Tag Archives: nyse

Should You Buy A Company After A Dividend Cut?

By Rupert Hargreaves Should you buy a company after it has cut its dividend? That’s the question Morgan Stanley’s analysts have tried to answer in a European Equity Strategy research note sent to clients today and reviewed by ValueWalk. Morgan’s research has been prompted by renewed investor interest in dividend cuts. Against a depressed earnings base, the market’s dividend payout level looks high in a historical context and the median stock’s payout ratio is close to a 20-year high. On a pan-European level, the payout ratio has exceeded 2009 levels. It’s also important to note that this is not an anomaly that is limited to a few key sectors, the percentage of stocks with a payout ratio in excess of 60% of earnings per share has reached the highest level in 20 years. Click to enlarge As European investors have seen over the past few months, even those companies that were considered dividend aristocrats aren’t in any way immune from payout cuts, with companies like Rolls Royce ( OTCPK:RYCEF ), BHP (NYSE: BHP ), EDF, RWE ( OTCPK:RWEOY ) and Repsol ( OTCQX:REPYY ) all cutting their dividends during the past six months. An updated study This isn’t the first time Morgan has investigated this question. Back in 2008, the bank conducted a similar research exercise and found that dividend cuts can indicate powerful inflection points in share prices. At the time, the research showed that investors could do well by buying stocks on dividend reductions, particularly those that are stressed. In the 2008 version, Morgan’s research showed that UK companies that cut their dividend tended to outperform thereafter, especially if the shares had previously been poor performers, the payout cut was large or the starting yield was high. Click to enlarge In this updated version, Morgan examines 372 instances of dividend cuts in Europe over the last ten years. The stocks are based on the current constituents of MSCI Europe IMI, with a current market cap bigger than $2 billion. To qualify as a dividend cut, the company’s dividend payout has to be reduced by 5% or more. Should you buy a company after a dividend cut? The results of this study are rather interesting. It appears that dividend cuts are indeed, often inflection points for stock performance. Morgan’s research on the 372 instances of dividend cuts in Europe over the last ten years shows that the median stock underperforms the market by 19% in the preceding 12 months but then outperforms by 11% in the subsequent 12 months, and by 19% by the end of year two. The probability of a stock beating the market in the following 12 months after a dividend cut is 65%, and 66% of the subsequent 24 months. Click to enlarge The research also showed that the strongest outperformance comes from stocks where the dividend yield ahead of the cut was 12% or higher with a hit ratio of 83% in the subsequent 12 months and 88% in the following 24 months. The weakest performance came from stocks trading on a dividend yield of 4% to 6% ahead of the announced cut. Stocks that underperformed the market ahead of the dividend cut announcement tended to outperform the most after a cut. Among the stocks that underperformed more than 60% prior to the cut, 74% outperformed on a 12m basis and 86% outperformed on a 24m basis. The weakest subsequent performance came from the group that underperformed less than 20%, with a hit ratio of 61%, even on a two-year basis. Click to enlarge And lastly, the size of the dividend cut has an effect on performance after the event. In the 372 cases studied by Morgan’s analysts, the average dividend cut is more than 80%. Stocks that cut their payouts by more than 60% outperformed the most post the cut. The weakest performing group is the one that cut the dividend by 20% to 40% – even on a 2-year view, only 56% of such companies outperformed the market. Click to enlarge Dividend Cut – The bottom line All in all, this analysis from Morgan presents a pretty compelling argument: investors should buy stocks on dividend cuts, particularly those that have underperformed significantly ahead of the announced dividend cut, that previously had a very high yield, and those that cut their dividend by 60% or more. This analysis is aimed at European investors and Morgan also provide some investment ideas in the form of stocks that cut their dividends in the last year and are ‘stressed’. Click to enlarge Disclosure: None

Despite The Mid-Week Attack In Belgium, Investors Are Net Purchasers Of Risk-On Assets

By Tom Roseen Soaring commodity prices, a weakening dollar, and dovish Federal Reserve comments helped push the Dow Jones Industrial Average into positive territory for the first time this year. The energy, materials, and industrials sectors got a boost early in the flows week after crude oil futures rose above $40/barrel for the first time since December 3, 2015. The major indices continued to rally after the Fed’s decision to leave interest rates unchanged and reducing the number of slated increases from four to two for 2016. On Friday, March 18, on the heels of a strong run-up in healthcare and financial stocks, the Dow and S&P 500 booked their longest winning streaks since early October, staying on the plus side for the fifth consecutive week. Investors appeared to have been cheered by the Fed’s positive outlook on interest rate hikes at a slower pace. M&A news in the middle of the flows week overshadowed a disappointing existing home sales report for February. However, the Dow snapped its seven-session winning streak when investors learned of the deadly terrorist attacks in Belgium that left 34 dead and numerous injured. Safe haven plays such as U.S. Treasuries and gold rallied on Tuesday as the news unnerved global equity markets. Financial stocks took the brunt of the decline as investors also began to reevaluate the impact negative interest rates will have on banks’ earnings. Crude oil prices dropped below $40/barrel, closing the flows week out at $39.79, after weekly oil supplies jumped by 9.4 million barrels, weighing heavily on the markets and erasing the S&P 500’s year-to-date plus-side return. For the flows week ended March 23, 2016, the year-to-date return for the S&P 500 Composite Price Only Index was minus 0.35%. Most pundits don’t expect a lot of movement in the last day of trading of this Easter holiday-shortened week. For the week, fund investors were net redeemers of fund assets (including those of conventional funds and exchange-traded funds [ETFs]), pulling out a net $10.0 billion for the fund-flows week ended March 23. However, the headline number was misleading. Investors padded the coffers of taxable bond funds (+$5.9 billion), equity funds (+$2.0 billion), and municipal bond funds (+$0.9 billion), while being net redeemers of money market funds (-$18.7 billion). For the fourth week in a row, equity ETFs witnessed net inflows, taking in $3.5 billion. As a result of rises in oil prices and good economic news during the week, authorized participants (APs) were net purchasers of domestic equity ETFs (+$0.6 billion), injecting money into the group for the fourth consecutive week. Despite global markets’ concerns about the attacks in Belgium and perhaps as a result of Chinese authorities considering loosening margin-trading requirements, APs – for the second week in three – were also net purchasers of non-domestic equity ETFs (+$2.9 billion). APs bid up some out-of-favor names, with the iShares MSCI Emerging Markets ETF (NYSEARCA: EEM ) (+$2.8 billion), the iShares Russell 2000 ETF (NYSEARCA: IWM ) (+$1.2 billion), and the SPDR Gold Trust ETF (NYSEARCA: GLD ) (+$1.0 billion) attracting the largest amounts of net new money of all individual equity ETFs. At the other end of the spectrum the SPDR S&P 500 ETF (NYSEARCA: SPY ) (-$1.1 billion) experienced the largest net redemptions, while PowerShares QQQ Trust 1 (-$0.8 billion) suffered the second largest redemptions for the week. For the second week running conventional fund (ex-ETF) investors were net redeemers of equity funds, redeeming $1.5 billion from the group. Domestic equity funds, handing back $2.2 billion, witnessed their seventh consecutive week of net outflows, while posting a weekly gain of 0.28%. Meanwhile, their non-domestic equity fund counterparts, posting a 0.24% return for the week, witnessed net inflows (although just +$668 million) for the seventh week in eight. On the domestic side investors lightened up on large-cap funds and mid-cap funds, redeeming a net $2.0 billion and $135 million, respectively. On the non-domestic side, international equity funds witnessed $222 million of net outflows, while global equity funds took in some $890 million net. For the fifth week in a row, bond funds (ex-ETFs) witnessed net inflows, taking in a little under $2.8 billion. Balanced funds witnessed the largest net inflows, taking in $1.1 billion (for their fourth week of net inflows in five), while corporate high-yield funds witnessed the second largest net inflows (+$0.6 billion). Despite the late-week flight to safety, government-Treasury funds witnessed the only net redemptions of the group, handing back $124 million for the week. For the twenty-fifth week in a row, municipal bond funds (ex-ETFs) witnessed net inflows, taking in $0.8 billion this past week.

Why I Haven’t Purchased A Stock In 30 Days

30 days everyone. It has been a long 30 days since I have purchased a stock. An investment. A bridge stone to financial freedom and it feels… well, there really isn’t one word for it. It is weird, fast and unusual, to say the least. As I sit and see the calendar continue to gain momentum towards, now, the end of March, I sit back and think, whoa, it’s been over 4 weeks since an investment move has been made. Why? Here is what I was able to come up with. 30 Days and No Purchase Why have I gone an alarmingly high 30 days with no stock purchase? It feels like 10 years ago and just yesterday at the same time that I made a wallop of an investment into T. Rowe Price (NASDAQ: TROW ) on the 24th of February. What’s interesting is the price point was at $66.45 and is now at $72.15 as of 3/24 close before the Easter weekend. That’s a $5.70 increase since the purchase date or a crazy 8.577% increase! What the heck is going on here? Hence, another reason why I haven’t really made a purchase. However, as I go down the winding path of a never ending banter, let’s list out some reasons. 1.) Appreciation/Crooked Graph of the Market – The market is showing “weird” signs of appreciation. With T. Rowe price above appreciating almost 9%, the market is acting quite goofy lately. Even ADM has increased over 10% since my last purchase. A reason why I haven’t purchased then, in the last 30 days, has been the market itself has made it “not easy” to make individual purchases. Actually, I just looked at the S&P over the last 30 days and the top 500 is up 5.5%: Click to enlarge 2.) Given that stocks are back on the rise – couldn’t have come at a better time for me. I have quite a bit of Federal & Local taxes to pay – love Uncle Sam, and this time – we are talking well, well over the 4 digit mark. Additionally, you combine that with two bachelor parties, two weekends and a big vacation trip planned coming up – the cash that I’ve been able to “save” at this time being will likely be used – all for great things, but nonetheless, takes “away” from the investing pot, hands down. Who knows – Bert’s been talking a big game of potentially selling his FirstEnergy (NYSE: FE ) stock – maybe I could do the same and have capital to use for a dividend foundation stock ? Eh? 3.) However – I am conservative in nature and I know I have budged quite high for these expenses listed above in #2. With that, I think I’ll have cash suddenly and my plan is to have it ready for my new found 2016 goal . That goal would be to staying committed on making larger investments into the stock market of $3,000+ each time, thus reducing trading costs and heavily increasing my dividend income and Dividend Reinvestment each time that newly acquired/added position pays out. What’s interesting – I could always download and use Robinhood and have absolute no trading costs, hmm… thoughts? 4.) My watch list isn’t so “watch” anymore. As you recall – back in the early days of March I had a what was called a February stock watch list blog post . What was on there? The likes of – Pfizer (NYSE: PFE ), Johnson & Johnson (NYSE: JNJ ) and Aflac (NYSE: AFL ). These were stocks I owned already, however, the prices at the time of the article were – $29.70, $106.38 and $60.97, a more compelling case. They all 3 are now trading, in order, $30.08 (Up 1.28%), $108.31 (Up 1.81%) and $62.70 (Up 2.83%). A.k.a. – they have all increased since then – not by too, too much, but all up nonetheless. If PFE dips back below $30 – my eyes are locked in there. But another reason – the stocks that I want, are more expensive and well, damn – no one wants that. 5.) Two words – Busy Season. Nuff Said. Overall Purchase-less Conclusion Here I am. Sitting on cash. Cash that I really can’t use due to those expenses above. However, the market has increased quite a bit that it has allured me away from being active into the market, but also busy season, has taken a toll on the free time of analyzing and staying in tune on the almost minute basis that I was on. Therefore, the combination of life events, tax consequences an appreciating market – has pushed me away from being active over the last 30 days. Can this be the first time that I don’t go out and buy an individual stock purchase in the month? I say individual stock purchase, as through work I still have 5% of my pay going to the Roth 401(k) option, so an investment still does occur, just isn’t an active investment purchase. What do you guys think? Have you guys slowed down at all and/or feel the same way? Would kill to hear your thoughts and what you are seeing. Any big bargains that have been in/out lately? Thanks again everyone, Happy Easter weekend, God bless and looking forward to talking with everyone. Talk soon!