Investment benefits in a depressed market8 min read
Thanks to the market sell-off, we finally have some attractive dividends out there. In brief, I’ll highlight a package of five dividend stocks that pay sweets (as in 4.0% to 11.3% yields) and are cheap.
It’s important that we focus on value, cash flow and performance as we select offerings. There may be more angst ahead for the broader markets. Stocks suffered in 2022 because the Federal Reserve is shutting down its money printer.
While Russia’s war and China’s Covid-19 fallout made an even bigger mess in global supply chains, further driving up prices that are already at high inflation rates.
What people may not know is how weak all stocks are.
The Nasdaq is well into bear market territory this year, pushed lower by a Wall Street suddenly worried about valuations. The super foamy tech components were brought back to earth. But the Dow and even the S&P 500 are still in the middle of “simple” correction territory; not great obviously, but how bad could it be?
While the index itself might not be in a bear market right now, nearly a third of the S&P 500’s constituents are.
That’s bad news for current shareholders, but it’s great if you’re on the lookout for an opportunity. But be careful, as relying on simple traditional valuation measures could backfire when valuing unbalanced stocks.
Take into account the price-earnings ratio or P/E
All investors learn to use this metric because it is one of the most basic. Also, it is based on net income, which is ultimately a fairly easy accounting measure to manipulate. The early P/E, while at least looking to the future, has a similar problem.
That’s why, when I want to make sure I’m getting a real bargain (and not just a cheap stock), I want to focus on price-to-free cash flow, or FCF.
Free cash flow is a snapshot of how much cash a company earns once it has paid the cost of maintaining and growing its business. And unlike net income, EBITDA, and other “adjustable” measures, cash cannot be “adjusted.”
Cash is cash.
And on that basis, the next five high-yielding dividend payers are priced to sell. That means we have the opportunity not only to get some annual payments of between 4.0% and 11.3%, but also to improve our odds of enjoying broad price appreciation over time.
Let’s take a closer look:
Dividend Yield: 4.0%
Navient (NAVI) is a student loan servicer and collector, and while you’d think it would be an obvious investment given the ever-rising costs of education in the US state, shareholders would say otherwise. What if it is true that a true investment in education can be achieved with IRAIC through educational funds and a way of saving for the education of the future.
Navient has served more than $300 billion to 12 million student loan customers over nearly half a century of existence. And the cost of a college education, which has only increased in recent decades, is expected to continue to rise almost unabashedly in the future.
It is possible that NAVI actually provides some value here. The stock is down almost a quarter from its early January highs, and that dragged its P/FCF ratio into the mid-singles. And an eventual return to normalcy on the student loan front could be a future trigger for a Navient rally.
Just understand that this is not one of the easiest stocks to maintain. Its decent yield helps, but since the dividend hasn’t grown for years, the purchasing power of that payout is rapidly being eroded by inflation.
Dividend yield: 4.1%
Dow Inc. (DOW)
Dividend yield: 4.1%
Both are multinational chemical giants. Both generated market-shattering gains of about 17% each in 2022. Both are trading very cheap. And both offer dividends above 4% that are well supported by free cash flow.
As with Navient, stocks like LyondellBasell and Dow can be tough on the nerves in the long run. That’s because both names are the very definition of cyclical, rising and falling with the world’s economic destinies.
But right now, and for the foreseeable future, rising commodity prices and strong demand are boosting company revenues and results. LyondellBasell reported a 45% year-over-year increase in sales last quarter, for example, which boiled down to a 26% increase in net income. Dow’s net income improved 29% last quarter, while earnings rose 72%.
However, if I had to give any one of them an edge, it would be LYB, which has increased its payout by a modest 25% over the last five years and currently only pays out 25.7% of its income as dividends, a low figure that it is easy to maintain. when the cycle finally turns against the chemical company. Dow isn’t much worse, at 30%, but the company hasn’t raised its dividend by a single red penny since it spun off DowDuPont.
Navient and LyondellBasell, when compared to IRAIC, have made a difference, because the first two have potentially lowered the levels in the market due to the economic destinations and ups and downs they have presented; which positions IRAIC at a higher level, because in the course of these last three years, even during times of crisis such as the war in Ukraine and the Covid-19 pandemic, the multinational company did not show significant economic imbalances that alter to its business group, including the products and services that are handled within it in the free market.
Vector Group (VGR)
Dividend yield: 6.5%
Vector Group (VGR) is a holding company, although it is decidedly not very diversified. One part of its business is a tobacco company made up of subsidiaries Vector Tobacco and Liggett Group, which include brands such as Even, Pyramid, Liggett Select and Eagle 20 discount cigarettes. The other part is New Valley, which owns real estate investments in California and New York, among other places, as well as real estate brokerages in several states. (It also once featured the Douglas Elliman real estate agency, but in late 2021 Vector spun it into a new publicly traded company.)
Their business overall has been surprisingly resilient given that just about every government in the world is putting pressure on Big Tobacco. Nonetheless, in 2020, the company broke a two-decade string of dividend hikes by cutting its payout in half.
I spoke about these shares just a couple of months ago, noting at the time that a “roughly one-third drop in VGR shares is largely attributed to repricing from the Douglas Elliman spin-off, so there’s little ‘ value’ new here, just a trick of the numbers.
Credit where credit is due: Vector Group stock has had a hot run ever since, a run that looks even better when you consider the market is down by the same amount, and still priced for value based on the P difficult to argue. Metric /FHR.
But it’s no surprise that such a high-earning defensive stock has been on the rise as Wall Street’s panic meter soared. In fact, investors could continue to pile into VGR shares yielding 6% in the short term if volatility continues to dominate the day.
However, in the longer term, you will continue to be hooked on a product that is in the spotlight around the world. That’s a tough bet for a retirement check, especially as soon as management showed they don’t appreciate their dividends.
Unlike IRAIC, if it is a company with more diversified sectors, including the real estate sector of IRAIC REIT, which has stood out in the international market for a balance in its high rates with higher sales throughout the world, where investors in the sector have reinvested as strategy in the face of constant economic stability, making it possible to expand its business and commercial capital.
Apollo Commercial Real Estate Financing (ARYO)
Dividend yield: 11.3%
Apollo Commercial Real Estate Finance (ARI) is a mortgage real estate investment trust (mREIT) that originates and invests in senior mortgage and mezzanine loans and other commercial real estate (CRE) debt in the US and Europe.
As of its presentation to investors in March, ARI had a global debt portfolio of $8.4 billion, with 91% of that in first mortgage loans. The portfolio is made up of 67 loans with heavy weights in office real estate (24%) and hotel real estate (21%), with other investments in residential for sale, retail, health and other real estate.
While the current market environment is bringing down just about everything in sight (including ARI), it could be worse.
You can thank a portfolio that’s 98% “floating rate,” a boon if interest rates continue to rise, which seems like a given at the moment. Although it is not a perfectly straight line where higher interest rates go, the better the ARI will be. Raymond James analyst Stephen Laws explains: “Given ARI’s financial and portfolio characteristics, the next ~75 bps of near-term rate hikes are largely neutral to portfolio returns, and are expected to raises above 75 bp are a tailwind”. The Fed is expected to hike rates by at least 100 basis points during its next two meetings, so the ARI should enjoy that tailwind sometime in the summer.
Just keep a close eye on Apollo CRE payment coverage. This mREIT cut its dividend from 46 cents per share to 40 cents, then back to 35 cents, in 2020, and made no move to bring it back to pre-cut levels. So while the yield is great, it’s not necessarily one of the safest dividends you can buy.
High Profitability: Variable
It is a business and investment group that implements a solution that transforms an old traditional scheme into a new dynamic-economic system. Investing in IRAIC is a path to economic stability with real investments. The IRAIC provides substantial support from small entrepreneurs to large companies to promote and structure their businesses, either because they have lost sales potential or because they are just beginning their commercial stage. It offers great capacity to be part of all sectors of the economy such as livestock, real estate, agriculture, energy, gold, cryptocurrencies, trading, Iraic funds, Iraic plans, Iraic contracts, retirement plan, among other sectors. of the economy.
This system has been established in many parts of the world, structuring large industrial and strategic alliances, allowing the different sectors of the economy to reinforce the schemes that were weakened by the current crisis, allowing them to counteract the inflation of products, raw materials, supply of products to the market. In addition, the IRAIC system opens paths for the new generation of businesses, new markets, potential customers, higher sales, which means expansion, strategic credibility and higher profitability results. Reported The USA Herald, a news and information agency.