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An Opportunity During Cloudy Days

Summary The volatility in the markets continues . With anxiety arrives opportunities. Here is one ETF with relatively low volatility and high dividend yield. The stock markets continue to move aggressively up and down. The uncertainty regarding the FED’s action next week drives the investors to levels of high anxiety where every small publication or clue regarding the coming interest rate hike leads to high volatility. History showed us that volatility phases are not short by nature and the best example to use is the 2011 summer selloff that took place due to the European debt concerns, and moreover, due to the U.S. credit rating downgrade. The length of high volatility phase back than was about three months, from early August till mid October. As the markets continue to be highly volatile opportunities for the long term, patient, investor are piling up. The first group of candidates to explore are the group of Aristocrats. Dividend Aristocrats are companies that have increased their dividend payouts to shareholders every year for the last 25 years. Among the more familiar names in this group are The Coca-Cola Company (NYSE: KO ), Chevron (NYSE: CVX ), AT&T (NYSE: T ) and Johnson & Johnson (NYSE: JNJ ). Overall there are about fifty members in this prestigious list of dividend stocks that are included in the Dividend Aristocrats index. Since pursuing fifty stocks in not really achievable the next best thing is to pursue an holding in an ETF that follows this index. SPDR Dividend ETF (NYSEARCA: SDY ) is a passive ETF that seeks to replicate S&P High Yield Dividend Aristocrats Index. I have written about SDY back in April when concerns regarding a correction that was coming about arose. Based on etfdb.com SDY has total of 101 holdings. That means that beyond tracking the Dividend Aristocrats Index the ETF is following the “Index of Champions” which, based on David Fish’s latest article , includes 106 companies. In order to assess the attractiveness of SPY compared to other ETFs I used the list of my best Big Cap ETFs that were published back in July : Vanguard Value ETF (NYSEARCA: VTV ), Vanguard Russell 1000 Value ETF (NASDAQ: VONV ), Vanguard S&P 500 Value ETF (NYSEARCA: VOOV ) and SPDR S&P 500 Trust ETF (NYSEARCA: SPY ). The behavior back in 2011: (click to enlarge) When looking at the graph which compares the performance of the five ETFs, going from January to October 2011, we can see that SDY delivered the best return compared to all benchmarks. During that time period between January to October it delivered a positive 1.8% while the other ETF delivered negative returns up to -3.9% . When zooming in to the crisis period, between June to October 2011 it was again SDY that delivered the best performance, dropping by only 2.2% while the other benchmark ETFs went down by up to 7.8% . When comparing the volatility of these ETFs using a Coefficient of Variation metric (Standard deviation divided by Average price) SDY also comes out with the lowest volatility score. Back to 2015: (click to enlarge) When comparing the same list of ETFs during a similar timeframe in 2015, going from January to September, SDY is still one of the better ETF performers delivering a -8.8% which is only second to SPY which delivered -6.3% during that timeframe. When zooming in to the crisis period, June to September 2015, SDY delivered the best return at -8.9% while the other ETFs delivered lower performance all the way down to -10.7% . While delivering the highest performance DY also demonstrated the lowest volatility during that timeframe of high volatility. Based on Morningstar.com SDY’s current dividend yield is at 2.46%. In 2014 the ETF delivered more that $3 to its shareholders and therefore I believe that the dividend return at these levels is higher that 3%. Conclusions: With high volatility arrive opportunities. SDY is an ETF that follows one of the most prestigious indexes. With lower volatility compared to its benchmarks I find it very attractive and waiting for it at $65. Happy investing Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More…) I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. Additional disclosure: The opinions of the author are not recommendations to either buy or sell any security. Please do your own research prior to making any investment decision.

Duke – All Set To Deliver Growth Going Forward

Summary Company’s increased focus on regulated operations will drive future growth. Duke faces challenges in international segments, which could weigh on earnings in the near term. Growth will stay strong in long term, backed by company’s domestic regulated operations. Stock’s current valuation stays compelling as it is trading at a cheap forward P/E of 13.9x. Duke stays an impressive investment prospect for income-hunting investors, as it offers a solid dividend yield of 4.8%. Duke Energy (NYSE: DUK ) stays a core utility stock for income-hunting investors, as it offers a solid yield of 4.8% , above the industry average of 4%, and has a solid fundamental outlook. I think Duke is a high quality, large utility cap utility with a healthy and visible path towards the average EPS growth rate of 5% through 2019; the company’s low-risk domestic regulated business investments will drive its future growth. Moreover, the company’s strong rate base growth through 2019, along with its plan to hold operational and maintenance ((O&M)) expenses flat through 2016 will augur well for its earnings and dividend growth in the coming years. Also, the stock’s current valuation stays cheap; I think the stock should trade in line with its industry’s average P/E of 15.9x. Despite the fact that the company is facing challenges at its international segment, Duke Energy International, which may affect its performance in upcoming quarters, I think Duke is one of the best large cap defensive utility stocks. Growth Catalysts Duke has a solid fundamental outlook, and the company has been working to strengthen its future earnings growth. I think the company has taken the right strategic decisions in recent quarters, including repatriating cash from the international segment and the sale of Midwest assets, which will have a favorable impact on its performance going forward. Also, the company’s increasing focus on the core domestic regulated operations, which contributed almost 90% towards its total earnings, will improve its business risk profile. The company expects to enjoy EPS growth rate in a range of 4%-6% in future, which will be supported by its $42 billion capital investment plan through 2019. Going forward, attractive regulated investments including natural gas pipeline, NCEMPA asset acquisition and accelerated infrastructure investment, will drive its future growth. The company recently completed the $1.25 billion NCEMPA asset purchase, earlier than expected, which will have a positive impact of $0.04 per share on the 2015 EPS. Separately, if Duke moves ahead with its plan to file a new grid modernization plan in Indiana by the end of 2015, it will bode well for its stock price. Furthermore, the company is correctly taking initiatives to expand its renewable energy fleet, which will allow it to comply with the increasing environmental regulations to reduce carbon emissions and maintain reliable cost effective power generation assets. The company has been working on different solar and wind energy projects; Duke plans to add 500MW of solar capacity over the next ten years. Given the company’s consistent emission reduction efforts, the company has successfully lowered CO2 by 22% since 2005 through the transition to natural gas fleet, retirement of older coal units and investment in renewable energy sources. The company is moving ahead nicely to meet emission reduction by 32% by 2030. To further strengthen and support future growth, I think the company should focus more on renewable energy projects and make new investments towards natural gas reserves, which will offer rate base growth. Despite the strong performance of the company’s domestic regulated segment, its international segment continues to face challenges, which remains a concern for investors. Brazil’s economic and hydro challenges, lower oil prices and foreign exchange headwinds continue to weigh on the company’s consolidated EPS. The company needs to announce some additional opportunities around infrastructure development and acquisitions to offset the weakness of its international business operations. Also, the Brazilian government’s recent announcement to help companies like Duke, who have to dispatch thermal plants before hydro plants, could help the company’s international segment’s operations. However, I think that if the performance of the international segment does not improve in the upcoming quarters, the company needs to consider the option of selling its international operations, which will allow it to focus more on high quality domestic regulated operations, which will also augur well for its stock price. Summation Duke is positioned well to deliver healthy growth in future years. The company’s increased focus on regulated operations, along with robust capital investment profile through 2019, will drive its future growth. The company faces challenges in its international segments, which could weigh on its earnings in the near term, but in the long term, growth will stay strong, backed by its domestic regulated operations. The stock’s current valuation stays compelling as it is trading at a cheap forward P/E of 13.9x , versus the utility industry forward P/E of 15.9x ; in my opinion, Duke should at least be in line with its industry average, given its constructive regulatory environment, above average earnings growth and accelerating dividend growth. Duke stays an impressive investment prospect for income-hunting investors, as it offers a solid dividend yield of 4.8% at compelling valuation. Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More…) I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Market Timing Risk

Market timing, i.e., when attempting to trade in or out of the market, is a difficult strategy for nearly all investors. A Barron’s article written in October of last year, The Timeless Allure of Stock-Market Timers , highlighted a few strategists’ ill-timed calls and their confusion on why it did not work. The worst part of market timing is the fact that the timing of getting out tends to occur near market bottoms and then getting back in the market near market tops. Making ill-conceived market moves can reduce the growth of one’s investments substantially. The below chart graphs the growth of the S&P 500 Index from 1990 through June 30, 2015. The blue line displays the growth of $10,000 that remains fully invested in the S&P 500 Index over the entire time period. The yellow line shows the same growth but excludes the top 10 return days over the 25-year period (6,300 trading days.) By missing the top 10 return days over the 25-year period, the end period value grows to only half the value of the blue line that represents remaining fully invested. Source: ICMA-RC Given the market’s recent pullback, the calls for getting out of stocks has picked up momentum. Until this most recent pullback, the S&P 500 Index had gone over 1,300 trading days without a 10+% correction. This extended run without a 10+% correction can be seen in the below chart. Source: Goldman Sachs For an investor, they should not get caught up in the market timing conundrum. These sell decisions often occur near equity market bottoms. Alternatively, an investor should stick with their asset allocation plan that incorporates their time horizon and risk tolerance. If the recent market pullback is jeopardizing one’s retirement as a consequence of the recent downward move in equities, they should reevaluate what an appropriate asset allocation should be. The investor’s asset allocation preferences should incorporate the time horizon for various buckets of assets. Shorter-term investments should not be invested in equities if accessing these funds will occur over the next several years. Timing the market may sound appealing, especially after a pullback like we are experiencing at the moment. Reducing equity exposure when the market has become increasingly volatile will certainly relieve some anxious feelings. If near-term access to investments necessitates reducing equity at the moment, be sure that is the case and equity exposure is not being reduced in an effort to simply time the market. The increased market volatility experienced over the last few months is certainly more typical of equity movements and is likely to continue in the near term. Share this article with a colleague