Credit Suisse is maintaining their fairly conservative equity stance, but advising investors to look into dividend paying stocks for stability in a volatile market. They offer four reasons rationalizing their approach:
“This week, we reiterate one of our central and earlier calls, which is to invest in stocks with high dividends backed by operating cash flows. We believe that in this “zero interest rate environment,” equities with high dividend payouts are attractive alternative sources of yields for four main reasons: First, because the spread between earnings or dividend yield and bond yields remains very high. Second, corporate balance sheets are generally solid, and at a 55-year high in terms of cash/total assets, which generally supports high cash payments to shareholders in the form of dividends and/or share buybacks. Third, the outlook for earnings, and especially operating cash flows, is still fairly solid. Fourth, historical analysis indicates that dividends contribute a large portion of equities’ total returns, and we believe that the high yields more than compensate investors for the higher volatility compared to more defensive yielding investments. This week, we highlight several large-cap stocks, which not only offer attractive dividend yields (generally above 3.0% for 2011E, plus potential share buybacks), but especially those, which are backed by sound and sustainable operating cash flow generation, have a BUY recommendation, and which our technical analysts also like from their standpoint. Based on these criteria, we derive the following selection: Novartis, Pfizer, Philip Morris International, Roche GS, Royal Dutch
Shell, Vivendi, Vodafone and Wal-Mart.”
Source: Credit Suisse
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