8/19/2013 10:45 PM ET|
Don't ditch dividend stocks yet
Yield hunters may be tempted to shun stocks ahead of the Fed's tapering. But companies likely to boost their payouts remain attractive.
Let's talk today about dividends. Specifically, dividend-paying utility stocks.
How do you tell if a stock in this beaten-down sector yields enough to make it a buy in the current risky market?
The looming possibility that the Federal Reserve will start to taper off its $85 billion in monthly purchases of Treasurys and mortgage-backed securities has sent global financial markets into a tizzy of guessing.
Suddenly, income investors who have been longing for anything paying more than 2% are confronted with 10-year Treasurys paying 2.8% and dividend stocks with yields of 4%, 5% or more.
The problem, though, is figuring out whether those yields are worth the risk.
Prices of bonds and dividend-paying stocks have plunged. They could keep falling. What look like fat dividend yields might not be adequate compensation for the risk of losses to capital.
And maybe tomorrow yields will be even higher.
Frankly, we're all guessing here. What I'm sure of is that all this guessing will produce overreaction and mispricing -- and that I'd like to be ready to pounce when the inevitable overreaction produces attractive mispricing.
But I've also started to see scattered examples of dividend-paying stocks, even in the battered utility sector, with current yields that look like adequates return for likely risks to capital.
I argued recently that you want to make sure you have cash on the sidelines ready to put to work if September and October produce some bargains. Today I'll point you to specific stocks in parts of the market where I think current yields are a good value.
I'll be laying out what you should be searching for in utility stocks if you're trying to find a high yield. Next week, I'll focus on master limited partnerships and real estate investment trusts.
First, though, let me explain why "guessing" is likely to produce bargains in the financial markets.
I'd break down "guessing" into two parts: First, there's the guessing of "what's it worth" in asset classes clearly connected to the Federal Reserve's program of asset purchases; second is the guessing about "what's connected." For example, if the Fed does start to taper off its purchases, how will that affect seemingly unrelated assets, such as Brazilian stocks?
Today and next week I'll focus on the first kind of guessing. It makes sense that if the Fed scales back its purchases of Treasurys and mortgage-backed paper, yields on those assets will climb. And with Treasurys serving as the benchmark for so much of the income sector, it makes sense that yields will rise across much of the financial market, and prices of these assets will fall.
The guessing here involves estimating the effects of a Federal Reserve taper that is, so far, unspecified in its schedule and dimensions.
The 10-year U.S. Treasury closed at a yield of 2.85% on Aug. 16. A month ago, the yield was 2.53%. A year ago it stood at just 1.81%. And a year from now?
Of course, where the yield is headed depends on far more than just the pace of any Fed taper. The yield on the 10-year Treasury note in August 2014 also depends on the inflation rate, the strength of the dollar, the availability of attractive alternatives, growth in the U.S. economy and on the level of fear in the financial markets -- to name just a few factors.
Not to belabor the obvious, but no one knows for sure what any of those additional factors will look like. (Just as we don't know, more immediately, if we'll see a government shutdown over the budget and the debt ceiling at the end of September.)
But the inability to know has a powerful effect. With yields already so low and the specifics of the Fed's tapering unknown but apparently set to begin soon, selling strikes many income investors as the best policy. In June, for example, overseas investors sold U.S. Treasurys at the fastest pace on record. Foreign investors (mostly in China and Japan) sold $40.8 billion in Treasurys in the month, according to the U.S. Treasury.
Utility stocks, as an income vehicle with Treasury-like qualities and clearly at risk from any Fed taper, have been hit hard on increasing worries of a September or October move by the U.S. central bank. The iShares Dow Jones U.S. Utilities (IDU) exchange-traded fund is down 4.1% in the past month. Some individual utility stocks have been hit even harder, especially recently. Duke Energy (DUK), the largest regulated utility in the United States, declined 4.2% in the week that ended Aug.16. Southern (SO) declined 5.2% in the month through Aug. 16 and has lost 7.4% in the past three months.
That pummeling on price has driven dividend yields on utility stocks to what, initially, look like very attractive levels. Duke Energy now shows a dividend yield of 4.7%; the dividend yield for Southern is 4.8%.
The question for utility stocks, as for Treasurys and other income vehicles: Are those yields enough? Are they attractively high now or due to get yet higher as the Fed taper begins? And would any dividend payout be more than wiped out by a tumbling stock price in the face of rising interest rates after the Fed begins reducing its asset purchases?
So many uncertainties, so much to guess at. You can understand why utility stocks, like Treasurys, have headed lower. There's not much in this situation to encourage anyone to buy.
Unfortunately, I don't have any magic solution for resolving these uncertainties. I suspect that the Fed's reduction in asset purchases will be very slow and that the move's effects will be less damaging than the markets now reflect. But that's only a suspicion, and I'm very reluctant to advise a course of action based on a hunch.
Fortunately, I think there is a way to approach the uncertainty the Fed has introduced into the income markets. It doesn't yield a big-picture call on any sector, but it does give investors a way to find good individual stocks in this environment.
VIDEO ON MSN MONEY
Here's a headline I'd like to see:
"Futures rise on seemingly nothing at all or any connection or relevance to any event or actual meaningful data"
Unlike other readers I respect you and seldom miss an article. However, I imagine you read these comments so here's mine:
What recovery? So many writers speak about the recovery and I look around the Delaware Valley area and wonder what the heck they are talking about?
Then more about your article: nothing is going up. I scare myself and watch and every now and then sell a stock or two and in return get these Obozo Dollars. I track my sells and a few I should have kept and others I did the right thing selling them.
And now where do I put these Obozo dollars? I may be a bit older than you but way back I remember get some very high yields that make current yields look puny. Taper now, or taper later, but taper will come and when it does, comes more misery and pain. I'd love to dive in a buy some 4 or 5% yields in utilities or pipelines but the day will come when that stock drops, and the yield, assuming it's not cut completely, will be larger, if only I waited to buy, while I hold a stock worth far less.
And the Government is run by a bunch of putz. What's plural of putz? We sit in the neither land while they dither whether to taper or not.
You know what's really funny? The die hard Dems will blindly follow and next elect the ugly Hillary and she will be handed the an economy worse then Obozo got with no place to go but down. Hopefully they will only tar and feather her ****. Sooner or later even the loyal Obozo 47% who do nothing but suck the Governments teat will realize they don't get enough money to buy the next bottle of wine or box of cereal that they feed their welfare children.
I've talked myself into more Guns & Gold!
'The price of the market today is what investors believe it should be.....'
That's why they call the slum lords fat cats. They sell the B.S. to whoever is stupid enough to believe what they say. They could come right out and offer demise to sell you or in this case invest upon for you.
Gotta love those pension fund managers and their hardy-har-har antics. Why if they had not peoples money to work with that actually work,they would have to find a job. hardy har-har!
Good morning folks!
Say maybe it is so? That is Jubak simply is no longer writing from the heart and somebody else has stepped in to keep the looks of the lid being on.
A bunch of useless math with many programmed to it. Examples,examples! Dividends based on......?
excerpt - 7The fair value of a hedged item might also change for reasons other than from effects of the risk being hedged. For instance, the hedged risk may be that a change in interest rates will cause the fair value of a bond to change. The bond price might also change, though, if the market perceives that the bond's default risk has changed.
8A common measure for benchmarking variable interest rates is LIBOR, the London Interbank Offered Rate, a base rate at which large international banks lend funds to each other.
9This would be a liability rather than an investment (asset) if the fair value had declined.
10Because there are no future cash receipts from the swap arrangement at this point, the fair value of the swap is zero.
11Transactions with owners primarily include dividends and the sale or purchase of shares of the company's stock.
12FASB ASC 220–10–55–2: Comprehensive Income–Overall–Implementation Guidance and Illustrations (previously “Reporting Comprehensive Income,” Statement of Financial Accounting Standards No. 130 (Norwalk, Conn.: FASB, 1997)).
13This is the same treatment previously prescribed for these translation adjustments by Statement of Financial Accounting Standards No. 52 [FASB ASC 830: Foreign Currency Matters].
14Remember, if a derivative is not designated as a hedge, any gains or losses from changes in its fair value are recognized immediately in earnings.
source/ Appendix A: Derivatives
Accounting for Derivatives
Well that would almost sound like you don't have to get your hands dirty. Why something the so called kleenex hands loves making so called tree paper DEBT with others DEBT slips. Many of these so called fat cats have no idea what it is to work and do actual work as they have been living the freddie the freeloader lives off of DEBT creation.
So you create and create from nothing in which has been done to replicate a rising market however the rising was and is based upon DEBT and centrals and others on the inside for the past few years soaking the whoever cares to be soaked as most have called it gains/ Funny as gains from what DEBT and rates that simp;ly can not be serviced however many have bought into the notion that they are. And from what brilliant deduction did they come to this conclusioon? That DEBT ontop of more and more and more DEBT is a positive payout?
Aug. 19,2013 - Alarm Bells Go Off: 10-year Treasury Note Hits 2.9%, S&P 500 Is “Crashing” Now
Msn Refugee Board 2 / The Decoy 409 POST
For those professing 50/50 half truths:
As while you are still on the 50/50 string puppet circus diet and encouraging others to join the lost we simply can't help to laugh at it (sickly that is).
Example: back at the club house or circus board (msn refugee board Market Talk) of spew why you were pretty avid as to Fukushima and the nuke plant that HAS gone beyond bad to worse and the worst yet to come from it as being all nonsense and the mess is over and just about cleaned up and people don't know what they are talking about.
Aug. 20,2013 - 300 Tons of Contaminated Water Leak From Japanese Nuclear Plant
source/New York Times
Aug. 13,2013 - Fukushima now in state of emergency, leaking 300 tons of radioactive water into the ocean daily
Now of course you have your ge stocks you defend and the fracking rights amongst other companies and centrals all playing part in these happenings. And defending demise stock is a certain for debt profits. Our question would be why would you sell out your neighbor for such and then spew about it as a good thing?
Well excuse us fatcats but if the show fits then wear it and your 50/50 half truths for so called DEBT profits from demise is the way to go? Pretty FUNNY stuff to think such trash and invite others to join along. We SEE V_L handed it to you and called you out below as well.
Then again like we say,the old pension handlers that lost MILLIONS in the past several years well it certainly did not come at the expense of those managers but other peoples money to lose now did it.
Yes when the bookwork was presented and the LOSSES in the MILLIONS were lined up it certainly is understandable as to why. Why that is that disinformationalists come in many flavors. Lest not forget the ongoing of as hush is the word since the break of,
Jan. 10,2011 - State Pension Funds Suing Wall Street Casino: TRUTH vs Anti-Union/Employee Hateful Rhetoric
excerpt - "The Pension Funds were invested in SIVs and Mortgage Backed Securities and we lost the employees money!"
Pension funds account for $24 trillion of investments for Wall Street. Their next strategy? Gold and Commodities. What could possibly go wrong?
excerpt - THE PEOPLE PAY, WHILE THE BROKSTERS AND BANKSTERS ARE PAID TO PLAY!
This where all the anger needs to be directed. The injustice of allowing crime to pay while impoverishing the rest will ruin this country! It's blatant, flagrant corruption, sanctioned by deregulation and lack of oversight or accountability.
But, some States are doing the right thing. They are suing the greedy bastards. Perhaps the other states will grow some and follow suit!
There is evidence that Pension Funds were aware in 2003 that there were problems on Wall Street which is were Pension Fund Managers go to gamble the hard earned % of wages public employees contribute from their paychecks. However, not only did things not get better, Wall Street launched into the SIV, MBS, and CDO Casino On Steroids:
State pension fund sues NYSE / Traders accused of siphoning off millions of dollars
December 17, 2003|
By Carolyn Said, Chronicle Staff Writer
Why 'NO SPIN' in this entry.
Good morning folks!
Hush Hush on the Unemployment Rate
What You Don't Know can't Hurt You?
Back at the Post (Msn Refugee Board 2 / The Decoy 409 POST) we were forced out from the circus by the string puppets in their so called financial section or Market Talk. Quite a few of those string puppets have been gathered over this way under alias names in order to spew,spew,spew disinformation.
You SEE this spewing as in recession is over recovery is on,buy bonds,gold is finished along with silver,there are no problems in japan at the reactor,the gulf is all cleaned up and of course the unemployment rate.
Now you can ask these specialists of disinformation all in favor of jibberish and string puppet talk however they will simply spew another lie ontop of the so many they have already told. Simply ask them where would the casino (OPPS! mean market) be if it was not for clickity-click injection after injection. We tried to get a HONEST answer from them but illusive is the game they play and then spin that into 50/50 half truths.
It's quite FUNNY how they operate as they think that they have the insider intel that their crack pot ways will simply continue onward with a rising market of eternity based upon the DEBT of those that actually work for a living.
Now this may sound like harsh talk however the TRUTH is never meant to always be a positive happening but rather a clarification of what is and what is not. In turn for those that understand the pain is not as great. For those that continue to follow along with the lies of deciet from the 50/50 half truther club and believe the jibbersish,why those that do can expect great pain from non understanding.
We have gone toe to toe with these 50/50 half truthers and their defense as their SHAM WoW Times have been winding down. And the closer that times have gotten and the more of what we have spoke has come out in the wash as we say,why the circus (as above) simply has ud removed from their so called MARKET TALK. V_L used to be a member at the circus and they did the same to V_L for putting those in their place.
At the Market talk circus msn refugee board. as well the pm's just kept on a coming as our word selections were warned as upsetting the 50/50 half truthers although no names were mentioned. The old 50/50 half truthers were and have been losing the so caled credibility that they had installed amongst many due to constantly being busted for their FALSE NEWS.
Now back at The Decoy 409 POST we have a Unemployment Rate at 24% section. This is something that we avidly spoke of and how it all mixes in well with clickity-click and DEBT PROFITS from DEMISE. and if you let that soak in with the rest of the chapters you can SEE how this would turn the puppet NEWS and the spewers of 50/50 into disinformationalists for personal greedy gains.
Funny thing is that when you ask the greedy fingers where would things be if it was not for clickity-click they simply plead and ignore such as having any factor in the casinos 15k and above rise from thin air. But then again is this not what clickity-click has been? Creation from nothing in which we call STALLATION to CHANGE. After all with a 24% unemployment rate here in the US that has now surpassed 25% you certainly can not expect truthful answers from Rape-Pilfer-Ponzi 50/50 half truthers.
(cont. from above):
Aug. 2,2013 - John Wiliams' Shadow Goverment Statistics
Aug. 21,2013 - Gallup: Unemployment Rate Jumps from 7.7% to 8.9% In 30 Days
Aug. 22,2013 - Wells Fargo to cut 2,300 mortgage jobs as refinancing slows
source/Daily Job Cuts - Layoff News
And the 50/50 new claims are in jacked upward as we SEE (as we expected). Now how do you suppose with a imploding BIG 'D' (derivatives) market (over a Quadrillion to spite the so called pay down) along with a town in Trillions in deficits and ongoing and growing larger by the day coupled with HISTORIC part time workers to pay upon it (and less and less full time) do you that are not sheeples actually think that CHANGE is not upon us? Folks you are in unprecidented times and certainly do not think that a empty bank acct. with a checkbook has been a good thing.
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no theres not we just did!
QUOTE: "Frankly, we're all guessing here."
Well, at least the man is an honest broker.
excerpt - RALEIGH, N.C. (AP) — The state of North Carolina has filed additional lawsuits against Duke Energy seeking to force the utility to address water pollution coming from coal ash at 12 power plants.
But what's new hey,
Aug. 22,2013 - N.C. Attorney General: Duke Energy's Profit Margin Hurts Consumers
source/charlotteobserver / Business
Why it has only been what now..... about 10 years or so since that great cleanup program was supposed to be in play along with other promising things.
DEMISE stock is just that. Investing in ones own DEMISE and the DEMISE of others.
Electric car back in the 1800's yet now it's the new thing being worked upon. FUNNY stuff!
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[BRIEFING.COM] The S&P 500 trades lower by 0.8% with one hour remaining in the first session of the week. This morning was very quiet on the economic front with participants receiving just one report-August Existing Home Sales. Tomorrow's session will be equally as quiet with economic data limited to the FHFA Housing Price Index for July.
The remainder of the week will feature August Durable Orders (Briefing.com consensus -16.3%) and the third revision of Q2 GDP with the latter set ... More
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