Technology -- the new versus the old

Watching CNBC, there is a lot of talk of equity rotation from "new technology" to "old technology."  This rotation was on full display last week after earnings reports from Microsoft and Apple.  Microsoft announced that its cloud-based "Office 365" revenues doubled from last year.  Better yet, Apple announced it will boost its quarterly dividend by eight percent and increase its share-buyback program.

While new technology (social media, 3D printing, etc.) offers growth potential, today's investors prefer the more predictable earnings and attractive yields from the larger well-known technology stocks.

Dividend payments from the technology sector were unthinkable in the 1990s.  Back then, if a technology company announced a dividend, it was interpreted as a sign that the company was out of growth ideas.  Times have changed.  In a near zero interest rate environment, cash-rich technology companies are responding to the needs of investors.  Intel yields 3.4 percent, Cisco Systems yields 3.3 percent, Microsoft yields 2.8 percent, and IBM yields 2.0 percent.

There is an easy way to own dividend paying technology stocks.  The First Trust Nasdaq Technology Dividend Index ETF (TDIV) owns 89 dividend payers, each with a market capitalization of $500 million or more.  After Apple's dividend announcement, it became the ETF's largest stock holding and represents 8.5 percent of the portfolio.  In addition to the companies listed above, other holdings include Qualcomm, Oracle, Texas Instruments, Hewlett-Packard, and AT&T.  The ETF's 30-day SEC yield is 2.7 percent.

Thanks to "old technology" companies, the tech sector is now the biggest contributor to S&P 500 dividend growth.  That doesn't mean income investors should automatically buy the dividend payers.  After all, their track record of dividend increases is limited.  That said, the dividend payers are performing far better than the newer technology companies that must continually innovate and surprise in order to survive.  Increasingly, today's investors prefer stability and income from their investments.  As long as interest rates stay low (think years) dividends will be important.

--David Vomund is a fee-based money manager.  Information is found at www.ETFportfolios.net or by calling 775-832-8555.  Clients may hold positions mentioned in this article.  Past performance does not guarantee future results.  Consult your financial advisor before purchasing any security.

Is the Market Topping? No.

Last Friday the Wall Street Journal listed the best and worst performing S&P 500 sectors right before bull market tops.  The sectors were examined during the three months prior to every bull market top since 1972.  What were the results and what do they mean today?  Read on.

The three best performing sectors prior to major market tops are Consumer Discretionary, Consumer Staples, and Health Care.  All rose about 10 percent in the three months prior to major market tops.  The worst performers were Energy and utilities, which rose about 4 percent.

Is this showing an approaching major market top today?  Not so fast.  The sectors that typically perform best before market tops are performing badly now, and the sectors that typically lag as a market is toping are the best performers now.  Here are the details:

This year's best performing sector by a long shot is Utilities, which an 11 percent gain.  The second best performing sector is Energy, which is up 5 percent.  This year's worst performing sector is Consumer Discretionary, which is down 4.6 percent.

The 11 percent advance in Utilities is most interesting.  The year began with a near universal opinion that interest rates would rise and most every analyst recommended avoiding utilities.  When there is nearly universal opinion, best against it.  That's how Wall Street works and my Reduced Risk Income account clients have benefited from large utility holdings.  Readers of my newspaper columns know that Energy is a favorite sector.  Needless to say, we are off to a good start this year for many clients.

So don't be distracted by analysts that appear on financial shows or by Janet Yellen's every word.  It's still a bull market because the sectors that do well at market tops are lagging and the sectors that underperform at market tops are leading.  I expect better days ahead.

David Vomund is a fee-only money manager.  Information is found at www.ETFportfolios.net or by calling 775-832-8555.  Clients hold the positions mentioned in this article.  Past performance does not guarantee future results.  Consult your financial advisor before purchasing any security.

Monthly Income

Are you looking to receive some monthly income from your investments?  Here are some ideas:

http://www.tahoedailytribune.com/northshore/10955420-113/percent-securities-income-yields

David Vomund

Is the Market Rigged? Yes.

Perhaps you saw the recent "60 Minutes" segment in which author Michael Lewis said the stock market is "rigged."  There has been a lot of talk and press about it since.  A few comments.

First, Michael Lewis has a book out, so kudos go to his publisher and PR firm for landing the "60 Minutes" gig.  He'll sell lots of books.  That said...

Investment professionals will surely take issue with the word "rigged."  They should.  Yes, some firms with the latest communication and computer technology can and do gain an edge over slower-moving institutions and larger investors.  I won't defend that.  That said, individual investors get far better executions, with lower commissions, now compared to any time in the past.

If a "60 Minutes" producer reads this blog, I suggest he or she do this:  Try a segment on how the stock market is overwhelmingly "rigged" in favor of long-term investors in high-quality stocks with rising earnings, not day-traders and especially not high-frequency traders.  The evidence:  every long-term chart of the market starts in the lower left corner and ends in the upper right.  The long-term return on stocks is close to 7 percent after inflation.  When I entered the business, the Dow stood at 2,200.  Now it's 16,550.  Yes, the market is rigged, rigged in favor of long-term investors.

Consider also the Forbes 400 richest Americans.  Most own stock in companies they founded or expanded.  Some are real estate developers.  Will you find any high-frequency traders on the list?  I doubt it.  Not now, not ever.  If the stock market were truly "rigged against investors" they'd be there.

The way to build wealth is not to day-trade but to own leading equity ETFs and quality companies that increase their earnings and in most cases dividends year after year.  That's the message "60 Minutes" should give investors.

David Vomund

Information on Vomund Investment Management is found at www.ETFportfolios.net.  Post performance does not guarantee future results.  Consult your financial advisor before purchasing any security.

Yellen Speaks

Fed Chair Janet Yellen held her inaugural post FOMC press conference.  Here are our thoughts:

http://www.etfportfolios.net/bonanza/2014-03-27.pdf

David Vomund

— David Vomund is an Incline Village-based fee-only money manager.  Information is found at www.ETFportfolios.net or by calling 775-832-8555.  Clients hold the positions mentioned in this article.  Past performance does not guarantee future results.  Consult your financial advisor before purchasing any security.