Eq: Dividends
(New York)
Covered calls are an old investing methodology, but one that does not get much attention. That said, employing covered calls can be a great income strategy. So what is a covered call? Simply put, it is the process of selling call options while simultaneously holding the underlying shares. The idea is to earn income from selling the call options, while hedging risk by holding the underlying shares. The ideal outcome is that the underlying share price rises but does not hit its strike price, yielding the seller both the income from selling the option and the capital appreciation of the shares.
FINSUM: In markets with big momentum this is not a great strategy, but in back and forth ones like those at present, it can be very effective for increasing income. There are a number of funds that also employ this strategy so you don’t have to do it manually.
(New York)
May was a rough month for dividend stocks. Many companies announced the suspension of dividends or at least a cut. However, 11 companies in the S&P 500 announced dividend increases. That is an interesting group to look at because it likely means their businesses are thriving. Ten of those are: Medtronic, PepsiCo, Clorox, Cardinal Health, Chubb, Expeditors International of Washington, Baxter International, Northrop Grumman, TE Connectivity, Ameriprise Financial.
FINSUM: Pepsi and Clorox are the most interesting of the bunch for us. Both are consumer staples and because of their unique positioning, both seem likely to thrive.
(New York)
Dividend stocks do not seem like a bad bet right now, so long as they are names with reliable dividends. Interest rate risk seems very minor, and stocks with decent cash flow appear likely to do well as yields stay ultra-low. These value stocks are favored by analysts because they are priced with much less bullish outlooks, meaning they have an additional margin of safety versus growth stocks. Here are the stocks: CenturyLink, Unum (UNM), Westrock (WRK), AT&T, HP, Xerox, Principal Financial, MetLife, and Tyson Foods.
FINSUM: This is a nice mix of stocks that should naturally be un-correlated to one another.
More...
(Chicago)
The early thinking about grocery stocks was that the big surge in demand at the start of the COVID lockdown was just a flash in the pan. However, as earnings and guidance is emerging from companies in the space (like General Mills), it is becoming apparent that demand for groceries because of a heightened preference for home cooking seems likely to stick around for a while.
FINSUM: We agree with the fundamental thesis here. Until we cure COVID, people are going to stay worried about public spaces, including restaurants. The trick to picking stocks is to understand where each company is getting its revenue. For instance, General Mills does a lot of sales through grocery stores so its stock is rising, but Molson Coors does a large share of its sales through bars and restaurants, so its stock is falling.
(New York)
Dividends and buybacks have been looking very weak. Many buyback programs have been suspended and are likely to be under political pressure, while dividends are looking very at-risk because of likely poor earnings. So where to get some stable dividends? Barron’s ran a piece picking 40 of the safest dividends in the market. Here is a sampling: Nike, McDonald’s, Target, Home Depot, Coca-Cola, Caterpillar, Honeywell International.
FINSUM: This seems like a sound list. The only argument we might have is that Nike might not be able to maintain the hefty price increases consumers have stomached over the last five years.
(New York)
Dividend stocks are a scary space right now. Not only are earnings likely to be very volatile, but companies have announced major dividend cuts and the suspension of buyback programs. With that in mind, here are some stocks that offer safe and rewarding dividends. Regulated utilities are a great place to turn because they have government-allowed profit margins and are very recession-resistant. Check out American Electric Power (3.3% yield), Dominion Energy (4.6%), FirstEnergy (3.5%), NextEra Energy (2.3%).
FINSUM: These seem like great bets. They are down a little since the COVID explosion, which has boosted yields, but utilities are generally great recession stocks.