I recently had dinner with my dad, and the topic of the low interest rates and bond yields came up in our discussion. Being retired, my father was really bent over backwards on the historically low yields available on bonds and fixed-income securities. You see, my dad has never really had a liking for the stock market, saying it is way too “risky” for him.
But with the five-year yield on the U.S. Treasury at a mere 1.05%, he was worrying about what he was going to do because he essentially lives off the interest on his investments. He got so desperate to actually seek the 3.30% yield that was available on the thirty-year bond.
Anyway, our discussion led to the idea of perhaps buying some dividend paying stocks for their higher yields and preferred tax treatment. My dad was open to this. We talked and talked, but in the end, he just did not feel comfortable about dividend paying stocks because of the risks they entail. Dad has always been about real estate investments, and he has made good money through them.
So while there are many seniors currently facing the same situation as my dad, the difference is that many have decided to take the bold move into dividend paying stocks.
Take a look below at the Dow Jones Industrial Average (DJIA), up over 17% this year as of last Friday. Not only have investors received some impressive capital gains from these dividend paying stocks, but the income stream has also been inviting, with the average dividend yield on the 30 Dow blue chips currently sitting around 2.71%. … Read More
If you’ve read my articles before, you will know that I have voiced my concern many times in the past regarding the Federal Reserve and its current aggressive monetary policy stance.
In my article “Dangerous Investments Fueled by the Federal Reserve,” I noted that it is extremely dangerous to be invested in bonds, because the current monetary policy plan is artificially inflating many parts of the economy and the financial sector.
I am not alone. Just the other day, David Stockman, former budget director for President Reagan, published an essay in which he also voiced his concern that the American economy is a bubble being pushed higher by the Federal Reserve. (Source: Rubin, R., “Stockman warns of crash of Fed-fueled bubble economy,” Bloomberg Businessweek, April 1, 2013.)
He believes that when the bubble bursts, the end result will be far worse, since there will be no more room for bailouts. He has been critical of past administrations for failing to reduce spending, leaving the debt burden on future generations.
This is not news to readers of this site, as I have warned of the side effects of the current monetary policy plan set forth by the Federal Reserve. I also try to provide a balanced approach, showing where there are short-term opportunities and how to avoid long-term pitfalls.
The current Federal Reserve monetary policy plan is having short-term positive effects, such as I’ve discussed before with the rebound in the housing and automotive sectors. These parts of the economy are extremely sensitive to interest rates, and as long as rates remain where they are over the next few months, we … Read More
The Dow Jones Industrial Average eclipsed a new record on Tuesday, when the blue-chip index surged to a new all-time record high of 14,261.46, easily blowing away the previous mark of 14,164.53 achieved on October 9, 2007. The move will be recorded as a major point in the evolution of the stock market, which was trading just above 8,000 a few years back, prior to the most recent bull market wave that led the index to its record high.
While I like records, I really kind of wonder if the Dow is deserving of it. Big U.S. companies are faring better, but the growth is nowhere close to what we saw prior to the Great Recession. The reality is that the pumped-up stock market may have a lot to do with the liquidity that is being pumped into the monetary system.
The easy monetary policy and historically low interest rates at near zero have artificially created gross domestic product (GDP) growth.
Think of it this way… Low interest rates mean very little returns. A typical one-year municipal bond was yielding 0.25% as of Tuesday, which is absolutely dismal for those looking for income. A five-year U.S. Treasury bond is yielding 0.78%. These are not rates that are going to attract the majority of investors to buy bonds—unless, of course, they have $10.0 million to invest, for example.
The end result is a shift to dividend paying stocks that provide much higher income potential, but with added risk of capital losses. However, the alternative is extremely miniscule income on bonds that are fueling the move from risk-free T-Bills to stocks that … Read More
The fiscal cliff is currently dictating the trading action in the equities market as we near December and the year-end. With 28 days left until the Bush-era tax cuts are allowed to dissipate, there is widespread fear and concern of a significant jump in taxes, including those on dividends, especially for those who invest heavily in dividend paying stocks.
The prevailing dividends tax of 15% is extremely accommodative to income-seekers, but under the fiscal cliff, we could see the tax on dividends surge to 39.6% for earners in the highest tax bracket. For dividend investors, this means a massive jump in taxes in 2013.
With the uncertainty of whether the fiscal cliff will be resolved prior to January 1, we are seeing numerous U.S. companies paying out special dividend payments to their shareholders now to avoid a potential massive tax hit for investors in the future years under the fiscal cliff.
These companies, whether or not they have historically been big dividend payers, are doing what they can to help shareholders by paying big dividend payments now under the lower taxes.
Just take a look at the numbers. In the period from the end of September to mid-November, Bloomberg says that 59 companies belonging to the Russell 3000 index announced special cash dividend payments, versus 15 companies in the same timeframe in 2011. (Source: “Special Dividends Surge Fourfold as U.S. Tax Increase Looms,” Bloomberg Businessweek, November 19, 2012.) The move to initiate special dividend payments is not a surprise, and I expect the dividend payments to continue over the next few weeks, unless a deal is struck.
Assuming the fiscal … Read More
The NASDAQ may be leading the way this year, but we are seeing some selling by institutional investors; you should make a note of this, since it could help in predicting markets. In my opinion, following where the professional money is flowing helps gives us another tool for predicting markets and helps us get a sense of what is happening.
The reality is that the pros generally have better access to the company’s executives and management and may be privy to better information, albeit they will surely never tell you this. Don’t believe me? Just try calling the company’s CEO. Your call will never be connected, as the assistant, or “gate keeper,” will not allow this. But if you were a top Wall Street analyst, your call would likely be connected. You may even be offered lunch.
The pros have an information advantage over the average Joe in predicting markets. The key would be to find out what the pros’ money is buying or selling, which helps when predicting markets.
The concept of tracking the money flow of institutional investors is the view that these experts are likely to understand the company’s situation more than anyone outside of the executive management group. By looking at the flow of money from institutional investors and monitoring what stocks they are buying, you can get a much better sense of what stocks may be in favor at that time, and this will assist in predicting markets. This especially holds true for the top-ranked institutional investors and money managers who are top in the money management business, because they are the very best and … Read More