Displaying items by tag: dividends

(New York)

Investors beware of yields. That is the message from one of Wall Street’s most respected names in fixed income. In particular, Jeffrey Gundlach is warning that if ten-year Treasury yields get to over 3% then it will spell doom for stocks. Yields are currently at 2.84%, down from a peak on February 21st of 2.95%. “My idea that the S&P would go down on the year would become an extraordinarily strong conviction as the 10-year starts to make an accelerated move above 3 percent”, says Gundlach.

FINSUM: So the argument here seems to be based on the idea that stocks would become less attractive as investors could earn more from bonds given rising yields. That makes some sense given the increasing size of the retirement population.

(New York)

Aside from the general tensions over rising rates and what they mean for the economy, investors need to pay attention to another important consideration. That consideration is that with each basis point of increase, stocks are looking less attractive as the allure of dividends fades. While for years the view has been that “there is no alternative” to investing in equities because of weak bond yields, that perception is now fading as yields rise to a place where they start to offer acceptable returns. “Investors now have a viable alternative to cash with yields finally above inflation levels”, says the chief investment strategist at BlackRock.

FINSUM: It might not a recession, but the simple emergence of a viable alternative might be what ultimately unwinds this bull market.

(New York)

After a lot of talking, the long awaited hypothesis that tax cuts at the federal level would lead to more dividends and buybacks is actually proving true. More than 20% of companies have raised their dividend so far this year, with none cutting them, the first time that has happened since 2011. The hikes are also getting bigger, averaging 14% this year. The downside for the economy is that while tax cuts have also led to buybacks, they have not flowed into increased corporate spending and investment.

FINSUM: This is very good news for shareholders, but it does put a damper on hopes that the tax cuts may spur economic growth through corporate investment.

(New York)

After years in the doldrums, the country (and world) now seems to be on a definitive path to higher interest rates. This reality has set the markets on fire, with bonds dropping and equities swinging all over the map. Understandably then, investors are looking for safe income even as rates rise, especially those who are headed towards retirement. In response, Barron’s has searched for companies whose free cash flow exceeds their dividend as a way of finding income one can rely on. The names that come up when doing this sort of screen also resonate a sense of stability just by their stature, and include UPS, Cisco, and JP Morgan. Walmart, Pfizer, and 3M are also in the mix, amongst others.

FINSUM: Companies with stable and positive free cash flow margins seem like a good bet for maintaining or raising dividends.

(New York)

The so called Dividend Aristocrats are a select group of companies that have continually raised their dividends for 25 consecutive years. This year, three new companies joined the prestigious club—Praxair, Roper Technologies, and A.O. Smith. They join a list which includes 8 companies which have raised dividends for an eye-watering 54 straight years. Those names include 3M, Coca-Cola, Johnson & Johnson, and Dover. The S&P 500 Dividend Aristocrats ETF is up 5.7% this year despite investors generally losing their appetite for dividends.

FINSUM: This group does not get talked about much these days, but what a rock solid pool of solid income stocks for capital preservation and moderate growth.