At the macro level, investors are subject to the same illusory progress. Central banks around the world are pumping cash into the banking system. This creates the appearance of prosperity, but systemically and fundamentally, I do not see it. What I do see are short-term measures from governments designed to make people feel better in the short run and hoping that translates into something real in the long run.
So how can you benefit from the current environment while avoiding the tailgaters in the left lane? My advice is to find profitable companies generating predictable or growing cash flow. These same companies can take advantage of central bank policy and borrow at historically low rates with the purpose of investing in their businesses for growth or returning cash to shareholders.
Companies like this can provide attractive returns over time, and the growing dividends and cash flow from the business create a buffer if the overall market turns down.
The chart below contains stocks that have a track record of increasing their dividend to shareholders. I am not recommending investors buy these stocks. I am, however, suggesting the list represents a point of departure for further research on an investment strategy that focuses on growing income rather than simply focusing on stock values.For instance, if in November 2002, you purchased $10,000 of Mattel (MAT) that were trading at about $20.50, your 488 shares, then yielding about 28 cents a share would have netted you about $137. Today, those same shares would generate generate about $605, for a cash-on-cash return ($605/$10,000) of more than 6% or three times the yield on 10-year treasury bonds. In the longer term, investing is not about feeling good or feeling bad. It's about what is doing the right thing for yourself financially. That means ignoring what is happening to indexes and specific stocks and choosing what fits your risk profile and needs. You should not look to others to define what you need, rather look inside yourself and set your own destination and develop a reasonable way of getting there.
We recommend staying at a comfortable safe speed, and over time you will probably pass those who make the mistake of lead footing it with a lot less anxiety. Unfortunately, they might just be piled up on the left shoulder waiting for tow trucks and EMS vehicles as you slip by to your destination still in one piece. At the time of publication the author had no position in any of the stocks mentioned. Follow Steve Cordasco (@CFNPlan) This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.
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