InvestingDaily.com

Account Information

  • My Account

    Manage all your subscriptions, update your address, email preferences and change your password.

  • Help Center

    Get answers to common service questions, ask the analyst or contact our customer service department.

  • My Stock Talk Profile

    Update your stock talk name and/or picture.



Close
FEATURED STRATEGY

3 Cheap Stocks to Surge in a Market Crash

Boring, Predictable, No-Surprises Strategy Safely Generates $67,548Veteran economist Dr. Stephen Leeb has just released a new report detailing his top 3 stocks to survive an inflation-driven market correction. They include precious metal and copper miners sitting on reserves that could send their share prices up 3,886%, as well as a water infrastructure company with a global footprint in developing regions.
Click here to learn more.

 

Dividend Hikes Beget Share Price Spikes

By Jim Pearce on December 9, 2016

My IDEAL stock-rating system uses dividend yield and cash flow as two of its three components for good reason.  Over the long haul dividends account for roughly half of the stock market’s total return, and companies with improving cash flow are better able to raise their dividends while also having money left over to invest in the growth of their businesses.

After the Great Recession eight years ago, the stock market became fixated on growth as the Federal Reserve kept interest rates artificially low. But now that rates are rising and bond prices are tanking, dividends are making a comeback, based on the behavior of stocks that are raising their payouts while remaining profitable.

A couple of recent examples illustrate just how beneficial an escalating dividend payment can be to share price performance. Last week Personal Finance Growth Portfolio holding Eastman Chemical (NYSE: EMN) raised its quarterly dividend 11%, the seventh straight year the company has increased its annual payout. That pushed the share price above $76, up 20% from just two months ago.

This week The Buckle (NYSE: BKE), a stock recommended by our Systematic Wealth trading service a month ago, declared an annual special cash dividend of 75 cents per share in addition to a regular quarterly dividend of 25 cents, resulting in a quick 5% jump in its stock price. Like Eastman Chemical, The Buckle’s share price is also up 20% over the past two months.

Of course, the stock market has been on the upswing recently, increasing 3% the same time that Eastman Chemical and The Buckle each gained 20%. So clearly, companies that are up more than six times the change in the index must be benefitting from more than just a favorable tailwind. I believe this extreme outperformance is mainly due to a phenomenon I first described early this year after the Fed raised interest rates for the first time since the Great Recession eight years ago.

For the past 30 years bond prices have increased as interest rates dropped, enabling income investors to have their cake and eat it too in the form of cash flow plus capital appreciation. But when interest rates start heading back up, bond prices will drop, and investors will be forced to choose between cash flow from interest payments and capital losses as bond prices fall. Because most people don’t like seeing their portfolio values decrease, many bondholders may switch to high-yielding stocks to avoid losing money in bonds over the next decade.

Although the stock market is just as likely to go down as it is to go up in the short run, over the long haul it is a near certainty to appreciate. The same cannot be said of bonds. As long as interest rates continue rising, bond prices will most likely fall because bonds offer no growth potential. Experienced bond investors know that interest rate cycles are extremely long term in nature. The last time that rates cycled upward was after World War II, and they didn’t peak for another 35 years. For those three and a half decades, bondholders took a drubbing.

That doesn’t mean the same thing will happen this time, but it suggests holding a portfolio of fixed-rate bonds could become considerably less lucrative than putting the same money into high-quality stocks with a history of increasing dividend payments. I believe that is where some of the extra juice is coming from to energize companies like Eastman Chemical and The Buckle, and it is probably the beginning of a trend that will continue into next year and beyond.

Fortunately, you don’t have to look far to find several high-quality stocks that should meet your need for current income while also providing long-term share price appreciation. Our PF Income Portfolio yields 4.4% on average from an elite group of companies that score highest according to our SHIELD stock-rating system. If you currently own bonds, you may want to see which high-yield stocks we rank highest so you can maintain your cash flow while avoiding the near certain losses that most bonds will deliver to investors in the years to come.

 


You might also enjoy…

 

Obscure Tax Law Forces This Company to Pay Out 90% of its Profits

A 50-year-old loophole is forcing one company to pay out $9 of every $10 it makes from ironclad contracts with the U.S. Government.

In fact, over the past seven years, it’s made payments ranging from a few dollars… to tens of thousands of dollars… 30 times. Without a single cut! 

Most folks don’t even know this company exists, but the ones that do are making a mint.

Like Ted B., who’s set to receive a check for $1,096 just a few days from now.

Merrill H., a 58-year-old from New York, has collected over $3,385 so far. 

And retirees Beth and Terry P. have raked in $16,555.

I’ve put together a special report that will give you all the details, including simple instructions on how to get your name on the payout list before the next cutoff date.

You can get your copy here.

Stock Talk — Post a comment Comment Guidelines

Our Stock Talk section is reserved for productive dialogue pertaining to the content and portfolio recommendations of this service. We reserve the right to remove any comments we feel do not benefit other readers. If you have a general investment comment not related to this article, please post to our Stock Talk page. If you have a personal question about your subscription or need technical help, please contact our customer service team. And if you have any success stories to share with our analysts, they’re always happy to hear them. Note that we may use your kind words in our promotional materials. Thank you.

You must be logged in to post to Stock Talk OR create an account.

Create a new Investing Daily account

  • - OR -

* Investing Daily will use any information you provide in a manner consistent with our Privacy Policy. Your email address is used for account verification and will remain private.