- Q4 earnings are surprising to the upside, in large part because of aggressive cost cutting.
- Quarterly year over year earnings are higher for the first time in almost 2 years.
- Revenues are no longer declining, they are starting to grow modestly.
- GDP was very strong in Q4.
- Unemployment remains stubbornly high, around 10%
- The Fed is keeping the Fed Funds Rate low at 0% - 0.25%
- Dividend stocks have outperformed non-dividend stocks over the past 1, 3, & 6 months, reversing the “Survivors’ Bounce” effect of March-September.
- Dividend paying stocks have lower P/Es than the market average.
- Emerging market economies are strong; Europe is weak; US is recovering In our view, the CRUD uncertainties are a temporary issue. The fundamentals of business and the economy are headed in the right direction, and in general, valuations still favor our dividend-paying stocks. The primary remaining uncertainty with Rising Dividend stocks is just how much they will increase their dividends for 2010. We have no idea yet, but two of the earlier announcements were good omens. Praxair (PX) and CVS (CVS) Drugs each increased their 2010 dividends per share by about 13%. EPS estimates for the coming year for the S&P 500 are at $77.95, a near 25% increase over 2009. The 2011 earnings forecast is $94.56, a 21% increase. If the estimated P/E ratio for the market were to be at its long-term average of 15 at the end of this year, and expected 2011 EPS were still $94.56, the S&P 500 would be at 1418, or nearly 30% higher than today’s market close. The Committee is not predicting a 30% gain in the market. But, with fundamentals improving for the economy and businesses, we continue to believe that total returns for 2010 will be quite good. A newly added variable to the market psychology equation is President Obama’s proposed fiscal 2011 budget. His official budget proposal was made public this morning. Over the next several weeks, the Investment Policy Committee will be studying the budget’s major elements, as well as their interpretation by investors.
Randy Alsman, Editor