Monday, April 23

The Dividend Project - Sector Solidarity

So today four of the five bank stocks that I profiled yesterday were down. The interesting thing is that this actually pushed the yield into an even smaller range (excluding BMO) because BNS was the highest yielding and its price went up, pushing its yield slightly down. Now all four are between 3.09 and 3.11%.

I'm starting to realize that sectors seem to stay together and it's an exception when a stock doesn't stay with its sector. I don't have a broad enough knowledge to say which sectors follow this trend very strictly and which are looser, but looking at the banks I would say that this looks like a textbook case.

What this means is that it might not be essential for us as investors to pick the exactly right stock, so long as we have picked good sectors. I have read before that 90-100% of investment performance is determined by asset allocation but I always thought of that broadly as stocks, bonds, T-bills, etc. Perhaps there is an application of this concept to a stock portfolio as well.

And I am wondering now why BMO is yielding so much higher. Does anyone know if this shows a weakness in the stock or recent bad news?

2 comments: said...

BMO is yielding a bit higher because I believe their payout relative to earnings is a bit higher than the rest. BMO also seems to lag the other big banks in terms of stock price. I wouldn't buy any of the big banks at this price range, I would wait for a pull back. Buy your strong dividend paying stocks on a dip. In terms of BMO, I would find it attractive in the mid-low 60's.

Mike said...

MDJ - what is your rationale for finding BMO attractive in the mid-60s?