Rock Solid Yield: What others are suggesting for Solid Yielding Stocks.
by ilene - June 11th, 2010 12:23 am
Rock Solid Yield: What others are suggesting for Solid Yielding Stocks.
By Ron Rutherford, courtesy of Sabrient
In my last post, I opened the Rock Solid Yield category and briefly introduced you to Sabrient’s upcoming Platinum level subscriber product. To further define the overall strategy, I will compare and contrast our approach to some worthy suggestions by others.
Perhaps Motley Fool might have some thoughts on the what are the Best Dividend Stocks for Beginners? The question they pose to the round table of contributors and associates is:
I’m just starting, know little, have about $500, and want a solid stock with dividends as my first position. What should I look for?
All the writers provided good suggestions and ideas but the best was provided by Dan Caplinger. For a small first time investor with very limited funds, ETFs could provide diversification and thus lower risks. The Motley Fool, as well as the Rock Solid Yield (”RSY”) portfolio, look for “solid fundamental stocks” which pay dividends for years to come and increase in value over that time. But from the list of stock suggestions, it became obvious that they were not picking stocks strictly based on dividend yield percentages, as most are under 5%, with only BP yielding a generous 9%. Motley Fool’s advertising even promotes these ideas as 6 Secrets to Finding Dividend “Money Machines”.
6 Secrets of Dividend Investing:
How You Can Earn Great Returns with Less RiskFinding the best dividend stocks takes some legwork and careful analysis. However, here is how you can find the best long-term performers:
1. Avoid the Highest Dividend Stocks — You can’t pick stocks by dividend yield alone. Above-normal dividends are often a red flag of a company in distress. Studies have consistently shown that you will earn higher long-term returns by avoiding risky stocks with overly high dividends.
All six points made by the panelists are important considerations in making a Rock Solid Yield portfolio but “avoid” might not be the best describer of how to search out the best performing stocks. I believe a more productive approach is to be even more cautious and careful about higher paying dividend stocks. The higher the dividend yield, the greater the scrutiny should be. The risks associated with BP stock from the oil spill are well documented by the media. However,…
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DiggBasket of Income
by Chart School - March 28th, 2010 5:16 pm
Basket of Income
Courtesy of Allan
Biotechnology Basket has triggered another idea, a Basket of Income Stocks that will pay a healthy dividend when the Trend Models are LONG, and yet will not share the risk of loss when the Trend Models say, "Exit, go to cash."
The past few days I’ve been researching high-dividend paying stocks across diversified sectors, Bonds, Utilities, Oil & Gas, REIT’s and assorted other sectors. The concept is to put together a basket of these income generating companies that is as non-correlated as possible and where the individual stocks have historically trended well under the trend following algorithm either on the Daily and/or Weekly Models.
The results so far are very encouraging and I expect to be trading this basket myself, especially as a conservative, low-risk strategy for the benefit of conservative, low-risk accounts. As with the Biotechnology Basket, I’ll send it out to the email list first and eventually will post some if not all of the names here.
This is concept in beta phase right now, so all suggestions are welcome and encouraged. Below are some ideas along with their Weekly Trend Models. [click on charts to enlarge]
The goal will be to be collect the healthy payouts along with capital gains when the model is LONG and to be in cash on the sidelines when the model is SHORT, avoiding high risk periods characterized by weak and falling prices. The Trend Models are ideally suited for trading these kinds of stocks.
Where Have All The Divvies Gone?
by ilene - January 8th, 2010 7:29 pm
Where Have All The Divvies Gone?
Courtesy of Joshua M Brown, The Reformed Broker
Mark Cuban once remarked something to the effect of "stocks that don’t pay dividends are like baseball cards – only worth what you could convince the next guy to pay for them."
Floyd Norris looks at some statistics on dividend declarations last year:
Will stock investors who like receiving quarterly dividends have better news this year? S&P thinks yes, according to the article:
“The fourth quarter was in no way a good period for dividends, but compared to recent history it marks a significant improvement, and when added to the stabilization in increases, supports our belief that the worst is over for dividends,” said Howard Silverblatt, the senior index analyst at S.& P.
“Standard & Poor’s believes that the dividend recovery will be slow, and that it will take until 2012 to 2013 to return to where we were in 2007 and 2008,” he added.
The dearth of positive dividend news becomes even more vexxing in the context of our zero interest rate environment so let’s hope the rebound in payout increases happens.
Source:
As Dividends Have Fallen, So May They Rise (NYT)
Educational Videos
by Phil - August 28th, 2009 5:52 pm
The following is a collection of podcasts and videos from the Options Clearing Corporation and selected others.
The cover a lot of ground and new ones are occasionally added to their site. They are not as good as the coursework from MarketTamer, who are Option Sage’s excellent group but these are free (as opposed to $99 a month with Sage’s PSW special) so take a peek at the subjects that interest you:
First up is a very good introduction to options basics from Adam Lass, a very good overview. His next episode is the basics of call options – hopefully he’ll do more. Then we have the podcasts from OCC:
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Q3 $100,000 virtual Portfolio – The Income Producer
by Phil - August 23rd, 2009 10:58 am
I recently went down to Florida to see my folks and found something disturbing as I talked to their friends.
We all know that many people who have been on fixed incomes lost 50% of more of their virtual portfolios during the crash but what I hadn’t realized is how deeply this was impacting those retirees because their fund/pension managers have, for the most part, done nothing to adjust their investing strategies at the market bottom.
The average American has just $88,000 when they retire but we’re not talking about them – we are talking about the retirees we aspire to be – the upper percentile Seniors in like the ones in West Palm Beach and Boca Raton, Florida. The average couple there had closer to $1M in portflio assets before the crash and closer to $600,000 now. Even so, that can cause quite an income adjustment for a retired couple.
Fortunately most of these people own their homes and get free government health care (Medicare) so they are not as devastated as younger Americans who are still paying off their homes and just working on saving for retirement while trying to provide health care and education for their children. With Social Security (another thing that is iffy for us younger Baby Boomers down the road) adding $2,000 a month, the average 6% rate of return on a balanced virtual portfolio of $1M was $5,000 a month plus $2,000 from SS = $7,000 a month, generally enough to pay taxes and bills for the house, eat out once in a while, support 2 cars, do a bit of traveling and even belong to a golf club (dues in the average high-end development are $15,000 a year).
The idea, of course, is to do all this WITHOUT dipping into the $1M principal that’s invested in stocks and bonds. Then came the crash. The S&P dropped from 1,500 to 666, down 55% in less than a year. Suddenly the $5,000 a month that came from investments dropped to $2,500 a month or less. Even worse, many classic virtual portfolio mainstays like dividend paying financial institutions and American manufacturing companies were among the worst hits with dividends being canceled and some financials going to zero so quickly there was no chance to get out, especially with the do-nothing type of investment brokers that most retirees end up with.
Unfortunately, we hit a bottom (sort of)…
The Lost Decade
by ilene - June 24th, 2009 9:05 pm
Well, six more months till the end of a rotten decade, and good riddance.
The Lost Decade
Courtesy of Jake at EconompicData
BusinessWeek reports:
There are still six months left in this decade, but it is not too soon to start drafting its obituary. Howard Silverblatt, senior index analyst at Standard & Poor’s, is already looking at the decade’s stock market legacy. It’s ugly. The S&P 500 is down 39.22% from Dec. 31, 1999 through Monday’s close.
“We need a 63.79% advance just to break-even for the decade,” Silverblatt says. That’s not going to happen by Dec. 31. “The last negative decade was the 1930s, -41.77%,” according to Silverblatt. Annualized, stocks lost 5.12% so far this decade; in the 1930s decade of the Great Depression they lost 5.26%.
Things actually aren’t that bad, the S&P 500 is down "only" 28% through Monday for the decade (for some reason Business Week doesn’t include dividends, which makes no sense).
Hey, look at the positive… including dividends, we only need a 39% return to break-even.
Green Day- Good Riddance (Time of Your Life) Live
Wild Weekly Wrap-Up
by Phil - May 31st, 2009 8:29 am
What a wild week that was!
We got such a good sell-off last Friday that we went 1/2 covered into the weekend on our DIA puts (a little bearish) but we had already cleaned up on quick short plays on the Dow and USO and we were very much in cash but still making bullish plays at the time. I did a 3-part series on dividend-paying stocks over the weekend, elaborating on the 21 dividend payers we picked that Tuesday along with our $104,340 virtual Portfolio (used to be $100,000) so we had no shortage of bullish ideas but it didn’t take us long this week to turn pretty bearish.
Last Friday morning (22nd), ahead of the holiday weekend, with the Dow at 8,323, I sent out an early alert to members saying: "I’d go long on the Dow here but frankly I’m just not in the mood today. Still full covered on long DIA puts and still in the DDMs but just hanging out and watching today since you can’t take the action seriously anyway." Our plays that day ran the gamut: We sold BAC July $10 puts for $1 (now .66), took a TBT spread that has been a wild ride but right back where we started and an ICE bull call spread ($90/$100, selling $90 puts $2.33, now .57) that is right on track. All that came before 11:33 on Friday, where I rightly called a top at 8,342. We made nice profits on DIA puts and took an EXM and T hedges that are doing well. One of our best plays on Friday was the USO $32 puts at .80 we took into the weekend, those cashed out Monday morning at $1.05 (up 44%) – those USO trades were followed through in detail in our Members Only post: "Stupid Options Tricks - The Salvage Play."
As I mentioned, we have been mainly in cash for over 2 weeks now so mainly we’re just taking small opportunities and having fun while we wait for the market to break one way or the other. One article I wrote over the holiday weekend was a timely update to "How To Vacation-Proof Your virtual Portfolio," something anyone not in cash needs to take under strong advisement and DO NOT miss the very generous free video lesson from Sage’s Market Tamers that is on that post. Our…
Atomic Testing Tuesday
by Phil - May 26th, 2009 8:22 am
Welcome back everyone!
I hope you all had a nice holiday weekend. PSW provided the Kindle crowd with some great beach reading with and update of our now $104,340 virtual Portfolio, a 3-part series called "Hedging Your Way To Healthy Dividends" and our very timely "How To Vacation-Proof Your virtual Portfolio" with an on-line lesson from Option Sage’s Market Tamers. All this sudden interest in North Korea’s nuclear test didn’t catch us unaware as Tyler reported on this Sunday night!. Hey, the markets never sleep and neither do we!
36 hours later, the North Korea nuclear test is still the top story and global markets are down and the dollar is bouncing as a flight to safety BUT IT’S NOT NEWS… Come on people – this has been going on for more than 15 years with these guys, are we really going to freak out every single time we hear that North Korea has nuclear capabilities? REALLY??? Hey, I can write tomorrow’s fear headlines today: Iran doesn’t like us, the Middle East may erupt in violence, the Taliban are still a threat. Oops, looks like I got scooped on that last one by Defense Secretary Robert Gates, who decided that this weekend would be a good time to inform us that "the momentum in Afghanistan is with the Taliban, who are inflicting heavy U.S. casualties and hold de facto control of swaths of the country.
At the suggestion of some of his staff, Mr. Gates has begun referring to himself as the "secretary of war," saying that shows he and his department have no higher priority than the conflicts in Iraq and Afghanistan. "If people begin to absorb the fact that we’ve got several dozen very dangerous terrorists in our jails right now…maybe a little greater perspective would be brought to the issue," he said. Do not make the mistake of assuming anything Gates says is not carefully planned and coordinated – he was previously the director of the CIA, just like Poppa Bush (who he served under)!
We have been playing for the dollar bounce over the weekend so this is just great for our oil shorts as well as our overall market posture, as we were looking for another catalyst to push us to a lower level test and last week’s Cheney/Obama virtual debate was just a warm-up for this weekend’s fright-fest, which sure has caused damage in Asia as well…
Hedging Your Way To Healthy Dividends – Part 3
by Phil - May 25th, 2009 5:56 pm
We’re going to go out with a bang here and give you a 3-for-1 in this final post on the issue.
In Part 1, we discussed the idea of going after former dividend payers who may bounce back while creating an artifical dividend through option hedging. In Part 2 we looked at using the buy/write strategy to give ourselves a nice discount on the stock, giving us a 30% hedge on the stock on top of the dividends. Today we will look at a couple of ways to play the safer bets and how to simply and effectively boost your dividend yield while also protecting your investment.
In Tuesday’s post we had 21 dividend payers divided into 3 categories. We’ll look at what we consider a "pretty safe" dividend payer, PGH, who pay a MONTHLY dividend of about 8 cents on a $8.11 stock (12%) as well as our long-time favorite, KMP who pay about $1 per quarter and our Blue-Chip selection will be CAT, who have a 4.9% dividend and are trading at a nice, cheap $34.31.
As we have 3 trades here I’m not going to go too heavily into the merits of each one. Suffice to say we like them at these prices and we like the option hedges we can put to work on the postions…
PGH is a stock we went crazy for back in March, when they were under $5 but that was when they were in the category of stocks where people felt the dividend was in jeopardy. It didn’t take much for them to fly back to $8.11 but, through the magic of hedging, we can knock that price back to an entry price of $5.29 by selling the Jan $7.50 puts and calls. As always, our major risk is that the stock falls below $7.50 and another round of shares are put to us at that price on Jan 15th. That would create an average entry of $6.40, which is 21% below the current price. Should we get called away as $7.50, that would be a $2.21 gain on cash so 42% PLUS 7 months worth of dividends, perhaps another .56.
Sticking with our $5,000 per position maximum risk, we can make the play the following way:
- Buying 400 Shares at $8.11 ($3,244)
- Selling 4 Jan $7.50 calls for $1.50 and 4 Jan $7.50 puts for $1.32, netting $2.82 ($1,128)
- If the stock is
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Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...
Ilene is editor and affiliate program
coordinator for PSW. She manages the Favorites backup site
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