Since we last connected last Wednesday, we’ve had a few notable events happen (to say the least!)
First, former vice president Joe Biden became president-elect Joe Biden. Depending on your perspective, this may or may not be a “done deal” as far as you are concerned. That’s fair. However, it is mostly a done deal as far as the prediction markets are concerned.
Leading website PredictIt is giving Biden a 90% chance of winning this never-ending November election. I like PredictIt better than any poll because punters are betting “real money” on the website. Heading into the election, the prediction marketplace correctly foresaw a close election, outperforming any pollster I’m aware of. For our decision-making purposes, we’ll take its 90% Biden odds at face value.
The balance of the Senate, however, is another matter. It was previously called for the Republicans. However, two runoff elections (both in Georgia) are slated for January. PredictIt is currently pricing in a 78% chance of at least one Republican victory, which would keep the Senate red and set us up for a “gridlocked” Congress.
The financial markets appear to be cheering two things:
- A clear presidential election winner, and
- The gridlock, which likely means the current tax plans are staying for at least two years, and probably longer, because midterm elections often tip in the favor of the party that does not occupy the oval office.
A renewed contest of the election, or two blue wins in Georgia, could upset the market’s neat apple cart. It’s a volatile year, and we must be ready for anything.
And oh by the way, we’ve got a vaccine for the virus!
Another November Shot in the Arm
Pfizer’s (PFE) clinical trials took longer than anticipated, for a good reason: its vaccinated study participants were staying healthy! On Monday we learned that the shot prevented 90% of symptomatic infections among its nearly 40,000 study participants.
The firm already plans to produce 50 million doses by the end of this year and 1.3 billion by the end of 2021. So, while we do need to keep in mind that two doses are required per person, we can see that many of us here in the US should have an opportunity to receive our double-shot sometime next year.
Could something still go wrong? Of course. But we should keep in mind that we have nine more vaccines in phase three clinical trials, which is the most important and final phase of the drug development process. Odds are excellent we’ll hear more good news from one or more of these candidates soon.
So, What Should We Buy Now?
Adding it all up, what dividends should we buy, assuming that in 2021’s Washington DC we’ll have:
- A Joe Biden presidency
- … with an agenda checked by a Republican Senate
- … while Main Street hopes for a gradual reduction and eventual elimination of the virus.
The stock market “sniffed” much of this news out and bounced 10% from the beginning of last week. However, not all dividend stocks have yet, at least, followed this moonshot higher. In recent months, investors have lost their minds and discarded perfectly good yields.
From our friend Jason Goepfert at SentimenTrader:
Since April, an average of $788 million per month has flowed out of dividend ETFs while an average of $263 million per month has flowed into momentum (funds).
Good for us, because ETF money flows are often an excellent contrarian indicator. Rookie investors love chasing the hot, shiny object. Calculated income investors like us, meanwhile, prefer to find value (and high yields!) in perfectly good payers that are not currently “cool” enough for the kids to buy.
Let’s bid a cheerful “so long” to these investors. We will gladly pick up their perfectly good payout scraps while they blindly chase the (formerly) hot “stay at home” tech names like Netflix (NFLX).
I’m a Netflix subscriber, and am happy to pay $8.99 per month. I am not, however, a Netflix shareholder, because I refuse to pay 78-times earnings for its shares!
No sir! Give me those discarded dividends, like utilities, instead.
In this wacky world, it’s tough to think of a dividend better than from a good ol’ utility. Yet these government-granted monopolies haven’t moved much (yet, at least!) this year. The Utilities Select Sector SPDR ETF (XLU), most investors’ go-to utility investment, has returned just 2% year-to-date as I write. Contrast that with the S&P 500, which is now up by double-digits.
XLU yields 2.9% today, but we can do even better by “cherry picking” the best dividends in the sector. For example, let’s look at my favorite utility to buy today. It yields a generous 8.1%, which is nearly three-times the dividend of the popular ETF.
Profits at the utility are humming, too, as the firm is clocking 70% operating margins year-to-date (YTD):
2020-Proof Operating Margins
The firm’s secret “2020 repellant” is two-fold:
- It’s already built out its profitable infrastructure, and
- Its product is always in-demand.
The company thrived in 2020 and will keep humming through a gridlocked 2021. The firm delivers an amazing 30% of the clean-burning natural gas in the US!
This type of 3X to 4X “income upgrade” is a hallmark of my Perfect Income Portfolio strategy. Imagine if you simply tripled or even quadrupled each and every dividend in your current portfolio (without trading options or doing anything risky):
How? Read on and I’ll explain my perfect dividend strategy.