Most investors are familiar with traditional value-growth and capitalization-based investment styles. However, there is another investing style that allows investors to capitalize on the persistence in relative performance of investment assets, and that style is momentum. Momentum is a disciplined and systematic investment style that serves as a tool for building portfolio efficiency and diversification. It can complement value-based investment strategies and substitute growth-allocations in investors’ portfolios. In fact, momentum strategies work best in combination with value strategies, given their negative correlations that lower risk and improve efficiency. However, even though momentum investing assumes that aggressive trends in total returns will likely persist over either... Read more
Prudent income investors generally pursue stocks with consistent dividend payments and dividend growth over time. When it comes to consistent dividend growth, some water utility stocks exemplify exceptional records of consecutive annual dividend increases that stretch over several decades. As public utilities, water companies have a degree of revenue and cash flow stability through different economic cycles amid an inelastic demand for their services. Generally, these companies have low operational risk and represent investments with lower volatility of returns than the broader market. When these attributes are complemented with attractive dividend yields, it becomes obvious why some income investors see an investment appeal in water utility stocks.
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In his book Contrarian Investment Strategies in the Next Generation, renowned contrarian investor David Dreman noted that legendary value investors Benjamin Graham and David Dodd were convinced that “investors overemphasized near-term prospects,” overpricing companies for which those prospects were strong and underpricing the ones for which the near-term prospects were poorer. Historical evidence shows that contrarian/value investment strategies based on price-to-earnings, price-to-book, and price-to-cash flow ratios, as well as strategies based on low/high measures of EPS growth, have performed exceptionally well. While in the current market the accelerating economic growth has improved the outlook for the pro-cyclical, high-beta growth stocks, there are still some potential... Read more
Despite a net interest margin squeeze due to persistently low interest rates, the U.S. banking industry has reported year-over-year earnings increases for some 14 consecutive quarters, according to Dick Bove of Rafferty Capital Markets. Some of the banking stocks have been solid dividend payers, serving as alternative income-producing instruments in the yield-starved investment environment. While the universe of dividend payers in the banking industry is extensive, there is a limited number of dividend-yielding banking stocks that offer dividend consistency and earnings sustainability, as well as a solid financial standing. Here is a selection of four dividend-paying banks with at least $1 billion in assets and with solid financial strength, strong returns, and market liquidity. These... Read more
Investing in cigarettes has been a lucrative undertaking. In fact, over the 10 years through year 2011, tobacco companies, as measured by the MSCI World Tobacco Index, had the best risk-adjusted return out of 67 industry sectors in the MSCI World Index, according to research released last year by BNY Mellon Wealth Management and Janney Montgomery Scott. Notwithstanding the adverse market environment due to increased regulation, litigation, and the trend of a decreasing prevalence of smoking in the developed world, such a strong performance has been a result of persistent pricing power amid a generally price-inelastic demand for addictive cigarettes, strong branding, and, in some cases, the expansion in emerging markets. With consistent (and recession-resilient) cash flows, the tobacco... Read more
Value investing revolves around the concept of buying stocks of companies that are priced below their intrinsic values. That undervaluation is based on metrics such as price-to-book ratios, price-to-earnings ratios, or dividend yields. According to research by professors Eugene Fama of the University of Chicago and Kenneth French of Dartmouth College, value stocks have outperformed growth stocks by an average of four percentage points since 1926. That differential holds around 3.7 percentage points in favor of value versus growth since the beginning of the year and whole 9.3 percentage points over the past 12 months, based on price returns of the Russell 1000 Value Index and Russell 1000 Growth Index. Even though the economy is expected to shift into a higher gear soon, increasing the... Read more
According to asset manager BlackRock, dividend growth stocks historically have outperformed other asset classes in low-growth or no-growth environments. Moreover, historically, “dividend growth has kept up with all but the most extreme inflation environment.” In the current environment, they still represent popular investment choices, in particular as markets factor in the threat of rising inflation. This is so because investment strategies focused on dividend growth enable investors to generate increasing income streams over time, offsetting the adverse effect of inflation.
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The gold industry has consistently proven to be a wise investment for dividend investors. For the last 15 years, the top 20 gold companies of the world have not only paid dividends consistently, they have increased their dividends at a compound annual growth rate of 16%. Another interesting fact is that the prices of gold increased annually by 12% during the last decade and a half. If you look at that data alone, the gold industry is a gold mine (pun intended) for dividend investors.
The 2013 Global Gold Price Report indicated that gold companies were very hopeful heading into this year, with 80% of them indicating that they intended to increase the amount of dividend paid. However, this year, and especially this quarter, has been tough on the gold industry all over the world, with... Read more
The “wealth effect” is an economic concept that describes a propensity of consumers to spend more when their perceived wealth increases, and vice versa. This effect exerts a notable positive influence on retail sales when the stock market gains and housing price increases bolster household net worth, increasing consumer confidence in the overall economy and enticing them to boost spending. The effect is especially pronounced among high-income shoppers who own about 90% of U.S. equities and who account for about half the total spending in the United States.
In the first quarter of this year, U.S. household wealth reached record levels, eclipsing the pre-recession peak. The S&P 500 index has gained some 27.8% over the past twelve months, while home prices have... Read more
The National Restaurant Association’s Restaurant Performance Index, measuring the health of and the outlook for the U.S. restaurant industry, was released on Friday last week, showing an increased level of optimism among restaurant operators. The composite index reading for April 2013 climbed to a 10-month high, marking the third time in the past four months that the index reading stood above 100, signifying the expansion territory. The index reading representing current expectations was in the expansionary mode for the first time in eight months, while the index reading for the expectations index was at its highest in 11 months. The more optimistic outlook is a result of a “drop-off in the proportion of operators who expect conditions to worsen in the months ahead, which... Read more