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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.
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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

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