13+ Dividend Stocks That Could Be The New Nifty 50
Dividend Stocks, the New Nifty 50?
While central banks' policies inflate a bubble in income equities, a nervous bull says the greater risk is not to buy them.
Nifty Fifty. It's a phrase out of stock-market history, one familiar to most of today's investors only from history books, but an indelible memory to those who were active in the markets back in the 1960s and 1970s.
They were so-called one-decision stocks you were supposed to buy and put away forever, because these supposedly elite growth companies would continue to grow no matter what. As a result, no price-earnings multiple was too great to pay given their unlimited and certain future growth prospects. Of course, it didn't turn out that way in the devastating bear market of 1973-74.
Yet there was a kernel of truth in buying the Nifty 50, whose members included the likes of Coca-Cola (ticker: KO), International Business Machines (IBM), McDonald's (MCD), Johnson & Johnson (JNJ) and Walt Disney (DIS), just to mention a few of the great Dow Jones Industrial Average (DIA) members whose stocks have gone on to record highs in subsequent decades.
But this group also includes companies that have become footnotes to history, especially in technology, such as Digital Equipment and Burroughs. There also are companies such as Polaroid and Eastman Kodak, which became quintessential buggy-whip companies with the advent of digital photography. And then-dominant retailers, Sears, Roebuck and K-Mart's predecessor, Kresge, now are part of Sears Holdings (SHLD) and are fighting against a then-unknown chain, Wal-Mart (WMT). Microsoft (MSFT), Intel (INTC) and Apple (AAPL) not only didn't exist but weren't even conceived. Sic transit gloria.
Despite this example of history, a new Nifty 50 could be in the making, according to Chen Zhao, managing editor of the BCA Global Investment Strategy advisory from the organization that publishes the highly regarded Bank Credit Analyst.
This elite group of stocks would consist of reliable, high-dividend payers, which have become ever more sought-after in a market parched of income. He notes the Standard & Poor's Dividend Aristocrats have returned half-again that of the Standard & Poor's 500, a pattern that closely parallels the original Nifty 50 at the beginning of their run in the 1960s.
And while the original Nifty 50 became "massively inflated" during their heyday, the current bubble in dividend payers could continue to be pumped up for some time. To spoil the ending of the story, Zhao thinks the end-point won't be reached until interest-rate expectations turn decisively to the upside; that's a worry for next year or the year after.
Every decade or so, Zhao posits, there is a new, can't-miss investment concept. After the original Nifty 50, it was gold and other real assets during the inflation of the 1970s; then came the Japan bubble of the 1980s; the dot-com bubble followed in the 1990s; and then there was the bull market in China and other emerging markets, which also resulted in a commodities boom.
[From Dividend.com: The following dividend stocks have been increasing their annual dividends every year for at least the past 50 years]
Long-Term Dividend Increasing Stocks Table
The conditions spurring income-producing stocks now are similar to those that boosted the original Nifty 50 -- artificially low interest rates held down by government actions (Regulation Q rate ceilings then, central-bank quantitative easing now.) In the 1950s, stocks routinely yielded more than bonds because of investors' risk aversion, just as they do now for many Blue Chip companies.
Zhao expects the Federal Reserve and other central banks to maintain interest rates at or near zero given the large slack in the world economy. Government bond yields under 2% make equities the highest-yielding asset class. But after the repeated financial traumas of the past decade and continuing uncertainties, "most investors are longing for stable portfolios that generate steady income streams. Naturally, stocks with fixed-income characteristics have become the favorite target of investors," he writes.
The resulting asset rotation could be "incredibly strong," according to Zhao, and has "the potential become the next mania." But income stocks aren't in a bubble, yet, which is a condition built on unrealistic expectations.
"Some say defensive stocks behave like fixed-income products and hence could weather weaker market corrections or shakeouts. In reality, they rarely can . My feeling is that the dividend party will not stop until interest-rate expectations begin to rise. That could be one or two years away."
['The following dividend stocks are a very select group, as they have been increasing their annual dividends every year for at least the past 25 years' -- highest yields shown]
"What should investors do? For me, I am afraid to be in it, but I am equally, if not more, afraid to be out of it," Zhao pointedly concludes.
That speaks volumes of how the Fed and other central banks have inflated asset values. Still, that is the world in which we live, whether we like it or not.
[The following is a list of the best ranked dividend stocks for long-term investors from dividend.com. 'Currently,less than one in 20 dividend-paying stocks qualify for this exclusive list.']
13 Highest Ranked Dividend Stocks Table
