Income investors, forget debt instruments and embrace dividend stocks, says renowned investor Don Coxe.
"We strongly recommend that institutional and retail investors break the shackles of labeling and look at security of income—whether in dividends or interest. In a zero interest-rate environment, there is a long list of great companies with a long record of dividend payments on schedule—and of sustained growth in those payouts," writes Mr. Coxe in his latest research note.
"It is almost an Alice-in-Wonderland world when some prominent members of the asset class delivering the worst investment shocks—government bonds—can get away with paying record low rates to investors. Why subsidize poor economic management by lending governments money at risible interest rates? Better to rely on income from great corporations through dividends."
He recommends that pension funds hold 10 per cent of their assets in dividend stocks. (You can read more about dividend investing on Globe Investor's popular Dividends page.)
"Bullet-proof dividend paying stocks with a record of sustained payout growth should be the core investment asset class for income-oriented investors. Take the money now, and quarterly thereafter, and don't fret unduly about the relative price performance of your stockholdings."
Here is a list of his other recommendations:
1. If possible, avoid European bank stocks.
2. Avoid investing in U.S. banks that have "dubious balance sheets, that give top executives big stock option deals, and that squander Bernanke-supplied funds in stock buybacks."
3. Hold current positions in Canadian oil sands stocks, but exercise caution about new commitments.
4. Maintain heavy weighting in precious metals, emphasizing gold stocks. "They have been good to you for 10 years, and they should continue to be so."
5. Maintain heavy weighting in agricultural stocks.
6. Retain strong exposure to U.S. oil producers operating on land.
7. Underweight base metals.
8. Canadian banks remain vastly more attractive than their American or European counterparts. Canadian government bonds are higher quality than Treasurys—and they offer slightly higher yields. "Canadian economic performance is stuttering because of the slowdown in exports to the U.S. Otherwise, Canada should remain, in our view, a haven country for investors."
Sonali Verma