Posts Tagged ‘dividend paying stocks’
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
There’s a significant cold spell out there in the Mid-East and Northeastern parts of the country. At the same time, the stock market has cooled down a little, beginning the year on a cautious note.
I recently discussed my views for the stock market going forward and while it’s early on, the ability to move higher will largely depend on the economic renewal and its impact on what the Federal Reserve does. New Fed Chair Janet Yellen will be the focal point as Ben Bernanke departs.
Yellen will receive her first piece of key economic data this Friday when the non-farm jobs report for December is due. A decline in the unemployment rate to below seven percent and the creation of 200,000-plus jobs will clearly drive the Fed to seriously continue to taper. What happens to the stock market this year will be dictated by the rate of jobs growth and the number of unemployed.
We also need to see corporate America deliver stronger revenue growth to drive earnings. In the past few years, aggressive cost cuts have driven earnings, which is not sustainable.
If the tapering continues, bond yields will continue to rise to levels that will be difficult for stock market investors to ignore. Look for an initial break at the three-percent level for the 10-year bond to gauge its impact on the stock market.
Should yields rise, I would look at the higher dividend paying stocks, especially those in the small-cap sector that offer great opportunities for dividends and capital appreciation.
The reality is that, given that the stock market was able to rise as much as … Read More
With 2013 producing an outstanding year in equity market returns, investors will be looking for catalysts to sell until reports for fourth-quarter earnings season begin.
Countless blue chips are trading right at their all-time record highs. Meanwhile, Wall Street earnings estimates have been going up for many of these companies for the first quarter and 2014 calendar year.
I think this upcoming earnings season will surprise to the upside; however, this doesn’t mean that stocks will continue appreciating in value all year. If 2013 was a banner breakout year of “buy on rumor,” 2014 may very well turn out to be the year of “sell on news.”
Stocks are fully valued, but a positive disposition remains in investor sentiment with the prospect of continued low interest rates at the short end of the curve. Revenue growth among blue chips is generally expected to be in the low single digits and earnings growth should be in the high single digits.
But most blue chips are in extremely good financial health, and the prospects of higher dividends this year is probable. Therefore, investors in blue chip stocks have every reason to expect high single-digit to low double-digit rates of return from equities. Modest capital gains in the main equity indices are a very real possibility again this year, especially with the certainty of a low federal funds rate.
Near-term, good news may still result in stocks selling off, if only for the simple reason that they’re due to. This market is very much a hold in anticipation of fourth-quarter earnings season results. I don’t see a lot of action to take in … Read More
It can only be described as a huge vote of confidence. The Boeing Company (BA) announced a whopping 50% increase in its dividends to $0.73 per share. And beginning this January, the company will begin a new $10.0-billion share repurchase program, in addition to the $800 million left from its previous share buyback plan.
The higher quarterly dividend will be paid out March 7, 2014 to shareholders of record on February 14, 2014. While Boeing is playing some “payout catch-up” with other dividend paying stocks, company management said increasing cash flow from a boost in jetliner production is the catalyst for renewed confidence in its business.
A two-for-one stock split from Boeing wouldn’t be a surprise at all. It’s been one of the strongest performers in the Dow Jones Industrial Average this year, and the stock will keep upward near-term pressure on the index.
Countless large-cap companies have been increasing their dividends—some significantly so—as balance sheets continue to get stronger.
This time of the year, the financial media loves to make forecasts about the stock market and other capital markets. It’s such folly, because it’s only guesswork.
But for equity investors, what corporations say about their businesses is key, and with so many large-cap companies in a strong financial position, any improvement in sales volume or pricing will translate immediately into earnings. I think there’s a good chance corporate earnings will surprise to the upside next year.
3M Company (MMM) caught the market off guard with a 35% increase in its dividends and a solid 2014 outlook. Johnson Controls, Inc. (JCI) just effected a 16% increase in its quarterly dividends … Read More
One of my favorite things as an investment analyst is to try to find companies that perform well but consistently so. I’m talking about businesses that aren’t going away and are recession-resistant, at least to the best extent possible.
I think an equity market portfolio really should be a mix of different companies in different industries that also comprises businesses of different sizes at different stages of maturity.
I have a strong affinity for dividend paying stocks, but an equity market portfolio need not be all blue chips. I’m also a fan of index funds, and it’s quite evident that the vast majority of portfolio managers have a very difficult time beating the major indices over long periods.
Having watched so many blue chips trade so similarly over time, it’s clear that they don’t do much until they do. It may just be that no one can consistently anticipate the short-lived, but substantial capital gains that can occur (like this year) as market cycles change. The opportunity cost of not being in the equity market in its strongest years has proven to be substantial.
Stocks are inherently risky securities, but a reasonably stable business that consistently grows its revenues and earnings is absolutely golden in an equity market portfolio, even if it isn’t the fastest-growing enterprise out there.
One company that I really like and that has been an open position since August of 2011 is DENTSPLY International Inc. (NASDAQ/XRAY). The company’s 10-year stock chart is featured below:
Chart courtesy of www.StockCharts.com
The only people I know who like going to the dentist are dental equipment salespeople and stock brokers. … Read More
Over the coming weeks, I’d like to highlight a number of companies that I think might make for some attractive core holdings in a long-term equity market portfolio.
With this in mind, there is absolutely no reason to chase this market at all. Some of the best blue-chip, dividend paying stocks are already fully priced, given current expectations for earnings. But there are a number of really good businesses out there that I think are worth putting on a wish list in anticipation of a more attractive entry point. The companies I’m referring to are the long-term, bedrock businesses that equity investors can buy and hold for long periods of time.
To start, I’d like to feature one of my favorite benchmark stocks, Johnson & Johnson (JNJ), which is worthy of serious consideration when it’s down. (See “My Favorite Picks for After the Market Corrects.”)
In an economy where health care and pharmaceuticals are such a large component of economic activity, equity investors really should have some exposure to this sector. What I like about Johnson & Johnson is its diversified business model that covers the gamut of healthcare-related needs. The company has a great, long-term track record of wealth creation and increasing dividends to stockholders. It’s the kind of company that could be a key component in a long-term equity market portfolio.
Johnson & Johnson is a member of the Dow Jones Industrial Average. So far, the company has produced 29 consecutive years of increased adjusted earnings and 51 consecutive years of increased dividends. The company was founded by three brothers whose first commercial success was the … Read More
Tyson Foods, Inc. (TSN) is one of the biggest processors and sellers of meat and countless prepared food products sold in more than 90 countries. John W. Tyson founded the company in 1935 by hauling chickens to market in Kansas City and St. Louis.
Tyson’s total sales last year were $33.0 billion, with the sale of beef products representing 41% of total revenues, followed by chicken at 35%, pork at 14%, and sales in prepared foods at 10%.
Tyson’s most recent quarter (fourth fiscal quarter of 2013), turned out to be a record in terms of sales and earnings per share. The company beat its own expectations for fiscal 2013, handily beating its previous outlook for international sales; operating margins, especially for chicken and beef, also grew substantially. This contributed to a marked improvement in bottom-line earnings and adjusted earnings per share attributable to the company.
Management reported increased demand as well as higher prices in the most recent quarter. Input costs for fiscal 2014 are expected to drop due to higher grain supplies. The company continues to buy back shares, and it recently increased its quarterly dividend by a substantial 50%.
The numbers were exactly what Wall Street wanted to hear. The stock is up approximately 50% since the beginning of the year and has actually broken out of a long consolidation, which is a bullish signal. The company’s long-term stock chart is featured below:
Chart courtesy of www.StockCharts.com
The company’s fiscal fourth-quarter revenues grew seven percent … Read More
Being a buyer in this stock market is increasingly difficult as the main indices continue to push new highs and a lot of companies are fully priced.
While there are lots of corporations whose outlooks are improving going into 2014, expectations for earnings growth combined with dividends offer little in the way of value. That’s why a major stock market correction would be so healthy and helpful for those who wish to be invested in equities.
The Colgate-Palmolive Company (CL) is a blue chip company that’s proven to be an excellent long-term wealth creator for shareholders. The stock’s trailing price-to-earnings (P/E) ratio is currently around 27 and its forward P/E ratio is approximately 21.
The stock just broke the $65.00-per-share level after trading around $53.00 at the beginning of this year and $45.00 at the beginning of 2012. That’s a 44% gain in less than two years without including dividends.
Then there is NIKE, Inc. (NKE), another strong but mature brand that keeps hitting new record-highs on the stock market.
The company’s latest quarterly sales revealed an eight-percent gain to $6.97 billion, while net earnings grew a whopping 38% to $780 million. The company gave a rosy outlook for the next few years and its share price reflects this. About this time last month, the stock was trading around $70.00 a share. Now it’s right close to $80.00.
An institutional investor is paid to play the stock market, and while considering earnings growth potential, valuation, and general stock market conditions, a fund will often buy a stock just because it is going up. The quarterly window dressing of an equity … Read More
When we last looked at Alaska Air Group, Inc. (ALK), the position had pushed to a new record-high on the stock market, and it’s doing so again.
Many Dow Jones transportation stocks continue to exude price strength and in my mind, this action is one confirming factor that the broader stock market can go higher.
There has also been a spike in countless new initial public offerings (IPOs), which only makes sense with the stock market at an all-time high and the world awash in liquidity.
But it is difficult to consider buying stocks right at their highs. If one came into money and wanted to create a stock market portfolio, there’s not a lot of value for your investable dollar. Even income-seeking investors have to contend with high prices for the best dividend paying stocks.
Big investors have been buying dividend-paying blue chips all year and are likely to continue doing so unless there’s a catalyst to sell.
Automatic Data Processing, Inc. (ADP) just announced a solid 10% increase in its cash dividend to stockholders. The company will pay $0.48 a share, up from the previous $0.435 per share, on January 1, 2014 to shareholders of record on December 13, 2013. This is the company’s 39th consecutive year of increased dividends.
Not surprisingly, ADP has been a tremendous stock market winner this year. The position opened in January around $57.00 a share. Now it’s closing in on $77.00, with Street analysts continuing to increase the company’s earnings-per-share outlook for its next fiscal year. (See “Why Cash Is No Longer King.”)
For allocating new monies to the … Read More
A large pharmaceutical company is always welcome in a long-term portfolio. Johnson & Johnson is a favorite because of its diverse healthcare offerings, including pharmaceuticals, medical devices, and diagnostics. The company’s consumer products business represents approximately one-fifth of total sales.
Roughly half of Johnson & Johnson’s revenues come from outside the U.S. market. What keeps the company’s sales momentum is its global pharmaceutical business, which grew a solid 10% in the third quarter of 2013 to $7.0 billion. U.S. pharmaceutical sales growth was eight percent, while international sales grew 14% (less two percent for negative currency impact).
What’s most impressive about Johnson & Johnson’s business is its dividend growth. In the first quarter this year, the company’s dividend was $0.61. In the second and third quarters, it was $0.66 a share. This year’s total dividends per share should be $2.59, compared to $1.93 in 2009.
Dividend reinvestment augments investment returns quite significantly with a position that’s increasing its dividends on a regular basis as is the case with Johnson & Johnson. If you bought shares in the company in February of 2012, your simple rate of return excluding dividends paid would be approximately 44%. If the dividends are reinvested, the total return jumps to approximately 53%.
Another company that’s given a performance similar to Johnson & Johnson’s over the long term is Abbott Laboratories (ABT).
The company is worth about a quarter of Johnson & Johnson’s stock market capitalization and has a strong presence in veterinary pharmaceuticals.
Along with beating Wall Street consensus in its latest earnings report, Abbott … Read More
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