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Dividend Stocks: Lose-Lose-Lose Proposition In Intermediate Term [View article]
Dividend Stocks: Lose-Lose-Lose Proposition In Intermediate Term [View article]
An extended view of this view that James largely suggests in (4) in his comment above is that a material portion of the operating improvements for corporations (i.e. earnings) over the past few years has resulted from a reduction in debt service due to refinancing higher rate debt at historically low rates. This means that earnings increases for the past few years have been due less to improved sales or productivity than in "normal" times (which is indeed the case). As rates begin to rise, even modestly, this effect will dissipate...and worse, when large portions of this debt begin to mature in five to ten years, it will become a drag on earnings as it will need to be refinanced at, likely, substantially higher rates. Unless sales and productivity increase to above normal levels (James' Pollyanna scenario), earnings growth will eventually slow or stop. It would be interesting to see if you took all the debt at S&P 500 companies and normalized the interest rate, what the negative effect on earnings would be and what the market's P/E is today based on such a calculation.
I think consumers will benefit much longer from this. I remember how my parents' 4% mortgage from 1953 looked so amazing in the 1970's. Today, this same thing will help the gen x, y and echos consume, save for their children's college and their retirements.
Bottom line, I think we have already seen the greatest effects from low rates. Some will linger but we will feel the hangover starting to kick in soon and the headache will get pretty nasty in five or ten years. Just my opinion based on your facts....after all, what are facts worth if you don't have an opinion about what they mean? Eventually, regardless of how many facts you collect and recite, predicting the future is always an opinion and we are all equally entitled to one. Until the future becomes the past, there is no way to prove whose opinion was more valid.
Dividend Stocks: Lose-Lose-Lose Proposition In Intermediate Term [View article]
While at first you seemed to be generalizing about dividend stocks, as the article progressed I think you made some good distinctions among sectors and individual companies. Your warnings on chasing high yielding investments are welcome to see.
Right now, I like wide moat companies at fair valuations in the tech, energy and medical sectors that yield less that 3% and have been yielding at or below that level for the past few years. I like many companies in these sectors for their total return prospects and the fact that the yield-starved masses have not driven their valuations to excessive levels based on dividend yields rather than intrinsic value.
Dividend Stocks: Lose-Lose-Lose Proposition In Intermediate Term [View article]
Roll out/consolidate (i.e. buying assets), as you suggest is just about game over IMO. Cap rates on quality real estate have plunged and, as interest rates rise positive leverage is disappearing and make ROE on new investments unattractive. Too much hot private equity money out there...
I think the real trouble for REIT's (and real estate in general) is about 5 to 7 years away when all the cheap long term debt they have put in place the past five years starts to roll over. Even with a strong economy, unless there is high inflation with it, there is no way IMO that REIT's will be able to absorb the added debt service with organic growth...it will be a significant drag and could lead to dividend freezes and cuts. I predict the market will figure this out ahead of time.
Ignoring Buybacks Can Be A Costly Mistake For Yield Starved Investors [View article]
I think the TrimTabs approach (reduced float) addresses one of the major concerns often expressed here...namely that repurchased shares are just being recycled for executive compensation (not that I believe this is a legitimate argument for the vast majority of buybacks). Thank you for contributing your expertise here.
19 Things I Like About Dividends [View article]
19 Things I Like About Dividends [View article]
Even if management controls a majority of the shares though, access to the public markets is still a critical avenue for these executives to maintain liquidity for their holdings. So, under most circumstances I don't see an advantage to them taking a company private.
Beyond that, highly compensated executives have fewer personal current cash flow concerns are going to be looking to their shares to build wealth and not current cash flow. This pushes them toward buybacks and not dividends. The new tax laws only made this equation more skewed than before. Still, they are smart enough to know that dividends need to maintained and grown just enough to placate the masses.
Tangential to this, I saw this interview live last week on CNBC...note Blankfein's blurb on compensation. This came after some strong jabs from Sorkin. http://bit.ly/WHoDju
19 Things I Like About Dividends [View article]
Dividend Investors To Face Significant Challenges Going Forward [View article]
Allow Interest Rates To Rise While Keeping Monetary Policy Accommodative [View article]
I think Bob is on to something and hopefully his former colleagues will take note. Of course, the banks will hate it as it would take away their mindless carry trade and force them to lend to small businesses...that will probably be enough to kill it prima facie. In that context, would be curious how Bob would propose addressing the issue of interest on reserves if you let Fed Funds slide up.
Larry Swedroe Positions For 2013: Resist The Temptation To Stretch For Yield [View article]
Larry Swedroe Positions For 2013: Resist The Temptation To Stretch For Yield [View article]
Why I Am Not Worried About The Fiscal Cliff And Dividend Tax Increases [View article]
http://bit.ly/SZ2jvQ
The Trillion Dollar Coin Idea: Beyond Stupid [View article]
U.S. Taxes: Who Makes And Who Pays - More Than The Rich Will Have To Pay More [View article]