Eq: Large Cap
Something the market has not had to deal with for some time is once again occurring. That change? Slumping buybacks. Hiked dividends and big buybacks have been staples of the this historic bull run, but the latter are starting drying up. Share repurchases shrank for the first time in seven quarters in the second quarter. The total amount of buybacks—over $200 bn—is still quite robust, but it is a sign that companies are tightening up, which could be indicative of the overall direction of the economy.
FINSUM: This is immaterial. In 2018, companies spent $800 bn on buybacks, so $205.8 bn (the 2nd quarter’s figure) is actually ahead of pace.
Dividend stocks have been an interesting case over the last few quarters. In the fourth quarter, when interest rates looked to be headed higher, they actually outperformed the market (counterintuitively). This year, as rates look to be headed lower, they have performed quite well (up 16%), but still lagged a bit behind the S&P 500. The question is where they go from here, and all signs point to higher given the prevailing rates environment and general anxiety. The trick is buying the right ones, as financials and healthcare offer better value than more traditional areas like utilities, real estate, and consumer staples.
FINSUM: We think these are good sector selections as they have not seen as much price inflation as the more common dividend choices. Healthcare seems particularly interesting given that it is quite recession-resistant.
The dovishness from the Fed has been bullish for most of the debt market, with sovereign yields falling and corporate debt getting a boost. However, the riskiest corner of the market, triple C junk bonds, have been left out, with the group falling by 1.5% since May. Triple B bonds, by comparison, were up. The odd part about the losses is that signs of an interest rate cut are usually very bullish for junk bonds because they would mean lower interest burdens for the companies. That said, anxiety about the economy is high enough that such benefits were negated.
FINSUM: This whole situation makes sense in that the downside risk of a sinking economy is greater than the upside of lower interest rates for this subsector. Thus, the bonds are losing. In other parts of the credit spectrum, the risk-reward balance is different.
On paper, right now seems like a great time for dividend stocks. The rate environment is trending downward, which is very beneficial, and dividend stocks tend to provide a safe haven for a possible bear market or recession. But which to choose? You need to be careful to select stocks with sustainable payouts or they will have a high beta in a down market. With that in mind, take a look at these 5 dividend stocks: Exxon Mobil (4.6%), Chevron (3.9%), Excelon (2.9%), Prologis (2.6%), and NextEra Energy (2.4%).
FINSUM: These are pretty energy heavy, but the bigger point here is that it is a good time to buy dividend payers.
Markets are getting more volatile by the day. Last week was a rough one and yesterday was total carnage. Investors might be thinking about allocating shares into some safer sectors. With that in mind, here are 7 safe dividend payers to take shelter in: JP Morgan (2.8% yield), Sempra Energy (3.1%), NextEra Energy (2.6%), Air Products & Chemicals (2.3%), Honeywell International (1.9%), McCormick (1.5%), Microsoft (1.5%).
FINSUM: One of the big things to remember here is that with the Fed on hold, the big headwind against dividend stocks is pretty much removed.
Tell us a mega cap stock that has 50% upside in the near term. Not so easy. That is what makes the current discussion of Boeing so compelling. The stock has been hurt by the 737 MAX fallout after the Ethiopian Airlines crash in March. Yet, overall, the trend for Boeing and other aeronautics companies is strong. Jefferies analyst Greg Konrad finds the stock so compelling, he believes there is 50% upside. More than 65% of analysts covering the stock rate it a buy.
FINSUM: It seems like there is a pretty clear path to put the 737 MAX issues in the rear view mirror and get the stock back on track. Could be a good opportunistic buy.