The Stable Song

      Gregory Alan Isakov reorded this song on the album titled "Gregory Alan with the Colorado Symphony" in June of 2016. While the album and song is not well known, it drew critical acclaim for its lyrics and music. I also recomend watching the video while listening. A person can draw whatever meaning they want from the song but I felt that it related to stability in my portfolio during turbulent times. It also reminded me of the humble beginnings of many worthwhile endeavors.     

     When looking for investments to add to my portfolio recently, I have found that many well known stocks have appreciated considerably in recent months which explains why the market indexes are at or near all time highs. I am looking for yield and growth with stability over time. The tech sector is known to be volatile so I want to limit my exposure there. CD yields are inching up as inflation fears are increasing, making interest rates rise. While I can now get a taxable 4% on a short term CD, there is no growth there and in 7 months I will need to reinvest the funds in something else. So what is an investor to do?

     There's no easy answers and macro economic factors keep changing with every decision coming out of the White House so I am leaning on the stability of dividend paying stocks. Historically, dividends have accounted for about 33% of total return for stocks over the last 80 years or so. If you go back further, it approaches 80%. When screening for dividends, it pays to avoid traps such as an unusually high yield. That usually is a sign that the company is in trouble and the dividend will be cut or eliminated soon. Sometimes the yield on a blue chip stock seems paltry and is a turn-off to an investor but what is important is the history of dividend growth. When a dividend increases over time, the stated yield that you see published is not your actual yield. A more important measure is your yield to cost. If you divide the annual dividend by YOUR cost then you get an accurate picture of your return. This doesn't happen overnight but we are after stability, right?

     Income investing has taken a turn recently because of the war with Iran. The cost of oil has risen dramatically (the most in history) because of the disruption of supply flow out of the middle east. It seems to me that the inflationary forces of higher fuel will be with us for many months even if the oil starts flowing again in the near future (also unlikely). This in turn makes the decreases in interest rates which has been widely forcast also unlikely. Even  new FOMC chairman Kevin Warsch, which Trump appointed, may have to raise rates to tame inflation. Higher rates decreases the value of an existing bond portfolio. What looked like a winner in January is not so appealing now.

     Stocks in sectors like banking, utilities,pharma, and consumer staples are looking attractive to me now because I see growth, income, stability, and tax effeciency. At this point in my life, capital preservation trumps high current yields and high flying tech plays. The events of this year have shown how quickly things can change but dividend paying stocks are the ballast to stabilize a portfolio. Long term investing is less about making you rich and more about not "Turning diamonds straight into coal".