January  2012 Commentary (1/4/12)

Review of December 2011 Results & This Month's Changes 

Surprisingly Good Month    

Once again, despite all sorts of turbulence during the month, the market, at least as measured by the S&P 500, recorded a relatively tame 1% return in December. By contrast, our dividend stocks enjoyed a surprisingly good month.

Starting with our Sample Portfolios; the Conservative Portfolio, up 4%, did the best. Our High Yield/Speculative and Growth & Income Portfolios both averaged 3% returns for the month.

Looking at our 19 Industry and Specialty portfolios, 17 of them recorded gains.

Energy General Partners, averaging a 12% return, did the best. Next came Business Development Corporations, up 9%..

On the downside, Partnerships Excluding Energy, a portfolio with only one holding, lost 2%. Rural Telecoms, down 1%, was also in the negative column. Here’s the complete list.

What Happened?
U.S. markets moved up or down depending on daily news reports from Europe related to the debt crisis. Fortunately, banks and other financial stocks didn’t get hit as hard by such news as they had in previous months.

What’s Next?
The Europeans appear to be getting on top of the debt/liquidity problems facing various countries, and the U.S. economy is strengthening, Nevertheless, as we’ve seen already, the European situation could blow up at any time, sending the market down again. Further, Iran is threatening to disrupt shipping in the Strait of Hormuz, a major crude oil shipping route. All bets are off if that happens.

At the risk of boring you to tears, we continue to advise a cautious approach. Invest only money that you won’t need for at least six months so you can wait out market downdrafts without having to liquidate stocks trading at their lows.

2011 Sample Portfolio & Top Stock Returns
Our Conservative Sample Portfolio returned 19.8% in 2011. High Yield/Speculative lost 1.0%, and Growth & Income averaged a 5.4% loss (returns are share price appreciation plus dividends). By contrast, the S&P 500 broke even for the year.

Here are the top 10 Dividend Detective followed stocks for last year, in terms of total returns.

Dividend Hotshots
We first published Dividend Hotshots in our October 2009 issue. It’s a portfolio, updated monthly, that typically holds 30 to 40 stocks paying 4.5% or higher yields with solid dividend growth track records, plus strong future dividend growth prospects.

We’ve tabulated the returns of selected portfolios, starting with the October 2009 edition. The returns assume that you bought equal dollar values of each portfolio pick and sold one-year later. We’ve listed the S&P 500 return for the same periods.

• 9/30/09 (46 stocks): Hot Shots 31%, S&P 8%.

• 3/31/10 (29 stocks): Hot Shots 34.6%, S&P 13%

• 10/4/10 (38 stocks): Hot Shots 5%, S&P –1%

Admittedly, those few tests don’t prove much, but the results are encouraging.

What’s New?

We’re replacing one Manufacturing & Services pick with a similar stock, but with better growth prospects. The new pick is paying a 3.9% dividend yield.

We’re also adding a new Dividend Speculator, already paying 5.6%, but with strong dividend growth prospects.

We’re adding a new pick paying 10.2% to our Canadian Stocks (Ex-Energy) portfolio.

We’re selling one Speculator and one Canadian Energy pick, both due to faltering growth prospects.

Finally, we’re changing four formerly “buy-rated” Preferred Stocks to “do not add.”