Displaying items by tag: dividends

(New York)

Are you hoping for a return to big company buybacks? For the few years before last year’s big losses, buybacks were a big part of the nice returns seen by the market. A return to such behavior, while questionable on the part of companies, would likely help support share prices. Well, JP Morgan thinks it’ll be another major year for buybacks. Just like last year, companies are expected to announce over $1 tn of buybacks on the back of the benefits from Trump’s tax cuts. Overseas cash is expected to help power the repurchases.

FINSUM: We are not particular fond of the underlying financials of buybacks (at least when companies issue debt to do so), but do think this would be very supportive of share prices this year.

(New York)

The big market rout has left no shortage of stocks trading at large discounts to their previous valuations. The important question is which ones are actually a good value given the eruption in markets. With that in mind, here are four well-known names to take a look at. They are General Motors, CVS Health, Macy’s, and American Airlines. GM and AA are trading at near 5x earnings, the latter despite a thriving business. AT&T is interesting too, as shares have fallen 20% in the last year, and the dividend has swelled to 6.7%.

FINSUM: This seems like a good chance to pick up some healthy stocks that have been heavily dented by a selloff, but are poised to recover. We particularly like American Airlines and AT&T.

(New York)

2018 was a tough year for most income investors. Rates rose considerably, making the dividend yield of the market look rather poor compared to many other short-term assets. Strong corporate dividend hikes helped, but the big question is what will happen in 2019. Most analysts think the pace of dividend hikes will slow, but so will the pace of rate hikes, meaning that income stocks seem likely to do well. Dividends rose 9% this year and are expected to rise 6% in 2019.

FINSUM: Goldman says that financial firms will raise their dividends by 16% in 2019, more than any other sector. Perhaps that is a good place to look.

(New York)

Stock markets have been taking a beating lately. Between worries over trade and rising rates, as well as the fading effects of tax cuts and the prospects of weaker earnings, stocks have been getting hammered. Now there could be another material blow coming: corporate deleveraging. For years, companies have gorged on debt to fund buybacks and dividends. However, as rates a rising, they are now under pressure to deleverage, and there will be increasing plans for paying down debt. All of that means companies will be spending less in equity markets and on growth.

FINSUM: This is bad news. Stock buybacks have been one of the main drivers of returns the last few years, and the evaporation of that stimulus will add pressure.

(New York)

It might not always feel like it, but rising rates are good if you are an income investor. Rates are most definitely rising. Treasury yields are up strongly and the Fed is hiking quarterly. That can cause some rate driven losses even as yields on fixed income assets rise. One fund manager summarized the risks and benefits this way, saying “Rising rates and/or lower equity valuations should lead to higher long-term expected returns, although the movement from low yields to high yields, or high valuations to low valuations, often requires a painful short-term capital loss”.

FINSUM: The move to “low valuations” sounds terrifying as an investor, but the key is to take advantage of higher yields while holding hedged positions.