Good morning.
Outperformance can go a long wayThe market eked out another 3% gain last week despite a rocky finish.  It was an unusual week as big tech faltered early in the week and financials began to lead.
However, as the week closed, it was back to what has been working.  As we closed out the month of May’s trading last week, we’ll have a chance to see just how resilient the market will be to data as the summer doldrums begin.

Now here’s the rest of the news:

 

June 01, 2019

Innovation, investing and gold … that either stops your heart dead … or gets your adrenaline flowing!

Let’s be honest, who out there really thought we could continue this bull run on the same trajectory it’s been following for the last year?

The fact that we’re seeing 1,000-point swings on the Dow in single trading sessions only speaks to just how far we have overshot reason and how deep we’ve strayed into the land of irrational exuberance.

Any way you look at it, the speculators are getting scared.  Is there any way we should look at gold differently?  Gold, and the companies that produce it, prospers during times of caution.  That hasn’t change in eighty some-odd-centuries.  Last year there was a new development within cryptocurrencies.  A lot of people checked it out!  Now, before you get angry and close out this blog, or throw your tablet out the window, let me explain: Evolution

The biggest problem with cryptocurrencies, and the biggest problem with physical gold, have one single solution.  Cryptocurrencies are inherently unstable investments because their value is under question.  Gold is a questionable investment because it’s heavy, easily stolen, not so easy to transfer or liquidate, and expensive to protect.

Just how well is that one company mated a cryptocurrency that’s backed by gold?

You tell me!  I would love to hear your thoughts, right now … right here!

June 01, 2017

Rich and Famous

Most people who call themselves “investors” really aren’t.

The average “investor” is really a trader.  He buys a stock with the hope that at some point in the future, he’ll find someone who’ll buy it for more than he paid.  He’s trying to time the market.  “Buy low and sell high,” right?

More often, however, people can’t stand the uncertainty.  Watching the market flip and flop all over the place leads to bad decisions.  People buy high and sell low.

But there’s an easier way…

Many investors overlook the fact that your true wealth is your income.

I’ll bet you have some idea of the total balance of your brokerage account – even without looking it up.  But you probably can’t quote the annual dividends your portfolio generates.

That’s a blind spot many investors have.  And it’s a mistake.  You shouldn’t measure your wealth by the balance of your bank account, but by the income it generates.

Income is what you live on.  Income is what gives you the freedom to enjoy your days, take vacations, or provide for your family and others.

When you buy 100 shares of a stock that pays $1 a year in dividends, you’ve just set yourself up for $100 a year in income.  With a little bit of investing acumen, that income stream should rise.

And a dividend is even more than just an income stream… Dividends are vital to the overall returns of your portfolio.  According to studies, dividends have accounted for about 43% of the performance of stocks in the S&P 500 since 1926.

That means if stocks return 7% a year, about 3% of that is dividends. That makes for a big chunk of returns.

That difference grows over time (an effect called “compounding”).  An investor who collected and reinvested dividends from 1940 to today would have earned 10 times as much as an investor who collected the capital gains on stocks alone.

Simply put, paying dividends is exactly what the stock market is about.

After all, a dividend can’t be faked.  Companies can employ a range of accounting tricks to beef up earnings.  They can come up with new grand “strategic plans” to paint a bright picture for the company’s future.  At times, some even engage in outright fraud.

But a dividend comes as real cash, straight from a real bank account.  It can’t be faked, cajoled, or conjured.  Only companies with sound finan-cial footing and real profits can pay dividends.  By focusing on divid-ends, you’ll immediately ignore many of the junk stocks out there in the market.

And by focusing on one specific number, you can make sure that the company is likely to keep paying out its dividend…

It’s called the “dividend-payout ratio.”  This is the percentage of earnings the company pays out as dividends, usually on an annual basis.  You can find dividend-payout ratios for most stocks on Yahoo Finance under “Statistics.”

You’re looking for sustainability in a dividend-payout ratio…

For example, a dividend-payout ratio of more than 100% is, by definition, not sustainable.  At that pace, the company will eventually run out of money.  Usually, a dividend-payout ratio of more than 100% is due to an accounting quirk that has reduced the company’s earnings on paper for a quarter or two.  Less often, it may indicate a special dividend was paid in the last year.

Of course, a dividend-payout ratio that’s too low suggests the company isn’t returning much money to shareholders.

As a rule of thumb, payout ratios in the range of 30% to 60% suggest that the company pays a generous dividend that still leaves some breathing room in the case of short-term market fluctuations.

It’s also helpful to read statements from management to find its “targeted” dividend-payout ratio.  When management announces a target and hits it consistently, it shows the company has the earning power to stay on track.

If a dividend-payout ratio makes you leery, it’s a sign to dig deeper.

The dividend-payout ratio can tell you a lot about an investment – including whether the company delivers consistent payouts.  And that’s vital for anyone investing in income.

Here’s to our health, wealth, and a great retirement,

REW

Join The Conversation