Dividend Blues

Every time that I look at you
I can't see the future
'Cause you know I know baby
That I don't wanna go
--Genesis

I've been feeling more constructive about cash generating blue chip stocks that pay dividends. Have done some valuation work on various candidates finds three buckets:

signif overvalued: XOM
about fairly valued: INTC, JNJ, MRK, PG
seemingly undervalued: AMAT, CSCO, MSFT

These valuations are based on using performance over the past few yrs for forecasting free cash flow growth in the future. The danger in doing this, as frequently observed by John Hussman, is that the past few yrs have been abnormally generous for corporations. By historical measures, corporate profits currently stand at rich extremes.

As such, my forecasts may not be as conservative as I think.

My bigger concern is the macro picture. In a debt swamped world, periods of deleveraging are likely. When deleveraging occurs, securities are sold across the board regardless of valuation. That little voice inside my head is whispering 'patience' when it comes to taking on equity risk here, as better price points seem probable.

Policymakers have suppressed interest rates around the globe, largely in hopes of pushing people into risk in search of return. Count me among those considering the prospect of owning stocks here despite considerable big picture concerns.

positions in CSCO, JNJ