All posts by David Peltier

Weekly Market Summary: New Month Brings New Investor Sentiment

U.S. investors appeared more than happy to turn the calendar to June this week. After the Nasdaq Composite reached correction territory on Monday, the broader stock market averages rebounded more than 2% across the board on Tuesday.

Even with 5% tariff on Mexican imports set to go in effect on June 10, the initial recovery sparked a multi-day rally. The rebound was ignited by the realization that the FOMC would be more likely to step in and lower interest rates, to better reflect market pricing in the Treasury yield curve.

The May jobs report on Friday was another case where “bad news is good for stocks”. The U.S. added just 75,000 non-farm payrolls last month, which was less than half of expectations. In addition, the readings from the previous two months were revised lower by another 75,000 jobs.

However, those data just added one more feather to the cap of folks seeking interest rate cuts. As a result, Fed funds futures are currently pricing in a 76% possibility of an interest rate cut by July, compared with a 17% chance a month ago.

Sentiment readings are also improving. The Chartcraft Investors Intelligence bullish sentiment reading fell to 42.7% this week. That’s the biggest drop in the contrarian reading since January—another good time to have bought stocks—and close to the strong buy signal of 40%.

Stocks in Play

One clear beneficiary of lower interest rates is real estate investment trusts (REIT). The group was in focus this week, as the NAREIT conference and NYU Real Estate Symposium both convened in New York, which is the equivalent of the annual Super Bowl for the sector.

Elsewhere, Campbell Soup (CPB) gained 10% a day after posting solid quarterly results. In addition, Cypress Semiconductor (CY) moved 23% higher in a day, on news that Germany-based Infineon will acquire the chip-maker.

The Week Ahead

Looking ahead to next week, Broadcom (AVGO) headlines a light earnings calendar. On the economic front, we’ll get several key readings on inflation next week. There will be a report on producer prices Tuesday, followed by consumer prices Wednesday and import/export prices on Thursday.

This week reiterated the fact that market conditions can change on a dime. Six months ago, the FOMC raised interest rates and investors were expecting another two or three rate increases for 2019.

Fast forward to today and investors are now pricing in a 58% chance that we see three interest rate cuts by the end of the year.

Source: CME Group

In the same vein, all the talk at the REIT Super Bowl a year ago was how companies were preparing for the first cycle of rising interest rates in a decade. Now, several of these same companies have been wrong-footed and may have to cut dividends in the future, even if lower rates make the safer dividends in the group appear relatively more attractive.

When sentiment changes this quickly, timing the market is a difficult task, no matter how much investment experience you have.

Fortunately, there’s a better way:

My colleague Brett Owens has devised a strategy that removes the worry of trying to time the market, amongst a sea of volatility. Better yet, he’s composed a portfolio that generates an 8% annual yield, paying steady dividends each and every month!

8% is an impressive clip, given the current yield curve where U.S. Treasury notes will lock you in at 2.1% for the next 10 years. For every $500,000 you’ve saved up, Brett’s 8% Monthly Payer Portfolio will generate $40,000 a year of income.

Most companies pay dividends quarterly, but this portfolio is structured for monthly payouts. That works out to $3,333 a month, every month, whether the broader stock market averages are up 10% one year or down 10% the next.

$3,333 is a nice chunk of change. It pays a lot of bills each month if you’re retired… or is a nice supplemental income, if you’re sick of having earned next-to-nothing in “safe” investments over the past decade.

Speaking of safety, these dividends are secure and will be paid each month… unlike some of the REITs that have been trying to time the yield curve the past several quarters.

You certainly don’t have to settle for just $40,000 a year of dividends either. If you have a cool million to invest, you could just as well generate $80,000 of income annually, or $6,666 each month!

Plus, a lot of the names in the portfolio have up to 10% upside potential. You can actually grow your nest egg, while these dividends are rolling in each month!

Weekly Market Summary: U.S. Stocks Kick Off April With Winning Streak

The domestic stock market averages started April on a positive note and on Thursday, the S&P 500 index achieved its longest winning streak in over a year.

Taking a bit further look back, Bespoke Investment Group noted this week that it’s now been 100 days since the major U.S. indexes bottomed in late December. Highlighted in the following table, Industrial and Technology names have led the average 22% gain in the S&P 500 since then, while healthcare stocks have lagged.

Source: Bespoke Investment Group  

Full Slate of Economic News

In overseas news this week, Theresa May suffered yet another defeat in Parliament, regarding the Brexit process. As a result, May finally proposed conceding to a strategy that could result in the UK pursuing a “softer” exit from the European Union.

Elsewhere, President Trump met with China’s Vice Premier Liu in Washington on Thursday. Earlier in the week, two separate reports of China’s manufacturing purchasing managers’ index confirmed that the economy returned to a state of expansion in March.

Back in the U.S., the March jobs report came in slightly ahead of expectations on Friday. The economy added 196,000 non-farm payrolls last month and numbers from the past two months were also revised higher by 14,000 jobs.

Looking ahead to next week, we’ll get a look at inflation measures for both consumer and producer prices in the U.S. In addition, the minutes from the latest FOMC meeting will be released on April 10.

Q1 Earnings Could Decline

Walgreens Boots Alliance (WBA) was a big earnings-related loser this week, falling 12% a day after disappointing investors with forward guidance.

Once again, earnings season is just around the corner, with activity set to pick up the week of April 22. In the meantime, the companies below are scheduled to headline the reporting calendar next week:

DateCompanyExp. EPS
4/10Delta Air Lines (DAL)$0.91
4/12JP Morgan Chase (JPM)$2.36
4/12Wells Fargo (WFC)$1.11

According to Factset, S&P 500 earnings are expected to decline 3.9% in the first quarter of 2019, down from expectations for 2.9% growth at the beginning of the year. Even though actual profits have historically exceeded expectations, the final result will likely be a far cry from the double-digit growth posted in each of the four quarters of 2018.

Stocks are up 22% over the past 100 days, but we’re staring at a potential earnings recession in the first quarter of 2019.

At times like this, a key question we usually hear is: “what’s still worth buying now?”

It’s important for investors to remember that whether stocks are up or down, the market always places a premium on growth.

A stable dividend of 5% or more is nice, but what investors really need to build wealth over time, is a dividend that management continues to raise year in and year out.

It may sound too good to be true, because growth investors and income investors don’t usually see eye to eye.

Income seekers want the security of 5%-plus annual dividend yields, while growth hounds think that cash should be reinvested back into the business– because a solid earnings report can send a stock up that much in one day.

We’re here to tell you it’s possible to have the best of both investing worlds, and my colleague Brett Owens can show you how, with his simple (and safe) way to earn 12% a year from stocks with “hidden yields”.

At that rate, your money will double every six years, plus you can triple the retirement income that most dividend aristocrats or “safe” fixed income investments currently offer.

How do we accomplish this? Brett has discovered a key relationship between dividends and price gains that allow investors to find both growth and income in “hidden yields”.

Companies that consistently grow their dividends over time tend to outperform. The trick is the best dividend stocks almost never show high yields, because stock gains tends to track the size of dividend increases. If a company increases its dividend by 10% and the higher yield brings new buyers in, it often will send the price up and the yield back down toward where it started.

Editor's Note: The stock market is way up – and that’s terrible news for us dividend investors. Yields haven’t been this low in decades! But there are still plenty of great opportunities to secure meaningful income if you know where to look. Brett Owens' latest report reveals how you can easily (and safely) rake in 8%+ dividends and never worry about drawing down your capital again. Click here for full details!

Source: Contrarian Outlook

Weekly Market Summary

The Dow Jones Industrial Average and S&P 500 fell each of the final three trading days of the month, but all of the major U.S. stock indexes still finished February more than 3% higher. The result is the best two-month start for the S&P 500 since 1991.

Investors have certainly been playing offense in the first two months of 2019, as the following chart shows. Industrial and technology names have led the way higher year-to-date, while defensive sectors (healthcare and utilities) have lagged.

Source: Bespoke Investment Group

Minimal Trade Progress in Asia

President Trump was in Vietnam this week, meeting with Kim Jong Un of North Korea. The talks abruptly ended on Thursday, as the two sides were unable to make progress amending U.S. economic sanctions and North Korea’s nuclear aspirations.

Earlier in the week, President Trump had pushed forward a March 1 deadline to consider enacting further tariffs against China. On Thursday, China reported a three-year low reading of its manufacturing Purchasing Managers’ Index, suggesting the economy is contracting.

U.S. Economy Hummin’ Along

Back at home, the economy appears alive and well, as evidenced by the GDP report on Thursday. The data showed 2.6% U.S. growth in the fourth quarter, which exceeded expectations.

Looking ahead to next week, the main economic focus will be the February jobs report on Friday. The consensus estimate calls for the addition of 185,000 non-farm payrolls and this number has generated a large upside surprise the past two months.

Retail on Earnings Calendar

While most traders were focused on the macro headlines this week, many companies back in the U.S. posted quarterly results. Retailer Best Buy (BBY) was the big winner, gaining 14% a day after posting robust holiday results. On the other hand, HP Inc. (HPQ) lost 18% the day after announcing disappointing sales.

Retailers will continue to dominate the earnings calendar next week. In addition to the names highlighted below, Kroger (KR) and Ross Stores (ROST) will also offer a look into the health of the U.S. consumer.

U.S. stocks are off to the best start in nearly 30 years. After a sharp rally like this, some questions we usually hear are: “should I move my money around?” and “what’s still worth buying now?”

Market-timing, especially when to sell a big winner, is a decision that even experienced investors can struggle with.

However, if you’re nearing retirement or already retired, all you really care about is generating consistent income and protecting your hard-earned nest egg– not whether a company misses earnings expectations by a few pennies, or economic and political negotiations occurring halfway around the world.

The good news is: there’s a better way. My colleague Brett Owens has created an “8% No-Withdrawal Portfolio” that generates steady income and impressive capital gains.

Source: Contrarian Outlook

2 Dividends Over 10% That Are Actually Worth Buying

When it comes to dividends, any stock yielding more than 10% these days needs to be taken with a grain of salt. That’s because bigger isn’t usually better when you’re talking about dividend yields.

Any income investment can be priced relative to government interest rates, currently between 2% and 3%, depending on how much extra risk you’re willing to take on. Historically-speaking, any time a stock is paying more than seven percentage points above the AAA-rated, government-secured debt, investors begin to worry if the dividend could be cut.

However, following the 7% loss suffered by the S&P 500 in October, more stocks are sporting a double-digit yield that at any other point in 2018. With that in mind, I’ve highlighted two dividends above 10% that appear secure enough to buy, following the recent market decline.

Worthwhile 10%+ Yielder No. 1: Demand and Dividend Rising

Alliance Resource Partners (ARLP) is a coal limited partnership that is the largest operator in the Illinois Basin, where the product naturally burns cleaner for the amount of energy that’s created.

The stock offers investors a rare opportunity. The company pays a quarterly distribution $0.525 a share (10.8% dividend yield) that management has actually boosted the payout six straight quarters.

Any commodity business boils down to supply and demand and Alliance Resource is currently in the catbird seat. Management is planning to set increase production by 8% this year and another 6% to 10% in 2019, to keep up with higher coal demand outside of the U.S.

The company earned $0.55 a share in the third quarter, which covered the dividend, aided by higher coal demand. Management has also been buying back shares, but history shows the supply/demand balance is delicate in all commodity markets and can quickly reverse.

Worthwhile 10%+ Yielder No. 2: Savvy Investor Leveraged to Rising Rates

New Mountain Finance (NMFC) is a business development company (BDC) that invests primarily in technology, healthcare and other non-cyclical industries.  The company pays a steady quarterly dividend of $0.34 a share (10.2% yield) that management has covered every quarter with net investment income (NII) since going public in 2011.

In addition, New Mountain is leveraged to benefit from rising interest rates. 86% of the company’s debt investments are floating-rate and the majority of its debt financing is at fixed rates. As a result, management estimates that annual NII will grow by $0.10 a share, for every 100 basis-point rate increase.

Like a lot of BDC’s, New Mountain will soon increase its maximum capital leverage to 2:1, thanks to favorable government regulations. This coupled with the company’s exposure to rising interest rates, has led to a consensus profit expectation for 6% average annual earnings growth over the next three years.

It’s also worth noting that chief operating officer John Kline bought 17,250 shares of New Mountain on the open market back in September. There are several reasons why company insiders may sell shares, but they usually only buy when they believe the business is headed in the right direction.

The sharp market selloff in October has created some potential buying opportunities, but chasing double-digit yields remains a risky business. A stable dividend yield of 10% is nice, but there are far more landmines than potential winners in this space.

The good news is: there’s a better way. There are better bargains to be had, for secure 7% to 8% yields with upside potential and monthly payouts to boot.

Please don't make this huge dividend mistake... If you are currently investing in dividend stocks – or even if you think you MIGHT invest in any dividend stocks over the next several months – then please take a few minutes to read this urgent new report. Not only could it prevent you from making a huge mistake related to income investing, it could also help you earn 12% a year from here on out! Click here to get the full story right away. 

Source: Contrarian Outlook

2 Dangerous Double-Digit Dividends to Sell NOW

One of the best characteristics about dividends is they usually offer a consistent, preferably growing stream of income. However, investors can easily fall into the trap of becoming complacent that future payments will continue to flow in, even when the business isn’t generating enough cash to fund the dividend.

The higher the yield being offered generally means the riskier the dividend is and sometimes losses can outweigh the expected income. For example, Dynagas LNG Partners (DLNG) cut its 16% yield back in April and shares are down 24% since.

With government bonds paying around 2% to 3%, dividends above 10% need to be scrutinized closely and I’ve identified two that are in danger of disappearing.

Dangerous Dividend No. 1: Legacy Investments Could Smother the Dividend

Blackrock Capital Investment (BKCC) is a business development company (BDC) that is trading below its net asset value, which generally signals a potential buying opportunity. That said, the company’s portfolio includes legacy investments that are a wet blanket and could smother the 11.5% dividend yield.

Blackrock Capital generated net operating income (NOI) of just $0.16 a share in the second quarter, which was not enough to cover the quarterly dividend of $0.18. In fact, management has failed to generate enough NOI to pay the dividend four of the past five quarters.

The company’s net asset value actually fell during the period, as management had to write down legacy investments in the industrials, insurance and metals businesses.

Another red flag for Blackrock Capital is the current leadership vacuum in the C-suite. The company has been without a full time CEO since April and its interim CFO has been “filling in” for 11 months now.

Blackrock Capital’s bonds are currently rated BBB- by the major agencies, which is last level before reaching junk status. Debt investors will demand their interest before any dividends are paid and the next management team may have to sacrifice its payout if push comes to shove.

Dangerous Dividend No. 2: Feeling the Margin Squeeze

MFA Financial (MFA) is a real estate investment trust (REIT) that invests in mortgage securities. Like most others in the financial world, the company is feeling the squeeze of the flattening yield curve.

Simply put, mortgage REITs borrow at short-term interest rates and reinvest the funds into higher-yielding mortgage instruments. It’s no surprise that the Fed has been steadily increasing short-term rates, while yields on long bonds have remained stubbornly low, as far as MFA Financial is concerned.

The company earned $0.17 a share in the second quarter, aided by $0.02 of investment gains. Either way you slice it, management didn’t cover the quarterly dividend of $0.20. That’s the second time in the past four quarters MFA Financial has failed to earn enough to support the payout.

Not only is the yield curve working against the company’s favor, as evidenced by the 18% year-over-year revenue decline last quarter, but management also reported higher operating expenses in the period. In my experience, a stock that regularly under-earns its dividend will struggle to sustain the payout for more than a year.

Replace These Dividend Disasters in the Making with 7 Contrarian High-Yielders

Chasing double-digit yields is risky business. The investing graveyard is littered with dividend promises left unfulfilled when the cash was no longer flowing in to sustain these lofty payouts.

A stock like Dynagas or these two potential time bombs can spell disaster for your portfolio, especially when in or nearing retirement. Not only might you have to forego some much-needed dividend income, but you could also potentially lose your hard-earned nest egg.

The good news is: there’s a better way. My colleague Brett Owens has created an “8% No-Withdrawal Portfolio” that generates steady income and impressive capital gains.

Whether you’re already retired, or looking to augment your paycheck with the passive income that dividends afford, you no longer have to choose between measly 2% to 3% yields from dividend “aristocrats”, government-secured interest payments that barely keep up with inflation and dicey double-digit dividends.

Wall Street has tried to address this issue with structured products, such as single premium immediate annuities (SPIAs). But just like the casinos don’t pay for all the glitz and glamour because gamblers usually win, the big financial service firms charge hefty fees to provide you with that steady income.

Instead, Brett’s system could hand you $40,000 a year on every $500,000 invested with under-appreciated income plays like:

  • Closed-End Funds (CEFs)- We’ll share our top three CEF picks with you, each of which pay a monthly dividend. Many of these trade at a discount to net asset value; but unlike Blackrock Capital, actually can afford to pay their dividends.
  • Preferred Stock- Brett lets you know two of the best active managers in this space to invest alongside with.
  • Recession-Proof REITs- discover two REITs that actually benefit from higher interest rates; rather than being crippled by the Fed, like MFA Financial.

Please don't make this huge dividend mistake... If you are currently investing in dividend stocks – or even if you think you MIGHT invest in any dividend stocks over the next several months – then please take a few minutes to read this urgent new report. Not only could it prevent you from making a huge mistake related to income investing, it could also help you earn 12% a year from here on out! Click here to get the full story right away. 

Source: Contrarian Outlook