Posts Tagged ‘dividend paying stocks’
As a strong believer in the wealth-creating effects of large-cap, dividend paying stocks, I’m also an advocate of dividend reinvestment, which is the purchasing of a company’s shares using the cash dividends paid.
This can be done commission-free from your broker and/or through the company itself if it offers such a program.
Dividend reinvestment is a powerful wealth creator if you do not require the income paid out by a corporation. It is a great way to invest and to grow your money over the long-term.
As the timespan increases, the percentage return produced by the S&P 500 becomes weighted to dividends. It’s kind of old school, but the numbers add up. Even over a few short years of good broader market performance, total investment returns can increase substantially over simple capital gains.
For example, if you bought shares in Intel Corporation (INTC) at the beginning of 2010, that stock would have produced a capital gain to date of approximately 50%.
But if you reinvested the dividends paid by Intel into new shares each quarter, your total investment return, including dividends and new shares, jumps to approximately 75%, which is a very big difference!
In the utility sector, Duke Energy Corporation (DUK) increased on the stock market about 30% over the last three years. But by reinvesting the company’s dividends into new shares during that same time period, your total return could have climbed to around 49%. Again, this is a material improvement.
Of course, dividend reinvestment excludes the potential returns to be had with the income being applied to other potential assets.
But the process is so easy, and … Read More
My dad is earning a few percentage points on his fixed-income yields. Fortunately for him, that’s sufficient to live on when combined with his monthly pension and savings. He has no mortgage and lives a pretty normal, but somewhat frugal life.
In fact, Dad has always favored the fixed-income market for his investments as he doesn’t like risk. But for many Americans, the need for an ample flow of income during your retirement is a necessity for surviving, especially if the Great Recession wiped out your 401(k).
With the 10-year bond yield languishing below three percent, it would be difficult to live on this income, unless you have sufficient bond holdings or other avenues of income, like my dad’s pension. Having a more frugal or cost-conscious lifestyle also helps for many in retirement.
Yet the one area that I feel has been extremely positive for investors over the past five years is the dividend paying stocks that provide far higher yields and preferred tax treatment versus bonds. My dad may not be open to dividend paying stocks, but it makes sense for many other investors.
In reality, the Dow Jones and dividend paying stocks have returned some impressive capital gains and income over the past years. I expect this to continue in the current investment climate, where the stock market is favoring less risk.
Take a look at the Dow Jones Industrial Average (DJIA), which is slightly in positive territory, but at the same time, laying out income via dividend paying stocks.
The income stream has also been inviting with the average dividend yield on the 30 Dow blue-chip dividend … Read More
After some bouts of selling in May, the stock market appears to be edging higher again as we are at the end of the trading month today.
As I said in January, it will not be easy to make money this year, given the cuts in easy money flowing into the capital markets. The S&P 500 is leading the pack with a 3.46% gain as of Tuesday. If you annualized the five-month return, the advance comes out at 8.3%. I expected to see the index advance about 10% to as much as 15% this year, so we may be lucky to reach the lower estimate if the stock market can manage to move higher. (Read about some dividend-paying stocks to boost your returns in “Five Dividend-Paying Stocks for When the Market Slides Lower.”)
Growth stocks, which were the Wall Street stars in 2013, are now the dogs of Wall Street, as investors shift their capital into lower-risk big-cap stocks. The NASDAQ is up a mere 1.45% this year, while the small-cap Russell 2000 is languishing with a 1.86% decline.
Now keep in mind that we are currently in the worst six-month period for the stock market from May to October, based on historical tendencies.
This doesn’t mean there’s no hope for the stock market going forward, but again, it won’t be easy. May is looking to produce a positive advance, so there’s some optimism.
What I think will likely continue to happen is the stock market will tread cautiously in the absence of any fresh new catalyst to entice investors to buy in.
We are entering into the … Read More
The thing about large-cap investing—and most stock market investing, in general—is that periods of capital gains are often met with long periods of non-performance.
A great investment with a long history of making money for stockholders is Johnson & Johnson (JNJ). But even this blue chip pharmaceutical/consumer products company has experienced long periods with nearly no capital gains (1975 to 1985 and 2002 to 2012, in recent history).
Action in the broader market is a big reason for non-performance of individual companies. The Procter & Gamble Company (PG) acted similarly on the stock market during the same period.
Back in 2000, the company had a quarterly earnings miss during the height of the technology bubble. The position was cut in half and took five full years just to recover.
That stock market experience is a good reminder that even so-called “widow” and “orphan” blue chip stocks are susceptible to major share price volatility and non-performance. (See “Blue Chip Stocks Expensive at This Point.”)
And depending on your time horizon for investment, the market cycle has a tremendous influence on total equity returns.
It also illustrates that investment risk with stocks, even the most stable of businesses, will always be inherently high due to the fact that prices are determined by a secondary market system (i.e. non-private ownership).
Therefore, given the perpetual cycle of volatility and only relative pricing of stocks at any given time, one of the single most important factors influencing total equity market returns is dividends. And their importance and percentage weight comprising total market returns grows significantly with duration.
Also illustrative in the stock market’s … Read More
In my mind, portfolio safety and consistency of equity market returns are paramount. This is a basic portfolio management principle, and I like to see consistent earners as core positions in any equity market portfolio.
This doesn’t mean there isn’t room for more speculative stocks, but investing is different than risk-capital speculating.
Consistent earnings growers and dividend paying stocks should be the foundation of an equity market portfolio geared for long-run returns. Dividends can be spent, reinvested, or, better yet, placed in an automatic dividend reinvestment program. The numbers really do add up over time, especially among those companies with a history of increasing their annual dividends throughout the years.
One mature enterprise with a very good long-term track record of delivering positive returns to shareholders is The Hershey Company (HSY); it’s the kind of position that long-term investors may wish to consider when it’s down.
The business of chocolate and confections is a good one, and this company has a long history of increasing earnings and dividends. What Hershey is not is a fast-growing company where you want to see double-digit sales growth.
But while this well-known brand may be a slow grower, it offers consistency, which in today’s world, is a very valuable trait. (See “Three Steady Stocks to Balance High-Flyers & Boost Your Returns.”)
That doesn’t mean Hershey’s stock won’t go down commensurate with the broader equity market, but the business is solid and it’s highly likely to still be growing when other industries, companies, and capital markets fail. The company’s 25-year long-term stock chart is featured below:
By slow growth, … Read More
The stock market is getting soft quickly, but it’s to be expected. Even days when the main indices open positive, action turns down regularly; it’s a sign of things to come.
I wouldn’t be surprised if stocks stay soft until the fourth quarter. In an environment of mixed economic data and modest corporate earnings, that’s just something for which investors should be prepared.
Plenty of companies reported a solid first quarter and reiterated their outlooks for the year. But current action isn’t about corporate earnings or monetary policy. Stocks are in need of a break. A prolonged consolidation, if not a full-blown correction, is perfectly normal in the context of a secular bull market.
Leadership in technology stocks is breaking as evidenced by the performance of the NASDAQ Composite. It’s also evident in the Russell 2000 index of smaller-cap companies and the NASDAQ Biotechnology index.
For stocks to really rollover, the Dow Jones Transportation Average will have to retreat as well; so far, it’s still holding up due to the strong price action in airlines and most railway companies.
But while transportation stocks have consistently been at the forefront of market leadership, the whole group is due for a break as well.
I still see the best opportunities with large-caps and dividend paying stocks, especially, even though there’s not a lot of buying at this particular point in time. And this takes into consideration investment risk as well. Portfolio risk becomes much more important when stocks stop performing, and this is what I expect to happen over the next several months. (See “How Past Investment Trends Predicted This Stock … Read More
It’s just the same old story with stocks. One day they’re up; the next day they’re not.
If 2013 was a breakout year from the previous long-run recovery cycle, 2014 is a year of choppiness.
Stocks just can’t seem to latch onto any particular trend. A convolution of influences from earnings results to geopolitical events continue to beat down what positive sentiment sprouts from the data.
It’s no surprise to have choppy capital markets after such a strong year of capital gains. And that’s the thing I always try to keep in the back of my mind: stocks are about the future—a future stream of earnings discounted for every potential eventuality at prevailing rates of interest.
With downside leadership in equities provided by the high-valuation large-cap technology stocks, it’s difficult to imagine the main market indices accelerating near-term, especially as the marketplace has already voted on this earnings season.
A familiar mantra coming from a lot of Wall Street analysts is that the pace of U.S. economic activity should accelerate towards the end of the year. Several firms are calling for stronger oil prices and lower gold prices accordingly.
But if the choppy action in stocks so far this year is any guide, things are unlikely to unfold as expected. And the catalyst for downside is unlikely to be due to corporate performance or the Federal Reserve. Companies are expecting to meet existing guidance, and the central bank continues to provide a stable low interest rate environment.
Geopolitical events unfolding between Russia and Ukraine are a growing risk for investors. A “sell in May and go away” type of … Read More
Once again, Johnson & Johnson (JNJ) has come through for investors. The company just reported a very solid first-quarter earnings report.
Continued strength in the company’s pharmaceutical business is the big reason for the growth. Total global sales grew 3.5% to $18.1 billion, with domestic sales growing 2.2% and international sales growing 4.5%.
Notable in the company’s latest numbers was strength in European sales, which is an emerging trend this earnings season. Johnson & Johnson reported a nine-percent gain in sales to Europe, growing to $4.89 billion during the quarter.
Excluding some one-time items, first-quarter earnings were $4.4 billion, or $1.54 per diluted share, for an increase of 7.8% and 6.9%, respectively, over the same quarter of 2013.
The company boosted its full-year 2014 earnings guidance to between $5.80 and $5.90 per share, up from the previous $5.75 to $5.85 per-share range excluding special items.
After the stock market sell-off in January, Johnson & Johnson’s share price dropped to around $87.00 a share by early February. It has since made a full recovery, now trading close to $100.00.
I still view this company as a position worth considering for a long-term portfolio when it’s down. Typically, the stock isn’t down for long. Its five-year stock chart is featured below:
According to its numbers, Johnson & Johnson’s consumer products business is pretty flat, while medical device growth can be volatile. The anchor to the company’s business and its profitability remains pharmaceuticals, but the other business lines are complementary. Instead of just a pure-play large-cap pharma business, the diversification among other product lines helps with cash flow.
Johnson … Read More
There is some resilience to this stock market, and it’s evidenced by the strength in many important indices.
The Dow Jones Transportation Average is a very important index, even if you don’t own—or aren’t interested in owning—any component companies. The reason for its importance is that it has a track record of leading the rest of the stock market. And it’s especially useful as an indicator of a bull market breakout.
Transportation stocks have a history of leading the economy and the stock market. Dow theory, in my view, is alive and well, and it’s worthwhile to track the index to help with your overall market view.
Lots of commentators view the stock market as having been in a bull market since the March low of 2009. I don’t see it that way.
I view the stock market’s performance since that low (no matter how it was induced) as a recovery market, not the beginning of a new secular bull market or cycle for stocks.
The breakout, from my perspective, was around the beginning of 2013, when institutional investors ignored all the risks (including the inability of policymakers to actually make policy) and decided to bid blue chips and transportation stocks with particular fervor.
The previous stock market cycle was a 13-year recovery cycle from the technology bubble that produced over-the-top capital gains until 2000. The stock market recovered from the massive sell-off only to be hit by the financial crisis and Great Recession.
A long-term chart of the S&P 500 is featured below:
Chart courtesy of www.StockCharts.com
Last year’s stock market performance was genuinely stunning; while the monetary … Read More
Among the many lessons to be learned by 2013’s stunning stock market performance, one is that dividend-paying blue chips can also experience significant capital gains.
Portfolio strategy can be based on blue chips, but it can also include companies with varied market capitalizations; mixing it up is always useful.
The thing with blue chips is that they often experience long periods of underperformance, even if they are still paying their dividends. Periods like 2013 are pretty rare, but I do think there is enough momentum in this market to carry blue chips a little higher, with gains more likely towards the end of the year.
I still feel that existing winners, especially larger-cap companies that offer dividend income, are the way to go in a slow-growth environment. Top-notch balance sheets, including huge cash balances and the very low cost of capital are a boon to big companies.
The bears are always looking for reasons why stocks should go down, but blue chips have the pricing power and the economies of scale to keep earnings afloat.
Management teams are reticent to make bold investments in new plant and equipment, and the trend of keeping shareholders happy with increasing dividends and share repurchases shows no sign of abating. These are good markets for conservative investors.
The Walt Disney Company (DIS) is one of many blue chips that are worthy of consideration when they’re down. According to this stock’s historical track record, it isn’t down for long. The company’s recent stock chart is featured below:
Chart courtesy of www.StockCharts.com
Disney recently dipped to $70.00 a share when the broader stock market retrenched in … Read More
Some stocks require more liquidity than others. Investors in Berkshire Hathaway, Inc. (BRK.A) don’t particularly require millions of shares traded on a daily basis.
However, one company that could use quite a bit more liquidity in its shares is AutoZone, Inc. (AZO). This stock has been a rocket of wealth creation and looks to have continued price momentum.
The position just bounced off an all-time record-high of around $547.00, which, to some, might just be too high of a per-share price. The stock only trades around 340,000 shares a day on average, which is pretty low considering the company’s market capitalization is just more than $18.0 billion.
The stock has doubled over the last three years and has quintupled over the last five and a half.
For all the hype, however, the company is delivering the goods. In its second fiscal quarter of 2014 (ended February 15, 2014), total sales improved 7.3% to $2.0 billion. Domestic same-store sales (stores open for a minimum of one year) grew 4.3% during the quarter, which is very good for any mature retailer.
Earnings in its latest quarter increased 9.4% to $192.8 million, with diluted earnings per share rising 17.8% to $4.78.
The company bought back 404,000 of its own common shares during its fiscal second quarter at an average price of $495.00 per share, spending $200 million.
Since the beginning of the year, AutoZone has bought back some 1.08 million of its own stock for $492 million, and the company is currently still authorized to buy back another $727 million if it wishes to do so.
In a low liquidity stock such as … Read More
Stocks have been choppy since the beginning of the year and geopolitical events are now the near-term catalyst.
It’s a good reminder that it’s worthwhile to review investment risk to equities and what you can tolerate in terms of potential downside with stocks.
As these pages are focused on the equity market, investment risk is always a priority. Portfolio risk can get lost in a bull market, but it’s still a huge part of the equation in terms of overall strategy.
There’s just so much beyond your control as an individual investor. At the end of the day, with stocks, it’s an investment in a business commensurate with a bet that its per-share worth (which is only definitive in the event of a buyout) will be recognized by a marketplace ruled by fear, greed, and emotions.
In late 1999, The Procter & Gamble Company (PG) had an earnings miss and the stock was basically cut in half, as the hype related to technology stocks was coming apart. It took five full years for Procter & Gamble’s share price to recuperate from the sell-off; and while the company was still paying its dividends, that’s a long time for any equity investor.
Stocks always correct themselves eventually, but excessive pricing (like in other asset classes) can last for quite a while. Procter & Gamble’s long-term stock chart is featured below:
Chart courtesy of www.StockCharts.com
In terms of portfolio strategy related to stocks, a multi-faceted investment strategy is key. This means varying holdings among industries, stock market capitalizations, dividend paying stocks, and pure-play bets.
An individual investor certainly doesn’t have to be the … Read More
Many smaller companies are now reporting their financial results, and very soon, it will be the lull between earnings seasons, when the only fuel the marketplace has to go on is monetary policy and economic news.
It wouldn’t surprise me at all if stocks took a break for the entire second quarter. Fourth-quarter financial results were decent, but they weren’t the kind of numbers that justify loading up on positions. Stocks seem to be about fully priced and there’s no real reason why they should go up near-term, especially considering last year’s performance.
The market had a tough time at the very beginning of the year but recovered strongly after the Federal Reserve provided certainty on monetary policy and the outlook for quantitative easing. There were some material corporate events in terms of new share buyback programs and select dividend increases, but most companies announce dividend news in the bottom half of the year; this is when we might see stocks generate further capital gains, if any.
Last year’s performance on the stock market was just so exceptional that stocks will be doing well if they close flat for this year.
Turning to blue chips for their corporate outlooks always yields useful information, even if an investor is not interested in the company’s shares. A lot of blue-chip stocks reported, in their fourth-quarter financial reports, that they expect high-single-digit sales growth in 2014 and high-single- to low-double-digit growth in earnings. This is pretty solid for mature, slow-growth enterprises, and it helps validate the market’s recent run as earnings per share catch up to share prices.
But if an investor was … Read More
With the turmoil in global capital markets, the sell-off in stocks is serving as the consolidation/correction that we did not experience in 2013, which was an exceptionally strong year.
But stepping back from historical share price action, we have continued certainty regarding the Fed funds rate this year. The low interest rate environment remains a very positive catalyst for the equity market and the medium-term trend.
Stocks may very well have a difficult year in 2014, but that doesn’t mean that current fundamentals aren’t laying the groundwork for more capital gains over the next several.
The marketplace fully expects continued tapering of quantitative easing to occur over the coming quarters. There’s likely to be continued pressure on longer-term interest rates, but this is a market-driven precursor to economic activity; it’s perfectly normal and is a positive, market-driven reflection of financial market sentiment.
With this backdrop and so many large-cap companies boasting very good balance sheets, strong cash positions, and the expectation that cash flows will contribute to increasing dividends, a good buying opportunity for new positions may soon present itself.
Dividend paying stocks like 3M Company (MMM) are becoming increasingly attractive as their share prices retreat. The company missed Wall Street consensus just slightly in its most recent quarter, but growth expectations are still decent for such a large conglomerate, and the company’s valuation is not unreasonable. (See “The Stocks to Own Right Now…”)
According to 3M, its fourth-quarter earnings per share increased a solid 15% to $1.62. Sales growth was in the single digits, as expected, at 2.4% to $7.6 billion. Currencies impacted sales negatively by 1.7%…. Read More
The business section of any bookstore is littered with leadership stories of big corporations, musings on personal finance, and countless how-to manuals.
However, there are very few books that deal specifically with capital markets and how to improve your skills in picking stocks and honing your market view. Jim Cramer’s latest book, Get Rich Carefully, is a worthwhile read, especially if you’re not a full-time investor/speculator and you’re either saving for retirement or you’re in retirement and looking to improve your portfolio.
Cramer always has a lot to say, and like his shows on CNBC, his latest book is wordy and somewhat laborious. But he offers a lot of tips that he’s garnered through his experiences in trading and picking stocks, with each chapter offering a summary of lessons learned—the dos and don’ts.
The first chapter offers what 99% of all business books do not—“What Moves a Stock.” Cramer examines the pricing mechanism for all securities—supply and demand—and demonstrates the power that buy-side institutional investors and professional Wall Street traders have over stocks. As evidenced in the stock market crash of 1987, index futures have now overwhelmed traditional share price movements. Cramer says that stocks now trade like commodities, and individual investors are basically helpless in the face of such vast amounts of institutional money.
Cramer talks about a number of companies that he thinks make for excellent long-term holdings. He’s a big fan of dividend paying stocks and the domestic energy sector revolution, which he feels will generate good investment returns for the rest of this decade.
He also likes technology—not pure-play technology, but rather technological innovation that’s … Read More
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