But can investors rely on the hefty yield while they wait for the stock price to recover?

In fiscal 2024, which ended in February, free cash flow actually increased due to a sharp reduction in capital expenditures (or “capex”) despite declining revenue and profits.

Cash flow from operations fell from $8.6 billion to $7.4 billion in fiscal 2024, but a 40% cut in capex boosted free cash flow by 17% from $3.8 billion to $4.5 billion.

In fiscal 2025, which ends this coming February, capex is forecast to rise by more than $1 billion, which will reduce free cash flow to $2.5 billion.

In fiscal 2024, Target paid $2 billion in dividends for a very comfortable payout ratio of 46%. This year, the retail giant is forecast to pay a little over $2.1 billion. With drastically falling free cash flow, the payout ratio jumps to an uncomfortable 87%.

However, Target has an incredible dividend-paying history. It has raised its dividend every year since 1972. I was still watching Sesame Street back then.

Since the company is a member of the S&P 500 and has raised its dividend for more than 25 years in a row, it is considered a Dividend Aristocrat, which is a prestigious label that attracts income investors.

Target’s numbers are all going in the wrong direction. Free cash flow is down over the past three years and is expected to fall sharply this fiscal year. As a result, the payout ratio in fiscal 2025 is now projected to be above my 75% threshold.

It’s becoming more difficult for Target to afford its dividend.

I suspect that the five-and-a-half-decade run of annual dividend increases is pretty important to management and they’re going to do what it takes to continue to boost the payout to shareholders.

But if free cash flow continues to deteriorate, Target may have a tough decision to make regarding that very long and impressive dividend-hiking track record.

I don’t suspect a dividend cut is imminent, but given the company’s cash flow situation, the payout can’t be considered safe – even for a Dividend Aristocrat.

Dividend Safety Rating: D

What stock’s dividend safety would you like me to analyze next? Leave the ticker in the comments section.

You can also take a look to see whether we’ve written about your favorite stock recently. Just click on the word “Search” at the top right part of the Wealthy Retirement homepage, type in the company name, and hit “Enter.”

Also, keep in mind that Safety Net can analyze only individual stocks, not exchange-traded funds, mutual funds, or closed-end funds.

The post Is This Dividend Aristocrat’s Payout in Jeopardy? appeared first on Wealthy Retirement.

You’ll see plenty of household names on the list, such as Johnson & Johnson (NYSE: JNJ), Coca-Cola (NYSE: KO), Target (NYSE: TGT), IBM (NYSE: IBM) and more.

But in today’s Safety Net, we’re going to take a look at a company that’s not quite as well known as those heavy hitters – despite its 5.3% dividend yield being one of the highest among Dividend Aristocrats.

The company’s name is Franklin Resources (NYSE: BEN), but it’s better known as Franklin Templeton.

Growing up, I would often see commercials for Franklin Templeton shoved between AARP commercials and Life Alert commercials during episodes of The Price Is Right. But I never really knew what it did.

In short, Franklin Templeton is an investment firm. It takes your money and tries to make you more money.

Traditionally, its focus has been on high net worth individuals and institutional money, but with the recent rise of the retail investor, the company has opened pathways for normal people to put away and grow their money.

We’ve never reviewed Franklin Templeton’s dividend here in Safety Net, so I think it’s high time we crunched some numbers to see how safe this Dividend Aristocrat’s dividend actually is.

The company has increased its dividend payout in each of the past 28 years. That sort of consistency gives it an automatic head start.

But as you know, that’s not nearly enough.

Free cash flow is an important part of our Safety Net criteria because it tells us a great deal about a company’s ability to maintain its dividend payout.

And when we look at Franklin Templeton’s free cash flow for 2023 and its expected free cash flow in 2024, we start to see some red flags.

Free cash flow decreased 47% from $1.9 billion to $989.9 million in 2023, and it’s expected to drop all the way down to -$487 million this year.

The main reason for the negative number is the company’s successful acquisition of Putnam Investments LLC. Franklin Templeton announced the completion of the $925 million deal on January 1 of this year.

With a payout ratio of just 61% last year, the company had ample cash to pay its dividend. But the steep price it paid for Putnam used up all of its free cash flow for 2024 and then some.

Franklin Templeton’s Dividend Aristocrat status is under a lot of pressure this year because of its dire free cash flow situation.

Based on its inaugural Safety Net review, the company gets a “C” for dividend safety.

Dividend Safety Rating: C

If you have a stock whose dividend safety you’d like us to analyze, leave the ticker symbol in the comments section below.

You can also take a look to see whether we’ve written about your favorite stock recently. Just click on the word “Search” at the top right part of the Wealthy Retirement homepage, type in the company name and hit “Enter.”

Also, keep in mind that Safety Net can analyze only individual stocks, not exchange-traded funds, mutual funds or closed-end funds.

The post Franklin Templeton May Not Be a Dividend Aristocrat for Much Longer appeared first on Wealthy Retirement.

But today, he’s writing about something a bit different: the proven portfolio-packing power of dividend stocks.

Anthony also contributes to each monthly issue of The Oxford Income Letter, where he’s recently written fascinating pieces on the trillion-dollar wall of mounting corporate debt, why bond buyers should keep their maturities short and three dividend-paying stocks that are undervalued at current prices.

If you aren’t yet subscribed to The Oxford Income Letter, go here to learn more about its mission and how to become a member today.

– James Ogletree, Managing Editor

Stock investing is one of the best, most proven approaches to building personal wealth. Over the long haul, few other asset classes can boast the performance that stocks have delivered.

It’s quite a marvel when you consider the speculative nature of it all.

Basically, stock investors risk capital today in the hopes of capturing a big reward sometime in the future. There’s no money-back guarantee (as you have with bonds) or other safety net (like the FDIC insurance you get on bank deposits) to prevent unexpected losses.

Buying a stock, even the safest stock you can imagine, is essentially a bet.

This is why many long-term investors turn to dividend-paying stocks. Not only do these stocks pay you to own them – generating income in the near term – but they’re also among the best stocks to own in general.

The Lifeblood of an Income Portfolio

Dividends are income paid to shareholders. In addition to interest-bearing bonds – or other income-generating assets such as real estate investment trusts (REITs) – dividend-paying stocks are often the lifeblood of an income investor’s portfolio.

According to data from YCharts, approximately one-fifth of all stocks listed on major U.S. exchanges have paid a dividend over the past 12 months.

But not all dividends are created equal.

Many companies pay them sparingly. So a dividend paid last quarter doesn’t guarantee that another will be paid this quarter.

That makes frequency of payments a key factor in differentiating between low- and high-quality dividend-paying stocks. The best ones typically pay their shareholders on a regular schedule – whether annually, quarterly or even monthly.

However, the amount of the payout matters too.

Getting paid a penny per share might be better than getting paid zilch. But for investors who are mainly looking to get paid for owning the stock, a tiny dividend isn’t worth their time.

A simple way to gauge the size of a stock’s dividend is its dividend yield, or its dividend per share (on an annual basis) divided by its price per share. For example, if a stock valued at $100 pays a dividend of $3 per share, its dividend yield is 3%. If the stock price falls to $50, the dividend yield rises to 6%.

Yes, decreasing share prices lead to increasing dividend yields.

This makes dividend stocks one of the few assets that see their perceived values rise as their share prices fall. That, in turn, makes them increasingly attractive to shareholders.

At face value, most dividend payers might seem to trade at low dividend yields. But yields fluctuate depending on both the stock’s price and the amount paid out per period.

However, while yields fluctuate based on price, the payout for a high-quality dividend stock is consistent.

You shouldn’t have to guess when or what your next payout will be. So if you buy a stock with an annual dividend of, say, $5 per share, you should be able to feel confident that you’ll collect that $5 per share for years to come.

But in the very best-case scenario, that dividend should increase over time, causing the yield on your principal to rise.

In fact, you may be familiar with a group of stocks that are celebrated for their continual dividend increases…

Stock Market Nobility

Stocks with 25 or more consecutive years of dividend growth, commonly called “Dividend Aristocrats,” reign supreme in the stock market. And it’s not hard to see why.

A company that’s willing and able to pay a growing dividend for years or even decades on end is highly prized and sought after in the market – and not just for the payouts.

A consistently rising dividend signals strong underlying financials too.

As you can see below, the Dividend Aristocrats have outperformed the S&P 500 over the past 30-plus years.

Compared with their non-dividend-paying peers, these are the real rainmakers in the stock game. And by reinvesting the dividends – that is, using them to purchase more shares – you can supercharge the stocks’ performance over the long term.

Even more importantly, you can use these high-quality dividend payers to help craft the perfect all-weather stock portfolio.

Not only have they proved able to deliver strong, long-term growth to a portfolio, but they can also provide stability thanks to their dividend payouts and their increased appeal during bear markets or recessionary periods.

The post Dividend Stocks: The Lifeblood of Your Income Portfolio appeared first on Wealthy Retirement.

One such company is Kimberly-Clark (NYSE: KMB), the consumer staples giant behind iconic brands like Kleenex, Huggies and Cottonelle. This dividend dynamo has been a reliable wealth compounder for generations, so I decided to put it through my Value Meter.

To begin with, let’s examine Kimberly-Clark’s valuation.

The company currently trades at an enterprise value-to-net asset value (EV/NAV) ratio of 48.7. At first glance, that may seem astronomically high compared with the average EV/NAV of 6.8 among similar companies.

However, when we consider Kimberly-Clark’s extraordinary cash generation capabilities, its valuation becomes more justifiable.

Last year alone, the company grew its free cash flow by almost 50% – from under $1.9 billion to nearly $2.8 billion.

Even more impressively, over the past four quarters, the company’s free cash flow averaged an astonishing 745.9% of its net asset value. To put this in perspective, the average for companies with a similar cash flow history is a mere 8.6%.

In other words, Kimberly-Clark has generated cash relative to its net assets at a rate nearly 100 times that of its peers.

Put simply, it’s in a league of its own.

This robust cash flow is the driving force behind Kimberly-Clark’s remarkable dividend track record. The company is a proud member of the “Dividend Aristocrats” club, an elite group of S&P 500 companies that have raised their payouts for at least 25 consecutive years.

But Kimberly-Clark has far surpassed that threshold. It has an impressive streak of 53 years of uninterrupted dividend hikes. The stock currently boasts a forward dividend yield of 3.5% and a manageable payout ratio of 65.8% of forward earnings, so it has ample room to continue its dividend growth.

And the company’s latest quarterly results only strengthen the bullish thesis.

In Q1 2024, Kimberly-Clark reported net sales of $5.1 billion and organic sales growth of 6%, which was driven by a combination of price increases and volume gains. Additionally, gross margins expanded year over year to 37.1% thanks to strong operating leverage, productivity improvements and lower input costs.

Diluted earnings per share (EPS) also jumped 14% year over year to $1.91, crushing analyst estimates.

Looking ahead, management has raised its full-year outlook, now projecting mid-single-digit growth in organic sales and low double-digit growth in EPS for 2024. And its “Optimize Margin Structure” initiative, which aims to digitalize the supply chain and boost efficiency, is expected to generate more than $3 billion in gross productivity and $500 million in working capital savings.

If successful, these efforts should help mitigate any short-term headwinds.

The company’s latest results and its optimistic forecast showcase its ability to weather challenging market conditions while being proactive and staying ahead of the curve.

It’s also worth noting that the company is increasing shareholder value through brand acquisitions and share buybacks.

While Kimberly-Clark may not be a high-flying growth stock, it offers investors a rare combination of stability, income and long-term growth potential in an increasingly uncertain market. For patient investors seeking a reliable addition to their portfolios, it is a stock worth considering.

The Value Meter rates Kimberly-Clark as being “Slightly Undervalued.”

If you have a stock that you’d like to have rated by The Value Meter, leave the ticker symbol in the comments section below.

The post Kimberly-Clark Is in a League of Its Own appeared first on Wealthy Retirement.

Its 2.5% dividend yield is also not especially electrifying.

But what is very impressive is the company’s track record of growing its dividend.

This year marks the 53rd consecutive year it has raised its dividend, dating all the way back to 1971. That was even before President Richard Nixon got into hot water for the break-in at the Watergate Hotel – a political scandal that seems quaint by today’s standards. But I digress.

When I profile a company with a very long history of raising its dividend, I like to point out what else was going on in the world when the streak began to put it in context and emphasize just how long ago it was.

On this date in 1971, the top song in the U.S. was “Gypsys, Tramps & Thieves” by Cher. The top movie was The Organization starring Sidney Poitier.

Clearly, Illinois Tool Works has been raising its dividend for a long time.

But will the company’s dividend-raising track record continue? Or will it become a thing of the past like the World Hockey Association, whose launch was announced on this day in 1971? (Any New England Whalers fans still out there?)

Let’s take a look at the company’s fundamentals to find out.

Illinois Tool Works’ free cash flow has been going in the wrong direction, and that’s a problem.

This year, free cash flow is forecast to grow to $3.1 billion, which would be its highest level in at least a decade – although the company will have to generate about $1 billion more in free cash flow than it did last year to meet that number.

Safety Net penalizes companies for declining cash flow. If Illinois Tool Works is able to report free cash flow above $2.5 billion, that will eliminate some of the dents in its dividend safety rating.

Additionally, because free cash flow declined so much last year, the payout ratio was a little too high for my liking. The company paid $1.5 billion in dividends on $1.9 billion in free cash flow for a payout ratio of just under 80%. I like to see payout ratios at 75% or below. That gives me comfort that the company could still afford to pay the dividend if its free cash flow were to fall further.

Thanks to the big free cash flow number projected for this year, Illinois Tool Works’ payout ratio is forecast to decline to 52%, which is good.

A lot is riding on the final free cash flow number for 2023. If it improves as anticipated, the dividend safety rating will be fairly strong. But until then, Illinois Tool Works’ dividend is only moderately safe.

Dividend Safety Rating: C

If you have a stock whose dividend safety you’d like me to analyze, leave the ticker symbol in the comments section. You can also take a look to see if I’ve written about your favorite stock recently. Just click on the word “Search” at the top right part of the Wealthy Retirement homepage, type in the company name and hit “Enter.”

Also, keep in mind that Safety Net can analyze only individual stocks, not exchange-traded funds, mutual funds or closed-end funds.

The post Is a 53-Year Streak of Dividend Growth Ending for Illinois Tool Works? appeared first on Wealthy Retirement.

He recently wrote about our favorite topic (dividends!), so we couldn’t pass up the chance to share his insights.

Enjoy!

– Rebecca Barshop, Senior Managing Editor

Stock investing is one of the best, most proven approaches to building personal wealth. Over the long haul, few other asset classes can boast the performance that stocks have delivered.

It’s quite a marvel when you consider the speculative nature of it all.

Basically, stock investors risk capital today in the hopes of capturing a big reward sometime in the future. There’s no money-back guarantee (as you have with bonds) or other safety net (like the FDIC insurance you get on bank deposits) to prevent unexpected losses.

Buying a stock, even the safest stock you can imagine, is essentially a bet.

This is why many long-term investors turn to dividend-paying stocks. Not only do these stocks pay you to own them – generating income in the near term – but they’re also among the best stocks to own in general.

The Lifeblood of an Income Portfolio

Dividends are income paid to shareholders. In addition to interest-bearing bonds – or other income-generating assets such as real estate investment trusts – dividend-paying stocks are often the lifeblood of an income investor’s portfolio.

According to data from YCharts, approximately one-third of all stocks listed on major U.S. exchanges have paid a dividend over the past 12 months.

But not all dividends are created equal.

Many companies pay out sparingly. So a dividend paid last quarter doesn’t guarantee that another will be paid this quarter.

That makes frequency of payments a key factor in differentiating between low- and high-quality dividend-paying stocks. The best ones typically pay their shareholders on a regular schedule – whether annually, quarterly or even monthly.

However, the amount of the payout matters too.

Getting paid a penny per share might be better than getting paid zilch. But for investors who are mainly looking to get paid for owning the stock, a tiny dividend isn’t worth their time.

A simple gauge of this is a stock’s dividend yield, or its dividend per share (on an annual basis) divided by its price per share. For example, if a stock valued at $100 pays a dividend of $3 per share, its dividend yield is 3%. If the stock price falls to $50, the dividend yield rises to 6%.

Yes, decreasing share prices lead to increasing dividend yields.

This makes dividend stocks one of the few assets that see their perceived values rise as their share prices fall. That, in turn, makes them increasingly attractive to shareholders.

At face value, most dividend payers might seem to trade at low dividend yields. But yields fluctuate depending on both the stock’s price and the amount paid out per period.

But while yields fluctuate based on price, the payout for a high-quality dividend stock is consistent.

You shouldn’t have to guess when or what your next payout will be. So if you buy a stock with an annual dividend of, say, $5 per share, you should be able to feel confident that you’ll collect that $5 per share for years to come.

But in the very best-case scenario, that dividend should increase over time – even as consistently as it’s paid out year after year – causing the yield on your principal to rise.

In fact, you may be familiar with a group of stocks that are celebrated for their continual dividend increases…

Stock Market Nobility

Stocks with 25 or more consecutive years of dividend growth, commonly called “Dividend Aristocrats,” reign supreme in the stock market. And it’s not hard to see why.

A company willing and able to pay a growing dividend, for years or even decades on end, is highly prized and sought after in the market. And not just for the payouts…

A consistently rising dividend signals strong underlying financials too.

As you can see below, the Dividend Aristocrats have outperformed the S&P 500 over the past 20-plus years.

Compared with their non-dividend-paying peers, these are the real rainmakers in the stock game. And by reinvesting the dividends – using them to purchase more of the underlying shares – you can supercharge the stocks’ performance over the long term.

Even more importantly, you can use these high-quality dividend payers to help craft the perfect all-weather stock portfolio.

Not only have they proved able to deliver strong, long-term growth to a portfolio, but they can also provide stability thanks to their dividend payouts and their increased appeal during bear markets or recessionary periods.

The post Dividend Stocks: The Real Rainmakers of the Stock Game appeared first on Wealthy Retirement.

Now I need to do something with it.

The problem is, I like having cash. I remember when I didn’t have any, and it gives me comfort knowing it’s there. At the same time, I know that having cash sitting in a checking account earning a few decimals of a percentage point isn’t helpful.

If you have cash lying around that is earning nothing, you should put it to work. Keep in mind, I’m not talking about the six months of emergency reserves that everyone should have and be able to tap into if needed. I’m talking about the cash that is in excess of six months’ worth of expenses.

Here are several ideas on where your money can earn some income or generate wealth.

Short Term

If you don’t want to lock up your money for long, short-term U.S. Treasurys are a good place to put your cash for a few months.

A three-month U.S. Treasury bill currently yields 4.6%. A six-month bill yields 4.8%, though a one-year bill yields 4.7%. I have several short-term Treasurys in my account and will be buying more next week.

I recommend sticking with Treasurys over certificates of deposit (CDs). The top six-month CD rate is 4.5%. You may as well earn a higher rate from Treasurys.

Medium Term

If you have at least a one-year time horizon, take a look at Series I savings bonds, also known as I bonds. These are bonds whose rate changes every May and November based on inflation. When inflation is high – as it is today – these bonds pay a high rate of interest. When inflation is low, so is the I bond rate.

Today, you’ll earn an annualized rate of 6.89% until May, when the rate will change again. This is an incredible rate for what is the safest fixed income product on earth, considering it is backed by the full faith and credit of the U.S. government.

A few important things to understand about I bonds… You do not receive cash interest payments. Rather, the interest is added to your principal. You cannot take your money out until one year has passed. If you withdraw your funds before five years, you’ll lose three months’ worth of interest. Lastly, you can invest any amount but only up to $10,000 per year per person.

For those who can take on a little more risk, investment-grade corporate bonds are a good deal right now. You can earn over 5% on A rated corporate bonds maturing in one to two years. An A rated bond is extremely unlikely to default.

Long Term

If you don’t need the cash for a number of years, I strongly recommend investing in Perpetual Dividend Raisers – companies that raise their dividend every year.

Life is expensive. And that’s more evident than ever. You need your money to grow over the long term to be able to keep up with rising costs.

Owning conservative, quality companies that generate gobs of cash flow and raise their dividend every year by a meaningful amount means that not only are you growing your income every year but, considering that stocks go up over the long term, you’re ensuring that your portfolio will grow, likely substantially.

Going back to 1937, including dividends, the S&P 500 (or a proxy for it before it was created) grew an average of 132% over rolling 10-year periods. But let’s compare that with the S&P 500 Dividend Aristocrats Index, an index of Perpetual Dividend Raisers that are members of the S&P 500 and have hiked their dividend every year for at least 25 straight years.

Since inception in 1990, the S&P 500 Dividend Aristocrats Index has never had a losing 10-year period. Its average 10-year return is 201%, which would triple your money with a one-time investment. That figure includes dividends.

Even if you exclude dividends, the index has still never had a losing 10-year period, even during the dot-com bust and the global financial crisis. At the end of 2008, near the bottom of the crisis, the Aristocrats were still up 9% – in price only – meaning these stocks held up a lot better than nearly all others.

Last week, I added more money to my dividend holdings. I’m not particularly concerned with where the market is going tomorrow or a few months from now. But I am extremely confident that 10 years from now, those funds will have grown substantially.

Having excess cash is certainly a nice problem to have, but it is a problem in that you need to do something with it. Consider the above ideas so that your extra cash isn’t sitting around like your neighbor’s kid doing nothing.

The post What to Do With Your Cash Now appeared first on Wealthy Retirement.

Later that evening, I ran into a lawyer that I know and told him about the dispute I’m having with my neighbor. I asked him whether I should sue and on what grounds.

Toward the end of the night, I was introduced to a mechanic. I described the “chug chug bang” sound my car has been making and asked him to come outside and take a look.

I’m joking. I didn’t do any of those things. I’m not that guy.

In fact, I’m friendly with one of my doctors, and when I see him outside of his office, I never even ask him how work is going so as to not come off as if I want to talk to him about my health.

Yet probably once a week, I’ll be asked at a party, in a text from a friend or in a tweet (you can follow me on Twitter at @stocksnboxing) what stock someone should buy.

If I feel like being a wisenheimer (as my eighth-grade math teacher used to say), I’ll just tell them to put all of their money into GameStop (NYSE: GME) or AMC Entertainment Holdings (NYSE: AMC), making sure they know I’m kidding, of course, usually after a minute or two of silence.

I understand why they’re asking. Because of what I do, people think I have winning lottery tickets rattling around my brain that they could cash in if I’d only share them.

And I do have some great stocks – stocks that have the potential to soar in short periods of time – in my noggin that I share with my readers.

But these types of investments are for investors who can afford to speculate. They understand risk, and if the stock doesn’t work out, it’s not going to affect their lifestyle.

Folks who plead with me for one or two names that are going to make them rich quick often don’t have the ability to handle the risk that comes with speculation.

Fortunately for those people, I do, in fact, have a winning lottery ticket – though they’ll have to be patient to cash it in.

There are few guarantees when it comes to investing, but investing for the long term in quality companies is pretty close to a sure thing.

Since 1928, over rolling 10-year periods (e.g., 1928 to 1937, 1929 to 1938, 2011 to 2020, etc.), there have been only seven instances when the market was not higher. Those were the periods ending in 1937, 1938, 1939, 1940, 1946, 2008 and 2009. In other words, you had a 93% chance of success.

The periods when stocks did not make money over 10 years were when the 10-year periods ended during the Great Depression or Great Recession, with one exception: 1946. Though, in that case, you were starting during the Depression and rode the market to the bottom before it started coming back.

And not all periods tied to those economic calamities resulted in losses. If you’d invested in 1932 during the Depression and rode it out until 1941, you’d have finished with gains. Even if you had bought near the top of the dot-com boom in 2001 and sold in 2010 after the financial crisis, you would’ve made money.

In fact, going back to 1928, the total average 10-year return is 129%.

Keep in mind, that’s the return on a one-time investment. If you continue to invest over the course of 10 years, you’ll do even better.

You can improve those results even more if you buy Perpetual Dividend Raisers – companies that raise their dividends every year.

The S&P 500 Dividend Aristocrats Index is an index of companies in the S&P 500 that have raised their dividends for 25 years in a row or more. It is a good proxy for Perpetual Dividend Raisers.

The index was created in 1990. Since then, over rolling 10-year periods beginning with the 10 years ending in 1999, the index has never lost money.

The worst 10-year performance including dividends was a 40% return, ending during the heart of the financial collapse in 2008. Even without dividends – just pure price movement – the index still gained 9%.

That’s not exactly a windfall, I know, but it shows you the power of these stocks. If you had bought them in 1999 at the top of the dot-com bubble and sold just before the bottom of the mortgage meltdown, these Perpetual Dividend Raisers would still have been up!

Since the index began, the average 10-year return with dividends is 196%, nearly tripling your money. The total return is 3,272%.

The best thing about these winning lottery tickets is that they have an extremely high likelihood of paying off if you’re patient.

So when the inevitable question of what stock someone should buy comes my way at a party, my standard answer is, “Buy a Perpetual Dividend Raiser. You’ll thank me in 10 years.”

Good investing,

Marc

The post The Winning Lottery Ticket Everyone Wants appeared first on Wealthy Retirement.

Shortly after I began working on a trading desk, my company assigned an IBM ThinkPad to me. The machine was a beast. I could run Bloomberg and my trading software from anywhere in the world.

I thought I was pretty hot stuff… sometimes I still do.

The same can’t be said for IBM‘s (NYSE: IBM) stock price. Since the turn of the century, IBM’s share price has risen less than 1% on average a year.

During that same time period, IBM’s annual dividend per share has grown a staggering 1,285%, from $0.47 in 1999 to $6.51 last year. That translates into a juicy 5.1% yield.

Yet Big Blue is the Rodney Dangerfield of dividend stocks. It gets no respect.

Despite its impressive track record of more than 25 years of dividend raises, IBM is recognized more for being a Dog of the Dow than for being a Dividend Aristocrat.

But IBM is no dividend dog.

Revenue has stagnated over the past 21 years, but cash flow has remained robust. IBM has even managed to grow it nearly 25%, from $13.5 billion in 2017 to $15.6 billion last year.

But this year, free cash flow is expected to take a nosedive by more than 44% to $8.5 billion. IBM is preparing to spin off its infrastructure business by the end of 2021 to concentrate on its higher-growth artificial intelligence (AI) and hybrid cloud business.

That drop-off shouldn’t concern investors too much. Big Blue will still have more than enough cash coming in the door to fund another dividend raise.

This year, IBM is expected to pay out $6 billion in dividends. Its payout ratio is projected to rise to 69% this year from 37% in 2020. That’s still well below SafetyNet Pro‘s usual 75% comfort level.

Free cash flow is expected to resume its rise in 2022, growing to $11.7 billion.

Plus, IBM has more than $13.8 billion in cash on its balance sheet to backstop any further free cash flow declines, making IBM one of the safest 5%-plus yields in the market today.

Dividend Safety Rating: A

If you have a company whose dividend you’d like to have analyzed, leave the ticker symbol in the comments section.

Good investing,

Kristin

The post A 5%-Plus Dividend Yield That Deserves Your Respect appeared first on Wealthy Retirement.

– Prince

I recently remarked to a colleague that this market feels like 1999’s to me.

Back then, tech stocks could do no wrong. They went up seemingly every day. Everybody talked about the market.

Doctors and lawyers were more interested in stocks than in their practices, some even quitting to become day traders.

Last week, I spoke with someone whose son decided not to go to medical school this fall because he was making so much money trading stocks – mostly Tesla (Nasdaq: TSLA).

Robinhood, the trading startup popular with younger traders for its app that has video game-like features, added 3 million accounts in the beginning of 2020. And in June, its customers traded more than customers of any other broker.

And, of course, there are the stocks – Tesla, Amazon (Nasdaq: AMZN), Facebook (Nasdaq: FB) and others – that have been going gangbusters.

Tesla’s valuation is more than the valuations of Ford (NYSE: F), General Motors (NYSE: GM), Honda (NYSE: HMC), Toyota (NYSE: TM), Nissan (OTC: NSANY) and Mercedes combined.

If you know my work at all, you know I’m a big believer in the power of dividends to grow your income and wealth.

I literally wrote the book on dividends – Get Rich with Dividends, which was an international bestseller and won the Book of the Year Award from the Institute for Financial Literacy.

But this year, dividend growth – my preferred dividend strategy – has underperformed. As of September 2, year to date, the Dividend Aristocrats lost 1.2% while the S&P 500 gained 9.7%.

(Dividend Aristocrats are members of the S&P 500 that have raised their dividends every year for 25 years or more.)

The last time these stocks (which historically outperform the market by 2% a year) underperformed so badly was in – you guessed it – 1999.

That makes sense. In 1999, the internet bubble was nearly at its peak. Who wanted to own shares of Exxon Mobil (NYSE: XOM) when you could buy shares of Ariba or Global Crossing, which were going up dozens of points a day?

If you’re a dividend investor, you’re likely a long-term investor. In that case, you have nothing to worry about. I suspect dividend growth will continue to outperform the market over the long term.

If you’re an active trader, get it while the gettin’s good. Tech stocks are on fire, and third quarter earnings are likely to be big catalysts. And perhaps the biggest movers will come from the biotech sector.

These stocks tend to jump more than any others. Last week, Aimmune Therapeutics (Nasdaq: AIMT) skyrocketed 171% in one day. On their best days, Tesla and Facebook never came close to that number.

Healthcare stocks tend to outperform the broad market in the last quarter of the year, and a lot of attention turned to biotech recently – for obvious reasons and nonobvious ones.

Any company working on a vaccine or therapy for COVID-19 has an opportunity to not only help society but also make a lot of money for itself and investors.

But there is plenty of important non-COVID-19 work being done in the space. Clinical trials on heart disease, Alzheimer’s, cystic fibrosis, rare genetic diseases and many other conditions are being conducted and will have data readouts in the coming months.

Strong clinical trial data often shoots biotech stocks higher…

I expect biotech stocks to be the leaders in the fourth quarter.

So traders should consider biotechs for the rest of the year (and probably longer), stick to their discipline and take advantage of this rich trading environment.

We don’t yet know whether 2021 will emulate 2000. In the meantime, trade like it’s 1999.

Good investing,

Marc

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