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Stocks

The Best "Buy" of the New Dividend Aristocrats

By , Associate Editor, Money Morning - • Print | Email

If you are looking for a steady stream of safe dividends in today's troubled markets, the list of "Dividend Aristocrats" is a good place to start.

Compiled and tracked by Standard & Poor's, Dividend Aristocrats are companies that have consistently increased their dividend payouts for 25 consecutive years.

Currently, there are 51 of them, including the 10 new Dividend Aristocrats added this year.

That offers yield conscious investors a choice of 51 solid companies with a reliable track record of providing guaranteed payments-even during volatile markets and down economic cycles.

"The problem with going for capital growth is that you very often don't get it, and then you've got nothing – the investment just sits there," said Money Morning Global Investing Specialist Martin Hutchinson.

"Dividends" Martin says, "are easy."

Not only are they easy, they're also increasing.

Dividends on the Rise in 2012

Standard & Poor's reported that dividend increases for all their indices in 2011 almost doubled the dividends paid in 2010.

Total dividend increases hit $50.2 billion last year – an 89.2% rise over 2010's dividend increases of $26.5 billion – and are expected to climb even higher in 2012.

That's welcome news for investors searching for steady income sources in a zero-growth environment.

Few other assets – especially bonds – are expected to deliver an increased payout this year.

"With 10-year Treasury bond yields below 2%, bonds just don't give you the income they used to," said Hutchinson. "Dividend stocks can give you a better yield than bonds, and if you pick the right ones, will provide both protection against inflation and a chance to share in global economic growth. While they'll fluctuate with the market, dividend stocks of attractive companies are thus really a three-fer."

Dividend Aristocrats even go a step further than ordinary dividend stocks because of their lengthy payout history.

Dividend Aristocrats But before you dive into investing in these Dividend Aristocrats, the list needs some scrutiny.

Even though all 51 Aristocrats are known for increasing dividends, not all of them make for great investments in today's market.

"All you have to do is figure out which companies are run by sharpies – and are paying dividends out of capital – and which companies have genuinely solid business models that aren't going away," said Hutchinson.

In fact, there's only one of the freshly-minted Aristocrats that you should add to your portfolio right now.

The Next Eastman Kodak Co. (NYSE: EK): Companies Headed for Bankruptcy in 2012

By , Associate Editor, Money Morning - • Print | Email

Eastman Kodak Co. (NYSE: EK) filed Chapter 11 early this morning (Thursday), becoming one of the first to file among the staggering number of U.S. companies headed for bankruptcy this year.

The Rochester, NY-based company, started in 1880, has been bleeding money since consumers ditched film for digital photography. Eastman Kodak listed assets of $5.1 billion and debt reaching $6.8 billion in its U.S. Bankruptcy Court filing.

"They were a company stuck in time," Robert Burley, an associate professor at Toronto's Ryerson University, told Bloomberg News. "Their history was so important to them, this rich century-old history when they made a lot of amazing things and a lot of money along the way. Now their history has become a liability."

Kodak stock had fallen more than 35% by 2:00 p.m. today, bringing its total slip for the past year to more than 93%.

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Three Reasons Yahoo Inc. (Nasdaq: YHOO) Could Rally Without Co-Founder Jerry Yang

By , Associate Editor, Money Morning - • Print | Email

Seventeen years after starting one of the first Internet content companies, Yahoo Inc. (Nasdaq: YHOO) co-founder Jerry Yang resigned yesterday (Tuesday) – giving Yahoo a fighting chance of rising from its dismal decline in the tech world.

The departure of co-founder Yang, who also served as CEO from June 2007 to January 2009, marks the latest casualty as Yahoo strives to compete against more modern tech companies. Yahoo two weeks ago announced it had chosen a new chief executive officer – Scott Thompson, most recently president of eBay Inc. (Nasdaq: EBAY).

Shareholders have been pushing for Yang's exit as search leader Google Inc. (Nasdaq: GOOG) and social media giant Facebook Inc. have dominated markets in which Yahoo failed to gain traction.

Still, Yang's decision was a surprise because of his deep personal attachment to the company.

"Jerry's thrown in the towel," Colin Gillis, a BGC Partners analyst, told Bloomberg News. "He founded the company – this is his baby."

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How to Put a Touch of Glory in Your Life

By , Money Morning - • Print | Email

Dear Reader,

There's an old story about a man who walks by a construction site and sees workmen pushing wheelbarrows, each filled with an enormous stone.

He asks one what they're doing.

"What does it look like?" he says with a sneer. "Hauling rocks."

Unsatisfied with that answer, the passerby asks another construction worker the same question.

The workman doesn't bother looking up. "We're putting up a wall."

Frustrated, the man tries one last time. "I say there," he asks the next fellow, "can you tell me what you men are doing here?"

The workman puts down his wheelbarrow, wipes his forehead and says with a broad smile, "We're building a cathedral."

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Buy, Sell or Hold: CARBO Ceramics, Inc.(NYSE: CRR) Are the Glory Days Over?

By , Money Morning - • Print | Email

CARBO Ceramics, Inc. (NYSE: CRR) is one of those companies quietly making a killing in today's economy.

Thanks in large part to the natural gas boom, CRR is up over 328% off of the 2009 lows.

However, how long it can maintain its status as a high-flier is another matter entirely.

In fact, I expect that CARBO's entire business model is about to come under attack, which is why now is a good time to sell.

Here's why.

CARBO is one of the world's biggest suppliers of proppant. It's one of the key ingredients in the shale oil and gas boom that is turning places like Williston, ND, into boomtowns.

The Risks Behind Horizontal Fracking

But there is risk behind these boom towns…

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Why Weak Earnings Today Could Turn the Bulls Loose Tomorrow

By , Chief Investment Strategist, Money Map Report - • Print | Email

Everybody is hoping for a swell earnings season on the assumption that it will help the markets move higher.

However, if history is any guide, weaker earnings may be just what the doctor ordered.

Here's why.

Obviously we don't want a disastrous set of numbers, but downbeat earnings and guidance actually creates the possibility of more positive surprises that will encourage money to move into the markets instead of away from them.

Think of it this way: When things shift from good to bad there's a distinct aversion to risk and assets flee like they did following the "dot.bomb" blowup in early 2000 and at the onset of the financial crisis in 2007.

But when they go from bad to less-bad, it's human nature to assume things are improving. And that sentiment brings out the bargain hunter in all of us while also drawing money into the markets. That was the case in mid-2002 and just after March 2009, when people were hoping for something – anything really – to get the juices flowing again.

Winning the Expectations Game

Wall Street understands this psychology better than you might imagine. That's why m anipulating earnings and analyst expectations is a science in and of itself.

Everybody denies it happens, but ask nearly any seasoned Wall Streeter and you'll get a sideways glance and a knowing smile.

The wall that supposedly separates the research, investment banking, brokerage and trading functions of any given firm is a plumber's worse nightmare, depending on your perspective.

Former analyst Stephen McClellan notes in his book "Full of Bull" that this is how the game is played.

He says that's why it's important to do what Wall Street does rather than what it says as a means of securing your personal profits.

I couldn't agree more.

Having spent more than 20 years closely involved with the markets, I've learned that Wall Street's blinders, miscues, set-ups and secrets are often more telling than the "telling" itself.

Consider what's happening right now.

According to Standard & Poor's, analysts have raised projections for 366 companies while lowering those associated with another 534 companies. In other words, lowered expectations out number rising expectations by almost 2:1. Bespoke Investment Group notes that all ten S&P sectors have had more negative revisions than positive.

That's in stark contrast to two years ago when analysts were positive at the onset of 2010 for roughly 80% of the market with the exception of healthcare and utilities. Both were viewed as little more than bastard children and cast as negative performers.

As you might expect, many investors bailed out of the latter while rushing into the former. But that turned out to be a mistake — healthcare and utilities were the best performing sectors in 2011.

This doesn't always happen, but it's well documented that Wall Street often says one thing and does another. You'd think at this stage of the game things would be different, but they're not.

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Four Dividend Stocks to Put Money in Your Pocket

By , Contributing Writer, Money Morning - • Print | Email

Anxiety over the European debt crisis and distrust in the markets drove volatility in global stock markets to dizzying heights in 2011. The intense level of chaos, and record low bond yields, sent investors scrambling for stocks that deliver steady returns in the form of dividends.

Dividend stocks have long been regarded as "widow-and-orphan" stocks because they provide steady payouts and tend to fall less than others when times are tough. And when stock prices fall, dividend yields actually rise because they reflect a percentage of a stock's price.

In fact, investors seeking shelter from market volatility and economic cycles flocked to dividend stocks in 2011. And most held up much better than the Standard & Poor's 500 Index.

The top 100 highest-yielding stocks in the S&P 500 last year were up an average of 3.7%, before dividends, The Wall Street Journal reported. By comparison, the 100 lowest-yielding stocks were down 10% on average.

Meanwhile, some investors tapped into dividend yields of more than 4% — more than double the feeble yields of 10-year Treasuries — on the stocks of utilities, manufacturers, and telecom companies.

"The problem with going for capital growth is that you very often don't get it, and then you've got nothing – the investment just sits there," said Money Morning Global Investing Strategist and Editor of the Permanent Wealth Investor Martin Hutchinson. "Dividends are easy – you can drop them on your foot, as it were. All you have to do is figure out which companies are run by sharpies – and are paying dividends out of capital – and which companies have genuinely solid business models that aren't going away."

Still, buying dividend stocks can be tricky. Individual stocks are inherently risky because they are confined to one sector of the economy. As such, they tend to rise and fall along with the rest of their industry peers.

Many investors are solving that problem by turning to dividend exchange-traded funds (ETFs).

ETFs allow investors to capture income from a cross section of companies, without risking all of their capital on one sector. And because ETFs track broad categories of stocks rather than relying on active managers to pick securities, they provide some safeguards against loading up on the riskiest companies.

That said, here are four dividend stocks worthy of a look right now:

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The Madness of Crowds: How to Play Bonds, China, and Gold in 2012

By , Money Morning - • Print | Email

Yes, I know that markets are irrational.

I read Charles Mackay's 1841 classic, "Extraordinary Popular Delusions and the Madness of Crowds" long before it ever became fashionable.

Even so, when you think about it, 2011 must set some kind of record.

As investors, that means we need to decide whether this madness will continue in 2012 and which direction to take.

Take the madness in the bond world, for instance.

Long-term bonds of a country with an out-of-control budget deficit and a worrying trade deficit are currently yielding 1.6% below inflation.

In other words, year after year, investors are willing to pay 1.6% of their capital to hold them. On top of that, investors have been so keen on this miserable asset in 2011 they have bid up its price by no less than 26%.

Conversely, China is revolutionizing the world economy.

Year after year, China puts up growth rates of 8% or more, and the latest data suggest that will continue throughout 2012.

What's more, Chinese stocks stand on a bargain-basement price-to-earnings (P/E) ratio of less than 8-times earnings. Yet, in 2011, investors shunned these bargains, giving the Chinese market a pathetic return of minus-22%.

It is Madness I Tell You

Do you see what I mean when I talk about irrational?

To a Martian, these statistics would be proof that earthly markets had lost their collective minds. That's not just a random walk – it's a deliberate stroll that will destroy your wealth.

For investors, it raises the question of how long this irrationality is going to last. Will this extreme irrationality persist in 2012, or will it reverse?

The first conclusion to be drawn is that current markets…

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What a Little-Known Market Tool Is Telling Us About U.S. Stocks in 2012

By , Contributing Writer, Money Morning - • Print | Email

If you're a longtime investor, you're no doubt familiar with the Price/Earnings (P/E) ratio – a common measure for valuing the stock market.

But you may not be as familiar with the more-obscure Earnings/Price (E/P) ratio, which some experts refer to as the "earnings yield" on stocks.

If you're not familiar with the earnings yield, it's time to brush up.

While it may be obscure, the E/P ratio is an important tool. It not only tells you stocks' value, it allows you to compare that value to other assets like bonds.

And right now it's telling us a lot about buying U.S. stocks this year.

Basically, the risk/reward in favor of stocks over corporate bonds has never been this high…ever.

Let's take a look.

How to Use the Earnings/Price Ratio

We can get a pretty good handle on the value of stocks if we look at the E/P ratio of the Standard & Poor's 500 Index.

In 2010, the earnings for the S&P 500 came in at $83.77. According to Standard & Poor's, the earnings estimates for 2011 are at $97.81 and will climb to $111.73 for 2012.

Taking the 2011 S&P 500 earnings estimate of $97.81 and the current S&P price of about 1,290, you come away with a multiple of 7.5% (97.81/1290). Simply put, this means that the expected earnings of the S&P 500 are 7.5% of the price of the index.

By the same token, if earnings come in at the expected $111.73 in 2012 and stock prices remain the same, the earnings yield jumps to 8.6%.

Why should you care? Because you want a higher rate of return for the risk of investing in stocks when compared to the rate of return of other asset classes.

Generally, the earnings yields of equities are higher than the yield of risk-free treasury bonds, reflecting the additional risk involved with stocks. But right now the difference is extreme, with 10-year government bonds yielding a paltry 2%. Meanwhile, corporate bonds are paying about 5%.

Now let's compare the return on stocks to the rate of inflation.

Over the past 50 years, the average earnings yield for the S&P 500 has outpaced inflation by 2.4%. When the market is above that mark, equities are considered attractive. When it's below, they're expensive.

Subtract the current core inflation rate of 1.5% from the 2011 S&P 500 earnings estimate of 7.5%, and we end up with 6% – well above the 50-year average. Even if we use the 3.4% consumer price index rate, you're left with a difference of 4.1%. Compare that to bond yields and you're still way ahead.

So that's where we are, but how about where we're headed?

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Five Stocks to Avoid Like the Plague

By , Chief Investment Strategist, Money Map Report - • Print | Email

There's no better time to take a good hard look at your portfolio than the beginning of a new year.

I know this may not be your first rodeo and chances are you've already done at least a little thinking about how your investments came through 2011, and what you'd like to achieve in 2012.

If not, there's no time like the present.

Especially when it comes to something I call "Ditching the Dogs," which is a variant of the well-known and very popular "Dogs of the Dow." You've probably already guessed from the name that I'm talking about unloading those investments that have underperformed, or which are likely to hold my portfolio back in the next twelve months.

Obviously this is a highly personal process and every investor is different, but here are five stocks I'd avoid like the plague right now (and the reasons why):

1. Sears Holdings Corp. (Nasdaq: SHLD) – Long a bastion of American retailing success, I've been leery of the company for a long time. In fact, I've steered clear of it since hedge fund investor Eddie Lampert used more than a little financial wizardry to create Sears Holdings. At the time, his goal was to tap into the vast real estate empire underlying Sears and subsequently K-mart when that company emerged from bankruptcy and he snapped up shares. The stock hit $190 a share in early 2007 on the assumption that it would.

Now, though, it's a very different story. With real estate in the toilet and the value of his "collateralized" debt circling the drain, he plans to fire employees, cut more than 120 stores and sell property. Same store sales are down sharply as is profitability. Fitch Ratings Inc. has cut the company's bond to junk status, and it's likely to have hundreds of millions in writedowns ahead. I think the company is going to restructure, and net income is going to fall to the tune of billions when now-litigation conscious accountants have their day.

2. Research in Motion Ltd. (Nasdaq: RIMM) – Once the darling of connectivity and a status symbol for the cognoscenti, RIMM's share of the smartphone market continues to evaporate like fog on a hot morning. I recommended shorting the company a few years back but was early to the party on several occasions; somehow the stock seemed to fight back. The stock is down 89.52% from its peak of $144.56 in early 2008 and up a creek without a paddle…and you know which creek I am talking about.

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