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Is the Market Getting Frothy Again?

Sunday - 7/14/2013, 2:33pm  ET

The real-money Inflation-Protected Income Growth portfolio just finished an astonishingly strong week, rising by more than $1,080 since the prior week's update to close with a value of $35,806.10. For a portfolio built on fairly stodgy companies known more for their ability to pay out reliable dividends than for their ability to grow like wildfire, a 3% one-week gain like that seems almost too good to be true.

With an out-of-character leap like that one, it's only fair to ask whether the companies in the portfolio are doing exceptionally well or whether the market's rising tide is simply lifting all boats. If it's the companies that are dramatically exceeding expectations, that's one thing. But if that ascent was simply due to the market's benevolence, then it may be a sign of a return to frothy times in which valuation seems to mean less.

When bad news is good and good news is better
Either way, not every pick in the portfolio rose last week. Package delivery giant United Parcel Service actually dropped around 1.6% on the week, driven in large part from Friday's earnings pre-announcement. By both indicating that it would miss expectations and that it was guiding down forward-looking earnings projections, UPS sent its shares tumbling down almost 6% on the day.

Ordinarily, bad news and a market drop like that would be cause for concern, but this past week, it's a welcome signal that the market is still paying at least some attention to fundamentals.

On the flip side, the best performer on the week for the IPIG portfolio was pharmacy retailer Walgreen , which rose a touch better than 10% in the week. Anchoring the retailer's surge was its announcement that it will raise its dividend an awesome 14.5%, beginning with its September payment. The stock price gain was nice, but the dividend increase is what should really help the IPIG portfolio in its effort to build an income stream that rises at least as fast as inflation.

A strong team approach
Additionally, every stock in the portfolio now shows a positive total return on a pre-U.S.-taxes basis. While Teva Pharmacutical's shares finished the week slightly below the iPIG portfolio's buy-in price, the total return is positive after adding in the dividends the company has paid. That even holds true after netting out the automatic Israeli withholding tax on dividends paid to U.S. investors.

And while Walgreen's rising dividend made the biggest headlines, we also got news that fellow IPIG pick CSX will keep its dividend steady at $0.15. That's the company's second dividend at that level after a previous rise from $0.14, and it means CSX is delivering income as well as its freight.

And while nothing has been made public yet, the chances are fairly decent that pipeline giant Kinder Morgan could announce a higher dividend in the upcoming week. From a timing perspective, next week marks the anniversary of the company's July 2012 dividend announcement. From a cash amount perspective, back in May, the company projected a total of $1.60 in dividends per share for 2013.

With two quarterly dividends already paid, the company has shelled out only $0.75 per share so far this year, with dividends of $0.37 and $0.38 for the first two quarters. To hit the $1.60 target, the last two dividends of the year need to average $0.425, suggesting that a raise may well come with the next announcement.

Money still talks
All told, the market's general benevolence probably drove a substantial portion of the IPIG portfolio's gain this past week. Still, given that both the top gainer and the biggest loser on the week had relevant financial news that supported their moves, it looks as if the market is at least somewhat paying attention to fundamentals.

Here's how the portfolio finished up on Friday:

Company Name

Purchase Date

No. of Shares

Total Investment (Including Commissions)

Current Value,
July 12, 2013

United Technologies 

12/10/2012

18

$1,464.82

$1,796.94

Teva Pharmaceutical

12/12/2012

38

$1,519.40

$1,503.28

J.M. Smucker 

12/13/2012

17

$1,483.45

$1,802.17

Genuine Parts

12/21/2012

23

$1,476.47

$1,955.69

Mine Safety Appliances

12/21/2012

36

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