
These incredible blue chips are holding steady while shaky businesses struggle. And while this idea is getting more popular as my prediction proves true, this is a timeless wealth idea that will always work.
 
Good investing, 
 
Brian Hunt




Further Reading:

Dan has been writing about a group of elite, blue-chip, dividend-paying stocks he's dubbed "World Dominating Dividend Growers" since 2010. The two he recommended buying back then are up an average 24% – dividends included – while the S&P 500 is up just 12%. Read more here: Make a Fortune in Stocks... Even If the Market Goes Nowhere.
 
There's more to discovering a World Dominating Dividend Grower than simply spotting the No. 1 company in an industry. Last month, Dan gave DailyWealth readers the financial clues you need to spot a WDDG. Get them here: A Common Sense Guide to "World Dominating" Dividend Stocks.

Market Notes


A RARE BUY SIGNAL ON U.S. STOCKS

There are lots of reasons to be bearish right now. But one of my favorite trading indicators says it's time to buy.
 
The New York Stock Exchange Summation Index (NYSI) is an intermediate-term measure of overbought and oversold conditions. Stocks are "officially" overbought when the NYSI rallies above 1,000. And they're oversold when it drops below zero. The indicator triggers a buy signal when the MACD momentum indicator (the bottom box) extended below -200 and then turns higher.
 
We've only had four buy signals over the past three years. NYSI pegged the exact bottom of the market twice. In the other two cases, stocks drifted slightly lower for a couple more weeks before starting to rally. Six months after each of these buy signals, stocks were between 18% and 50% higher.
 
As you can see in the chart below, we're on the brink of another buy signal today. There's no telling for sure what we'll get this time around. But based on this NYSI buy signal, it's a good time to buy stocks on weakness.
 
You can follow this trade with my on my Direct Line blog, where I provide real-time market commentary to subscribers of the S&A Short Report newsletter. To learn more about a subscription to the S&A Short Report and to get access to the Direct Line, click here.
 
– Jeff Clark
 
NYSI On the Brink of a Buy Signal

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