Dividend Payments
When a company makes a profit, it can distribute some of these funds as dividend payments. Dividend payments are one of three action steps a company can take with its profits to benefit a shareholder; the other two include buying back stock and re-investing the funds in the company. When interest rates are low, many investors look to dividend payments for a source of income. One has to be careful that the dividend payments are sustainable over a long period of time.
Earnings Season Is Here; Will the Numbers Be Kind?
By Mitchell Clark, B.Comm. for Profit Confidential
There is positive momentum going into fourth-quarter earnings season. The earnings results we’ve had so far from brand-name large-caps are encouraging. We can’t forget, however, that expectations and consensus estimates have come down a lot, especially because of third-quarter earnings results. I think the stock market will be pleasantly surprised when it gets results from the key financial and technology stocks. Outperformance should be plentiful, but only because of the reduced outlooks.
Oracle Corporation (NASDAQ/ORCL) reported great numbers in its latest earnings report. The stock is trading right at its 52-week high, and if you eliminate the huge upward spike in the company’s share price in 2000, its long-term stock market chart is excellent.
Chart courtesy of www.StockCharts.com
Oracle is a good barometer for enterprise technology spending. After its recent earnings report, across the board, Wall Street analysts increased their expectations for the coming quarters. The fact that Oracle recently reported such a good quarter bodes well for the rest of the technology sector.
Another big-name company, which experienced tough business conditions last quarter, is NIKE, Inc. (NYSE/NKE). The company’s most recent earnings report showed a marked improvement in its financial metrics, with particular strength coming from the U.S. market. NIKE is a good barometer on consumer spending, and the company’s long-term track record on the stock market is excellent. NIKE’s stock market chart is featured below:
Chart courtesy of www.StockCharts.com
Still, no one is expecting runaway growth, in terms of earnings or revenues. And there is no bankable trend in the economy as of yet. Strength in fourth-quarter earnings could easily turn out to be a one-shot deal.
I’m … Read More
My Near-Term Outlook for the Market as We Start 2013
By Mitchell Clark, B.Comm. for Profit Confidential
The S&P 500 had a pretty good year in 2012, up approximately 11.5% not including dividends. But, as is the norm in the current stock market, trading action remained choppy without any real trend.
The S&P 500 began 2012 strongly, rising consistently until May, when the index gave up all its gains. Then, with equal fervor, the S&P 500 moved solidly higher until September, before consolidating and pulling back on worries over the fiscal cliff. A lot of Wall Street analysts are saying to sell the current mini rally; but I’d wait until we get a look at fourth-quarter earnings to determine whether this turns out to be worthwhile.
There’s been quite a bit of consistency in the performance of the S&P 500 index since the stock market broke out of its low, set in March 2009. Solid rallies are met with solid retreats. The stock market advances, and then consolidates for a gain for the year. The year 2013 is likely to yield the same kind of trading action for the simple reason that investment risk is so high. The eurozone is in recession, and U.S. economic growth is really low. China and other Asian countries are export-driven, so their economic news shouldn’t surprise to the upside. Featured below is a three-year chart of the S&P 500 index:
Chart courtesy of www.StockCharts.com
The next major hurdle for the stock market in terms of policy action (or a lack thereof) is related to the debt ceiling. Previously, the stock market experienced a mini correction after policymakers were unable to extend a government shutdown due to the rising deficit. … Read More
Surrounded by DRIPs? It Just Might Be the Best Thing for You
By Mitchell Clark, B.Comm. for Profit Confidential
There are plenty of stocks out there that have proven to be worth buying when they’re down. These are established businesses that are very good at what they do; the only problem being that they typically aren’t down on the stock market for very long. Over the coming weeks, I want to highlight some of these companies. They are large-cap dividend paying stocks that I feel long-term stock market investors can build a position in over time.
My first highlighted company may come as no surprise. I continue to look at PepsiCo, Inc.’s (NYSE/PEP) long-term track record on the stock market with amazement. This stock has been ticking higher virtually unabated since 1984. On a split-adjusted basis, the stock was trading around $2.00 a share at the beginning of 1984; now it’s at $70.00. That’s a 35-bagger, and that doesn’t include all those increasing dividends. With dividends reinvested in shares, the investment return is substantially larger. PepsiCo’s recent stock chart is below:
Chart courtesy of www.StockCharts.com.
And the returns are still very impressive over recent history. In 1995, the stock was trading at $20.00 a share, in 2000 it was $35.00, in 2005 it was $50.00, and in 2010 it was at $60.00. Every single time, save one, the share has recovered on the stock market after a major pullback. Like many companies, PepsiCo’s stock hasn’t quite got back up to its all-time high, set in November of 2007 around $77.00 a share.
PepsiCo has a great dividend reinvestment plan (DRIP). You can reinvest all of your quarterly dividends, or just a portion of them, back into company shares. … Read More
How to Take Advantage of Special Year-End Dividend Payments
By Sasha Cekerevac, BA for Profit Confidential
With the year soon coming to a close, an increasing number of firms are making special dividend payments to get ahead of the expected hike in taxes next year. This investment strategy to make special one-time dividend payments is a direct result of the inability of our political leaders to come up with long-term solutions for our tax policies.
One of the biggest problems when devising an investment strategy is dealing with uncertainty regarding taxes and regulation. How can a person or company develop an investment strategy—whether it’s regarding dividend payments or capital allocation to plant and equipment—if we don’t know what the tax rates will be over the next few years?
Short-term changes that are temporary in nature do not have the same effect as permanent, structural changes to the system. People are smart enough to realize that a temporary tax adjustment is just that, temporary. When certainty is known, people take appropriate action regarding their investment strategy; we’re seeing that now with a lot of companies issuing special dividend payments ahead of the certainty regarding the increase in tax rates next year.
I previously mentioned this phenomenon in my article “How You Can Beat the Higher Taxes Coming Up,” and since then, we’ve had several more companies issue special dividend payments as an investment strategy. Compared to last year, companies are issuing one-time dividend payments at four times the rate, due to the shift in next year’s tax policies. (Source: “Las Vegas Sands’ Adelson Earns $1.2 Billion From Dividend,” Bloomberg, November 27, 2012.)
Chart courtesy of www.StockCharts.com
Las Vegas Sands Corp. (NYSE/LVS) recently joined a group … Read More
Stock Market Trading Action Signals Breakout Coming
By Mitchell Clark, B.Comm. for Profit Confidential
Ever since the beginning of June, when the stock market came out of its correction, there has been seesaw-trading action with three meaningful peaks and valleys in the S&P 500 Index. We’re now working on the fourth, and who knows where it will lead.
Expectations for corporate profits continue to come down, and any positive investor sentiment is likely due to the lingering hope for additional monetary stimulus from the Federal Reserve. It really is a wacky stock market these days, because there is no certainty. Stock market investors don’t have any reasonable expectation of what their holdings might do, and therefore, investment risk remains very high.
The only thing that’s reasonable for equity investors to feel certain about is the outlook for dividends. Corporations continue to hoard cash, because they too feel the uncertainty in their operations. So why invest in new plant equipment or employees when the global picture is so cloudy? And even if dividend payments aren’t going up, there is so much cash on corporate balance sheets that most large-cap companies are assured of continued dividend rates through the worst of recessions.
Because expectations for corporate profits are falling, so are expectations for increased dividends. Even though corporations can afford it, we’re likely to see fewer companies raising their dividends to shareholders, particularly if general economic growth remains weak. You know you’re in tough times when the stock market goes up after second-quarter economic growth is reported at 1.5% on an annualized basis.
Dividends have been a stock market investor’s best friend for the last decade, and if you think the U.S. economy will toy … Read More
Profit Confidential — IT'S FREE!
"A Golden Opportunity for Stock Market Investors"
