💰 Dividend Deep Dive

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REVIEW

It was a down day for the markets on the final day of the week. After Netflix handed in disappointing quarterly results, shares of the streaming giant fell precipitously Friday. Investors weren't pleased with slowing subscriber growth and Netflix's slide had ripple effects across markets. Competitors including Disney fell. Disney then put downward pressure on the Dow Jones Industrial Average. Other tech names lost steam as well with both Amazon and Meta Platforms retreating. The Nasdaq Composite suffered its worst week since 2020 falling further into correction territory. Zooming out, January's storyline has largely been focused on rising rates, which have weighed on growth stocks. When yields rise and the cost of capital becomes more expensive, this can dent future cashflows. From a valuation perspective, this weighs on high-flying names, specifically in the technology space. Last week the US 10-year Treasury hit 1.9% on Wednesday. This week Wall Street will be looking for more context from the Federal Reserve which kicks off its two-day policy meeting Tuesday. Equities weren't the only asset class that dipped last week. Oil prices fell after traders learned of a surprise increase in US crude stockpiles. Cryptocurrencies tumbled as well. Market participants are also nervous about tensions between Russia and NATO. The geopolitical standoff is not helping sentiment on the Street. As for last week, the Dow Jones Industrial Average ultimately ended up falling 4.6%. The S&P 500 lost 5.7% and the Nasdaq Composite slid 7.6%.

PREVIEW

On Monday, IHS Markit releases its purchasing manager's index or PMI for manufacturing and services in the month of January. This provides a general sense of whether US purchasing managers see the market as expanding, contracting, or staying the same. December's index report showed modest increases in manufacturing. Analysts said further growth was constrained by material shortages and supplier delays.

Tuesday, S&P Case-Shiller reports its national home price index for November, which shows the year-over-year change in the average price of a single-family home. October’s index increased 19.1%. The FHFA also releases its national home price index and January’s consumer confidence index is due.

More housing data is on the way Wednesday in the form of December’s new home sales starts, after November’s figure rose by 12.4% from October. Also be on the lookout for Federal Reserve Chair Jerome Powell’s news conference and the Federal Open Market Committee’s statement, as the market closely watches for any insight regarding future rates hikes. December’s advance report on trade in goods also comes out Wednesday.

Initial jobless claims are released on Thursday as well as continuing jobless claims. Initial claims serve as an indicator of recent layoffs. The figure jumped last week by 55,000 to 286,000 — a three-month high — as the market enters the post-holiday period and Omicron’s impact continues. Also Thursday be on the lookout for the seasonally adjusted Q4 2021 gross domestic product, which tabulates the US economy’s output. December’s pending home sales index is also due.

Friday the University of Michigan publishes its final consumer sentiment index for January, as well as its final five-year inflation expectations.

Plenty of big names will be releasing their earnings reports this week. IBM (IBM) is up first on Monday, with analysts expecting earnings per share of $3.51, which would represent a 13.7% decline from the year-ago quarter.

Fellow “old-school” tech company Microsoft (MSFT) will post quarterly earnings Tuesday, fresh off its acquisition of video game maker Activision Blizzard.

Wednesday, tech remains the theme of the week on the earnings front with Tesla (TSLA) set to release its quarterly earnings for Q4 2021. CEO Elon Musk is expected to be on the call after previously indicating he’d only participate when there was “something important” to say.

Apple (AAPL) reports quarterly earnings on Thursday. ​​Some predict Apple will post a big increase to its top line with fourth-quarter revenue growth estimated to be around $118 billion.

Rounding out the week in earnings, heavy machinery company Caterpillar (CAT) will report its Q4 2021 results on Friday.

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Despite Recovery, Some Companies Hold Back on Dividends

Disney, Marriott, GM Keep Dividends Suspended

Walt Disney (DIS), Marriott (MAR), and General Motors (GM) are among the big companies that have yet to reinstate their dividends after suspending them during the pandemic. They are outliers as the economy recovers. Many public companies have seen business surge and are now rewarding shareholders by increasing dividend payouts.

The travel and entertainment markets are still getting hit by COVID-19 outbreaks and automobile manufacturers can’t get enough inventory. It is putting pressure on balance sheets and keeping dividends suspended. That’s bad news for income-seeking investors in the short term. Over the longer haul, however, some analysts think reinstating dividends will be a catalyst for the stocks.

Disney Sees Dividends as a Long-Term Play

Take Disney for one example. Disney’s dividend has been suspended since May 2020 in the wake of the pandemic. Prior to that the company paid out a dividend twice a year. In August Disney said it expects to begin paying dividends and buying back shares over the long term. It doesn’t hurt that Disney’s credit remains at investment-grade levels, which is a good place for a company to be if it's thinking about reinstituting a dividend.

Then there is Marriott, which suspended its quarterly dividend about two years ago. When Marriott reported third-quarter earnings in October, the hotel operator said assuming the recovery continues, it is confident it can reinstate its dividend in the second half of this year.

GM Is Waiting It Out

General Motors is included among large-cap companies that have yet to resume paying out dividends. The company, like others in the auto industry, has been contending with semiconductor shortages and supply-chain delays that hurt the ability to sell new cars. GM said this fall that once business stabilizes it will have more information about if and when it will reinstate its dividend. Ford (F) already said it would restart its quarterly dividend but will reduce it to $0.10 per share from $0.15 per share.

The recovery from the pandemic is happening at different paces depending on the industry and so is the resumption of shareholder-friendly moves like dividends. If Disney, Verizon, and General Motors do pay out dividends again, investors may reward those actions by buying up and subsequently boosting the stocks.

With Interest Rates Still Low, Dividend Stocks are in Vogue

Dividend Stocks Getting Attention: Walmart, Verizon

Inflation is surging and interest rates still remain low, even if the Federal Reserve is gearing up to raise them later this year. For income-seeking investors, opportunities abound with dividend stocks. It’s not just the income dividend stocks kick-off that makes them attractive to some investors. They also provide diversification and, if you pick the right ones, tend to outperform the broader markets.

But not every dividend-paying stock is created equal. There are the high-flying, risky ones, and then there are the more stable stocks that pay out quarterly dividends. In the latter category, Walmart (WMT) and Verizon (VZ) are getting attention from income-seeking investors for their track record of paying dividends and raising yields.

Walmart’s Been Paying a Dividend Since 1974

Take Walmart, one of the nation’s largest retailers for starters. Unlike many businesses around, Walmart has been able to thrive during the pandemic, posting year-over-year revenue growth in 2021. Its ecommerce business is booming, despite an assault from Amazon (AMZN). As of November, ecommerce revenue is up 87% in a two-year period.

Beyond Walmart’s strong financial showing, the retailer has been paying out a dividend for nearly 48 years. Currently, Walmart is paying a quarterly dividend of 55 cents per share, yielding 1.5% annually. You won’t get rich off of Walmart’s dividend but if you are looking for a stable dividend company to invest in, Walmart may be worth consideration.

More Payout With Verizon

Outside of retail, Verizon is another popular stock for dividend investors. This telecommunication giant has a dominant position in 4G and 5G and is the country’s largest wireless carrier. It's also pretty generous on the dividend front, with its annual dividend yielding 4.8%. Verizon is known for raising its dividend each year and with business booming, more of that is expected in the years to come.

When it comes to income, investors have few places to seek it out, at least in the current low-interest-rate environment. Dividend stocks can be one way, and depending on which ones you choose may be steady and stable or high flying and volatile.

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This Supplier Made Too Many Bags. That’s Good News For You.

Every now and then, it pays to know the right people. In this case, that’d be the team over at Evatac. The Denver-based company makes tactical gear and camping supplies but recently they made too much, leading to a 50% discount on a brand-new minimalist gym bag.

Or, if you prefer, it can serve as a laptop case, bike bag, Dopp kit, briefcase, or medical bag. Quad-stitched with 600D Oxford cloth, it features superior storage capacity while maintaining a sharp look and easy portability. Evatac over-ordered 2,000 of these bags, but once they’re gone, so is the deal.

Don't wait: Get 'em before they're gone. Click here to get a 50% discount.

Variable Dividends Get a Second Look

Energy Companies Embrace Variable Dividends

Energy companies that want to lure income-seeking investors have been turning to variable dividends. With this type of dividend, companies set a low base for their dividend payout that will be easy for them to afford even in tougher times, plus a variable dividend based on earnings. Companies with fluctuating cash flows can still entice investors with this type of dividend.

Variable dividends are different from special dividends. With a special dividend it's a one-time event, like a sale of the company, that prompts the payout. Devon Energy (DVN), Pioneer Natural Resources (PXD), and ConocoPhillips (COP) are among the energy companies paying out variable dividends.

Oil Producers Paying Decent Yields

With oil prices rallying in recent weeks, variable dividends paid out by energy companies are forecast to increase in 2022. Some bulls, including Goldman Sachs’s Jeff Currie, a commodity analyst, expect the next ten years to be good ones for dividend stocks. Among the energy stocks paying variable dividends, Devon Energy and Pioneer Natural Resources have yields of about 7% when combining the base payout and variable dividends. Meanwhile, ConocoPhillips (COP) pays a combined yield of 3%.

Miners are also getting into the variable dividend game. Newmont (NEM), the gold miner’s combined dividend is yielding 4% while Freeport-McMoRan (FCX) is paying a dual dividend with a yield of 1.3%. The mining industry is in a good position to raise dividends given cash positions are the strongest in about a decade and profits are surging.

Even Financial Firms Are in on It

Outside of energy and resources, OneMain Holdings (OMF) is among the few financial companies to employ a variable dividend strategy. The company loans consumers money, tapping on a 20% or more interest rate to subprime borrowers. That has enabled it to generate strong returns and pay out a combined $9.55 in dividends per year, yielding about 17%.

Variable dividends are a way for income-seeking investors to get access to cash and for companies to return cash to shareholders without drawing down on what’s needed to run and grow operations. It’s still not that common, but given the success the energy and mining industry has had with them, more companies may jump on the variable dividend train.

This communication from The Street Sheet is for informational purposes only. It is not intended to serve as a recommendation to buy, sell, or hold any security and is not an offer or sale of a security.  Information contained within should not be perceived as a research report and is not intended to serve as the basis for any investment decision. Any third-party views reflected herein do not reflect the opinion of The Street Sheet. All investments involve risk and the past performance of a security does not guarantee future results or returns. There is always the potential for financial loss when investing in securities or other financial products. Investors should consider their investment objectives and risks before investing.