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Executive Summary

Dividend Safety is the Name of the Game

By Roger S. Conrad on Apr. 13, 2020

Over the past two weeks, the Dow Jones Utility Average has recouped nearly two-thirds of its initial bear market plunge. That’s the sector’s most dramatic two-week rally in history, following its most brutal one-month selloff.

Along the way, we’ve been able to buy every Portfolio stock below its maximum entry point. And 30 have traded under “Dream Buy” prices, levels only reached under extreme conditions like those we’re living through now.

The question now is will utilities’ current “V” shape recovery continue? Or will stocks follow the pattern of every previous market and at least retest the lows?

On the positive side, the spread of COVID-19 appears to have eased up in some hard-hit areas, particularly China. That’s raised hopes the world can go back to work in the relatively near term.

The Federal Reserve’s unlimited liquidity pledge has calmed what at one time were spiraling credit markets. Governments around the world have committed to unprecedented fiscal stimulus. And OPEC+ looks close to resolving the production dispute that’s contributed greatly to oil’s plunge.

These actions will help the global economy and stock markets in the rest of 2020. What they won’t do even in a best case is to prevent at least a short and nasty recession this year, with a corresponding historic hit to corporate earnings. And that means we’ve seen a sudden spike in dividend risk.

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