A Dividend FocusOn Oct. 1, Standard & Poor's (MHP) said just 191 of 7,000 companies reporting dividends raised payouts in the third quarter. That marks the worst quarter in history for dividend hikes. The good news: Dividends may have hit bottom. Managers are finding dividend-paying stocks they like in retail, pharmaceuticals, consumer staples, and tech.
Don Taylor of the Franklin Rising Dividends Fund (FRDPX) looks for companies he thinks will continue to pay—and increase—dividends, rather than those with fat yields. He favors Family Dollar Stores (FDO), which yields 2%, and Wal-Mart Stores (WMT), which pays 2.2%. Charles Carlson of the DRIP Investor newsletter prefers blue chips Johnson & Johnson (JNJ) (3.3% yield) and IBM (1.8%). IBM is also a pick of Rick Helm of Cohen & Steers Dividend Value Fund (DVFAX), as is Intel (INTC), which yields 3%, Qualcomm (QCOM), which pays 1.6%, and Oracle (ORCL), which initiated a dividend this year equal to 1%. "The idea that tech shouldn't pay a dividend is passé," he says.Brazil's Olympic JumpBrazil's Bovespa stock market index has climbed 4% since Oct. 2, when the International Olympic Committee named Rio de Janeiro as host city of the 2016 Summer Games. Investors, eager to capitalize on Brazil's plans to spend $11 billion on infrastructure, pushed up shares of steelmaker Gerdau (GGB) and mining company Vale (VALE)—which together make up almost a fifth of the index—9% and 4%, respectively. Morningstar (MORN) strategist Allan Nichols warns: "Brazil is not a cheap country anymore." So far this year the Bovespa has returned 67%, vs. 25% for the MSCI World Index. Still, its economy is projected to grow 4% a year in 2010 and 2011.
Those willing to accept more risk than that of a broad emerging-markets fund can buy iShares' MSCI Brazil Index (EWZ) ETF. But it's being outpaced by the yet riskier Market Vectors Brazil Small-Cap ETF (BRF), launched in May. It has a 23-percentage-point edge.Yield PlaysAs of Sept. 30 money market mutual fund assets were down 12.5% from their Jan. 14 high. Still, that's $3.4 trillion in accounts paying ultralow yields: 0.05% is typical. Elizabeth Fell, fixed-income strategist at Barclays Wealth in the Americas, expects yields to stay low. She suggests shifting some cash into higher-yielding, short-maturity "supranational" debt issued by government-related entities such as the European Investment Bank. Its AAA-rated debt maturing in 2011 pays 1.15%, vs. 0.28% on comparable U.S. Treasuries.
Another option: short-term U.S. agency debt from Fannie Mae (FNM), Freddie Mac (FRE), and the Tennessee Valley Authority. Yields also top Treasuries. Supranational and agency debt "offer a great middle ground" between low-returning government debt and higher-yielding, riskier corporate and municipal debt, Fell says.