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Alternative Investments
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   Dividend Stocks

Election Dividends
Carne Capital
By Sean Bonner
November 17, 2012


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How much of the recent sell off is driven by the fear of a new tax regime in the US?  Ordinary income, Long-term capital gains and Dividend tax rates are all set to rise significantly unless Congress acts before the end of the year.  Spending cuts to the Department of Defense with diminished sales to its suppliers, and regulatory pressures on the energy industry have also pressured the equity market.   These concerns, as well as the election and the standoff over the Fiscal Cliff, have been the catalysts of a 5 plus % sell off in the S&P 500 since the election. 

  

Dividends have been a big reason to own equities, with the yield on the S&P 500 much higher than the U.S. 10 year Treasury.  The possible jump in rates could be dramatic -- from 15% to ordinary income tax rate levels, coupled with close to a 4% rise for Obama Care.  This means that, for tax payers making $250,000 or more, Dividends would be taxed at close to 40% at the Federal level. 

Many sectors have felt direct pressure since the election, including Energy and Defense.  Looking at their respective ETFs (XLE & XAR), they have underperformed.  The XLE and XAR are down 5.64% and 6.00% respectively.  Higher tax rates have dominated much of the coverage of the Fiscal Cliff and dividends are in the cross hairs of those looking to raise revenues.  High dividend payers are not the domain of any one sector and owning a portfolio of high paying dividend stocks should provide some sector diversification.  However, since most Mutual Funds’ tax years have concluded already it appears that individual investors and Hedge Funds are selling dividend stocks ahead of a possible rise in tax rates. 

Since the close on Election Day, 11/06/12, until the close on 11/15/12 the S&P 500 is down 5.09% on a total return basis.  We compared this to the total returns of the 50 stocks from the S&P 500 with the highest dividend yields for last 12 months as seen in the table below.  This group was down an average of 5.75% over the same time period, a 0.66% underperformance.  Yet when looking at the top 10 dividend yield stocks over that time frame, the performance was even worse with a negative 7.30% average return.  Therefore, owning an equal weighting of the top 10 Dividend yield stocks since the election was expensive, costing investors over 7% in absolute terms, a 2.21% underperformance compared to the S&P500.  When looking at the top 50 estimated dividend yielding stocks, as calculated by Bloomberg, the performance story is almost identical with an average return of -5.78% and a top 10 average return of  -6.91%.  Obviously, there is a great deal of pressure on stocks that return capital to shareholders in the form of dividends.    

As the market continues to sell off, these are names to keep an eye on.  The performance of high dividend paying stocks can be expected to remain volatile for the near future, both to the upside and downside.  The selling may continue to feed on itself, but if a deal on dividend tax rates can be reached these names may at least revert to the mean and outperform the broad market.

When JP Morgan was asked what the stock market will do his response was, “It will fluctuate.”  That is sage advice for today’s market and having a strategy to deal with those fluctuations has a place in every investor’s portfolio. 

Yields for Regular and Special Dividends

 

Ticker

Name

Div Yield

Total Return

 

SPX

S&P 500 Index

2.28

-5.09

LYB

LyondellBasell Industries NV

19.16

-9.77

IRM

Iron Mountain Inc

15.64

-6.32

WYNN

Wynn Resorts Ltd

13.87

-6.83

PBI

Pitney Bowes Inc

13.64

-10.82

FII

Federated Investors Inc

13.13

-8.73

WIN

Windstream Corp

12.17

-12.92

FTR

Frontier Communications Corp

11.21

-4.40

RRD

RR Donnelley & Sons Co

10.99

-5.21

LTD

Ltd Brands Inc

8.68

-5.99

CTL

CenturyLink Inc

7.69

-2.03

EXC

Exelon Corp

7.15

-6.46

MUR

Murphy Oil Corp

6.66

-4.39

RAI

Reynolds American Inc

5.75

-4.31

POM

Pepco Holdings Inc

5.72

-3.97

AEE

Ameren Corp

5.51

-9.60

PBCT

People's United Financial Inc

5.48

-4.04

MO

Altria Group Inc

5.48

-4.54

AVP

Avon Products Inc

5.43

-8.70

DO

Diamond Offshore Drilling Inc

5.39

-6.25

TE

TECO Energy Inc

5.37

-6.89

FE

FirstEnergy Corp

5.34

-4.72

NYX

NYSE Euronext

5.32

-7.13

TEG

Integrys Energy Group Inc

5.29

-5.23

ETR

Entergy Corp

5.27

-5.83

T

AT&T Inc

5.27

-4.02

LO

Lorillard Inc

5.26

-2.44

CLF

Cliffs Natural Resources Inc

5.13

-7.36

PPL

PPL Corp

5.12

-3.05

DUK

Duke Energy Corp

5.06

-5.38

HCN

Health Care REIT Inc

5.04

0.19

COP

ConocoPhillips

4.84

-6.23

VZ

Verizon Communications Inc

4.83

-5.87

PEG

Public Service Enterprise Group Inc

4.81

-4.09

MCHP

Microchip Technology Inc

4.72

-10.71

GAS

AGL Resources Inc

4.69

-4.29

MDLZ

Mondelez International Inc

4.62

-5.28

AEP

American Electric Power Co Inc

4.59

-4.39

HCP

HCP Inc

4.57

-0.45

LMT

Lockheed Martin Corp

4.57

-7.68

SO

Southern Co/The

4.57

-3.62

HRB

H&R Block Inc

4.54

-3.61

WM

Waste Management Inc

4.54

-3.94

PCG

PG&E Corp

4.53

-4.15

ED

Consolidated Edison Inc

4.45

-4.74

BMY

Bristol-Myers Squibb Co

4.41

-7.39

CVC

Cablevision Systems Corp

4.40

-12.01

INTC

Intel Corp

4.34

-7.78

SCG

SCANA Corp

4.33

-4.69

LEG

Leggett & Platt Inc

4.32

-4.60

PNW

Pinnacle West Capital Corp

4.31

-4.71

Average

-5.75

Estimated Dividend Yields

 

Ticker

Name

Est Div Yield

Total Return

SPX

S&P 500 Index

2.32

-5.09

PBI

Pitney Bowes Inc

13.59

-10.82

WIN

Windstream Corp

12.17

-12.92

FII

Federated Investors Inc

11.39

-8.73

RRD

RR Donnelley & Sons Co

10.98

-5.21

FTR

Frontier Communications Corp

9.20

-4.40

WYNN

Wynn Resorts Ltd

8.85

-6.83

CTL

CenturyLink Inc

7.69

-2.03

EXC

Exelon Corp

7.15

-6.46

CLF

Cliffs Natural Resources Inc

6.37

-7.36

RAI

Reynolds American Inc

5.83

-4.31

POM

Pepco Holdings Inc

5.72

-3.97

MO

Altria Group Inc

5.55

-4.54

AEE

Ameren Corp

5.53

-9.60

PBCT

People's United Financial Inc

5.48

-4.04

AVP

Avon Products Inc

5.44

-8.70

DO

Diamond Offshore Drilling Inc

5.40

-6.25

LO

Lorillard Inc

5.40

-2.44

TE

TECO Energy Inc

5.37

-6.89

FE

FirstEnergy Corp

5.34

-4.72

NYX

NYSE Euronext

5.32

-7.13

T

AT&T Inc

5.29

-4.02

TEG

Integrys Energy Group Inc

5.29

-5.23

ETR

Entergy Corp

5.26

-5.83

PPL

PPL Corp

5.16

-3.05

GAS

AGL Resources Inc

5.12

-4.29

HCN

Health Care REIT Inc

5.05

0.19

DUK

Duke Energy Corp

4.89

-5.38

COP

ConocoPhillips

4.88

-6.23

PEG

Public Service Enterprise Group Inc

4.85

-4.09

MUR

Murphy Oil Corp

4.84

-4.39

VZ

Verizon Communications Inc

4.84

-5.87

MCHP

Microchip Technology Inc

4.76

-10.71

LMT

Lockheed Martin Corp

4.75

-7.68

AEP

American Electric Power Co Inc

4.60

-4.39

SO

Southern Co/The

4.59

-3.62

WM

Waste Management Inc

4.59

-3.94

HCP

HCP Inc

4.58

-0.45

STX

Seagate Technology PLC

4.57

-10.34

CA

CA Inc

4.57

-4.35

PCG

PG&E Corp

4.55

-4.15

HRB

H&R Block Inc

4.50

-3.61

CME

CME Group Inc/IL

4.48

-4.06

ED

Consolidated Edison Inc

4.45

-4.74

BMY

Bristol-Myers Squibb Co

4.43

-7.39

DOW

Dow Chemical Co/The

4.41

-8.55

GCI

Gannett Co Inc

4.39

-4.48

CVC

Cablevision Systems Corp

4.39

-12.01

KMI

Kinder Morgan Inc/Delaware

4.38

-6.24

SCG

SCANA Corp

4.35

-4.69

INTC

Intel Corp

4.34

-7.78

Average

-5.78

Source

Bloomberg Finacial Data

 

(c) Carne Capital

www.carnecapital.com

 


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