Displaying items by tag: yields

(New York)

Dividend stocks have not been looking as appealing lately because of the rise in rates. Yields on even short-term assets now look much more attractive than the near zero coupons that were being offered a few years ago. That said, dividend stocks have a special niche within a portfolio, and it is not hard to find some very solid stocks with good yields. One of the best ways to buy dividend stocks is through an ETF that can select a large and balanced group. With that in mind, here are three ETFs to do just that: ProShares Dividend Aristocrat ETF (NOBL), the SPDR S&P Dividend ETF (SDY), and the Vanguard Dividend Appreciation ETF (VIG).

FINSUM: With the Fed showing dovishness on rates, the outlook for dividend stocks has suddenly brightened.

(New York)

On the surface of it, this does not seem like a good time to buy bank stocks. Bank shares have done really well in the last month, but the Fed’s sudden and dramatic dovishness on rates would seem to be a catalyst for a move lower in bank shares. Countering that theory stands Mike Mayo from Wells Fargo, an equity analyst who thinks the picture of bank shares looks better. Many big bank stocks are trading at relatively cheap 10x p/e ratios, with yields of 3% or more. According to Mayo, “The negative sentiment has created an opportunity with uniquely attractive valuations”. Banks are also expected to do a large amount of buybacks in 2019, with some like Wells Fargo and Citi, expected to spend more than 100% of earnings on dividends and buybacks.

FINSUM: Banks do seem like a good value play. But at the same time, they have been trading for years more on a macro basis. Which side seems more realistic? Stick with the trend—bank stocks now have a weaker outlook because of the Fed.

(Washington)

Those nearing retirement are likely comforted that rates have risen and returns from fixed income are much higher than the near zero coupons of the 2008-2015 era. Pension funds are finding it easier to meet their return goals, and generally speaking, the environment for retirees is on much better footing. However, the risk of a return to zero interest rates in the next recession seems very high, according to independent research. The Fed tends to raise rates slowly and cut them quickly, so the threat of a return to zero rates seems very plausibe the next time the economy goes into reverse (maybe 2020?). Even the Fed staff itself acknowledges this likelihood.

FINSUM: The risk of a protracted return to zero interest rates is not inconsiderable and is likely one of those late night stress points for those nearing retirement (and their advisors!).

(New York)

The junk bond market may be coming back from the dead. The “December doughnut”, as it is being called, is now in the past, and the frozen market finally thawed this week with the first new junk bond sale since November. The market had gone 41 days without a sale until Tuesday, when $4 bn of new issuance went through.

FINSUM: A 41-day freeze and then 4 sales in one day totaling over $4bn. Demand was so high the companies were able to raise more than expected. Maybe the worst is behind the high yield market?

(New York)

The junk bond market is going through an eye-opening drought. Not one company under investment grade has issued a bond since November, the longest spell of this kind in more than two decades. Investors are worried over the economy and market volatility, which has basically shut down any new issuance. It has now been 41 days since a junk bond sale, the longest period since 1995. December was the first month since 2008 without a junk bond sale.

FINSUM: When credit starts to get ugly, investors would be wise to pay attention. The question is whether this is just a short-term hiatus or a sign of worse things to come.