We’ve had enough fun for a while, time to get back to Earth. One of our super-favorite commentators is Greg Donaldson, of Donaldson Capital Management, based in Evansville, Indiana. He writes an occasional piece for his blog, Rising Dividend Investing, and in our opinion always has something valuable to contribute to our thinking.
We can’t believe we haven’t put a link to his blog on our Blog Roll. We’ve remedied that oversight today. Here are a few choice comments from today’s thoughts:
“… impressive stock market gains in the new year have caused many strategists to raise their estimates of 2012 stock market performance to 15% or more. A 3% dividend yield looks good in a 2% stock or bond world, but it does not stack up so well against 15% returns. Because of this many articles have been written arguing its time to move away from dividend investing and start pursuing growth again.
“We would argue that dividend paying stocks are likely to perform just as well as non-dividend payers, even if stocks rise by 15%. The reason is simple, our valuation models now predict that the average stock in our portfolios, which has a 3.5% dividend yield, is undervalued by almost 25%.”
We have found that concentrating on dividend yields has been helpful in our own portfolio. Remember how we’ve said we are less volatile than the DJIA? We usually don’t go up as much or down as much as the market each day. That’s very comforting.
Investment lesson: good mentors are hard to find, but when you find one, stick with him.
Disclosure: IFO does no business with or for Donaldson Capital Management.