The Dividend Investor’s Edge is a weekly newsletter designed to give you the investor a full picture of where the stock market is, and to equip you with important information I came across during the week, and what to look for in the week ahead, all constructed in an easy to understand format.
This newsletter is designed for investors of all levels.
Each Week I will discuss:
• An update on the Stock Markets major averages
• Stock Market: On The Horizon
• Notable Upgrades/Downgrades
• Dividend News
📈 Quick Look At The Markets 📉
As a reminder or for those of you new readers, in the “Quick Look At The Markets” section I plan to give you a recap on the prior week for the S&P 500 as a whole as well as the top performing and worst performing sectors. In addition, I will touch on volatility and fear, which are important factors to consider when investing.
Markets became more fearful as the week went on and we yet again ended the week in the red. We saw high growth continue to take a beating due to valuation, the idea of a 50 basis point hike in March, and the threat of a Russia invasion on investors minds. Year-to-date the S&P 500 is still down 8.8%, after falling 1.6% last week, making two red weeks in a row.
Here is the last weeks heat map for the S&P 500:
Top Sectors For The Week
Consumer Staples 1.11% (ONLY sector in the green this week)
Materials -0.26%
Consumer Discretionary -0.41%
Worst Sectors For The Week
Energy -3.71%
Communication Services -2.47%
Financials -2.29%
Fear Factor
Volatility is yet again back on the rise with the level of uncertainty surrounding a number of things impacting investors. Russia invading Ukraine is more a matter of when not if, which will most likely have a negative short-term impact on the global markets.
Inflation continues to run hot so the talk now is shifting to whether or not the Federal Reserve decides to rip the band aid off quick with a 50 basis point climb to try and slow inflation or whether they decide to go the slow and steady route of increasing rates every month at 25 basis points.
After a year of unrealistic valuations in many high growth stocks, investors are beginning to say “fundamentals matter” again, so that has been part of the downturn in certain stocks as well.
Fear and uncertainty is often expressed in the stock market through volatility. One way for investors to understand where the market as a whole is in terms of volatility is by monitoring the CBOE Volatility Index (VIX). The VIX represents the market’s expectations for near-term price changes within the S&P 500 index. The index is derived from index options with near-term expiration dates, projecting a 30-day forward projection.
The VIX ended the week with a reading of 27.75 with the 50-day moving average finishing at 22.32. Over the past two weeks, the VIX has shown that investors are yet again fearful with where the market is heading in the near term. A reading under 20 is when I consider things to be closer to normal.
Here is a look at the VIX chart with the 50-day moving average:
Another resource you can look at is the Greed and Fear Index that measures market sentiment based on the following seven factors: put/call ratios, junk bond demand, stock price breadth, market volatility, stock price strength, safe-haven demand, and market momentum.
Currently, the index has a reading of 37, which is pretty much flat from prior weeks reading of 34, still indicating higher levels of fear.
📰 Stock Market: On The Horizon 📰
In this section labeled “Stock Market: On The Horizon” I will discuss a variety of different topics that have gone on in the market and are on the horizon.
The VIX bouncing back high and the Russia situation is what concerns me more than the Fed currently. If I was only a high growth stock investor then the Fed would certainly worry me more, but I also believe a fed hike next month is already priced in. Now whether it is a 50 basis point hike could be up for discussion, but what the Fed is trying to accomplish is to slow inflation but also have a soft landing at the same time in the case of its impact on the overall economy.
With everything going on right now and the level uncertainty, putting money to work right now will have to be VERY calculated. My strategy has been to utilize options trading by selling puts and collecting premium on stocks I like. The key is that I use this strategy on stocks I like.
The markets are closed on Monday for the President’s Day holiday, but will return to trading on Tuesday.
I currently have open put positions I have sold on Home Depot (HD), Costco Wholesale (COST), Qualcomm (QCOM), and Tesla (TSLA). The strategy here is that I am selling puts at a strike price 10-15% below current levels that expire 30-45 days out. If the stock price stay above the strike price then I keep the premium and if the stock price falls below the strike, then I am on the hook to buy 100 shares per contract at the strike price.
In terms of macro news, January’s producer price index, which tracks wholesale prices, increased 9.7% year over year, close to a record increase seen last in 2010.
Investors also got retail numbers for January, which saw growth of 3.8%, well ahead of the 2.1% estimate and a large improvement from the 2.5% decline we saw in December.
Other news we got last week came from the Real Estate sector. Sales of previously owned homes in January rose 6.7% from December to a seasonally adjusted annualized rate of 6.5 million units, according to the National Association of Realtors. Housing has been a very hot sector for awhile now and part of that has been due to the lack of supply. Supply of homes for sale in January fell to a record low, down 16.5% from a year ago, which will certainly keep pushing prices higher. This tight supply has led to the median price of a home sold in January to $350,300, an increase of 15.4% from a year ago.
This week continues our busy earnings season, but before we look at whose reporting this week, let’s take a brief look at some of the reports from last week.
VIAC: It was a busy week for ViacomCBS, or should I say Paramount Global, which is the new name of the company as they turn even more focus to streaming with their Paramount+ offering. The company also changed their stock ticker to PARA. The company added 9.4 million subscribers to their Paramount+ streaming service, with a total of 56M subscribers across their platforms. Shares plunged over 20% on the week.
Adj EPS: $0.26, vs. $0.45 expected.
Revenue: $8.0 billion, vs. $7.49 billion expected
CSCO: Cisco reported strong earnings last week fueled by strong demand across the business with their third consecutive quarter of more than 30% total product order growth. Annualized Recurring Revenue grew to $21.9 billion in Q2, which equated to an increase of 11% year over year. The company also provided solid 2022 guidance. Management also increased the dividend and everything together led to shares increasing 6% during the week.
Adj EPS: $0.84, vs. $0.68 expected.
Revenue: $12.7 billion, vs. $12.4 billion expected
NVDA: Nvidia has been a darling for awhile now, but even a set of strong results was not enough to hold this high flyer up, at least for the week. Sales were within expectations but slowing growth and worsening margins. Nvidia, has a huge run way with how many irons they have in the fire, whether it is with computers, gaming, or electric vehicles.
Adj EPS: $1.32, vs. $1.22 expected.
Revenue: $7.64 billion, vs. $7.43 billion expected
WMT: Walmart is a retail name that has been impacted by not only inflation but supply chain issues as well, but management has done a fine job navigating everything. During the quarter, Sam’s Club comp sales increased 10.4% over the past year with membership income increasing 9.1%. Management also announced as massive $10B stock buyback plan. WMT shares ended the week up 2%.
Adj EPS: $1.53, vs. $1.50 expected.
Revenue: $152.87 billion, vs. $150.20 billion expected
DE: Deere has been one of my favorite investments to track over the years. Much of this has to do with how they are changing the agriculture industry and building self driving tractors, making them the Tesla of AG. The company raised their full year guidance, but investors were more concerned about margin pressures, which ended up seeing the stock sell-off 6% on the week.
Adj EPS: $2.92, vs. $2.23 expected.
Revenue: $8.53 billion, vs. $8.28 billion expected
This week continues to have some big dividend names reporting earnings that I will be following. Here is a look at companies that are reporting earnings this week (via @eWhispers).
Notable Earnings Calls I am watching closely:
HD
O
LOW
TJX
BABA
Here are some key data reporting due this week:
2/22: Consumer confidence index update
2/24: Initial & Continuing Jobless claims
2/24: New Home sales
2/25: Spending and Income updates
2/25: Pending Home Sales
As we have seen, volatility remains high and markets are expected to continue to remain choppy. Do not invest blindly and perform your due diligence because valuations matter again as investors have returned to their senses.
The plan in the week ahead is to closely watch the Russia/Ukraine tensions and wait for opportunities in high-quality stocks with a cash flowing business.
⏫ Stock Upgrades/Downgrades ⏬
In this section moving forward, I will add any notable analyst Upgrades or Downgrades I came across during the previous week.
Evercore rates Target (TGT) a SELL prior to 3/1/22 earnings
Wells Fargo lowered the PT of Citi (C) to $80
Wolfe Research names Raytheon its top pick in aerospace
B of A dropped Paramount Global (PARA) to hold, PT cut from $53 to $39
Intel (INTC) rated a sell at BMO Capital
💰 Dividend News
In this section I will detail what I am watching and any Dividend related news.
Aon (AON) announced $7.5B buyback plan and increased their dividend 10%
Allstate (ALL) increased their dividend by 5%
Arbor Realty Trust (ABR) increased their dividend by 3%
NextEra Energy (NEE) increased their dividend by 10%
Medical Properties Trust (MPW) increased their dividend by 4%
Coca-Cola (KO) increased their dividend by 5%
British American Tobacco (BTI) increased their dividend by 1.4%
Walmart (WMT) increased their dividend by 2%
Cisco Systems (CSCO) increased their dividend by 3%
Equinix (EQIX) increased their dividend by 8%
Sherwin Williams (SHW) increased their dividend by 9.1%
Extra Space Storage (EXR) increased their dividend by 20%
Barrick Gold (GOLD) increased their dividend by 11.1%
Advance Auto Parts (AAP) increased their dividend by 50%
Genuine Parts (GPC) increased their dividend by 10%
Other Resources
If you are interested in my Dividend Portfolio, I dropped a video that covered an updated to my entire Dividend Portfolio
Dividend Portfolio Update | February 2022
Here are a few of my latest YouTube videos to watch:
Top Dividend Aristocrats To Buy Now
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Have a Great Week!
Mark