Are Dividend Stocks Dead?

NEW YORK ( TheStreet) -- Eat this, not that. Fat, thin. Hot, not. Good, evil. You're either with us or against us. Liberal, conservative. Subsidize, take it private.

Dichotomy has swallowed our collective brain.

With black-and-white coloring the national discourse on just about everything, it's no surprise that we have had a gaggle of market geeks calling the end of the dividend stock rally for much of the year.

Truth be told, I don't pay much attention these types of rallies. Most long-term investors shouldn't either.

While I don't necessarily advocate buy-and-hold (because, by and large, it is dead), it's even more insane to chase what's hot. You'll be in dividend stocks one day, real estate plays the next and utilities when the market turns bear. Unless you have loads of information, tons of time and considerable resources, it's not easy to win with such a fluid strategy.

No matter the market, it comes down to stock picking.

Ask folks who, five years ago when it didn't appear quite as crazy, threw money at Hewlett-Packard ( HPQ), Dell ( DELL) and Cisco Systems ( CSCO) how things turned out. All three stocks have shed heavy double-digits, whereas an investment in the Nasdaq 100 index via the Powershares QQQ ETF ( QQQ) would have returned greater than 20%.

Bull market, bear market. Dividends hot or not. You have to pick the right stocks.

Consider something I read over at Mutley Fool the other day.

One of their guys, in making a bull case for MSFT on value, wrote that the stock "enjoys" a 3.2% dividend yield. Enjoys.

Since that piece posted, that "enjoyable" yield lifted to 3.4%. That's supposed to be a good thing?
>>> On Tuesday, November 20 at 6pm ET, TheStreet will host a Trade Credit Insurance webinar with Todd Lynady, Senior Underwriter for Zurich in North America and Mike DeLuca, Senior Partner of One Source. Register now.

The same author pointed to MSFT's price-to-earnings ratio. When he wrote the article, it was 15.3 (trailing 12 months). As of Friday's close, it's down to 14.3.

An even better value, right?

Wrong.

Investors likely exist who run scans for declining P/E and rising dividend yields. From there, they make the case, like the guy at Mutley Fool did, that they have a value stock on their hands. One that's set to "possibly see their shares rise over the next year by over 25%."

That's what the dude wrote.

Maybe it will happen. I bet against it, but I can't say for certain.

What I can tell you -- flat out -- is that the method of seeking value Mutley relayed will set you on the trail of losers like HPQ, DELL, CSCO and, dare I say, Research in Motion ( RIMM).

Look for growth that, ultimately, contradicts the case for value. In other words, sure, it's technically a "value stock" because it's mispriced, but, the story here is not value, it's the growth.

Why take a chance on Microsoft with declining revenue growth, when you can buy any number of strong dividend payers? Growing companies that just so happen to pay a dividend.

Names such as Whole Foods Market ( WFM). Sure it pays a lower yield, but that's because it's a strong growth stock.

Or, if you really want what the "experts" call value, have a look at Apple ( AAPL). There's not a stronger growth and value play out there right now. That falling P/E and climbing yield mean something.

But, Apple, in a good way, is a special situation.

As a rule of thumb, you're insane to chase yield or make yourself believe in a faux value play. Buy growth and hold it until you hit your target or the company's narrative actually begins to crumble.

You'll miss a few and take some stop losses in the process, but that's part of the game. Getting crushed by the next HPQ, DELL or RIMM shouldn't be.

Dividend stocks are absolutely not dead; just as long as the fundamentals of the underlying company are moving in the right direction.

Rocco Pendola is TheStreet's Director of Social Media. Pendola's daily contributions to TheStreet frequently appear on CNBC and at various top online properties, such as Forbes.

If you liked this article you might like

Warren Buffett Is Sticking to His Strengths By Selling IBM and Buying More Apple

Warren Buffett Is Sticking to His Strengths By Selling IBM and Buying More Apple

Jim Cramer: Today Is Not Just About VIX, It Is About COMPANIES!

Jim Cramer: Today Is Not Just About VIX, It Is About COMPANIES!

24 Stocks Hedge Funds Are Loving Right Now

24 Stocks Hedge Funds Are Loving Right Now

It's Dumb to Think Amazon Will Be Able to Skirt Regulators Forever

It's Dumb to Think Amazon Will Be Able to Skirt Regulators Forever