A steady flow of income is key to a resilient portfolio

Many economists have said that the worst of the current recession is now behind us. Recent statistics released by both Canada and the United States reveal that the two countries economies are showing signs of bottoming.

 

Many economists have said that the worst of the current recession is now behind us. Recent statistics released by both Canada and the United States reveal that the two countries economies are showing signs of bottoming. Although we
have not seen too many signs of recovery as of yet, what is becoming
more evident is that the North American economy has began to turn the
corner, and many are hopeful to see signs of growth by the
last quarter of this year.

If this economy can make it through to the last quarter of this year without seeing the major correction some are predicting, it would be a great technical indicator for the stock market to achieve. This would mean that the market has formed a base at these levels from which it can go significantly higher. This would be the final piece of evidence investors require to convince them that this rally is real and not just another bear market rally.

If predictions that the worst is behind us are correct and it is just a matter of when, not if,
the economy will show signs of growth, I recommend investors take a
close look at their portfolios to see what opportunities exist.

Even with the most recent run-up in the markets of about 35-40 per cent, there are still some excellent buying opportunities, some of those which are in the growth and income category. Good growth and income stocks are companies that are
undervalued and pay an exceptional dividend. Such opportunities are more plentiful today than a few months ago because we can now say that the worst is behind us, so if a company was going to cut its dividends, chances are they would have done so already. North American companies that are still paying dividends are ones that have weathered the storm and are just as strong today as they were before
the recession hit. Investors can purchase these stocks and receive a
great payout while they wait for the inevitable recovery of the stock
market to occur. Some of these dividend paying companies are paying as high as nine per cent and still offer potential for growth. Some of the more growth oriented names may offer less of a dividend at 4.5-5 per cent, but the possibility for tremendous appreciation in price exists on top of that.

Owning growth and income investments allows for a more defensive position because the portfolio enjoys a steady flow of income, which can help cushion any downturn in the market. The portfolio also grows by receiving those dividends as well. If the investment itself does not rise in value, you know you are at least going to grow the portfolio by the value of the dividends received. These dividends also provide you with the cash for further re-investment at a later time.

Today,
investors are still able to buy good quality stocks with solid
dividends. These investment opportunities will not last much longer
as investors continue to buy into them, driving their prices back up and effectively lowering their dividend yields. If you have an advisor, ask how you can own some of these growth and income investments today.

If you have any questions regarding the above article or are looking for an Investment Advisor to help you with your portfolio, please send me an email at asmall@dundeesecurities.com. I will be glad to speak with you!

 

Allan Small is an Investment Advisor with Dundee Securities Corporation, a DundeeWealth Inc. Company. This is not an official publication of Dundee Securities and the author is not a Dundee Securities analyst. The views expressed are those of the author alone, and are not necessarily those of Dundee Securities or Metro Canada.

 
 
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