by ValueWalk - August 31st, 2016 10:50 am
By Guest Post. Originally published at ValueWalk.
Dividend Income Investing – This Is What Really Works (Data Driven) by Tim du Toit – Quant Investing
Is your high dividend investment strategy based on buying companies with a high dividend yield and high dividend cover?
If so you can do a lot better.
In this article I summarize an interesting research paper that found the normal way most investors look at dividend income investing is all wrong.
I also show you how to find ideas that fit with what the researchers found that really works.
Dividend Income Investing
Bad ideas for high dividend yield investing
This is what the research found that does not work:
- Buying companies with the highest dividend yield is a bad idea
- Placing too much weight on dividend cover (earnings per share / dividend per share) is another bad idea
- Buying a weak or low quality business with a high dividend yield is a bad idea
- Buying a high dividend yield company with a weak balance sheet is also a bad idea
How do I find these companies?
Before I show you what the research found you should invest in let us first look at the research paper more closely.
Who did the research?
I stumbled onto the research paper while looking for high quality research on the best dividend income investment strategy.
The best, and most up to date study I could find was a February 2016 paper Equity income investing is not all about a high dividend yield, by the quantitative research team of the French bank Societe Generale.
What they looked at – 45 years of data
In the paper they looked at what made up the largest part of stock market returns over the 45 year period from 1970 to 2015 in the following seven countries:
What they found?
In all these countries they found that compounding dividends (dividend payments and dividend growth) make up far the largest part of stock market returns.
Dividends more important than multiple expansion
Dividends and dividend growth was more important than multiple expansion which I am sure will also surprise you.
by Zero Hedge - August 31st, 2016 10:36 am
Having extended yesterday’s losses on the back of API’s unexpectedly large distillates inventory build, DOE data confirmed an even bigger crude inventory build (+2.276mm vs ~1.3mm build exp.), which contrary to seasonal patterns was the second build in a row, and 5 builds in the past 6 weeks. Gasoline drew down less than API reported and Distillates built considerably more than expected (+1.5mm vs +275k exp). While production slipped lower by 0.7%, crude prices tumbled on the inventory news, back down to $45.50.
- Crude +942k (+1.5mm exp)
- Cushing -620k
- Gasoline -1.6mm (-1.25mm exp)
- Distillates +3mm (+275k exp)
- Crude +2.276mm (+1.3mm exp)
- Cushing -1.039mm
- Gasoline -691k (-1.25mm exp)
- Distillates +1.496mm (+275k exp)
The crude breakdown by region:
- PADD1 20.259mbbl +0.143
- PADD2 151.032mbbl -1.403
- PADD3 275.55mbbl +2.911
- PADD4 26.974mbbl +0.243
- PADD5 52.055mbbl +0.381
- PADD1 67.178mbbl -1.936
- PADD2 49.859mbbl +1.497
- PADD3 78.513mbbl +0.555
- PADD4 6.578mbbl -0.395
- PADD5 29.876mbbl -0.411
Also notably, on a seasonal basis, Gulf Coast and East Coast crude stocks just hit reacord levels.
Chart, the second weekly build in crude and a big build in distillates looks as follows:
Also of note, the weekly crude oil imports rose to the highest since September 2012, adding to the glut.
Looking at gasoline data, we find that gasoline stocks are now +17.8 million bbl (+8.3%) above 2015 level and +24 million bbl (+11.6%) above 10-yr median
The accelerated shift of gasoline from the East Coast appears to be working, as a result of the abovementioned 1.9mbbl drop from PADD1:
Finally, looking at overall US production, after a big surge in production two weeks ago, it has now been largely erased following the last 2 weeks declines:
And having tested down to a $45 handle, crude inched above $46 ahead of the print then plunged…
by Zero Hedge - August 31st, 2016 10:27 am
If St. Louis Fed’s James Bullard is the Fed’s hawk who infamously flipped to uberdove several months ago, than Boston Fed’s Eric Rosengren has become his mirror image: a former dove who has become increasingly hawkish, and who is warning that keeping rates low for long is “not without risks.” Yet, in a speech overnight at the Shanghai Advanced Institute of Finance, Beijing, China titled “Observations on Financial Stability Concerns for Monetary Policymakers“, Rosengren voiced the same concerns about a building asset bubble as Bullard did last Friday just before Yellen’s speech, when he said that “I think we are on the high side of fairly valued, I could see the process getting away from us, maybe tech stocks, maybe others.”
Rosengren started off cautiously with a warning that Fed’s mandated goals – stable prices and maximum sustainable employment – are likely to be achieved relatively soon, and “keeping interest rates low for a long time is not without risks.” As a result, important questions confront monetary policymakers in the United States, including when and how quickly to continue normalizing interest rates.
He then took his warnings up a notch, warning that central banks must think about attaining their mandates “not only at the current time, but also through time”, weighing the benefits of low interest rates now against the potential costs in the future of possibly spurring instability.
However, unlike Bullard who focused on tech stocks as indicative of bubbly forthiness, Rosengren noted that in the United States, a potential side effect of very low interest rates has been rapid price appreciation in the commercial real estate sector, adding that if the U.S. economy were to weaken, and underlying occupancy rates and rents became less favorable, a large decline in commercial real estate collateral values could lead to losses for banks. This scenario, while not his prediction, would have downstream effects on credit availability to firms and households.
Rosengren warned that “investors may be engaged in
excessive risk-taking” in the commercial property sector, which if coupled with an economic shock would set
off events that threaten financial stability.
He toned his earning back modestly saying that “in my view, commercial real estate is, by itself, unlikely to trigger financial stability problems.However, he admitted that “should prevailing economic conditions
by Chart School - August 31st, 2016 10:16 am
Courtesy of Doug Short’s Advisor Perspectives.
This morning the National Association of Realtors released the July data for their Pending Home Sales Index. Lawrence Yun, NAR chief economist, said “Amidst tight inventory conditions that have lingered the entire summer, contract activity last month was able to pick up at least modestly in a majority of areas,” he said. “More home shoppers having success is good news for the housing market heading into the fall, but buyers still have few choices and little time before deciding to make an offer on a home available for sale. There’s little doubt there’d be more sales activity right now if there were more affordable listings on the market. The index in the West last month was the highest in over three years largely because of stronger labor market conditions. If homebuilding increases in the region to tame price growth and alleviate the ongoing affordability concerns, the healthy rate of job gains should support more sales” (more here). The chart below gives us a snapshot of the index since 2001. The MoM change came in at 1.3%. Investing.com had a forecast of 0.6%.
Over this time frame, the US population has grown by 14.2%. For a better look at the underlying trend, here is an overlay with the nominal index and the population-adjusted variant. The focus is pending home sales growth since 2001.
The index for the most recent month is 12% below its all-time high in 2005. The population-adjusted index is 20% off its 2005 high.
Pending versus Existing Home Sales
The NAR explains that “because a home goes under contract a month or two before it is sold, the Pending Home Sales Index generally leads Existing Home Sales by a month or two.” Here is a growth overlay of the two series. The general correlation, as expected, is close. And a close look at the numbers supports the NAR’s assessment that their pending sales series is a leading index.
For additional perspectives on residential real estate, here is the complete list of our monthly updates:
- S&P/Case-Shiller Home Price Index
- FHFA House Price Index
- NAHB Housing Market Index
- New Home Sales
- Existing Home Sales
- New Residential Housing Starts
- New Residential Building Permits
- Secular Trends in Permits and Starts
- Pending Home Sales
by ValueWalk - August 31st, 2016 10:16 am
By PiercePoints. Originally published at ValueWalk.
We’re Now Just Weeks Away From This Long-Awaited Oil Event by Dave Forest
Back from an unexpectedly-extended trip in the Zambian Copperbelt. To find that one of the year’s most-anticipated oil and gas happenings is nearly upon us.
That’s the award of new petroleum projects in Iran. With the government saying yesterday that it is nearly ready to start handing out licenses under under a brand new fiscal structure for the country.
Local news sources quoted Ali Kardor, managing director of state-owned National Iranian Oil Co., as saying that Iran’s new contracts are now ready to go. With Kardor adding that the government will issue tenders for several oil and gas fields during the week of October 15.
The details on the fields to be offered should be available even sooner than that. With Kardor saying that letters describing the available areas will be sent to “international oil companies” starting September 3.
Officials have indicated that one of the prizes from this bid round will be the South Azadegan oil field. A proven project that Iranian authorities claim could host over 5 billion barrels of recoverable oil.
Up until now, production from South Azadegan has held at around 50,000 barrels per day. A mark that the Iran government claims can be increased to as much as 600,000 b/d through a development program in concert with foreign investment.
The project however, has already failed to gain traction under joint ventures with both Japanese and Chinese backers. Raising the question of which companies might bid for the field as part of the upcoming licensing round.
Equally interesting will be to see the exact terms Iranian officials will offer to foreign companies here. With there having been a lot of speculation about details on the country’s new contract model — but few concrete numbers released yet.
In fact, it’s not clear if Iranian officials actually know the details yet. With managing director Kardor telling the press that the new contract model was just approved by Iran’s national cabinet during “recent days”. He also added that the framework for the new model is still to be worked out.
by kimblechartingsolutions - August 31st, 2016 10:11 am
Courtesy of Chris Kimble.
Gold miners have had a great run this year. They could be losing grip on key support of late!
Below looks at the Gold & Silver mining index (XAU) over the past decade.
CLICK ON CHART TO ENLARGE
I like to keep an eye on the XAU index because it is the oldest mining index in the states and it includes both Gold & Silver mining stocks.
The index has had a great rally this, taking it to its 61% Fibonacci retracement ratio and falling resistance, where it appears to have pulled a reversal pattern.
Of late the, the XAU index is attempting to break support of a rising wedge pattern, just below this key retracement level. This small break could be important as weekly momentum is now at the highest level in more than a couple of decades.
The XAU index just had its largest 52-week rally in its history (See Post Here)
If you would like to stay on top of patterns in the metals space, we would be honored to have you as a member.
To become a member of Kimble Charting Solutions, click here.
by Zero Hedge - August 31st, 2016 10:11 am
Thanks to a series of negative revisions, pending home sales have now tumbled YoY for two consecutive months (dropping 2.2% in July versus an expectation of a 2.2% rise). The revisions enabled the MoM print of +1.3% to beat expectations optically (thanks to a surge in The West sales +7.3%). The good news for affordability is that NAR’s Larry Yun notes homebuilders focusing down-market; the bad news, obviously, is that more supply will disable the low-inventory bid holding prices up at record highs. Probably time to hike rates…
Revisions pushed the series lower, making this the 2nd monthly decline YoY in a row…
Thanks to revisions, the MoM gain of 1.3% headline beat expectations, thanks in large part to The West
- Northeast up 0.8%; June rose 3.2%
- Midwest fell 2.9%; June rose 0.9%
- South up 0.8%; June fell 2.9%
- West up 7.3%; June fell 1.3%
Of course the lagged movement in mortgage rates is still a positive… (until The Fed hikes?)
And while mortgage apps rose last week (despite a modest rise in rates), the improvement is slowing.
Lawrence Yun, NAR chief economist, says a sizable jump in the West lifted pending home sales higher in July.
“Amidst tight inventory conditions that have lingered the entire summer, contract activity last month was able to pick up at least modestly in a majority of areas,” he said. “More home shoppers having success is good news for the housing market heading into the fall, but buyers still have few choices and little time before deciding to make an offer on a home available for sale. There’s little doubt there’d be more sales activity right now if there were more affordable listings on the market.”
Adds Yun, “The index in the West last month was the highest in over three years 1 largely because of stronger labor market conditions. If homebuilding increases in the region to tame price growth and alleviate the ongoing affordability concerns, the healthy rate of job gains should support more sales.”
Recent residential construction data shows that the size and costs of new homes has moved downward over the past year. According to Yun, this is an early indication that homebuilders are beginning to shift away from building larger, more expensive homes for the upper
This Chart Predicts $4,000 to $8,500 Gold! – What Happens If The Current Gold Bull Market Performs Like Previous Ones
by Zero Hedge - August 31st, 2016 10:11 am
The current gold bull market is just over 6 months old, and while it has not been a gentle ride, it is very much expected considering the volatility of previous bull markets. That being said, we are just getting started. Using a sports analogy, according to our estimates we are not even halfway through the second inning using the average duration of the previous three bull markets.
Here is what the current gold bull market could look like if we used previous gains as a proxy:
Historically, the longer the preceding bear market, the longer the bull market that followed. When the bear market ended in December 2015, it marked the end to the longest gold bear market in centuries. We predict the current market will match the 2001-2008 bull and then some, and gold will break $5,000 an ounce when it’s all said and done.
On a sidenote, we are now into the fifth week of our silver giveaway. Sign up a free report on silver investing and a chance to win actual silver!
by Chart School - August 31st, 2016 9:55 am
Courtesy of Doug Short’s Advisor Perspectives.
The Chicago Business Barometer, also known as the Chicago Purchasing Manager’s Index, is similar to the national ISM Manufacturing indicator but at a regional level and is seen by many as an indicator of the larger US economy. It is a composite diffusion indicator, made up of production, new orders, order backlogs, employment, and supplier deliveries compiled through surveys.
The July report for Chicago PMI came in at 51.5, a 4.3 point decrease from last month’s 55.8.
Here is an excerpt from the press release:
“Economic activity slowed down into the summer, suggesting June’s momentum was only a temporary revival in activity. Overall, it wasn’t a rosy month, with Employment the only measure that gained traction. On a trend basis, though, the July-August growth rates paint a slightly better picture – albeit still weak – than that seen earlier in the year,” said Lorena Castellanos, senior economist at MNI Indicators.
Let’s take a look at the Chicago PMI since its inception.
Here’s a closer look at the indicator since 2000.
Let’s compare the Chicago PMI with the more popular national ISM Manufacturing Index. Both indicies clearly follow one another with the ISM falling slightly lower on average. Note the ISM Manufacturing indicator is through the previous month.
by Zero Hedge - August 31st, 2016 9:52 am
The June jump has been erased…
Chicago PMI was weak across the board…
- Prices Paid fell compared to last month
- New Orders fell compared to last month
- Employment rose compared to last month
- Inventory fell compared to last month
- Supplier Deliveries fell compared to last month
- Production fell compared to last month
- Order Backlogs fell compared to last month
- Business activity has been positive for 7 months over the past year.
The MNI Chicago Business Barometer fell 4.3 points to 51.5 in August from 55.8 in July, led by a large setback in Order Backlogs and a deceleration in New Orders.
Four of the five Barometer components fell between July and August. Only Employment increased, hitting a 16-month high. The latest fall left the Barometer, New Orders and Production running at the slowest pace since May, when they all slipped below 50.
Order Backlogs fell 14.5 points to 41.7, moving back into contraction territory as they hit the lowest level since April 2016. Backlogs were above 50 for only two months (June and July) following a 16-month run of sub-50 readings. New Orders and Production also subtracted from the Barometer in August. Although both remained in expansion, they were much softer than at the end of Q2.
Supplier Deliveries were little changed on the month while the three buying policy measures shortened, a positive for businesses but another indication of weaker overall activity.
Building on July’s strong pickup, Employment posted its highest reading since April 2015. Adding to this, August’s special question showed a few Chicago panellists were slightly less pessimistic than a year ago about hiring over the next three months. Although most reported they were not planning to hire in three months’ time, this percentage fell to 58% in August 2016 from 63% in August 2015. Also, those who said they plan to add both temporary and permanent employees rose to 21% from 15% a year ago.
Fewer firms expanded their inventory levels, with the indicator falling just below 50, having increased to the highest since October 2015 in the previous month.
It appears the dead-cat-bounce is over.