The 2014 Winter Olympics in Sochi, Russia may be just around the corner, but when it comes to breaking records—for better or worse—Wall Street remains the gold-medal champion.
Thanks to the Federal Reserve, interest rates are at record lows, and will stay there for the foreseeable future. The U.S. national debt is at a record $17.1 trillion, while at the other end of the scale, the S&P 500 and Dow Jones Industrial Average recently posted record highs.
This is in spite of economic indicators that suggest the markets should be moving in the opposite direction: high unemployment, high debt, weak consumer confidence, a record 47.6 million Americans—one-sixth of the population—receiving food stamps, etc.
Under this umbrella, the markets have been going higher, in spite of an increasingly large number of companies warning investors they are not going to meet projections—and, in fact, have been revising earnings-per-share (EPS) guidance lower all year.
In the third quarter, a record 83% of S&P 500 companies revised their EPS guidance lower. How about the fourth quarter? So far, 83.5% of reporting companies on the S&P 500 have issued negative EPS guidance. In October, analysts lowered earnings estimates by 1.5%, below the one-, five-, and 10-year averages for the first month of a quarter.
Again, in spite of the record number of S&P 500 companies revising their EPS guidance lower and weak October analyst expectations, the S&P 500 continues to notch up fabulous gains—roughly 25% year-to-date and 4.5% in October alone.
Interestingly, this marks the seventh time in the last nine quarters that earnings estimates fell while the value of the underlying index increased during the first month of the quarter.
Against this backdrop, a record number of S&P 500 companies (70%) took part in stock repurchase programs in 2012 in an effort to prop up their EPS numbers. Efforts in 2013 have been just as bullish.
Case in point: International Business Machines Corporation (NYSE/IBM) said recently that its board of directors authorized a $15.0-billion share repurchase program in an effort to increase earnings in the face of slumping sales. The slight of hand continues into 2014, when the board said it will request more next October. IBM is hoping these efforts will help it reach its adjusted EPS goal of $20.00 by 2015; in 2012, it reported $15.25 per share. (Source: “IBM Board Approves Quarterly Cash Dividend; Authorizes $15 Billion for Stock Repurchase,” Yahoo! Finance, October 29, 2013.)
Investors looking to take some of the uncertainty out of the markets should consider researching financially solid companies with a really long track record of providing not just reliable revenue and earnings growth, but also dividend growth.
The Coca-Cola Company (NYSE/KO) has increased its dividend for 51 consecutive years. The company currently has a dividend yield of 2.8%. Running in step, Johnson & Johnson (NYSE/JNJ) has also increased its dividend for 51 consecutive years. The company is trading up 34% year-to-date and provides a quarterly dividend of 2.8%.
Then there are the everyday dividend giants we tend to overlook. The Clorox Company (NYSE/CLX) has rewarded investors with 36 years of consecutive dividend growth. It’s trading up 28.5% year-to-date and offers a generous 3.2% quarterly dividend. For the last 50 consecutive years, Colgate-Palmolive Company (NYSE/CL) has also been providing investors with solid dividend growth. It currently pays out 2.1% per quarter, and is up almost 26% year-to-date.
Amidst the EPS smoke and mirrors, there are a number of excellent companies that will report legitimate fourth-quarter earnings growth. These companies are expected to continue their long-term trend of actually raising their dividends, which is good news for income-seeking investors.
This article Top Four Overlooked Stocks for Income-Seeking Investors by John Paul Whitefoot, BA was originally published at Daily Gains Letter