Easy Street Investing

Beaten-down dividend bargains …

Nilus Mattive

A chill has set in, and not just at my house here in Pennsylvania. It seems as though investors are once again turning a cold shoulder to stocks.

There are plenty of reasons for this — including the threat of more ominous taxes, lingering fiscal problems here and in Europe, as well as a lackluster earnings season for corporate America.

And with the Thanksgiving holiday now behind us, the market is only going to get MORE nervous with each passing day that a fiscal cliff resolution fails to materialize!

At the same time, I believe cooler heads always prevail — which is why I haven’t been recommending that you sell along with the crowd. Sure, it’s unnerving to watch the market swoon all over again, but trying to time the peaks and valleys is nearly impossible.

And there are also reasons to be positive on stocks going into 2013. In fact, I would argue that if the worst-case scenarios are avoided, we could see a quick snapback rally as big money pours back into equities.

That’s Why I Think Now Is a Great
Time to Look for Dividend Bargains …

As I’ve been telling you over the past couple weeks, investors are running scared from dividend stocks because of the chance that much-higher taxes are going to kick in on January 1.

Just to refresh your memory: Most investors are currently paying a 15 percent annual tax rate on both capital gains and any qualified dividends they receive. But unless a new deal is reached, that favored tax treatment will revert to ordinary income rates when we usher in 2013.

What’s worse is that ordinary income rates are ALSO set to rise on January 1 by as much as 4.6 percentage points and there’s also an additional 3.8 percent Medicare tax that would go into effect on wealthier Americans’ unearned income as well as new limitations on itemized deductions.

Add it all up and the top marginal tax rate on dividends could go all the way up to 44.6 percent!

Consider the practical effects on a high-income Americans living off their qualified dividend income:

If they grossed $100,000 in 2012, they would keep $85,000 after taxes. In 2013, that same income stream might net them just $54,000. Ouch!

To make matters worse, if they wait to find out what the final rate is in 2013 … and THEN decide to sell their dividend stocks, they could be facing substantially higher capital gains rates!

So given these absolutely huge uncertainties, wealthy investors are shooting first and asking questions later by jettisoning their dividend stocks.

But as I’ve also explained, I believe they are overreacting. And in the process, they are pushing down prices on many quality stocks.

[Editor’s note: For a full explanation of WHY Nilus thinks the dividend fears are overblown, click here for his column from two weeks ago.]

That’s why I recently searched for dividend stocks that have dropped at least 15 percent in the last 13 weeks. That’s more than three times as much as the S&P 500 lost over the same period.

In addition, each of the stocks below is currently yielding at least 3 percent — meaning you’d get double the current yield on a 10-year Treasury (or more).


Click the chart for a larger view.

Now by no means am I saying every stock on this list is a buy. But this a great starting place for anyone looking to bottom fish right now … and I did just select one stock from this list for my Dad’s income portfolio.

So I encourage you to take a closer look at some of the companies on this list, as well as other better-known blue chip names like the stocks I’m currently recommending in my newsletter.

After all, the very best time to position yourself for future profits is when everyone else is selling!

Best wishes,

Nilus

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  • Hanrod

    I think that you are right, Nilus, 2013 will show considerable improvement, and “the big money will pour in: However, you are also right that “investors are turning a cold shoulder” to stocks. How can that be? Well, first of all, the INSTITUTIONAL investors, i.e. pension funds, mutual funds, etc. HAVE TO stay invested in what is “the only game in town”. Ordinary investors have been leaving, as often recently reported, but not for the reasons you state, i.e. “deficits”, fiscal problems in Europe, etc. WE, which includes me, a “wanna be” investor with a considerable bank account WANTING to make reasonable, long term, “investments” in the markets, are entirely turned off by the corruption, flash trading, off market trading, hedge fund activity, etc., etc., as well as outright fraud and illegal activiity in our business world today, most particularly among financial institutions and markets. Until we have major RE-REGULATION of financial markets, etc., we will trust nothing.