Why one veteran stockbroker reckons the Blue Chip party has got further to run

Hit the panic stations!!

Overnight, Wall Street fell for the second day in a row, its first back-to-back declines since late January.

Never mind that the Dow fell just 30 points last night, and 54 points the night before…

I mean, all hell could break loose if it falls for a third day in a row.

Or not… although investment bank JP Morgan are doing their best to rain on the stock market parade, saying the massive rally since the U.S. presidential election could soon hit a wall.

And Citi piled on top, listing seven signs why the share market rally won’t last.

Such party poopers…

Here in Australia, the party has largely been confined to the blue chips, with the likes of the National Australia Bank Ltd. (ASX: NAB) share price jumping 21% higher since Trump’s election win, and even the Woolworths Limited (ASX: WOW) share price catching a breeze, up almost 13% in the same period.

If any party is about to end, you’d reckon it would be the ASX’s blue chip party.

Valuations are stretched. Growth is anaemic. Dividends are either being cut — including Woolworths — or growing at a snail’s pace. For example, Commonwealth Bank of Australia (ASX: CBA) recently raised its interim dividend by a paltry one cent, or just 1%.

It’s hardly cause for celebration. Unless of course, the underlying share price jumps 14% higher, as the CBA share price has done since Trump’s election win.

The problem is, without earnings growth, and from an already elevated valuation, it’s a trick you can only pull off so many times.

That said, there’s no reason why the CBA share price couldn’t go even higher from here. In the short-term, momentum and sentiment often trump rationality and valuation.

Indeed, as reported in the AFR, driven by dividends and the banks, Bell Potter veteran stockbroker Richard Coppleson says investors right now are in the middle of a “sweet spot” that won’t end until April.

According to the AFR article…

February, March and April are all good months for the sharemarket and in the past that has been fuelled by the stellar performance of the banking sector.  Coppleson expects that to happen again.”

Dividend payments are soon to rain down from the sky. Much of this wall of money will be reinvested back into the share market, either through Dividend Reinvestment Plans (DRP) or into new and existing holdings.

No wonder these months are traditionally strong for the ASX.

Soon-to-be flush with dividend cash, I’m always on the hunt for new stocks to add to my portfolio.

One such stock is TPG Telecom Ltd (ASX: TPM).

As Australia’s second-largest fixed broadband service provider, at $6.43 the TPG share price is trading on a similar valuation to Telstra Corporation Ltd (ASX: TLS), yet the company is growing much quicker.

Although TPG’s 2.2% fully franked dividend yield is nothing to get excited about, it is growing quickly, with analysts predicting it will jump another 10% higher in the year ahead.

TS 8 MArch

Source: TPG 2016 AGM Presentation

Another stock might be the dividend stock Andrew Page — our resident dividend expert — recently named as his top ASX dividend stock to buy now.

Unlike many of the blue chips who are struggling to meaningfully increase their dividends — this “fortress” stock just hiked its final dividend by a whopping 23% such that it is now yielding more than 5%.

Not only is Richard Coppleson expecting a strong next few weeks for the ASX, he’s on record as saying the S&P/ASX 200 Index will end the year at 6,300.

Let the dividend cheques rain upon us. Let the bull market run. Enjoy the ride.

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Of the companies mentioned above, Bruce Jackson has an interest in Telstra.

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