Insight & Commentaries
Dividend growers outperformed all dividend categories for the past 48 1/4 years with less risk. This is our conclusion based on data provided by Ned Davis Research. The research focuses on dividend payers, non-dividend payers, and dividend cutters. Note that the pattern of dividend growers outperformance holds for both the entire period of analysis and each sub-period (First Table). It also holds that growers experienced lower volatility for both the entire period and each sub-period (Second Table). In this note, we address why we think this phenomenon exists and what it could mean to investors. Return By Dividend Category (Annual)…
Is there a way for bond investors to win if interest rates rise? We think laddering bonds is one way to navigate an uncertain and changing environment. First, we must start with a simple fact. Nobody knows for sure what will happen to interest rates in the future. There are potential ranges of plausible outcomes, but in reality, the future direction of interest rates is unknowable. What is knowable is today’s level of interest rates. So, an investor interested in knowing the nominal dollar return of a T-bill or zero-coupon U.S. Treasury can know that future return with certainty today….
To buy quality stocks that increase dividends regularly is a time-honored investing practice, and for good reason. This simple strategy takes a long-term view of investing and focuses on the dividend, not the stock price, which can help some investors maintain perspective. The passive income generated from dividend growth also has two side benefits. First, it focuses your investment strategy on cash-generating, growing companies. Second, it tends to lead to quality businesses that are neither too young nor too old. Why is this so? Almost by definition, a dividend-growing company tends to cover expenses with rising cash flow. And which…
The U.S. stock market has been on a tear of late, rising 56% in value, or $18 trillion, in the last year. Two-thirds of the gain came in the six months since October. Surging stock values mirror last spring’s rapid plunge, leaving many feeling elated, unnerved, and anxious. Are expectations for the world ahead justified and fairly factored into stock prices? Or is the bull run reflecting unrealistically high hopes? A Pretty Penny In our view, valuations are full. By most metrics, we see stock values at high levels. Just look at the value of U.S. stocks at $48 trillion…
Key Points: Vaccines Spur Growth Rebound U.S. Profits Recover to Pre-Pandemic Levels High U.S. Savings to Fuel Growth Stronger Dollar Favors Domestic Tilt Valuations, Rates, and Taxes are Risks Much has changed in the past quarter. A new administration and new congressional leadership has emerged in Washington. Meanwhile, a COVID-19 vaccination rollout is accelerating throughout the United States and some other parts of the world. Speculative fervor has rippled through some parts of equity markets while bond investors fret about rising interest rates. This quarter we address how these changes are shaping the environment, creating challenges and opportunities for tactical…
It is essential not to overlook critical assumptions. One of the most basic stock investing beliefs is that firms will continue to exist — firms do not live forever. Beginning as a start-up and ending in decline, firms undergo many changes over their lives. An idea becomes a business that generates growing profits and revenue. As a result of sound investing, the company continues to grow, finds new markets, and fends off competitors. At some point, the demand for the firm’s product or service slows, competition erodes advantages, and the business shrinks. In an age of rapid technological change and…
President Biden signed into law a $1.9 trillion Coronavirus aid package last week. New spending of $1.1 trillion is expected this year, with the remaining $0.8 trillion spread out over the coming years. The spending is on top of last year’s $3 trillion fiscal support program, sets up 15% annual deficits for 2020 and 2021, and increases debt to 110% of GDP. Why should we care about such spending, especially when the economy is hobbled by COVID-19? Indeed, the package will indeed help many. There are $670 billion in checks and enhanced unemployment benefit checks on the way to…
Since the Georgia Senate races went to Democrats on January 5, forward expectations of short-term rates have moved up sharply (Chart A, below). With nearly $2 trillion of anticipated deficit-financed spending now in the pipeline, long-term U.S. Treasury bonds are also selling off, causing long-term yields to rise too. Investors worry that massive new COVID-19 spending, happening when financial markets are already flashing “risk-on” signals, may be problematic. Typically, such large stimulus occurs only when an uncertain economic outlook is rattling markets. Chart AForwards Markets Start to Envision Higher Rates A High Bar But fear is not really the prevailing…
There is lots of discussion about the return of speculation. Cryptocurrencies, message board short-squeezes, soaring penny stocks, “blank check” companies, and record issuance of risky debt dominate today’s headlines. It is hard to imagine that, just under a year ago, financial markets were in freefall. Greed replaced fear in the span of a few short months, despite an ongoing pandemic. This week we return our focus to “quality” as a key factor in portfolio construction. Risk-On! Notice the chart below. It is a ratio of the most volatile stocks in the S&P 500 divided by the least volatile. When investors…
While risk-taking remains in fashion and more stimulus is on the way, we are trimming back some equity exposure. We now forecast some tempering in the outlook ahead (Chart A, below) after a long stretch of improving conditions. As a result, we reduced stock exposure to 67% from 80% and increased bond exposure to 33% from 20%. CONQUEST tactical asset portfolios remain overweight stocks versus bonds, only less so. Chart A WCA Fundamental Conditions Barometer High Hopes Since the governments and central banks around the world went “all-in” to save the economy from the pandemic last spring, wealth has exploded….
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