Daily Update: The Hottest Theme On Wall Street

The stock market has struggled in the last few months, with the S&P 500 collectively peaking around the new year and then dropping as much as 13% after that. For people who thought the index offered safety, it’s been a rough season.

But active traders and investors with more selective approaches have done relatively well. After all, it isn’t really “a stock market” as much as “a market of stocks” . . . and a significant minority of stocks on the market are moving up this year.

You just have to open your eyes a little wider to see them as the trillion-dollar giants at the top of Wall Street’s food chain sputter. Eight of the ten biggest stocks are down YTD, creating an irresistible drag on the rest of the index.

But then you have Berkshire Hathaway (BRK), Warren Buffett’s $850 billion investment behemoth that owns a lot of “boring” old-fashioned companies as well as big blocks of technology and bank shares. It’s up a healthy 18% so far this year, beating the S&P 500 by 23 percentage points in less than three months.

The heart of the BRK empire is insurance. Candy. Railroads. Pipelines. They were never sexy businesses. They won’t change the world.

However, they generate plenty of defensive cash and are generally recession resistant. And defense is a lot hotter on Wall Street right now than sex appeal.

Boring stocks are the new thrill factor. We see this again and again while scrolling through the S&P 500 components that are up this year.

They’re consumer health companies. Banks. Credit card networks. Big box retailers. What they offer investors isn’t spectacular growth rates or even deep discounts.

Very few of them are compelling investments in those terms. They aren’t cheap and they aren’t going anywhere fast.

But they aren’t likely to go away any time soon. And in a world that feels less and less stable to many, that staying power is worth a premium.

What unifies the roughly 35% of the S&P 500 that’s still moving forward in a difficult season?

Dividends. A full 85% of the major stocks up YTD make quarterly shareholder payments. Own them, you’re getting a check.

And you don’t have to sell a single share to keep making money, which means the current stock price matters a whole lot less. I’ve known great dividend companies where the price never moved up or down more than a few cents a year.

It didn’t matter because shareholders were still booking as much as 10-11% a year just on the dividend flow. That’s what how far the S&P 500 normally rises in a typical year . . . and it’s a lot more reliable.

The higher up the food chain you go, the more tightly connected dividends are to positive performance. Among the 20 biggest stocks that are up YTD, all but two pay a dividend.

The aggregate yield isn’t huge but it beats what Treasury bonds pay. And meanwhile the companies keep working hard to generate bigger returns on capital.

They’re growing through acquisitions and aggressive internal innovation. Their markets are mature but the management teams aren’t exactly sleeping on the job.

That’s popular right now. I welcome it. This is the kind of world where real stock picking skills can shine.