In a high-interest environment, fixed-income assets like Treasuries, bonds, and certificates of deposit (CDs) are a staple for risk-averse investors. They provide regular investors with a stable place to park their retirement money while collecting a steady return.
By keeping interest rates artificially low, the Federal Reserve has sent income-yield-hungry investors running for the much riskier stock market. While the Federal Reserve recently hinted it might taper its $85.0-billion-per-month quantitative easing policy, investors are hardly willing to reconsider traditional fixed assets.
And why should they? Sure, it’s been six years since investors’ nerves were thrashed from the market crash and four years since the recession ended, but the economy doesn’t look or feel any different, despite the S&P 500 and Dow Jones Industrial Average touching new highs almost weekly.
For many investors nearing retirement or already retired, high-yield dividend stocks have become the new bond market. Unfortunately, some investors looking to pad their retirement account have been too heavily focused on that one solitary metric.
Not all high-yield dividend stocks are created equal. Where an investor might have avoided a stock because of red flags, today, they are considering the same stock waving the same flags, simply because they offer a strong dividend—regardless of whether or not they have enough money to do so.
Investors looking for steady capital appreciation and strong dividend growth are not usually looking for a financial roller coaster to invest in. But that’s what they’ll get if they don’t do their research.
In December 2012, Just Energy Group Inc. (NYSE/JE) was trading above $9.00 per share and paid out $1.24 annually. In February of this … Read More
In a rare miss for a consumer products business, The Clorox Company (NYSE/CLX) disappointed the stock market by reporting very flat first-quarter numbers.
It’s more evidence that real economic growth continues to be elusive.
The Clorox Company is a really good business.
It’s way more than “Clorox Bleach:” it’s also “Pine-Sol,” “Liquid-Plumr,” “S.O.S.,” “Glad,” “Burt’s Bees,” “Brita,” and “Kingsford,” to name a few.
According to the company, it could only generate a one-percent gain in sales, to $1.41 billion.
Diluted earnings per share from continuing operations fell two percent from the comparable quarter.
The company’s domestic U.S. business was stronger than international operations. One sore spot for the company was its “Kingsford” charcoal brand, because of the weather; a stronger winter kept charcoal consumers indoors.
There’s also been a strong movement towards more environmentally friendly cleaning products. Plenty of consumer product brands purport to be “green,” and they line the store shelves at many retailers.
Noticeable in the company’s earnings report was a significant increase in cash and equivalents. This is a trend that is prevalent throughout the entire stock market.
Clorox’s 10-year stock chart is below:
Chart courtesy of www.StockCharts.com
The company’s long-term stock market performance has been excellent.
Clorox announced third-quarter earnings of $134 million, or $1.00 diluted earnings per share. This compares with $134 million, or $1.02 diluted earnings per share, in the same quarter last year.
Like many consumer goods companies, Clorox recently soared on the stock market. While it should be considered fully valued considering its flat earnings, Clorox is still offering a three-percent dividend yield. This is what has kept institutional investors in the … Read More
U.S. investor confidence was given a shake last Friday when it was announced that first-quarter gross domestic product (GDP) growth came in at 2.5%—a far cry from the predicted three percent expansion. (Source: “Gross Domestic Product, First Quarter 2013 [Advance Estimate],” Bureau of Economic Analysis, April 26, 2013.)
Fear not, the Dow Jones and S&P 500 are still doing well—but are they really? Signs of caution and weakness abound. According to the American Association of Individual Investors, the bulls have cooled and the bears are growling.
According to the most recent survey, the share of bullishness has fallen to 28.3%, down from 52.3% just three months ago. Conversely, bearishness has surged to 38.8%, up sharply from just 24.2% during the third week of January. (Source: “Sentiment Survey Past Results,” American Association of Individual Investors web site, last accessed April 29, 2013.)
Headlines like “Growth Falls Short of Forecasts,” “Weakness Ahead,” “Consumer Sentiment Wanes in April,” “Chevron First-Quarter Profit Down on Weaker Oil Prices,” and “Amazon Slides on Earnings Miss” suggest individual investors may be onto something here.
Seen in isolation, the record highs in the S&P 500 and Dow Jones Industrial Average seem impressive. On the other hand, it’s interesting to note that it took half a decade for the markets to rebound, even after the Federal Reserve dumped trillions of dollars into the financial sector.
I’m not so sure “the markets” are a true representation of the average investor’s involvement in those markets. Or that the record highs are a real vote of investor confidence.
What is interesting to see is which sectors have been performing strongly on the … Read More
The Procter & Gamble Company (NYSE/PG) is likely a company that a lot of people have in their stock market portfolios, whether they’re saving for retirement or are actually in retirement now. It remains a great business with solid potential going forward.
On the day that Procter & Gamble released its first-quarter earnings results, the stock dropped about $5.00 a share, or six percent. The company revised its 2012 second-quarter earnings lower to below previous Wall Street estimates; top-line growth was anemic.
On the stock market, Procter & Gamble just came off a new all-time record high. The company currently has a price-to-earnings ratio of 17.5 and boasts a dividend yield of three percent.
This blue-chip company has proven to be worth accumulating when it’s down, but the stock is still way up and not quite yet in the buy zone. A full-blown stock market correction should bring this position much lower; then it would be the kind of opportunity to consider with new money.
Another stock that’s likely to be in many retirement portfolios is Colgate-Palmolive Company (NYSE/CL), which has been doing exceedingly well since the beginning of this year. The company reported first-quarter earnings that met Street expectations, and the stock market’s reaction was positive.
Consumer staples stocks are always welcome in a retirement portfolio, or any stock market portfolio with an adherence to risk and capital preservation. It is true, though, that all stocks are risky assets; no matter what, even the most stable companies can experience major downturns, because they are equity securities.
Procter & Gamble had an earnings miss at the height of the stock … Read More
Investing isn’t all about managing returns; it’s also about managing risk.
Risk is high right now in all categories: real estate, stocks, bonds, currencies, and even cash. On the cusp of a new earnings season, the stock market is going to be very choppy, but I do think that it will trend higher.
There is no real need to be buying this stock market. With so much uncertainty and so many risks beyond your control, the sidelines are a good place to be.
But the powerful breakout of blue chip and transportation stocks at the beginning of the year is very meaningful.
Of course, many stock market investors have been sitting on the sidelines for a long time. This was the case for institutional investors until the beginning of the year, when sentiment changed. The advertised certainty of continued low interest rates provided the catalyst for new buying.
The last three earnings seasons reflected the choppiness and the uneven performance of many industries in the U.S. economy. But the stock market always wants to be in front of any economic news, and institutional investors have no other place to put their money.
With so much risk in this marketplace, the standout companies have become even more attractive. And this is what institutional investors have done since the beginning of the year—they have gone after the safest names, because they see all the risks, as well.
Large dividend-paying stocks will continue to be attractive in this stock market for the rest of this year. Many are still not expensively priced, and there should be decent earnings this quarter. Robust earnings are … Read More
Just because the S&P 500 and Dow Jones Industrial Average are in record territory, that doesn’t mean the overall stock market is worth looking at. At the same time, it would be a mistake for investors to consider reducing their positions in equities in favor of cash or bonds, Treasuries, and certificates of deposit (CDs).
Banks provide interest rates barely above zero percent; bonds are near three percent, and jumbo five-year CDs yield returns of just 1.5%. In a nutshell, investors looking to buy bonds are basically saying they are happy locking their hard-earned dollar into negative inflation-adjusted returns. They’re okay using an investment vehicle that loses money.
In light of the ill-begotten euphoria on Wall Street, investors looking to increase their retirement fund nest egg just need to be more discerning when looking at stocks. It would be a mistake to think that big stocks are the only place to make solid profits. At the same time, it’s important to remember that investors cannot earn income without taking some risk.
Right now, there is an increasing number of fundamentally and technically strong smaller companies offering regular, high dividend payouts that trump the paltry interest rates offered through other investing channels.
In the past, dividend-hungry investors had to turn to big banks and utilities. But now, regular payouts are being offered by smaller companies in less conventional sectors.
The joy with some smaller companies is that they tend to outperform their larger peers during an economic recovery. And because smaller companies can experience faster growth, patient investors get paid to wait for both capital gains and a dividend yield.
On … Read More
The Dow Jones Industrial Average continues to climb into uncharted territory, trading above 14,500. This is in spite of weak underlying economic indicators. On Main Street, unemployment remains high, consumer confidence is low, and gross domestic product (GDP) remains bleak. On Wall Street, it’s confetti, unicorns, and a raging bull.
But for how much longer? Every four to six years, the U.S. experiences an economic slowdown. It happens like clockwork. The current bull market is now in its fourth year (if you were fortunate enough to even realize we’re in a bull market).
While some investors may be sitting on the sidelines, waiting for a market correction, others are trying to figure out if they should jump in. Thanks to the economic disconnect between the Dow Jones and what the average American is feeling, it’s tough to decide whether investors should stay or go.
In this economic climate, it might be best to think about trading the market—not the economy.
One bright (but fragile) sector that has been performing well is housing (in spite of the fact that housing prices are still down 41% from their 2007 peak). In February, U.S. builders broke ground at a seasonally adjusted annual rate of 917,000. That’s up from 910,000 in January and the second-fastest pace in four-and-a-half years. (Source: “New Residential Construction in February 2013,” U.S. Census Bureau web site, March 19, 2013, last accessed March 28, 2013.)
Is this the shape of things to come? It was also announced that building permits increased 4.6% to 946,000; the most since June 2008, just a few months into the Great Recession.
Where can investors … Read More
Retirement planning doesn’t end once you retire. It just moves into a different phase. One of the safest paths to building wealth for those already in retirement is through big blue-chip stocks that provide consistent quarterly dividends.
Slow and steady isn’t good enough for some investors, though. Some retirees need to build wealth more quickly. A recent report shows that Americans’ confidence in their ability to retire comfortably is at historic lows.
Just 14% of Americans say they are “very confident” they will have enough money to live comfortably when they retire, while 23% say they are “not at all” confident. Almost 60% of middle-class retirees will likely run out of money if they maintain their pre-retirement lifestyle and don’t cut spending by at least 24%. (Source: Helman, R., et al., “The 2012 Retirement Confidence Survey: Job Insecurity, Debt Weigh on Retirement Confidence, Savings,” Employee Benefit Research Institute web site, March 2012, last accessed March 14, 2013.)
In fact, the fear of outliving retirement income is actually greater than the fear of dying. An astounding 61% of baby boomers fear outliving their money in retirement more than death. (Source: “Outliving Your Money Feared More Than Death: Allianz Life Study Reveals Boomers Guessing at Retirement Needs,” Allianz Life Insurance Company of North America web site, June 17, 2010, last accessed March 14, 2013.)
Those already enjoying their golden years, unhappy with the measly returns that bonds, Treasuries, certificates of deposit (CDs), and banks are providing and impatient with the small gains made on blue-chip stocks, may want to consider one of the more lucrative areas for investing—small-cap dividend stocks.
When it … Read More
When it comes to thinking about retirement planning, the “out-of-sight, out-of-mind” mantra seems to be a favorite amongst individual investors. How else can you explain the miniscule 14% of baby boomers who are “very confident” they will have enough money to live comfortably when they retire and the 23% who say they are “not at all” confident? (Source: “The 2012 Retirement Confidence Survey; Job Insecurity, Debt Weight on Retirement Confidence, Savings,” Employee Benefit Research Institute web site, March 2012, last accessed March 12, 2013.)
Granted, the Great Recession that began in 2008 has made retirement planning that much more difficult. Unemployment is high, gross domestic product (GDP) growth is abysmal, wages are flat, and household debt is stubbornly high at $12.8 trillion, while public debt sits at $17.0 trillion. Those who are already retired and those who are nearing retirement have a reasonable explanation for not being able to find enough disposable income to pad their retirement funds. (Source: “Household Sector: Liabilities: Household Credit Market Debt Outstanding,” Federal Reserve Bank of St. Louis web site, March 7, 2013.)
What I do find odd, however, is the reason as to why so many are plunking their hard-earned dollars into underperforming assets with terrible returns, like banks at 0.5% and bonds at a paltry 3.1%. Even jumbo five-year certificates of deposit (CDs) offer a pathetic return of about 1.5%. (Source: “National High Yield Rates for CDs,” Bankrate, Inc. web site, last accessed March 11, 2013.)
Banks, bonds, and CDs are not the retirement fund-fueling workhorses that investors need right now. To build a strong retirement fund, an investor needs to make their … Read More
Utility stocks are companies that deliver essential services, such as gas, water, and electricity. These stocks tend to be more stable, as consumers need water, gas, and electricity, regardless of the direction the economy is headed.
Algonquin Power & Utilities Corp. (TSX/AQN) is a growing renewable-energy company that owns and operates a diversified portfolio of $3.0 billion of regulated and non-regulated utilities in North America. Algonquin Power & Utilities (APUC) actively invests in hydroelectric, wind, and solar power facilities, and sustainable utility distribution businesses (water, electricity, and natural gas) through its two operating subsidiaries: Algonquin Power Company (APCo) and Liberty Utilities.
APCo owns direct and indirect equity interests in 20 hydroelectric generating facilities, five wind-energy facilities, and seven thermal-energy facilities, with a total average power purchase agreement life of 13 years.
Liberty Utilities provides water, electricity, and gas utility services to communities across the United States, with operations in Arizona, California, Illinois, Iowa, Missouri, New Hampshire, and Texas.
APUC has a market cap of $1.5 billion, a forward price-to-earnings (P/E) ratio of 27.3, and $16.4 million in cash. The company also provides a 3.7% annual dividend.
The company announced that third-quarter revenues increased 50% year-over-year to $99.0 million. The company reported a third-quarter net loss of $200,000, or breakeven per share, compared to a net income of $19.6 million, or $0.16 per share, for the same period in 2011. (Source: “Algonquin Power & Utilities Corp. Announces Third Quarter 2012 Financial Results,” Algonquin Power & Utilities Corp. web site, November 14, 2012, last accessed February 28, 2013.)
For the nine months ended September 30, 2012, APUC reported total revenues of $229 … Read More
During the Great Depression, America built the Hoover Dam and the Golden Gate Bridge. After World War II, it connected Americans across the country by building a system of highways.
In an effort to bolster economic growth and create jobs during the Great Recession, President Obama earmarked $74.0 billion for the Department of Transportation in the fiscal 2013 budget, a two percent increase above 2012. (Source: “Budget Highlights: Fiscal Year 2013,” U.S. Department of Transportation web site, January 24, 2012, last accessed February 27, 2013.)
The Department of Transportation budget set aside $580 million for fiscal 2013 to continue improving motor carrier safety. This represents the first year of a six-year, $4.8-billion proposal. This increase will improve the safety and security of commercial motor vehicles and buses.
That’s good news for cash-strapped municipalities. It’s great news for transit equipment makers, many of which are already reporting improving market conditions.
New Flyer Industries, Inc. (OTC/NFYEF) is the leading manufacturer of heavy-duty transit buses in the United States and Canada with over one-third of the market share. Twenty of the 25 largest transit systems in North America are New Flyer customers. (Source: “Best Bus Value and Support for Life,” New Flyer Industries, Inc. web site, last accessed February 27, 2013.)
The company offers the broadest product line in the industry, including drive systems powered by clean diesel, trolleys powered by liquid or compressed natural gas or electricity, and energy-efficient diesel-electric hybrid vehicles.
New Flyer has delivered over 30,000 heavy-duty buses in the United States and Canada and has manufacturing facilities in St. Cloud, Minnesota; Crookston, Minnesota; and Winnipeg, Manitoba, Canada. The company … Read More
When you are building a portfolio and saving for retirement, a financial planner usually suggests that you diversify as much as you can—to protect your capital and reduce your risk. The last thing investors want when they are saving for retirement is to lose what they have.
When you diversify, your risk decreases. Even if you are investing in the same industry, investing in different companies reduces your risk significantly.
One way to do this is to look for companies that are operating in multiple regions and industries. Why? This is simple: if one country is witnessing economic slowdown, the other country might be performing well. The same goes for industries—some industries might excel at times of economic growth, and others might suffer.
STMicroelectronics N.V. (NYSE/STM) is a perfect example of this kind of company—well diversified in different regions around the world and in multiple industries. This company is based in Switzerland, and it has research and development centers in 10 countries, 12 manufacturing sites, and global exposure with sales offices around the world. (Source: STMicroelectronics N.V. web site, last accessed February 25, 2013.)
STMicroelectronics N.V. (STM) is one of the largest semiconductor companies and has products for different industries. The company is a leader in serving integrated device manufacturers (IDM) with products, including microcontrollers, smartcard products, standard commodity components, micro-electro-mechanical systems and advanced analog products, application-specific integrated circuits, and application-specific standard products for analog, digital, and mixed-signal applications. STM also offers subsystems and modules for the telecommunications, automotive, and industrial markets, comprising mobile phone accessories, battery chargers, ISDN power supplies, and in-vehicle equipment for electronic toll payment. (Source: Yahoo! … Read More