Risk/Reward Vol. 142
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.
"I know how to make you feel like you wanna feel/But I can't lose what I use
I'm qualified to satisfy you/Anyway you want me to"---lyrics from "I'm Qualified to Satisfy You" by Barry White
"It's no surprise/I won't be here tomorrow
I can't believe that I stayed til today"---lyrics from "No Surprise" by Daughtry
"Wake up, wake up, wake up it's the 1st of the month
To get up, get up, get up so cash your checks and get up"---lyrics from "1st of Tha' Month" by Bone Thugs-N-Harmony
Sitting here on the sidelines, I am amazed at the continued vitality of stocks that pay dividends which "qualify" for a 15% tax rate under the Bush Tax Cuts ("BTC's"). Those dividends are scheduled to be taxed as high as 43.4% once the BTC's expire on January 1, 2013. And yet, as recently as yesterday, Forbes, The Motley Fool and Cramer were all advocating "qualified" dividend paying stocks as "can't lose" investments, ones that will "make you feel like you wanna feel"; not even mentioning this tax issue. The fact is, Dear Readers, that absent some attitude re-adjustment on the part of the current Administration, "qualified" dividend rates cease at year end, no matter who is elected. This could reduce the value of "qualified dividend" paying stocks significantly especially in comparison to higher paying "unqualified" dividend paying stocks such as real estate investment trusts, business development companies and oil trusts which are taxed at marginal rates even now. Frankly, I am surprised that there has not been a significant sell-off of "qualified" dividend payers.
But then again, I am "surprised" that the stock market has not fallen more generally in light of the impending Fiscal Cliff, of which the end of the BTC's is just one component. "I can't believe" that the Dow Jones Industrial Average (DJIA) has "stayed above 13000 through today." The DJIA is only 420 points (3%) below where it is was on October 1, 2013 when I started to sell. I do not regret selling because there is considerably more downside risk than upside potential over the next two months, and this year's gains (which I have already captured) may not be "here tomorrow". Indeed, I believe that the uncertainty surrounding the resolution (or not) of the Fiscal Cliff will result in an additional 10% correction before 2013 dawns. I base this on what occurred in July, 2011 during the debt ceiling stand-off and the resultant downgrade of U. S. debt. I have raised plenty of cash to profit from any such dip. But, dip or not, I do not envision the stock market rising significantly before year end under any circumstance; so the most that I will have lost from liquidating is one quarter's worth of dividends and the timing of some capital gains tax.
As I construct, in the abstract, my post-Fiscal Cliff portfolio, I am emphasizing stocks that pay a monthly dividend. For yield hunters like me, the thought that I could "wake up, wake up, wake up" and "get up, get up, get up" to "cash my checks" on the "1st of every month" is very appealing. These companies clearly are focused on what I value most---steady income to shareholders. A portfolio that yields a stable, 6-7% return (and nothing is more stable than a monthly dividend) is all that I need to support my profligate lifestyle once I reach age 62 (March 23, 2013) should I choose to retire (which, dear law firm Partners, I will NOT do.) Look for a list of my favorite monthly dividend payors in the near future.
I close by announcing the birth yesterday of my fifth grandchild, Ms. Evelyn Jane McClement. She is beautiful, and everyone is doing well. What I value most about financial security is that it affords one the ability to enjoy one's family more fully---and to me, in the words of Barry White, family is "my first, my last, my everything.
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