A Big Mac, fries and a Coke seems to be what investors are craving these days along with Doritos and a smoke.
Continue Reading Below
Shares of McDonald’s (NYSE:MCD) and Coca-Cola (NYSE:KO) have never been higher, neither has Pepsi’s (NYSE:PEP) stock, nor shares of tobacco companies Altria (NYSE:MO) and Philip Morris (NYSE:PM).
“We are back in the chase for yield,” J.J. Kinahan, chief strategist, at TDAmeritrade (NASDAQ:AMTD), tells FOXBusiness.com. “Yield is stability.”
Generous Dividend Payers Fuels The Chase for Yield
- Philip Morris Intl. 4.04%
- Altria 3.54%
- Coca-Cola 2.99%
- McDonald's 2.78%
- Pepsi 2.67%
- S&P 500 2.19%
Dow members McDonald’s and Coke carry a dividend yield of 2.78% and 2.99% respectively, above the 2.19% yield of the S&P 500 (NYSE:SPY). While Philip Morris and Altria dividend yields are higher at 4.04% and 3.54%.
To Kinahan’s point, stability has not come in the form of the U.S. stocks, monetary policy or U.S. economic growth which remains subpar at around 2%. And it may not come in 1Q earnings reports either which are expected to show a profit decline of 9.1%. This would be “the first four consecutive quarters of year-over-year declines in earnings since 4Q 2008 through 3Q 2009,” as laid out by Factset.com’s John Butters.
Yield and dividend payouts are even more important to investors when the broader markets are not rising, as is the case this year, with the S&P 500 (NYSE:SPY) virtually unchanged. Plus, some companies in the energy sector are even slashing dividends. On Monday, National Oil Well Varco (NYSE:NOV), the nation’s largest equipment maker, instituted an 89% dividend cut. Following the likes of Chesapeake Energy (NYSE:CHK) and ConocoPhilips (NYSE:COP). These companies are reeling with depressed oil prices.
Also fueling the chase for yield is the election cycle and the flip-flopping of the Federal Reserve, notes Kinahan.
Several months ago, a March rate hiked was widely viewed on Wall Street as a done deal. As March came and went, so did the prospects for the number of future rate hikes. Following the March meeting, Fed members disclosed that economic conditions both in the U.S. and abroad might only warrant “gradual” increases in short-term interest rates.
“The federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run. However, the actual path of the federal funds rate will depend on the economic outlook as informed by incoming data,” the March FOMC statement read.
Consumer staple stocks, considered defensive in nature and a place of refuge in uncertain times, have gained nearly 5% this year and are the third top performing S&P group behind telecom and utilities, also considered defensive plays.
As for the rest of the year, Kinahan predicts an environment that will exhibit, "cautiously optimistic investing."
|XLP||CONSUMER STAPLES SELECT SECTOR SPDR ETF||57.33||+0.57||+1.01%|
|IYZ||ISHARES TRUST SHS OF DJ US TELEC.SEC.IND. O.N.||26.27||+0.29||+1.12%|
|XLU||UTILITIES SELECT SECTOR SPDR ETF||56.28||+1.19||+2.16%|