It may not be all that different from previous media-overhyped crises, but we function in a weird stock market.
The macro sky keeps falling, yet the other shoe never seems to drop. Amidst this perpetual anxiety the media tells us we're supposed to feel — and some do feel — theS&P 500 is up six weeks in a row to multiyear highs and the VIX is at its lowest level since 2007.
Even more exciting, the other so-called bubble — strength in dividend-paying stocks — continues to expand with no signs of popping.
Consider five of the top-performing dividend payers in one of the market’s most dynamic spaces: media and telecommunications stocks BCE, Walt Disney, Time Warner, Verizon Communications, and Viacom.
Over the last three months, Time Warner is up nearly 25 percent. All of the other stocks, save Verizon , have increased by double digits in the last 90 days.
The question then is do you consider this the top for these names, either because of coming macro doom or stock-specific concerns, and get out? Or do you continue buying to further develop the core of your growth and income portfolio? As a not-yet-40-year-old married man with a child whose portfolio is 60 percent cash and 40 percent stock, both make sense.
I was long Verizon early on in its run and exited prior to the company’s most recent earnings report. Because I don’t see a whole ton of upside outside of rewards associated with increased smartphone adoption, I don’t plan on getting back into the stock.
At the same time, I certainly would not take issue with an investor who buys a little Verizon each month, reinvests the dividend, and consistently writes covered calls (explain this) against the stock as part of a larger, long-term plan.
That’s a solid approach as well for the other four stocks, each of which has considerable growth prospects.
I expect consolidation in the space. Because Viacom doesn’t have the content every media conglomerate needs going forward in an on-demand, mobile and streaming society — live sports programming — I expect it to actively seek M&A opportunities. In fact, Viacom would look incredible as part of larger Disney or Time Warner. There might not be two better-positioned media outfits in existence.
I do not own Disney. I expect to have my Time Warner position called away as I am short in-the-money August calls. I’ll leave a few bucks on the table, given Time Warner’s strength in recent weeks, but I’m alright with this. I might write puts (explain this) in an attempt to get long on a pullback.
I own Viacom in my daughter’s custodial account. It’s one of those stocks I will continue to buy approximately twice a month, holding all else constant.
On the other end of the M&A possibilities, it could make sense for Viacom to go after another stock I am buying for the custodial account: Madison Square Garden.
Madison Square Garden , with its foothold in the Northeast, particularly the Tri-State area, could give Viacom what it needs to develop a meaningful presence in sports entertainment. If you don’t have one, it’s going to be difficult to compete as new media continues to evolve. Also, keep this in the back of your mind: MSG recently purchased the Forum, a somewhat forgotten Southern California venue that the Los Angeles Lakers used to call home.
Put BCE , as well as Canadian counterpart Rogers Communications(up 7.6 percent over the last six months and 15.8 percent the last three), in a class by itself. As I have discussed frequently over the last year, given the relatively loose regulatory environment north of the border, the sky’s the limit over the long-term for these two stocks.
Bottom line, by keeping a significant amount of capital in dividend-paying growth stocks, such as the ones mentioned in this article, you’re not running and hiding in the face of what might be irrational fear. However, if the worst comes, you’re probably better off having invested in this class of stocks than other more volatile ones that do not produce consistent income.
—By TheStreet.com Contributor Rocco Pendola
Additional News: Verizon Clears Hurdles in Cable Spectrum Deal
Additional Views: Are Dividends Best Use of Free Cash Flow?
______________________________
CNBC Data Pages:
______________________________
Disclosures:
At the time of publication, the author was long BCE, RCI and TWX. He owns MSG and VIAB in a custodial account he manages for his minor child.