What do the scorching summer heat and my favorite dividend stock have to do with each other? Glad you asked!
We are in the dog days of summer, the hottest, most sultry days of the year. The expression “dog days” is an old one. In fact, it’s really old. The Romans used it.
It’s one of those expressions that everyone knows but few people know the origin of the term. What does summer heat have to do with dogs? It actually has nothing to do with dogs per se. The term refers to something the ancient Romans saw in the stars.
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A star constellation visible in that part of the world at that time was called Canis Major, Latin for “The Great Dog.” It was so named because the constellation resembled the outline of a dog. The brightest star in the constellation was Sirius, also known as “the dog star.” It first dominated the sky in late July, corresponding to the hottest days of summer.
The Romans actually thought the star generated extra heat and was responsible for the oppressively hot Roman summers, and named this time of the summer the “dog days.” No wonder that empire collapsed.
Dog Days for the Stock Market
Of course, the malaise that comes with this time of year is probably even more ancient than the saying. It used to be that it was just too hot to do anything. Today, investors tend to get into a summer mode where they focus on enjoying the last days of the summer and it seems like everybody is always on vacation. It’s a time of year where the normal rules don’t apply and slacking becomes more acceptable.
Markets tend to continue with the same dynamic and personality that existed when investors stopped paying attention. That doesn’t mean that outside events can’t change things—like today’s Fed decision to lower interest rates. But unless something rocks the boat (and it appears yesterday’s rate cut hasn’t, at least not yet), the market tends to go on autopilot.
While investment decisions tend to get put off until after Labor Day and everybody is at the beach, it’s a good time to access where we are and where we might be going in relative peace and quiet.
The S&P 500 is up over 20% so far this year and the market right about at all-time highs as the market very slowly slogs a little higher. It is now the longest bull market and the longest recovery in history. That’s not a great place to be. The next recession is lurking somewhere. It feels like we’ve been playing musical chairs and the music had been playing for a really long time.
That said, there are reasons why this recovery is longer than average. It had been the slowest in the World War II era and the normal excesses haven’t built up. There was also strong stimulus in the form of tax cuts and deregulation at an unusually late stage of the economic cycle.
As I’ve mentioned in the past, I am generally positive about the direction of the market for the remainder of this year at least, and probably into 2020. I think the economy is still solid and we are not bounding toward recession in the foreseeable future. But I do have a hard time seeing how the market is going to get a 50% or 100% upside move from here before the next recession.
Returns are likely to be uninspired from current levels. Dividends are likely to make up a bigger portion of total returns. The easy upside is likely over, making stock selection even more crucial to performance. It is increasingly difficult to find stocks that are not expensive and also have a catalyst to drive higher in the near future.
My Favorite Dividend Stock
Right now, I have the perfect stock in mind. In fact, it’s already part of my Cabot Dividend Investor portfolio, and I’ve just highlighted it as my latest “target buy.”
I’ll give you a hint: One of the best ways to generate a sustainable high cash flow in a low-interest-rate world is with real assets like real estate, pipelines, airports and farmland. Such assets provide tangible services that customers will pay up for in both good times and bad.
And my favorite dividend stock to buy now is an asset management company whose shares have nearly tripled the performance in the S&P 500 over the last 20 years.
To learn its name, and the names of all the other dividend stocks I’m currently recommending, click here.
In the meantime, stay cool. We’ll get through these dog days of summer together!
*Note: This post was excerpted from the latest issue of Cabot Dividend Investor.
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