Young's World Money Forecast

Since 1978 With a 32 Year Vacation

Dow Down Over 1,000 Points

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What great news for me and for you if you are actually an investor. I mean a real, seasoned investor. One who embraces common sense, patience and the acuity that comes with decades studying the power of consistent cash flow matched with the most powerful word in investing: compounding.

My business is, as are my own portfolios, based on exactly these concepts. Market volatility has zero to do with dividends, interest (the source of cash flow), or compounding. Absolutely zero.

In that I have no plans to sell my major holdings (many owned for decades), I am not concerned about short-term market swings. What does cause me to pay close attention is the potential opportunity to invest my regular cash flow more advantageously than during periods of market buoyancy. That’s just common sense, is it not?

So, let’s look at some of the information I urge my clients to use to make steady, long-term investing decisions. Linked here is intelligence you can actually use to improve your long-term investment acuity.

The Young’s World Money Forecast (my online home base for intelligence gathering) display looks at 10 blue-chip long time Dow dividend payers with solid dividend growth prospects. Keep this invaluable little menu at hand for regular reference during periods of opportunity brought about by normal and expected short-term financial markets volatility.

Warm regards,

Dick

Quality Always Rises to the Top

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Back in November of 1990 many investors were nervous about their portfolios. Iraq had invaded Kuwait and war seemed inevitable. That month, the UN Security Council passed Resolution 678. The resolution gave UN members the go-ahead to use force to remove Iraq’s military from Kuwait if it remained there after January 15, 1991. It seemed only a matter of time before a big war would break out. Aerial bombardment of Iraqi positions began January 16.

Despite the fear that pervaded markets, I was very confident then in my investment portfolio, as I am today. I had built a portfolio conditioned to survive maximum distress. I was focused on the long-term prospects of my investments, not how they might be affected by transitory events. While expressing my focus on the long-term, I also explained my enthusiasm for investing in collectibles, specifically vinyl records. I wrote:

I like to invest in collectibles, not just in stocks and bonds. What once was the biggest record store in New England, the Harvard Coop, today sells no records, not a single one. Within 12 to 24 months, you will be hard pressed to find a record in a store. Even the old specialty vendors are facing such a decline in sales that they will soon become extinct. Forget new records—few if any will be made. We are told that the digital technology of CDs is what we need, and at substantial price premiums to records.

Let me give you some important advice. Records will be back in style and with a rush as collectors and music aficionados finally realize that they’ve been had just a little. Yes, digital technology offers a clarity of sound missing on records from the 1940s, 50s, 60s and 70s, but digital also delivers a sonic deficiency. Digital does not have the warmth of vinyl recordings. The sound records produce is warmer. I consider myself to be somewhat of an expert on the subject with nearly 1,000 albums, stacks of 45s, and over 400 CDs. I’ve made the test often, and I hear a warmth from records not available from CDs.

I buy jazz and group harmony R&B records from the 1950s, and they are now darn hard to find. All my classical and show-tune aficionados know what I mean. …

45 Records From the 50s Can Cost Hundreds of Dollars Each

The U.S population is aging, is retiring early, and has money. With time on their hands, the surge in retirees will make the nostalgia/collectibles market boom. The records you like will not be available readily and will not be reprinted in record format—and the chase will be on. I’m seeing prices on 45s from the 1950s soar. Try to buy a Wrens or Valentines 45. You’ll pay hundreds of dollars per record, if you can find one. Jazz, rhythm and blues, classical, and show tunes will lead the way. If you have an interest in any of these four types of music and like to collect, think vinyl, because your old favorites are going to become as rare as a balanced budget—and mighty expensive to boot.

Prescient, no? Baby Boomers and Millennials are today fulfilling my November 1990 prediction of a revival in vinyl records. Drawn in by a quality and warmth lacking in CDs and MP3s, Millennials have joined their Baby Boomer parents in fostering a vinyl resurgence. Quality has risen to the top.

My portfolio of high quality investments rose to the top during the market jitters of the Gulf War. And when the dotcom bubble burst, it powered through again. As the Great Recession hit, my high-quality portfolio persisted, suffering much less than the average. And I suspect that my portfolio, still focused on interest paying fixed income and reliable dividend payers, will succeed once again in the face of any new market upheavals. Just as vinyl has outlasted the advent of digital music technologies, a strategy focused on low risk and consistent returns will outlast an artificial bull market powered by low interest rates.

I stick to my investment game plan, and employ the same strategy for clients of my investment advisory, Richard C. Young & Co., Ltd. The firm’s President and CEO, my son Matt Young, discusses taking stock of your investment goals and sticking with them in his most recent monthly client letter here (you can sign up for the letter here for free, even if you’re not yet a client). I encourage you to read through Matt’s letter and assess your own risk tolerance and game plan.

As for collectibles, my current focus is on Burgundy as an investment. You can read about my extensive research on the subject in these posts from Richardcyoung.com:

Your First Step Toward Investment Success

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For over four decades, I have offered strategies and insights to help individual investors like you. My primary goal, whether in my monthly strategy reports, at investment seminars, or for current clients of my money management firm, has been helping investors achieve long-term investment success.

What you buy, what you sell, what price you pay, and which strategies you pursue all matter for your investment success, but they aren’t the most important steps in the process. Focusing first on what the “good buys” are is putting the horse before the cart.

What’s your goal? First define what investment success means to you and your family. Next, determine how much risk you can or want to take in your portfolio to achieve that goal.

Does investment success mean doubling your money in five years, even if that requires a portfolio with neck-snapping volatility and nights awake in a cold sweat? Or are you like me—a more patient investor who is more interested in preserving wealth and letting the power of compounding work its magic over time?

Ask yourself how much risk you can take or want to take.

The success I want you to embrace comes from compounding and patience. I invest guided by the principles embraced through the decades by Benjamin Graham, Walter Schloss, and David Dreman.

Rising Dividends: Decades of Focus on a Winning Strategy

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In 1987, I sat down with Bill Lippman for a conversation about L.F. Rothschild Fund Management’s “Rising Dividends Fund.” Bill had been the founder and president of the Pilgrim Group mutual funds for 25 years before he sold the firm. Bill then moved over to the New York based, L.F. Rothschild Fund Management, at the time a new subsidiary of L.F. Rothschild investment bank. (The Rising Dividends Fund would later become the Franklin Rising Dividends Fund, which still trades today, though this is not a recommendation to buy).

The Rising Dividends Fund focused on what I have been recommending to my readers for years; solid companies with strong records of increasing dividend payouts. I have been focused on dividend payments since my days at Babson reading Ben Graham and David Dodd.

Bill was interested in rising dividends as a way to protect his fund’s owners from experiencing the type of punishment in their portfolios they felt in the bear market of 1973-1974. Those unhappy days of “stagflation” saw unemployment of 8.5%, CPI increases of up to 11%, and a drop in the Dow Jones Industrial Average of 46%. Afterward, investors were not eager to have their savings ripped apart again. The pain was so bad that even in 1987 when Bill and I discussed his Rising Dividends Fund, the lessons of 73-74 were still remembered well.

When we talked, Bill said “In 1973-1974, we had a really bad market. It was a disaster…and it went on and on for a couple of years. It seemed like it would never end. One then asks, ‘Is there a better way?’ As it turns out, yes, there is a better way. You must have a philosophy, and you must stick to it. Don’t be the victim of the latest hot story that comes off the tape. And that’s what we did that was different. We evolved a philosophy that made sense. We selected companies that increased dividends and had low debt and low P/Es. We wanted a solid game plan that we could follow with comfort through good markets and bad.”

My focus for you today, just as it was in 1987, is on quality dividends from companies that are dedicated to increasing their payouts. As part of the RCs program at Richard C. Young & Co., Ltd., and in my recent coverage of the Dow stocks here on Youngsworldmoneyforecast.com, I consistently focus on finding companies that do just that.

Another thing Bill said in our discussion that really resonated with me was a piece of advice he gave to all investors “Put down in writing what you really believe in, and then stick to it.” I encourage you to do that right now. Don’t wait until later, or let inertia allow you to forget. Do it right now. Write down what you want to accomplish by investing, and how you plan to do it. Then stick to it.

The Dogs of the Dow and Dividend Dependability

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Last month, I provided you with Young Research’s dividend dependability ratings for the 30 blue-chip Dow companies. Young Research’s Dividend Dependability ratings use a combination of fundamental and qualitative factors to rate the dividend safety of each Dow component.

Every company in the Dow pays a dividend and compared to the average dividend paying company, Dow companies have above average dividend safety, but that didn’t prevent General Electric from cutting its dividend last year, or GM slashing its dividend while still a Dow component, or Eastman Kodak from cutting its dividend or, or, or.

High yielding Dow stocks are tempting to income investors. You are often talking about high yields on some of America’s best companies. In a low yield environment, a 3%+ dividend yield on a blue-chip stock has inherent appeal. But if you are retired or soon to be retired, and you rely on your dividend income to fund expenses, a dividend cut could put a dent in your retirement income. That is especially true if you follow one of the more popular Dow dividend investing strategies—The Dogs of the Dow.

The Dogs of the Dow is popular partly because it has worked over long periods of time, but also because it is a simple strategy to follow. All an investor must do is rank the 30 Dow stocks by yield at the end of each year and buy the 10 highest yielding stocks in equal amounts. The stocks are held for the balance of the year, and at the start of the following year the process is repeated.

The problem with the strategy is that the highest yielding stocks may be at most risk of a dividend cut. A high yield sometimes means a stock is out of favor (that’s what Dogs of the Dow investors are hoping for), but it can also signal that the dividend is at risk. How do you avoid the problem?

That’s where Young Research’s Dividend Dependability ratings can help you. The highest yielding stocks in the Dow to start 2018 are Verizon, IBM, Pfizer, Exxon, Chevron, Merck, Coca-Cola, Cisco, Procter & Gamble, and General Electric.

Six of these stocks fall into the bottom third for dividend dependability. Those stocks include IBM, Exxon, Chevron, Merck, Cisco, and General Electric. The four that rate in the top twenty for dividend dependability are Verizon, Pfizer, Coca-Cola, and Procter & Gamble.

If you want to invest for yield, but reduce your risk of owning a company that may cut its dividend, you can replace the six Dogs of the Dow stocks that rank in the bottom third for dividend dependability with the highest yielding stocks from the remaining stocks that rank in the top two-thirds for dividend dependability.

Based on current yields, those stocks include Intel, Johnson & Johnson, McDonald’s, Boeing, Travelers, and United Technologies. Add those to positions in Verizon, Pfizer, Coca-Cola, and Procter and Gamble, and you are looking at an average yield of 2.8%. The average projected dividend growth for this group of stocks in 2018 is 6.3%. Compare that to the 10 stocks in the Dogs of the Dow that have an average yield of 3.4% and projected dividend growth of 3.9%. You give up 0.60% in yield for the comfort of more dependable dividends and better dividend growth prospects.

Not a bad trade for investors who rely on regular dividend income.

For more on dividend dependability, read parts one, two, and three of my series on the subject.

The Dow’s Most Dependable Dividend Payers Part III

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Continuing with Young Research’s dividend dependability rankings, the group of stocks listed below score best out of the 30 stocks in the Dow in terms of dividend dependability. Many of the most dependable dividend payers in the Dow have below average yields, but above average dividend growth prospects.

I have again listed the stocks in alphabetical order and provided the indicated dividend yield, projections for dividend growth in 2018, and commentary on why the stock scored where it did in terms of dividend dependability.

wdt_ID Company Indicated Yield CY 2018 Proj. Div. Growth Comments
1 WAL-MART STORES INC 2.08 1.97 A solid balance sheet, low earnings variability, and strong dividend coverage put WalMart in the top group for dividend dependability
2 VISA INC-CLASS A SHARES 0.69 17.39 Visa's strong earnings growth prospects, high dividend coverage, and low earnings variability make it one of the Dow's most dependable dividend payers.
3 UNITEDHEALTH GROUP INC 1.35 17.57 Strong growth and dividend coverage as well as low earnings variability put UNH in the top group.
4 PROCTER & GAMBLE CO/THE 3.00 1.87 A solid balance sheet, moderate growth, a good qualitative score, and a strong record of dividend growth keep P&G in the Dow's top group despite below average dividend coverage.
5 NIKE INC -CL B 1.30 11.11 Above average dividend coverage, a strong balance sheet, and moderate earnings growth pushed Nike into the top group.
6 MICROSOFT CORP 1.97 7.55 Strong earnings growth, solid dividend coverage, and a AAA balance sheet drive Microsoft's dividend score.
7 JOHNSON & JOHNSON 2.38 4.82 A solid balance sheet, a strong record of dividend growth, and low earnings variability make JNJ one of the Dow's most dependable dividend payers.
8 HOME DEPOT INC 1.89 6.74 Strong earnings growth, good dividend coverage, an above average earnings variability score, and a good balance sheet pushed HD into the top group.
9 BOEING CO/THE 2.32 20.42 Exceptional earnings growth, good dividend coverage, and a solid balance sheet helped Boeing.
10 3M CO 1.99 5.53 Solid earnings growth, moderate dividend coverage, low earnings variability, and a strong balance sheet put 3M in the top group for dividend dependability.

You can read part II here and part I here

Crash II, Preview

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Breaking news at youngsworldmoneyforecast.com will post next week!

You will learn exactly why investors today are being misled by both the Dow 30 and the S&P 500.

You will find out why I expect historically poor performance for most investor portfolios over the next five years.

You will read the complete details of an easy-to-deploy strategy that will help you ride out the coming storm with a positive total return.

You will understand exactly why I use this strategy myself and at my investment management company.

You will not want to miss the boat here.

The Dow’s Most Dependable Dividend Payers Part II

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Continuing with Young Research’s dividend dependability rankings, the group of stocks listed below rank in the middle of the pack among all 30 Dow stocks on Young Research’s dividend dependability score. In this group you will find a nice balance between yield and dividend dependability.

I have again listed the stocks in alphabetical order and provided the indicated dividend yield, projections for dividend growth in 2018, and commentary on why the stock scored where it did in terms of dividend dependability.

wdt_ID Company Indicated Yield CY 2018 Proj. Div. Growth Comments
1 CATERPILLAR INC 2.13 1.94 Average dividend coverage and decent earnings growth help CAT overcome one of the highest earnings variability rankings in the Dow
2 WALT DISNEY CO/THE 1.52 7.69 Above average dividend coverage along with average growth, financial strength, and earnings variability push Disney into group two.
3 MCDONALD'S CORP 2.32 6.79 Low dividend coverage and below average financial strength keep McDonalds out of the top 10.
4 INTEL CORP 2.51 6.03 Low scores on qualitative factors along with average scores on the quantitative factors put Intel in the middle of the pack group.
5 VERIZON COMMUNICATIONS 4.49 2.05 Low dividend coverage, below average financial strength, and below average growth prospects put Verizon in group two.
6 PFIZER INC 3.50 6.25 Below average dividend coverage, high earnings variability, and a strong balance sheet result in a tier two ranking for Pfizer.
7 TRAVELERS COS INC/THE 2.17 3.89 Average across the board rankings place Travelers in second grouping for dividend dependability.
8 UNITED TECHNOLOGIES CORP 2.25 5.88 Average ratings for growth, dividend coverage, and financial strength keep UTX in the middle tier.
9 COCA-COLA CO/THE 3.22 5.41 Coke's low dividend coverage and low earnings growth keep the company out of the Top 10 for dividend dependability.
10 APPLE INC 1.46 9.76 Solid earnings growth, strong dividend coverage, and a strong balance sheet help Apple, while low qualitative factors drag it down.

You can read part I here.

Crash!

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I have been investing since the spring of 1964, and I do not remember being as uncomfortable with the health of the financial markets as I am today. Given that unpleasant prelude, I also want to advise all investors that my own investing position has not changed since I began investing 53 years ago.

I do not market time, i.e., moving in and out of the markets. I pay zero attention to daily, weekly or monthly price movements and have never made an earnings projection in my life.

I do not keep tabs on the exact value of my own account. My assets are spread around with custodial friends whom I have known for decades. Not a lot changes for me year to year. Dust continues to gather on old portfolio friends, some of which I often forget I own because they have been with me so long. I tend not to break off long associations with old friends, whether individuals or portfolio proxies. More important, I never lose a minute’s sleep or worry about tomorrow.

You may find the Dick Young method of investing boring. If you had any idea of exactly how little money I started with and how much I have today—strictly as a result of interest, dividends and compound interest—you might, for a second, gasp. I do not rate highly in terms of exciting returns. Quite the opposite. Boring pretty well sums up the Dick Young lifetime investment ideology.

I have accomplished what I have with only Debbie’s help. I have never had any partners or any debt. And I don’t listen to the views of many, except perhaps those of Dave Hammer, my longest friend in the investment industry.

I am a long way from an investment genius and could probably name countless investment industry folk who are a whole lot smarter than am I. I loved Shaker Heights High School, but rarely studied. Eventually I did graduate, much to my own as well as my MIT-alum father’s great surprise.

I have little use for today’s Marxist-centric, ridiculously priced college tuition structure or academia in general. Given that, I remain loyal to Babson College, which I loved and where I did study. I actually managed  to escape with a great degree due 100% to a newly gained ability to concentrate when I actually cared about the material I was given.

So, as you can see, I have been on a well-worn course for a long time, and, yes, I have learned a lot along the way. You may even conclude that I just might be able to offer you and your family a small bit of intelligence, comfort and support as you proceed along your own investing career. By this time, you probably clearly understand that there are areas where you cannot expect me or my investment management company to be of any help whatsoever.

I started off my warning letter to you with the word crash because without a number of prescient moves our much maligned (due in no small measure to his own shoot-from-the-hip tweets) president has made, my projected crash undoubtedly would have already set upon us.

We all have to play the hand we’re dealt and, for each of us, the hope is that our individual intuition can carry the day. I wish all of you a Happy New Year—one that benefits you and makes you comfortable given your individual goals and responsibilities.

My best advice to you is to start the New Year off with a brand new resolution:

Do not do stupid things and you will greatly improve your odds of concluding 2018 with a smile on your face.

Warm regards,

Dick

Richard C. Young & Co., Ltd.

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Disclaimer:

The information contained here is for informational and educational purposes only. It is not intended nor should it be considered investment advice or a recommendation of securities. Past performance is not a guarantee of future results. It is possible to lose money by investing. You should carefully consider your investment objectives and risk tolerance before investing.