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Wealthy Retirement - Forever Dividend Stocks
Forever Dividend Stocks
A Wealthy Retirement Special Report:
How does a steady flow of income, 24 dividend payments a year, for an average yield of 3.21% sound?
If you love dividends and, more importantly, love to see those dividends go up every year... then you need to consider forever dividend stocks for your portfolio. These are stocks we believe you can buy and hold forever.
In this report, we will uncover our six favorite dividends stocks that have been hand selected from our Compound Income Portfolio.
The Compound Income Portfolio is designed for wealth seekers. This portfolio uses the immense power of dividend reinvestment plans (DRIPs) to compound dividends and grow wealth in a conservative manner.
The concept is very simple:
If you buy 1,000 shares of a $10 stock and receive a 4% yield, and those $400 (4% on $10,000) are reinvested... At the end of one year, you'll have 1,040 shares. Those extra 40 shares also generate dividends.
If the dividend grows 10% per year, after five years you'll have 1,227 shares.
After 10 years you'll own 1,544 shares. Keep in mind that all those shares are generating more and more dividends every year as the dividend goes higher.
After that, the compounding math is a wonder to behold...
After 10 years (presuming average market returns), your original $10,000 is now worth $31,777. The annual yield on your DRIP is 14.1%.
After 15 years, you have $58,993 (and a yield of 29.3%).
In 20 years, you're looking at $113,019... and an astounding annual yield of 62.9%!
The easiest way to reinvest your dividends is to simply tell your broker you want your dividends reinvested. Most brokers offer this service free of charge. So you can buy a stock once, pay one commission and hold it for years without paying another dime as the nest egg grows.
One thing to remember: If the stocks are in a taxable account, you will owe taxes on the dividends even if you are reinvesting them and not collecting the cash. So be sure to have enough cash set aside to pay your taxes every year.
Now that we have covered the power of compounding, let's get to the picks...
Forever Dividend Stock #1: Brookfield Infrastructure Partners (NYSE: BIP)
Our first pick is a Master Limited Partnership (MLP).
Most MLPs are energy-related. However, this one is a play on global infrastructure.
Brookfield Infrastructure Partners owns and operates electricity transmission lines in South America, timberland in North America, ports in Europe and railroads in Australia.
It pays a 4.61% yield and has raised the dividend an average of 11.36% over the past five years. Management has lifted the dividend every year for seven years. In the most recent quarter, funds from operations (FFO) – a measure of cash flow for MLPs – grew 28.08%. Recently commissioned capital projects helped boost FFO. And they will continue to do so going forward.
Over the last four quarters, Brookfield paid 68.72% of FFO in the form of dividends. It is committed to paying 60% to 70% in the future.
Forever Dividend Stock #2: Lazard (NYSE: LAZ)
Our second pick is a company that pays a 3.28% yield, raises its dividend every year and has been thriving since James Polk was president.
Lazard (NYSE: LAZ) is an asset manager and an investment bank that’s been around since 1848. It operates in 43 cities within 27 countries. Lazard is widely considered the top boutique investment bank. It even generates more investment banking revenue than some of its larger peers.
Lazard has been in the asset management business since 1953. It has $226 billion under management. Lazard operates 33 mutual funds and two closed-end funds, and offers alternative investments.
Lazard has raised its dividend every year since 2011. It currently pays $0.44 per share quarterly, which comes out to $1.76 per year
That gives us a yield of 3.28%. That’s not bad considering the company has boosted its dividend by an average of 23.12% per year over the last five years.
Forever Dividend Stock #3: Texas Instruments (Nasdaq: TXN)
Our next pick is one of the world's leading chipmakers.
Founded in 1930, and headquartered in Dallas, Texas, Texas Instruments designs, manufactures and sells semiconductors to electronics designers and manufacturers worldwide.
The company has a 2.41% yield, but has been growing the dividend at over 22.09% per year over the past five years. Though it recently raised the dividend 24%, we're going with a slightly lower growth forecast of 16.4%.
In the last twelve months, it only paid out 47.07% of its free cash flow in dividends, so it has plenty of room to continue to send more cash to shareholders.
Forever Dividend Stock #4: AbbVie (NYSE: ABBV)
AbbVie is another long-term dividend pick.
The company is a worldwide pharmaceutical developer and manufacturer. Two of its most promising drugs are Imbruvica and Humira.
Imbruvia treats chronic lymphocytic leukemia, mantle cell lymphoma and Waldenström’s macroglobulinemia, another form of lymphoma. Imbruvica is also being studied in other cancers and is expected to become one of the biggest-selling cancer drugs ever.
By 2020, Imbruvica is projected to generate between $4 billion and $5 billion in revenue annually.
And Humira is already one of most lucrative medicines on the market..
Humira, which treats rheumatoid arthritis, psoriasis and Crohn’s disease, logged $18 billion in sales last year and should do about and should do about $20 billion this year.
AbbVie’s current portfolio of drugs and its pipeline are expected to generate the second-fastest growth rate in the industry – not bad for a $157 billion company (that’s big, by the way). Among the large cap pharma dividend payers, it is first.
The tremendous growth from Humira, Imbruvica and the rest of AbbVie’s portfolio is projected to raise earnings by more than 25.4% per year over the next three years. Free cash flow is forecast to jump 20.8% in 2018. The company recently hiked its dividend by 35.21%.
It pays a solid 3.98% yield that is growing by more than 29.82% per year.
Forever Dividend Stock #5: Raytheon (NYSE: RTN)
Raytheon provides a wide range of defense products and services, from electronics systems to missile systems. It manufactures the same kind of FLIR (forwardlooking infrared) imaging technology that Boston authorities used to target the Boston Marathon bombers.
Raytheon's biggest customer by far is the United States government. But it has been increasing its international business. The company has a $2.4 billion contract to provide Qatar with Patriot Air and Missile Defense Systems.
Sequestration or a smaller defense budget could cause revenue growth to slow. But with increased international business and the plethora of lunatics parading as leaders of nations, Raytheon's business should have no problem remaining strong enough to continue to generate gobs of cash.
And as income investors, that's what we're most interested in.
In the last twelve months, Raytheon generated $3.07 billion in cash flow from continuing operations. Free cash flow – a more conservative gauge of cash flow because it takes into account capital expenditures – was $2.39 billion. The company paid out $925 million in dividends for a payout ratio of just 38.70%.
That means even if free cash flow slips, Raytheon has plenty of room to not only pay the dividend but to raise it, like it has for the past nine years.
And those raises have been substantial. Over the past five years, Raytheon has increased the dividend an average of 9.72% per year.
The stock has a yield of 1.64%. Combined with the 9.72% average annual dividend raise, it fits in perfectly within the forever dividend stock system.
Forever Dividend Stock #6: Eaton Corp. (NYSE: ETN)
With a 3.42% dividend yield that we expect to grow 12% over the next several years, Eaton Corp. (NYSE: ETN) is the perfect setup for income seekers.
Eaton produces equipment that helps customers manage power more efficiently. It’s a huge business with more than 102,000 employees in 60 countries and customers in 175 countries.
It makes flight control systems, beverage distribution tubing, switches for keypads and thousands of other products.
Over the last twelve months, Eaton generated $2 billion in free cash flow. Over that same period of time it paid out $1.09 billion in dividends for a payout ratio of 54.5%.
That payout ratio is well below our target of 75%. And free cash flow is expected to improve substantially in the future.
Over the next two years, free cash flow is projected to grow an average of 9.79% year-over-year.
It should be more than enough to pay the rising dividend each year.
The company has raised the dividend 14 times in the past 16 years and annually since 2010. It has paid a dividend every year since 1923.
Considering the company's cash flow growth estimates, we expect Eaton to increase its dividend for the next several years.
And there is special tax treatment concerning its dividend…
Eaton is based in Dublin, Ireland. Typically, U.S. investors would have foreign taxes withheld from their dividend payments and then apply for the foreign tax credit with the Internal Revenue Service (IRS).
However, Eaton’s dividend does not have foreign tax withheld if you live in the U.S.
Additionally – and this is a very attractive feature – Eaton’s dividend is mostly considered return of capital, despite the fact that it is not a partnership like a master limited partnership.
Because the dividend is considered a return of capital, most investors will not be taxed on the dividend. Instead, it will lower their tax basis.
Because the dividend is not taxed, we suggest you keep Eaton in your taxable accounts. That way you’re not taking up room in your tax-deferred accounts.
You can reinvest the dividend and let it grow tax-deferred for many years or until your cost basis is zero.
Then you’ll have to start paying taxes on it. But we’re likely looking at 12 years before that happens.
The Cure for Stock Market Volatility
We believe forever … [more]
Forever  Dividend  Stocks  needsEditing  retirement  Investment  Stock 
august 2018 by neerajsinghvns
20 Awesome Dividend Stocks for Guaranteed Income | Investing | US News
20 Awesome Dividend Stocks for Guaranteed Income
The best of the best dividend stocks pay investors like clockwork every quarter. What's not to like?
The best thing about holding stocks, of course, is the fact that you're gaining wealth and building a nest egg that you'll need to retire someday. But what if you could get paid to hold those stocks? That's the beauty of dividend stocks, which offer a payout (usually quarterly) to shareholders. And the best dividend stocks are known as dividend aristocrats, which are companies in the Standard & Poor's 500 index that have increased their payouts for 25 consecutive years. Companies carry the dividend aristocrat label as a badge of honor, so these companies will fight to continue to increase these yields. All an investor has to do is collect their cash. And smile.
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20  Awesome  Dividend  Stocks  for  Guaranteed  Income  |  Investing  US  News  Interesting  Reading  InterestingReading  needsEditing 
august 2018 by neerajsinghvns
Mark Cuban owns just a handful of stocks and 'a whole lot of cash'
Mark Cuban owns just a handful of stocks and 'a whole lot of cash'
"I'm down to maybe four dividend-owning stocks, two shorts, and Amazon and Netflix," the billionaire says.
Matthew J. Belvedere
Billionaire entrepreneur Mark Cuban told CNBC on Monday that he's holding much more cash than he normally does because he's concerned about the stock market and U.S debt levels.
"I'm down to maybe four dividend-owning stocks, two shorts, and Amazon and Netflix. I've got a whole lot of cash on the sidelines," Cuban said on "Fast Money Halftime Report." "[I'm] ready, willing and able if something happens" to invest.
Cuban said Amazon and Netflix are his biggest holdings. But he refused to reveal his short positions, the stocks that he's betting against. "I'll keep that to myself."
"Put aside tariffs, put aside what the president is doing, he's got his reasons," said Cuban, an outspoken critic of Donald Trump as a candidate and as president. "There just no way where you can say, 'I just trust everything that's going on.' And that concerns me."
"We borrowed from the future to kind of pump up the current market," said Cuban, owner of the NBA's Dallas Mavericks. Running up the national debt is just as bad as the Federal Reserve continuing historically low interest rates much longer than needed after the 2008 financial crisis, he contended.
"If I get a feeling that [economic] growth will continue at 4-plus percent and the debt will then come down, then I'll get back into the market," said Cuban.
The "Shark Tank" investor provided no update in Monday's CNBC interview on whether he might run for the White House in 2020. Asked in June whether he's given more thought to running, Cuban told The New York Times via email then, "Yes. But not willing to discuss at this point."
Disclosure: CNBC owns the exclusive off-network cable rights to "Shark Tank," which features Mark Cuban as a panelist.
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Mark  Cuban  owns  just  a  handful  of  stocks  and  'a  whole  lot  cash  "I'm  down  to  maybe  four  dividend-owning  stocks_  two  shorts_  Amazon  AMZN  Netflix  ntflx  _"  billionaire  says.  NeedsEditing 
august 2018 by neerajsinghvns
These 9 Dividend Stocks Are About to Soar — Thanks to Donald Trump
These 9 Dividend Stocks Are About to Soar — Thanks to Donald Trump
August 13, 2018, 12:26 PM EDT
There’s a lot uncertainty in today’s market, but one thing is guaranteed. It’s as sure as the sun rising again tomorrow … The new tax reform law is about to cause an avalanche of money to rush into a very specific kind of investment in the weeks and months ahead — dividends.
As you probably know, the new tax law slashed the corporate tax rate from 35% to 21%.
According to Forbes, the corporate tax cut will save U.S. corporations $600 billion in taxes over the next decade. That’s $600 billion not going to Uncle Sam that companies will now put to use elsewhere.
InvestorPlace - Stock Market News, Stock Advice & Trading Tips
That’s a lot of money, but it’s not even the biggest piece of the big tax reform cash avalanche that’s coming.
According to the Citizens for Tax Justice, the total amount currently being stashed overseas by Fortune 500 companies in order to avoid paying U.S. corporate taxes tops $2.6 TRILLION!
Just look at some of the names on this chart … Apple (NASDAQ:AAPL), Coca-Cola (NYSE:KO), Amazon (NASDAQ:AMZN), General Electric (NYSE:GE), Microsoft (NASDAQ:MSFT), Gilead (NASDAQ:GILD), Intel (NASDAQ:INTC) … we’re talking about big, blue-chip companies hiding billions overseas. But the new tax law holiday lets companies bring back that cash at a 15.5% tax rate.
With $2.6 trillion sitting overseas, that’s potentially a $400 billion windfall for Uncle Sam …
And a more than $2 TRILLION bonanza for investors as companies put all that repatriated cash to work.
So where will it go?
Well, politicians and the media will tell you that bringing this money back will help fuel investment and create jobs.
But the pundits and the politicians will be wrong (yet again).
How You Can Grab Your Share of the $2.6 Trillion Tax Cut Bonanza
See, the tax holiday isn’t a new concept.
Every few years, Washington thinks it would be a great idea to allow this money back in at a lower rate to spur growth and increase wages.
In 2004, after President Bush delivered big tax cuts, he and Congress created a tax holiday.
Companies — many of the same ones sitting on big overseas profits today — were allowed to bring that cash back at an effective tax rate of only 3.7%. It spurred companies to bring $362 billion back to the U.S …
BUT almost none of it went to American jobs, wages, R&D or infrastructure.
Instead, according to studies by the National Bureau of Economic Research and the Wharton School of Business, this money was used to significantly increase payments to shareholders in the form of dividends and buybacks.
The studies proved that the increase in repatriated profits matched the increase in dividends and buybacks almost dollar for dollar.
And despite Washington’s best intentions, that’s exactly what will happen this time around, too.
Sure, some of that $2 trillion of corporate cash will go to workers.
Companies like American Airlines, Comcast, Bank of America and Disney have announced one-time bonuses for some workers. Walmart and Wells Fargo have announced they are raising their minimum wage to $15 an hour.
These announcements are great PR for these companies. And it’s a smart way to get on President Trump and congressional Republicans’ good side by giving them “proof” that their tax cuts are helping every day Americans.
But the reality is that this is small potatoes. The bonuses and wage increases announced only impact about 3.5 million of more than 125 million U.S. workers.
And the amount of money corporations will spend on wage increases and bonuses account for a drop in the bucket of total tax savings.
According to a report by Morgan Stanley, only 13% of companies’ tax savings will go to workers.
Where will the rest go?
A whopping 43% will go to stock buybacks and increasing dividends.
Bloomberg says that closer to 60% is going to buybacks and dividends. That’s still $1.5 TRILLION about to flood into dividends and stock buybacks.
That means this will be the largest investor windfall in history.
Before the ink was even dry on the new tax law in December, companies announced a slew of new stock buybacks …
Boeing announced an $18 BILLION buyback. Home Depot (NYSE:HD) committed to $15 billion. Honeywell (NYSE:HON) authorized another $8 billion for share buybacks. Bank of America (NYSE:BAC) said it will buy an additional $5 billion of its own stock.
MasterCard (NYSE:MA) $4 billion. United Airlines (NYSE:UAL), $3 billion.
Then right out of the gates in January another 61 companies announced $88 billion more in buybacks.
Wells Fargo (NYSE:WFC) announced a giant $22.6 BILLION share buyback plan.
Amgen (NASDAQ:AMGN), $10 billion.
Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) $8.6 billion.
Visa (NYSE:V), $7.5 billion.
Ebay (NASDAQ:EBAY), $6 billion
Lowes (NYSE:LOW), $5 billion …
In February, Cisco (NASDAQ:CSCO) announced a massive $25 million buyback plan. Applied Materials jumped in to the tune of $6 billion.
In May, American companies announced a record $201 billion in stock buybacks and cash takeovers.
Apple accounted for half of that, announcing that it would buy back $100 million in stock.
Micron Technology (NASDAQ:MU) announced a $10 billion buyback and Qualcomm’s (NASDAQ:QCOM) $8.8 billion.
I could go on and on and on.
We are looking at the biggest buyback announcements ever recorded so early in the year.
And this massive spending spree is likely just the start. JP Morgan forecasts an $800 billion buyback boom thanks to tax reform.
Buybacks are pouring $4.8 billion a DAY into certain stocks.
And that number will grow in the weeks ahead. Here’s why these buybacks matter …
When a company buys back its own shares, it reduces the number of shares in the market.
That’s good for shareholders for several reasons.
First, no matter what else happens in the market, buyback programs also mean these stocks have a guaranteed flow of buying pressure as they snap up shares of their own stock.
And companies love to buy their shares when they are cheap. So these stocks can see an influx of buying anytime their stock is down, which acts as a floor under the stock price.
Second, reducing the number of shares available means the earnings per share goes up.
AND the P/E ratio (price-to-earnings) goes down.
Both of those things make the stock more attractive to investors.
So new investors pour more money into the stocks, sending the share price higher.
In addition to pouring their tax savings into stock buybacks, companies plan to return a big chunk of their tax savings and cash stash to shareholders through dividends.
Since the tax bill became law, a slew of companies have announced they were raising their dividends.
Constellation Brands (NYSE:STZ) announced a 42% dividend hike.
Boeing (NYSE:BA) announced a 20% dividend hike.
MasterCard raised its dividend 25%.
First Horizon (NYSE:FHN) raised its dividend 33%.
Sabine Royalty Trust (NYSE:SBR) jacked its payment 26%
Meridian Bancorp Inc. (NASDAQ:EBSB) a 25% increase.
Yum Brands (NYSE:YUM) a 20% increase.
And Toll Brothers (NYSE:TOL) and AbbVie (NYSE:ABBV) both hiked 35%.
Dividend increases for the first quarter came in at a whopping $19.9 billion. That’s more than double the same time last year.
Here’s why these dividend increases matter …
Obviously, anyone who owns these stocks will see bigger dividend checks.
And not only will shareholders be rewarded with more income … higher dividends will make select dividend stocks even more attractive, causing more investors to pour in, driving these stock prices even higher.
But there’s another reason we want to buy stocks that are increasing their dividends …
Over the last 30+ years, there is one type of stock that has beaten all others, in good markets and in bad …
Stocks that raise their dividends.
These “dividend growers” have outperformed non-dividend paying stocks by a huge margin.
As you can see from the chart below, a $10,000 investment in non-dividend paying stocks in 1972 would be worth just $30,136 now.
But that same $10,000 in stocks that are increasing their dividend would be worth a whopping $630,024.
That’s an extra $600,000 in your nest egg by investing in dividend growers.
A rising dividend alone isn’t enough to make a stock a good buy.
But I’ve carefully selected nine stocks that are not only increasing their dividend, but also sport INCREDIBLE fundamentals like rising cash flows and solid earnings growth.
Stocks like:
Those are just a few of the stocks I’ve hand-picked for readers of my Growth Investor research service.
You can get their names and my full analysis on each one in my new report, 9 Rising Superstars: A-Rated Stocks with Growing Dividends.
There is a massive, unstoppable flood of money about to pour into the market. You want to own the stocks that will attract the lion’s share of that money.
I’m very confident this is one of the biggest money-making opportunities you’ll see in years. That’s why I’ve produced an entire online presentation on it. You can view this presentation, learn more about this opportunity, and learn how to access my list of “super elite” dividend paying stocks by clicking right here.
Regards,
Louis Navellier
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august 2018 by neerajsinghvns
These 5 tech stocks are in a dot-com-like bubble (and they aren’t all FAANGs) - MarketWatch
These 5 tech stocks are in a dot-com-like bubble (and they aren’t all FAANGs)
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Spot the micro bubbles.
Although the overall stock market looks reasonably valued, there are pockets of extraordinary risk where stocks with 2000-bubble-like valuations lurk.
Specifically, there is a “micro bubble” in certain tech stocks, where valuations reflect expectations for future cash flows that would require unrealistically high margins, growth, and market share. These expectations might not be so “bubbly” if not for the fact that the current margins and cash flows of these companies have trended at very low or negative levels for years.
5 tech stocks in a micro bubble
Figure 1 lists the five tech stocks we put in our first micro bubble. They share a few key characteristics:
• Low or negative return on invested capital (ROIC) and free cash flow
• Unrealistically high valuations: all 10 companies either have negative economic book values, or they have a PEBV above 20
• Expectations that they achieve heretofore unseen dominant market shares
These are five of the largest micro-bubble companies. Briefly, here’s what makes each of these companies part of the micro-bubble.
Amazon
Fun fact: Amazon’s AMZN, +0.20% $885 billion market cap is higher than Walmart WMT, +0.45% Home Depot HD, +0.69% Oracle ORCL, -0.39% and Disney DIS, +0.53% combined. Investors are betting that Amazon can grow to dominate multiple industries while earning significantly higher margins than it does now.
Amazon has finally shown an ability to earn a profit, but it still must grow net operating profit after tax (NOPAT) by 30% compounded annually for 19 years to justify its current valuation. See the math behind this dynamic DCF scenario. For comparison, only six companies in the S&P 500 SPX, +0.28% managed to grow NOPAT by 30% compounded annually for just the past 10 years. Maintaining that growth rate for nearly double that time frame would be an extraordinary feat.
Amazon prefers to point investors to free cash flow, but its reported free cash flow numbers are an illusion. In reality, the company continues to experience significant cash outflows.
Investors who focus on understanding true cash flow and fundamentals know the disconnect between actual cash flow and the market’s expectations for future cash flows borders on the absurd.
Netflix
Netflix NFLX, +0.16% has become one of the leading creators of original content, but it’s done so with an unsustainable cost structure. As this excellent video from The Ringer explains, Netflix earns an accounting profit, but only because its reported content costs understate its actual content spending by about 50%. The company continues to lose billions of dollars a year and grows increasingly dependent on the high-yield debt market.
Felix Salmon of Slate recently published a piece titled “Netflix Can Either Become the Dominant Media Monopoly of the 21st Century or Go Bust.” The market values Netflix as if it will be that dominant monopoly when, frankly, there’s a very good chance it goes bust. Risk/reward for this stock is so bad that no investor with any respect for fundamentals can own this stock in good conscience.
Salesforce.com
Salesforce CRM, +1.21% has racked up losses for years while pursuing growth at any cost. The theory behind this strategy is that the company will eventually be able to cut back heavily on its marketing and R&D costs while maintaining its recurring revenue stream.
Even if this strategy does work, which is far from certain, the company is currently valued at 10 times revenue, or double the valuation of Oracle. This hasn’t dissuaded bulls, as Salesforce generates classic tech bubble-style headlines like “Ignore Salesforce’s Valuation.” In other words, they want investors to ignore fundamentals.
Tesla
Tesla TSLA, -1.09% currently has a higher market cap than GM GM, -0.05% despite selling about 1% as many cars in 2017. What’s more, GM is already ahead of Tesla in self-driving technology and rapidly catching up when it comes to electric vehicle production.
Elon Musk keeps promising that Tesla will revolutionize the auto industry, but so far Tesla hasn’t shown an ability to navigate the manufacturing logistics that the established auto makers figured out decades ago. The company’s valuation is blind to fundamentals and seems entirely focused on the cult of personality that has built up around Musk.
Read: Tesla confirms intention to go private, sending stock up 11%
Spotify
Spotify Technology SPOT, -0.24% wants to disrupt the music industry, but so far it remains beholden to the Big Three record labels that own 85% of the music streamed on its platform. The market thinks of Spotify as a trendy tech company, but as we wrote in our report on the stock, the economics of its business are more similar to the movie theater industry.
Spotify’s leverage against the record labels is further weakened by the rapid growth of competitors like Apple Music AAPL, -0.08% It’s hard to see how Spotify can justify the growth expectations implied by its valuation unless it could pull off the unlikely feat of taking over ownership of its content from the labels while holding off competition from other streaming services (all without having to overspend like Netflix has).
Again, we see a company where the valuation reflects the best-case scenario with little to no tether to fundamentals.
How to bet against the micro bubble
Investors that want to bet against these micro-bubble stocks can short them directly, but that can be expensive and risky for these momentum-driven companies. As the saying goes, the market can stay irrational longer than you can stay solvent.
Another way to profit from the busting of this micro bubble is to invest in the incumbents from which these companies must take major chunks of market share. When these micro-bubble stocks fall back to earth, a great deal of capital should be reallocated to the incumbents.
Macro bubbles vs. micro bubbles
Today’s market has some micro bubbles, or smaller groups of overhyped stocks trading at ridiculous valuations.That makes it very different from the tech bubble, which was a macro bubble, a marketwide phenomenon that distorted the valuation of the entire market.
A few new features are shaping the market now and explain why today’s bubbles are unlikely to spread to the entire market, at least for the foreseeable future:
• Politicians and policy makers are focused on preventing macro market crashes. Today’s politicians and policy makers are heavily shaped by both the housing bubble of the mid-2000s and the tech bubble of the late 1990s. They will likely do everything in their power to prevent recurrence of such cataclysmic events on their watch.
• Rising influence of noise traders. Noise traders, who make investment decisions based on noise and have no regard for fundamentals, are an increasingly influential force in today’s market. Roughly a quarter of all U.S. adults with internet access are retail online traders. That’s around 50 million investors who don’t have professional trading (much less investing) experience and might be more susceptible to buying into “story” stocks without understanding the fundamentals. There’s power in those numbers.
• Overhyping “transformative” technology. The splintering of online media has led journalists to overhype nearly every new technology and trend in a relentless competition for clicks. For example, despite the “Retail Apocalypse” narrative, brick-and-mortar sales still account for 90% of retail sales, and Walmart earned nearly three times more revenue than Amazon last year. In reality, very few new technologies are as transformative as we like to imagine.
• Value transfer vs. value creation. Too many investors overestimate the value-creation opportunities for new technologies. Even when technologies are transformative, predicting who will reap the benefits of these technologies is difficult. Often, most of the value accrues to end users/consumers and not corporations. When it does accrue to a company, it’s usually at the expense of another company. During the tech bubble, bulls believed the internet would make our economy radically more productive and allow the GDP growth rate of around 5% in the late 90’s to persist for many years. When this utopian future failed to materialize, the market collapsed. By contrast, today’s micro-bubble companies compete against firmly established incumbents from which they must take large chunks of market share to survive. Instead of adding value, these companies aim to take value from existing players. Even if they succeed, we think much of that value will eventually pass to consumers.
This last point is key. In 1999, investors gave Microsoft MSFT, -0.10% its absurdly high valuation because they believed its software would create enormous amounts of value and growth for thousands of other companies. On the other hand, Tesla’s sky-high valuation implies it will take market share away from General Motors and Ford F, +0.50% which decreases the valuation of those companies.
These modern-day micro bubbles reflect the zero-sum nature of today’s crowded and more mature competitive landscapes.
Why we’re not in a macro bubble
Figure 2 sums up the difference between the tech bubble and today’s market pretty clearly. It shows the price to economic book value (PEBV) of the largest 1,000 U.S. stocks by market cap going back to 2000. PEBV compares the current valuation of a company compared to the zero-growth value of its cash flows, i.e. NOPAT, so a higher PEBV means the market expects more future cash flow growth.
While the market’s PEBV has more than doubled since 2012, from 0.7 to 1.5, it’s nowhere close to its tech bubble level of 5.7.
There are definitely some outrageously valued companies out there, but those high valuations … [more]
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august 2018 by neerajsinghvns
5 Stocks That Should Start Paying Dividends
5 Stocks That Should Start Paying Dividends
August 6, 2018, 9:37 PM EDT
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Investors tend to be drawn to hot technology and biotechnology stocks for their growth prospects - not for the cash they return to shareholders. But several well-known tech and biotech stocks could afford to invest in their businesses, buy back their shares and pay dividends, if only they chose to.
When it comes to returning cash to shareholders, corporate management often prefers stock buybacks to dividends because it gives them flexibility. A company can adjust its share repurchases according to business and market conditions. A dividend is a commitment. The market often exacts severe and swift revenge if a company cuts or suspends its payout.
The initiation of a dividend can also be taken as a sign that a company or stock's best days are behind it. A quick look at Apple's (AAPL) performance shows that's not necessarily the case. The company reinstated its dividend in 2012 after a 17-year hiatus. Between price appreciation and payouts, Apple stock has delivered a total return of about 170% since March 2012, when it announced plans to reinstate its dividend later that year - the Standard & Poor's 500-stock index is up about 130% over the same span, including dividends.
The following five stocks don't yet offer dividends, but they should ... and could. Each has the cash-generation ability to start a regular payout without giving up on share repurchases and investments in future growth.
SEE ALSO: 53 Best Dividend Stocks for 2018 and Beyond
Adobe Systems
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Market value: $124 billion
Analysts' opinion: 15 strong buy, 1 buy, 7 hold, 0 sell, 0 strong sell
Adobe Systems (ADBE, $253.28) has long been dominant in its niche of providing software for designers and other creative types. Photoshop, Premiere Pro for video editing and Dreamweaver for website design are just some of its hit products, and its shift to delivering them through cloud-based subscription services is generating tremendous growth.
Revenue is forecast to rise 22% this year and 19% next year, according to a survey of analysts by Thomson Reuters. Earnings are expected to increase at an average annual clip of 24% for the next half-decade.
Investors aren't clamoring for a dividend with that sort of torrid growth on the horizon. And it's not like Adobe isn't returning cash to shareholders already. It spent $1.6 billion on stock buybacks over the 12 months ended June 1, according to S&P Global Market Intelligence. But it could afford to give them more.
Even after share repurchases and interest payments on debt, Adobe generated free cash flow - the mother's milk of dividends - of $2.6 billion during the 12 months ended June 1.
SEE ALSO: 39 European Dividend Aristocrats for International Income Growth
Alphabet
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Market value: $861.4 billion
Analysts' opinion: 24 strong buy, 4 buy, 2 hold, 0 sell, 0 strong sell
Alphabet (GOOGL, $1,238.16), the corporate parent of Google, is another technology giant with such outsize growth prospects that it can get away with not paying a dividend.
But the fact remains that it easily could - even after European regulators hit it with a record $5 billion antitrust fine.
The search giant's revenue is forecast to increase 23% this year and 19% next year, according to Thomson Reuters data. Earnings are expected to increase at an average annual rate of 18% for the next five years.
Alphabet is plowing investments into the next big things. It has artificial intelligence, machine learning and virtual reality in its sights, and it's already a major player in cloud-based services. But it's still swimming in cash.
The company had $102 billion in cash and short-term investments as of June 30 and just $3.9 billion in long-term debt, according to S&P Global Market Intelligence. Alphabet bought back $6.3 billion of its own shares over the 12 months ended June 30, and still generated $22 billion in free cash flow, so it clearly has the financial means to initiate a dividend without risking its R&D.
SEE ALSO: The 10 Best Dividend Stocks of All Time
Biogen
Courtesy Citizen Schools Photo via Flickr
Market value: $69.0 billion
Analysts' opinion: 17 strong buy, 1 buy, 7 hold, 0 sell, 0 strong sell
It might be time for Biogen (BIIB, $344.21) to start paying a dividend.
It wouldn't be the first big biotechnology stock with slower growth prospects to do so. After all, peers such as Amgen (AMGN) and Gilead Sciences (GILD) pay dividends with yields of 2.7% and 2.9%, respectively.
A dividend also could help smooth out some of the volatility that BIIB investors have had to deal with. Mixed results from a mid-stage clinical trial of Biogen's promising Alzheimer's drug made July a month to remember. Biogen rose more than 30% between June 29 and July 25 ... but the stock is down by double digits ever since.
Expected top-line growth isn't as explosive as Alphabet and Adobe, at just 7% this year and 3% next year. Annual long-term earnings growth is promising, though, at nearly 8% for BIIB, according to Thomson Reuters.
Biogen bought back $3 billion of its own stock over the 12 months ended June 30, while generating $3.9 billion in free cash flow even after paying interest on debt. Biogen certainly can afford to return more cash to shareholders.
SEE ALSO: 10 Double-Digit Dividend Growth Stocks to Shield Your Portfolio
Booking Holdings
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Market value: $98.4 billion
Analysts' opinion: 15 strong buy, 4 buy, 8 hold, 0 sell, 0 strong sell
Booking Holdings (BKNG, $2,029.71), the online travel website operator formerly known as Priceline.com, has sturdy growth prospects, but it's not like they're accelerating anymore.
Analysts expect earnings to increase at an average annual rate of 14.7% for the next five years. That compares with average annual earnings growth of 15.6% over the past five years - in other words, good, but slowing down. Revenue is forecast to rise 19% this year and 12% in 2019.
Booking's strategy of growth through acquisitions and investments hasn't precluded it from buying back its own stock - or generating ample free cash flow. The company repurchased $2.3 billion in BKNG shares in the 12 months ended March 31. It also generated $3.4 billion in free cash flow after paying interest on debt.
Booking's shareholders aren't clamoring for a dividend, but it absolutely could afford to initiate one. That would ensure a little extra total return and perhaps tamp down what historically has been a relatively volatile stock.
SEE ALSO: The 7 Highest-Rated Dividend Aristocrats
Facebook
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Market value: $515.9 billion
Analysts' opinion: 25 strong buy, 3 buy, 2 hold, 0 sell, 0 strong sell
Facebook (FB, $177.78) set a record for the most market value wiped out in a single trading session when the stock lost 19%, or $120 billion, on July 26. That came on fears that it has entered a new era of slower revenue growth and narrower profit margins. Shares have drifted lower ever since.
Earnings that have grown at an average annual rate of 64% for the past five years are now expected to rise "only" 21% a year for the next half-decade. Revenue is forecast to increase 37% this year, but "just" 25% next year.
If Facebook's days of outrageous growth (relatively speaking) really are over, one thing it could do to sweeten the pot for its stock is to start paying a dividend. It has more than enough firepower to do so and still pour resources into acquisitions, research and development.
Facebook had $42.3 billion in cash and short-term investments as of June 30 - and no long-term debt against it. It bought back $6.7 billion of its own stock during the 12 months ended June 30, while generating $11.3 billion in free cash flow. Returning some more of that cash to shareholders could go a long way toward rebuilding faith in Facebook stock.
SEE ALSO: 8 Great Dividend Stocks Yielding 8% or More
EDITOR'S PICKS
53 Best Dividend Stocks for 2018 and Beyond
Millionaires in America: All 50 States Ranked
20 Best Small-Cap Dividend Stocks to Buy
Copyright 2018 The Kiplinger Washington Editors
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august 2018 by neerajsinghvns
Apple and FANG could lose a third of value, market watcher warns
Apple and the FANG stocks could lose at least a third of value, market watcher warns
Keris Lahiff
Wall Street's crown jewels, the FAANG stocks, have lost their shine lately.
Facebook, Apple, Amazon, Netflix and Google parent Alphabet are selling off again Monday after losing a combined $185 billion over the previous two sessions.
Ahead of Apple earnings scheduled for Tuesday evening, Larry McDonald, editor of the Bear Traps Report, warns to stay away from what has been one of the hottest areas of the market this year.
"These are stocks you want to run away from," McDonald told CNBC's "Trading Nation" on Friday. "I see potentially 30 percent to 40 percent downside on the FAANGs."
A 30 percent decline would turn Apple and Alphabet lower for the year. Facebook is already negative for 2018 and currently trading in a bear market having fallen more than 20 percent from its 52-week high.
Netflix is close to a bear market, but would still be positive for the year if it fell 30 percent from current levels. Amazon would also remain higher for 2018, but would be pulled into a bear market.
McDonald sees a brewing crisis in passive investing, a method where capital is placed in market-weighted indexes over individual stock picks. The FAANG names make up a large portion of a number of popular indexes.
"About $6 trillion has come into passive management in recent, say, last five to 10 years, and all of that money has to go into the FAANG stocks," said McDonald.
Apple is the largest holding in the SPY S&P 500 ETF with a 4 percent weighting. Alphabet and Facebook make up a combined 5 percent, while Amazon makes up 3 percent. Apple, Amazon, Alphabet, Facebook and Netflix made up nearly 40 percent of the QQQ Trust.
McDonald's call on Apple is a contrarian one. Bill Baruch, president of Blue Line Futures, is bullish on the iPhone maker, alongside the majority of Wall Street analysts.
"Apple will be a buy at about $189 to $190.25. That's where I think you've got to step in and look to be buying that," Baruch said Friday on "Trading Nation." "I think we'll find Apple higher than this by the end of the year."
Sell-offs in Apple over the last two days have put the shares within Baruch's range. By midday Monday, it was trading at $189.90 a share.
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july 2018 by neerajsinghvns
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