He says there are two certainties.
“So we know full well that the central banks want inflation — it is the easiest way to default on the record global debt-to-GDP ratio without having to write anything down and generate real losses — and while inflation does remain at bay, that will not be the case indefinitely.
But it is key to know that the central banks will not desist until inflation does come our way. So the shortage of yield is going to remain as acute tomorrow as it is today.”
The second certainty he writes is the aging baby boomers who the oldest turn 70 in 2016. They want yield and cannot get it in bonds thanks to the first certainty. They look to dividends to get it.
“Telecom was down [earnings] 21 per cent and Utilities down 34 per cent — and these are the two leading sectors year-to-date in stock price performance just because of their dividend yield characteristics.”
“So which sectors managed to see earnings hang in reasonably well during this profit recession piece? Try Healthcare, Consumer Staples, Industrials, Technology and the Financials.”
“The beauty of this group is that it is a nice barbell between inflation hedging and maintaining a portfolio that delivers an income stream that cannot be beat in the bond market with a median dividend yield of 2.3 per cent and year-over-year dividend growth of 7 per cent.”