Spotlight on Cash Flow, Dividends

The 33rd birthday of the Vanguard 500 Index Fund (VFINX - commentary - Trade Now) was Wednesday. The annualized return for the 33 years is 9.6% (thanks to my pal Jon Osbon of Osbon Capital for this information), and almost half of that return is from dividends. That's remarkable and an indication to me of what might lie in store for the next few years.

In the slow-growth economy we foresee for the next few years, growth will be hard to come by and cash flow and dividends will be much more a focus than they have been the past few years. This is one of the reasons we at Soleil have been keeping a list of the large-cap companies that have raised their dividends in the last six months. Raising a dividend in the teeth of the financial storm we have gone through is quite a statement.

While the Case-Shiller home price index was down 18% year over year, the sequential monthly decline was 0.6%. That compares with a decline of 2.2% the prior month and is an indication that the turn may be at hand.

On the other hand, Fannie Mae (FNM - commentary - Trade Now) reported that 3.42% of the mortgages it holds are at least 90 days past due. The prior month saw 3.15% of such pieces of paper past due. Freddie Mac (FRE - commentary - Trade Now) had a 2.62% rate, and that was worse than its prior month of 2.44%. These represent prime mortgages, as that is what these firms traffic in, and with unemployment likely to rise these numbers are sure to get worse. Foreclosed homes also are bound to rise, so any enthusiasm about the housing market should be tempered by these facts. I think the housing market is bottoming, but the size and speed of any turn is bound to be muted.

The National Association of Realtors reports that about 4 million homes are offered for sale, which is well above normal. That number is likely to grudgingly go down, as foreclosures are likely to grow with the unemployment rate. And, as we expected, mortgage applications were down 18.9% last week, reflecting with amazing speed the rise in mortgage rates.

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Vincent Farrell Jr. is chief investment officer for Soleil Securities Group and a regular guest on CNBC and other national print and broadcast media.

Prior to joining Soleil in August 2008, Farrell was a principal of Scotsman Capital Management. Before that, he was chairman of Victory Capital Management of Cleveland and chairman of Victory SBSF Capital Management in New York. He was a founding partner of Spears Benzak Salomon & Farrell, which was acquired by KeyCorp in 1995. Vince held a variety of positions in his 23 years at SBSF, including chief investment officer, and he served as the portfolio manager on a number of the firm's largest client relationships.

Prior to joining SBSF, Vince spent nine years at Smith Barney as a vice president, sales.

Vince graduated from Princeton University in 1969 and received his MBA from the Iona College Graduate School of Business in 1972.