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Overall, the S&P 500 handed investors a total return of 15 percent last year, which is pretty darn good.
But as always, I think we have to look even deeper than just the broad market’s surface performance if we want to figure out where the best opportunities are going forward.
And that’s doubly true if you’re an income investor!
Reason: Certain parts of the stock market are far better than others when it comes to safe, steady dividend payments.
Let’s Start by Looking at How the
Various Sectors Performed Last Year …
Of the S&P 500’s ten distinct sectors, consumer discretionary companies rose the most in 2010, producing an impressive capital gain of 25.7 percent.
Just as a refresher, these are the firms that sell goods and services that folks can live without — including major restaurant chains, apparel makers, and retailers.
It’s no surprise why investors piled into this group so aggressively last year — things started looking up a bit for the economy. That led a lot of households to come out of their shells and start visiting local malls again.
Meanwhile, other economically-sensitive sectors also outperformed last year:
- Industrials — major conglomerates, companies that make heavy machinery, etc. — returned 23.9 percent
- Materials companies, which supply the building blocks of industry, rose 19.9 percent
- And energy concerns — who clearly benefit from economic upturns and rising commodity prices — tacked on a solid 17.9 percent
Here’s the full breakout …
Again, this action indicates that investors generally accepted the idea of a U.S. economic recovery and chose to bid up prices for the companies best positioned to benefit from renewed growth.
And in my dad’s new income portfolio — which launched about six months ago — we certainly played these broad trends, locking in a 32.5 percent profit on Walgreen and a 37 percent return from Exxon Mobil!
Still, Investors Failed to Focus on Many of
The Hottest Dividend Sectors Last Year …
Which Is Where the Biggest Potential Now Lies!
While they were busy piling into discretionary, materials and industrials, the bulls trampled past dividend rich areas like utilities and health care in 2010.
To me, that implies even more value and profit potential in these sectors going forward.
Yes, higher interest rates could certainly impact utilities more than other sectors, but I also believe these firms boast some of the most consistent businesses to be found anywhere.
Meanwhile, healthcare companies — particularly pharmaceutical firms — have never looked more attractive to me on a relative basis.
That’s why I just made new recommendations in this sector — for both my Dad’s Income Portfolio as well as my Dividend Superstars portfolio.
[Editor’s note: To learn how to get Nilus’ latest issue of Income Superstars, which contains these new buy orders, just click here.]
What about the consumer staples stocks — makers of food, beverages, tobacco, and other household products?
This group of companies performed about in line with the market average last year … and I think they can certainly continue to rise in 2011.
More importantly, as I’ve pointed out before, these firms are currently the biggest contributor of broad market dividends. So if you’re looking for outsized income, they’re another great place to be.
In terms of last year’s top-performing sectors: I am less excited about the economically-sensitive areas.
Reason: The easiest money has likely been made already. And should data even hint that the economy is slowing back down, the highest-flying stocks will fall the hardest.
Best wishes,
Nilus
P.S. I’ll be at the Orlando Money Show this week. If you’re attending, I will be presenting a workshop on income investments at 2:25 on Thursday afternoon … and I hope to see you there!
