Displaying items by tag: dividends

(New York)

A big wave of buybacks is about to hit markets, and in an area where they haven’t showed up for a long time. The Federal Reserve is expected to give the green light to banks this week to rain buybacks down on investors. Furthermore, dividends are expected to grow considerably. Banks are expected to return 100% of their earnings over the next 12 months. JP Morgan is expected to hike dividends to 3%, and Citi looks poised to buy back 10% of its stock.

FINSUM: Goldman Sachs and Morgan Stanley might be the odd banks out in this forthcoming frenzy, but otherwise it should be very bullish for investors.

(New York)

One of the big worries about the stock market right now is that the rise in bond yields could threaten appetites for equities. Well, the ultimate test of that theory has arrived. As of this week, the yield on the One Month Treasury note, yes the one month, is now just about equal to the S&P 500’s average yield. The One Month is yielding 1.84% versus 1.89% for the S&P 500. The notes have very little credit risk or interest rate risk. ETFs that invest in short-term debt have seen $17 bn of inflows this year.

FINSUM: So fund flows are starting to show why we are worried about stocks. Equity dividend funds have been seeing outflows, while fixed income funds have been seeing inflows.

(New York)

Investors looking for income in the stock market are finding it harder and harder to choose the best equities. Quickly rising short-term bond rates mean many income stocks have seen prices wounded and yields no longer look as attractive. The key, therefore, is to diversify one’s holdings in regards to income. For example, Six Flags is a good income stock (4.3% yield), but instead of combining it with REITs or utilities, try convertible bonds, which are yielding ~3%, but have features which make them trade like growth stocks.

FINSUM: Because stock yields are now lagging bonds yields to a considerable degree, equity-focused income investors are now going to need to be more creative.

(New York)

Income stocks are a tough asset to place right now. On the one hand they have provided steady income since the Crisis, but as rates have risen, they have started to be wounded by losses and their yields no longer look as promising. Only 25% of stocks in the S&P 500 have yields higher than the 10-year Treasury bond. But what about stocks that are still handily out-yielding bonds? The best places to look are in consumer staples (averaging 3.3% yields), real estate (3.4%), telecom (5.4%), and utilities (3.6%).

FINSUM: So you can still get some great yields, but the big risk at the moment is capital losses because of rising rates.

(New York)

Rates are rising, and that usually means bad news for income stocks. This time looks no different. Both utilities and real estate have been wounded this year, with both down between 3% and 6% for the year. The sectors are also getting increasingly unfavorable ratings from analysts.

FINSUM: We are pretty worried about losses coming for good income stocks as short-term Treasuries are yielding so much. Additionally, the Fed is sounding more hawkish, which only adds momentum to losses for rate sensitive equities.