Has anyone yet forwarded you the email about King Arthur’s quest to find out what women want? Investors understandably have a growing distrust of sovereign debt and the Fed’s decision to keep rates artificially low for an extended period has put yields quite low. Control-minded investors have begun looking for alternatives to U.S. Treasury bonds for investment income. They appear to have found it in dividend stocks.
But it remains to be seen whether that trend will continue through 2012. Since the beginning of the year the major indexes have outperformed DVY rather significantly (see below).
Stocks Aren’t Trailing Behind Right Now
Led by technology stocks the market is pacing its way through new highs. As of Thursday, January 18, the Nasdaq is up more than 4%. Can this continue? Quite possibly. Remember that operation twist, the Fed’s action to buy long-term bonds and sell short term bonds, is still a quantitative easing program because it puts money into circulation on net.
However this year brings with it the likelihood of significant pullbacks in the market. At such times when the major indexes weaken, watch to see whether DVY becomes the safe-haven trade as investors seek reliable sources of income. Buying DVY on weakness may be a way to optimize your returns on a stock that already provides a high probability of return for the year.