The Dividend Investor's Edge Newsletter - February 14th 2022
Volume 4
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.
We were having a solid week in the markets until Thursday we sold off into the close and the selling picked up steam to close the week on Friday. Year-to-date the S&P 500 is still down 7.3%, after falling 1.8% last week, ending our two weeks streak of positive gains.
Here is the last weeks heat map for the S&P 500:
Top Sectors For The Week
Energy: 1.75% (This sector is up 26% on the year!)
Materials 1.14%
Financials -0.02%
Worst Sectors For The Week
Communication Services -3.86%
Information Technology -2.91%
Real Estate -2.76%
Fear Factor
Volatility was calming down for a few weeks, but uncertainty in relation to Russia’s invasion of Ukraine, inflation numbers that continue to be extremely high, and talk of more aggressive hikes by the Fed in the near future have investors becoming more fearful.
Fear levels still remain high, but things did improve as the VIX dropped during the week for the second consecutive week. Volatility levels are coming back towards normal, but that does not mean volatility is gone. We are still in the middle of earnings season, which could bring added volatility so be aware.
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 27.36 with the 50-day moving average finishing at 22.19. 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 33, which is pretty much flat from prior weeks reading of 35, still indicating higher levels of fear.
Some interesting things I saw during the week was how a few of these large Technology companies, such as Alphabet (GOOGL) and Advanced Micro Designs (AMD) reported very strong earnings during the week, which saw their share prices increase over 5% the day after reporting. However, by the end of the week, both stocks were in the red as the sell-off intensified towards the close of the week.
📰 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 close of the week gave me a little pause and has heightened my level of concern in the near term. As such, it will be important for investors that are looking to put money to work in the coming weeks to do so very intelligently.
The key right now, at least for me, is to focus on quality companies that have a proven business model and strong cash flows. Ultra-growth technology companies will continue to be hit or miss in the near-term, but that won’t stop me from investing in some of the larger tech names, such as Alphabet (GOOGL), which is a name I really like. Another name that I like, in the non-dividend paying segment, is The Walt Disney Company (DIS) who also reported strong numbers last week and solid subscriber growth from Disney+.
In terms of dividend stocks, a few names at the top of my list are Costco Wholesale (COST) and the Home Depot (HD). The way I am personally looking to play these stocks is by selling put options. This will allow me to collect premiums and potentially buy the stock at a lower purchase price than where they currently trade.
In terms of macro news, we continued to get inflation numbers that are piping hot. Over the past year, CPI climbed 7.5% in January. The inflation numbers have now led to many believing we will see between 5-7 rate hikes in the year. We may see a 50 basis point hike here next month which is going to put further pressure on growth stocks, so beware of that.
The other macro news for investors to beware of is the impact of Russia invading Ukraine, which is expected within the next few weeks. In the past, acts or even threats of war have sent investors running, but at the same time they have also provided great opportunity for long-term investors. Have some cash on hand to be ready when the time comes.
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.
SPG: Simon Property Group is the largest owner of mall properties, but not just the largest owner of malls, they also have the best portfolio of mall properties in the REIT sector. Strong management team will continue leading this company to higher highs.
FFO: $3.09, vs. $2.88 expected.
Revenue: $1.33 billion, vs. $0.63 billion expected
PFE: Pfizer will continue to benefit greatly from the COVID shots and ongoing booster shots that the government continues to buy. The company expects a combined $54 billion in COVID-19 vaccine and antiviral sales this year. The dividend seems very safe after a strong year, which will hopefully strengthen the dividend growth.
Adjusted EPS: $1.08, vs. $0.87 expected.
Revenue: $23.84 billion, vs. $24.20 billion expected
CVS: CVS had a strong showing in Q4 led by the COVID vaccines they administered during the quarter. CVS said it administered more than 8M COVID-19 tests and more than 20M COVID-19 vaccines nationwide in Q4.
Adjusted EPS: $1.98, vs. $1.88 expected.
Revenue: $76.60 billion, vs. $75.47 billion expected
DIS: Disney had a very solid earnings report, one that was coming off Netflix who had a less than stellar growth in subs. Where Netflix faltered, Disney took advantage by adding 11.8 million subscribers to Disney+. Parks and resorts performed “significantly better” than management expected as COVID restrictions lessen bringing more people to the parks. Encanto was a huge success for the company as has been the Book of Boba Fett on Disney+. The back half of the year is jam packed with more strong content and parks should continue to improve. With that, I added to my Disney position last week and will continue to do so on any drops.
Adjusted EPS: $1.06, vs. $0.63 expected.
Revenue: $21.82 billion, vs. $20.96 billion expected
KO: Coca-Cola has been reducing its number of products and focusing on its best performing products and that plan is beginning to show positive results. Management is expecting organic revenue growth of 7-8% in 2022 with adjusted EPS increasing 5-6%. The company raised prices which helped in the company beat on top and bottom line.
Adjusted EPS: $0.45, vs. $0.41 expected.
Revenue: $9.5 billion, vs. $8.93 billion expected
PEP: Like Coca-Cola, PepsiCo also reported a strong Q4 last week that saw boost from pricing increases leading to 12% organic sales growth. Transportation costs were a factor for the company, which negatively impacted operating profits. However, management increased the dividend 7% and announced a $10 billion share repurchase program.
Adjusted EPS: $1.53, vs. $1.52 expected.
Revenue: $25.25 billion, vs. $24.24 billion expected
This week is also jam packed with another round of important earnings results. Here is a look at companies that are reporting earnings this week (via @eWhispers).
Notable Earnings Calls I am watching closely:
VIAC
CSCO
NVDA
WMT
ROKU
DE
Here are some key data reporting due this week:
2/16: Retail sales update
2/17: Real Estate updates (Building permits, housing starts
2/18: Existing Home Sales
It has been a roller coaster earnings season, where investors have given very little room for error. We have some more key reports coming in this week, so I will continue sifting through those and providing you with updates on anything I notice or come across.
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.
Nothing new to make note of
💰 Dividend News
In this section I will detail what I am watching and any Dividend related news.
Weyerhaeser (WU) increased their dividend by 6%
Robert Half (RHI) increased their dividend by 13%
PepsiCo (PEP) increased their dividend by 7%
GlaxoSmithKline (GSK) increased their dividend by 21%
3M (MMM) increased their dividend by 0.7%
T Rowe Price (TROW) increased their dividend by 11%
DuPont (DD) increased their dividend by 10%
Yum! Brands (YUM) increased their dividend by 14%
Levi Strauss (LEVI) increased their dividend by 25%
Harley-Davidson (HOG) increased their dividend by 5%
Hasbro (HAS) increased their dividend by 3%
Other Resources
Here are a few of my latest YouTube videos to watch:
3 Dividend Stocks To Buy In February 2022
Top Dividend Aristocrats To Buy Now
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Have a Great Week!
Mark