SOURCE: Creekside Partners

February 08, 2012 06:00 ET

Creekside Partners Analyst Says Now May Be the Time to Consider Global Stocks That Pay Dividends

Domestically, the Specter of Rising Interest Rates and Unsustainable Corporate Earnings Growth Means Tapping Into Companies With an Overseas Presence Holds the Best Option

LAFAYETTE, CA--(Marketwire - Feb 8, 2012) - Two thousand eleven was a solid year for investors, whose careful selections in the equity and credit markets led to handsome returns.

But with the specter of rising interest rates and unsustainable corporate earnings growth in 2012, Creekside Partners ( Financial Analyst Rick Ashburn believes investors will need to be much more discerning about their strategy if they expect a repeat performance this year.

He talked about that strategy recent on FoxBusiness:

In sum, the best option for investors who want to venture outside their conservative holdings may be global stocks that pay dividends.

To understand why Ashburn has turned his attention away from last year's successful formula, it is important to understand that "there is no free lunch in economics. Interest rates are held down today to artificially low rates because of the combined actions by our Fed, the European Central Bank and the currency policies of China and Japan," said Ashburn. "Among the few universal truths of economics is the notion that if something can't go on forever, it won't.

"Governments and central banks cannot keep a lid on interest rates forever, and surely not in the face of economic expansion and inflation. We expect a move back to normative levels."

Ashburn went on to say that the rise of interest rates "will clobber bond investors. That clobbering often spills over into markets for stocks, real estate and other risk assets. The clobbering sometimes gets painful enough that it even slows down the nascent recovery."

Creekside recognized the potential rise in interest rates last year, and recommended that its clients utilize medium-term bonds (a maturity of less than five years) in their portfolio. As that investment, however, has become more popular, the ability to retrieve an after-tax yield higher than the current rate of inflation has become problematic.

"In fact," said Ashburn, "it is not possible for any investor to make immediate progress toward their long-term investment objectives by buying safe, medium-term bonds, in the current market. Period."

Hence, Creekside leans toward stocks, even though "stock valuations have already fully recovered back to the long-term trend line for corporate earnings growth," according to Ashburn.

"The caveat in this is that the earnings cycles of the largest, globally-operating companies (e.g., the S&P500) can and will probably exhibit less of a connection to the domestic economy going forward than they have in the past."

Thus, Creekside wants its clients to move toward full allocations of global dividend-paying stocks, buying in on price dips and corrections. "In the immediate term," says Ashburn, "we are hesitant to fully invest in stocks since we expect that those stocks will be available at lower prices once the earnings moderation takes hold."

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