Navigating the Investment Landscape: From Blue Chips to AI and Beyond

VOO ETF: Easy Alpha, Big Income (NYSEARCA:VOO)

Looking for a portfolio of ideas like this one? Members of Big Dividends PLUS get exclusive access to our subscriber-only portfolios. Learn More " The Vanguard S&P 500 Index ETF (NYSEARCA:VOO) continues to be one of the best investments available (for long-term investors). And in this report, we review how to appropriately use it to generate "easy alpha" and steady "big income" from a balanced core portfolio (including mainly VOO) and augmented with optional single-stock "satellite" investments (we share three specific top-idea satellite examples). After reviewing the details and advantages of VOO (including holdings, performance, common implementation errors and important risk-reward considerations), we conclude with our strong opinion on how best to implement this highly-customizable strategy to achieve your personal investment goals. As passive ETF investing continues to gain momentum (over active stock picking), we've all heard the common refrain, which usually goes something like this: "Most people can't beat the market anyway, so you might as well just buy a passive low-cost S&P 500 index fund." For example, Vanguard's S&P 500 Index ETF fits the bill (so does iShares (IVV)), and it has performed very well in recent years, as you can see in the chart below. "The S&P 500 is a stock market index that tracks the prices of about 500 of the largest U.S. public companies across all sectors of the economy. It is a market-capitalization-weighted index, meaning the companies are weighted by the value of their outstanding shares available for public trading. The S&P 500 is used as a benchmark for the performance of the U.S. stock market and the U.S. economy as a whole. It is one of the main tools and indicators that investors, economists, and news reports use to follow the trends and movements of U.S. stocks. For example, you can see the top 10 largest positions in the S&P 500 (and in VOO) in the following chart. Specifically, VOO tracks the performance of the S&P 500 by using a full-replication technique (which means it owns all ~500 stocks in the index, and in essentially the same weights). Also worth mentioning, VOO invests in large-cap stocks of companies operating across diversified market sectors, including both growth and value. Also important to mention, even though the S&P 500 invests in "large-cap companies" only, it still encompasses ~87% of the entire US stock market (by market cap) because the 3,000+ additional smaller-cap US stocks don't have nearly as much market cap (and thereby making the S&P 500 a good proxy for the entire US stock market). And if you want to also include the mid-cap and small-cap stocks VOO is missing, you can use Vanguard's Total Market Index ETF (VTI) which owns over 3,600 stocks, including all market caps. Yet because large caps make up most of the total market cap, you can see VOO and VTI tend to perform very similarly (see our earlier chart: "A Passive S&P 500 Index Fund Has Performed Well"). So with that backdrop in mind, let's consider why so many investors cannot beat the performance of the S&P 500. The reason most investors cannot beat the S&P 500 is not simply because they are terrible stock pickers (although a lot of them are), but more broadly it's because they have widely different goals (which we will cover in the next section) and because they make ugly emotional mistakes. For example, you can see the two sharp declines in our earlier S&P 500 chart (above) in 2020 (when the pandemic hit) and in 2022 (as the subsequent pandemic bubble burst). Sadly, many investors panicked when the market declined in 2020, they hit the sell button, and then they missed out on the subsequent market rebound. And then they compounded their terrible performance by buying near the top in 2022 (fear of missing out) and then got caught in the selloff (i.e. they got most of the downside with basically none of the upside), a round trip of ugly emotional mistakes. In addition to trading out of fear, here is a list of additional things "emotionally intelligent" investors do NOT do: However, by investing in an S&P 500 index fund (like VOO), investors can avoid a lot of these mistakes. Specifically, because the S&P 500 includes ~500 stocks, the aggregate index is far less volatile than the individual stocks (diversification can reduce volatility) and this can help reduce the urge for many investors to "panic sell" their stocks at the exact wrong time. In fact, according to a study from Vanguard, a little "behavioral coaching" (i.e. emotional discipline) can help investors add up to 2% in "alpha" each year. Excluding dividends, the S&P 500 has returned over 10.5% annually for the last decade, but most people realize you cannot simply withdraw ~10.5% each year as if it were some "big income" dividend (because the 10.5% is an average, and the actual index is up dramatically more in some years and down big in others). Yet despite this well-known stock market volatility, many investors (who should NOT be 100% invested in stocks), pour everything they own into the stock market and then panic sell when it sells off (i.e. one of the ugly emotional mistakes we discussed earlier). Fortunately, there is a better way. A balanced core portfolio (of VOO, plus a simple bond market index ETF (BND)) allows many investors to enjoy a significant portion of long-term stock market gains with far less volatility and steadier high income (which ultimately allows them to achieve their "easy alpha" and "big income" goals). For example, you can see in the chart below how a mix of stocks and bonds can reduce volatility (which can lead to a reduction in emotional mistakes too) thereby producing steadier returns that you can use as a "dividend" (as we discuss in the next section). Some "experts" argue "The 4% Rule" which states you can "safely" withdraw 4% from your 50/50 stock/bond nest egg each year (as if it were a "dividend") without ever running out of cash during retirement (even after giving yourself an annual raise on that 4% to account for inflation). But some investors will argue the amount is actually much higher than 4% (based on your personal situation and volatility tolerance). We'll give some specific examples (including big-income "satellite investments") later in this report. Very importantly however, this balanced portfolio withdrawal rate can help many investors avoid common "undiversified mistakes," such as "yield chasing" (e.g. buying only investments that yield 10%+ can be an emotional mistake that often destroys alpha) and the unbalanced mistake of investing in 100% stocks (when they should also own some "fixed income" based on their personal situation and goals). One of the additional advantages of a balanced core portfolio consisting of mainly ETFs (aside from sleeping better at night) is you can augment it with attractive individual stock and bond strategies to meet your personal needs, as shown in the graphic below (i.e. the core ETF ticker symbols are shown in the center, with optional customizations as "satellites"). For perspective, the above graphic may assume a 60% stock (mostly US) and 40% bond & high-income (also mostly US) allocation strategy, and this mix is not entirely different from many typical target date funds from Vanguard (depending on where you are in the lifecycle, with more stocks for younger investors and more bonds for older investors). However, it is customizable in the sense that you can add individual stocks and bond strategies based on your personal situation (while still adhering to the 60/40 allocation target, or whatever your personal targets may be). For more perspective, we are including three satellite investment ideas for you to consider (i.e. to augment your core ETF portfolio) below. But worth mentioning, a lot of investors are disgusted by the idea of investing in a bond ETF, such as the Vanguard Total Bond Market (BND) considering its low yield (currently ~3.4%) and its horrendous performance in recent years (see chart below). Just know that the bond market performed historically poorly in recent years because of the fed's unprecedented rapid hikes to interest rates (to combat the very high inflation they helped create in the first place) (i.e. when rates rise, bond prices fall, all else equal). And it would be an "emotional investing" mistake to assume the past performance (of the last few years) is indicative of future performance. In fact, if the fed starts cutting rates, bond prices will go up (all else equal). Also, keep in mind the longer-term returns on bonds have been significantly better than the last few years (see our earlier stock/bond chart). So with that in mind, let's get into some specific "satellite investment" ideas. PIMCO is the industry leader in big-yield closed-end bond funds ("CEFs") revered by many investors for its long track record of paying big steady income (see chart below). Rather than owning 100% of your target fixed income exposure through a passive, lower-yield bond ETF like (BND), many investors like to add some PDI to customize their results. Despite market price volatility, PDI has provided steady big income (paid monthly) to investors. We recently wrote up this big yield investment in detail here. If you can get passed the unhealthiness of tobacco, we had been pounding the table about the attractiveness of British American Tobacco's dividend since December. We still own shares, but we just recently reduced the amount after a strong stock price rally (i.e. when the market got volatile in July, investors flocked to British American Tobacco for safety -- driving the shares significantly higher). You can read our previous writeup on the stock here. Switching gears from income to growth, Palantir is a stock that is hated by Wall Street (they rate it much lower than other growth stocks), but one we've been pounding the table on as attractive for a while. Palantir benefits from the incredible growth opportunities in Artificial Intelligence, as we wrote up in detail (prior to its recent powerful rally) here. Depending on your personal situation, the three names described above are examples of satellite investments you may want to consider (we currently own small amounts of all three). Rather than "betting the farm" on any one of them (which can be far too risky), using individual stocks (such as these) to augment your core strategy can help you achieve alpha and peace of mind (aka "chi"). If you have too much (or too little) "risk" in your portfolio, then your mental and physical health may suffer from being out of balance. For example, if you are losing sleep at night because of the recent stock market volatility, that could be an indication you have too much risk in your portfolio. Perhaps from too many individual stocks, or perhaps from not enough fixed-income investments. And building a better core-satellite portfolio (with more passive ETFs and/or more fixed-income investments) may be a better strategy for you. Similarly, some investors may not need stocks anymore because their nest egg is large enough to live off steady fixed-income investments forever. While others may take the opposite view, having a pension plus social security to cover all their living expenses and now instead want to focus on more aggressive long-term growth stocks (especially because they've already built the financial wherewithal to handle any short-term market volatility). Additionally, investors have widely different preferences in terms of the time they spend on investing. And a core-satellite strategy (perhaps including more VOO) may help some individuals spend as much (or as little) time on investing as they want. If you're stressing out over your investments, that could be a good indication that your risk-versus-reward is out of balance, and there could be a better way to achieve the easy alpha and big income you want and need. For example, it could be time for a customized core-satellite strategy with a big healthy dose of VOO at its core (plus better satellite investments too, such as the ones described in this report). At the end of the day, you need to do what is right for you, based on your own personal situation. Disciplined, goal-focused, long-term investing continues to be a winning strategy.

Eight 7% Yielding Blue-Chip Bargain Buys For A Comfortable Retirement

Looking for more investing ideas like this one? Get them exclusively at The Dividend Kings. Learn More " This is a hectic week for economic data and essential earnings. With volatility collapsing after last week's historic carry trade freak out on Monday, the market is poised for either major tailwinds or headwinds. Taiwan Semiconductor (TSM) just reported 44% sales growth, and all the tech giants (50% of NVDA sales) reported they are increasing AI spending. Channel checks from Morgan Stanley and Morningstar estimated a 15% to 17% beat and raise before earnings season. In recent quarters, Nvidia has been running to record highs ahead of earnings. Record highs are $140 and recently bottomed (so far) at around $98 on Wednesday, August 7th. In other words, if NVDA's fundamentals and earnings rally justify as much as a 55% rally over three weeks, it would be a 2.6% gain in the S&P on its own. That's not a forecast; I am NOT predicting NVDA will rally to $140 into earnings. I'm saying that the fundamentals and recent market history would make such a move completely expected and justified. That means a 2.6% 3-week rally for the S&P would also be justified even if every other stock were flat. Of course, if economic data comes in disappointing, such as higher-than-expected inflation, weaker-than-expected retail sales, and jobless claims, it could inspire a worst-case scenario: stagflationary recession fears, where rates don't come down, and the economy falls into recession. In other words, stocks could rip or dip hard, depending on what the data says this week. Inflation expectations continue to fall, which matters to the Fed, as fears of a wage-price spiral are why the Fed went higher for longer. Core PCE historically averages 0.5% below CPI, which means consumer expectations are 1.8% for the Fed's official inflation metric. Worries about job losses are 15%, the same as pre-pandemic levels. Worries about unemployment have been relatively stable in recent months. As Claudia Sahm, creator of the Sahm rule, points out, her famous rule doesn't account for immigration, which has increased significantly in the last two years. Adjusting for immigration, the Sahm rule has not been triggered. But that doesn't mean that all the economic data looks rosy. The highest interest rates in 20 years have caused credit card rates of 22% on average, the highest ever recorded. As a result, consumers are now increasingly worried about being able to make minimum payments. This is where Fed policy's "long and variable lags" can be seen. Consumer spending remains strong, and that's not expected to change in Thursday's retail sales report. 0.3% monthly growth in retail spending is 3.7% annualized spending growth, 0.7% adjusted for inflation. Moody's and JPMorgan estimate 33% and 35% recession risk in the next year, respectively, and the Bloomberg consensus is 30%. Based on financial markets, there is a 41% probability of recession within a year and a 6% chance we're in one now. In other words, the financial markets say there is a 47% chance of recession and a 53% chance of no recession within the next year. I deal in facts, not forecasting the future. That's crystal ball stuff. That doesn't work." - Peter Lynch The job of every smart investor is to stay invested as reasonably and prudently as possible. This article explains the Yen Carry trade and why this $1.7 trillion financial strategy led to a 4.3% market decline on August 7th. Carry trades are simply harvesting yield. If the price of an asset stays the same over one year, what is the "carry", or yield you earn. In other words, if stock prices stay the same, what returns do you get for holding them for a year? For stocks, yield is the carry trade, and anyone investing for income is a carry trade investor. Of course, you have to be very careful when investing in dividends. Many popular yield-based ETFs are built around derivatives and designed as short-term trading instruments. High-yield ETFs like JEPI and SVOL are built for lower volatility over time. Others, like ZIVB, are designed with no risk management whatsoever and can fall 30% in days when volatility spikes. Avoiding dividend cuts is the highest priority of income investors, or it should be. Because in the last 50 years, dividend cutters have lost 91% of their value when adjusted for inflation. This brings us to today's screening. 5% cash yields on T-bills and high-yield savings accounts will disappear as the Fed cuts rates. The bond market is pricing 2% of rate cuts within a year, which means the risk-free yield is about to fall. But what if you could get a low-risk 6% dividend yield...that is growing 2X faster than long-term inflation (2.3% according to the bond market). The first step to screening is eliminating the overvalued companies. Next, I eliminate speculative companies, such as WBA, INTC, MMM, or VFC, that are in turnarounds that can increase dividend cut risk. Next, I screen out anything not blue-chip quality or higher. But safety and quality only tell you that you're less likely to lose money. Safety And Quality Can Help You Minimize Permanent Catastrophic Loss Risk However, a 1% yielding utility with 1% growth will deliver 2% long-term returns, and the bond market is predicting 3% risk-free cash yields for the long term. That means that safety and quality aren't enough because there is always a risk that today's very safe companies can become tomorrow's dumpster fires. Yield + long-term growth drives long-term returns, with valuations able to boost medium-term returns. 10% long-term returns are the S&P's historical norm for the last 220 years (and 100 years, 50 years, and 25 years). Finally, a 6+% yield cutoff ensures ultra-yield, which I define as 2X the Vanguard High Dividend Yield Index Fund ETF Shares (VYM) ETF. It's also 1% above the risk-free cash yield, and remember that the bond market expects that to come down to 3% long-term. The Fed expects 2.75% long-term risk-free yields. And remember that dividends grow over time, along with earnings and cash flow. But only if you focus on safety and quality first, prudent valuation, and sound risk management always. The 7.3% average yield is almost 5X that of the S&P, 2% above the risk-free cash yield (today), and 4% above the long-term risk-free yield (according to the bond market). While the S&P is 3% historically overvalued, these ultra-yielding blue chips are 15% historically undervalued. Buying $1 in value for $0.86 means that if these ultra-yield blue chips were to jump 18% tomorrow, that would be 100% justified by fundamentals. However, these are growing blue chips, with 5.6% long-term growth according to all analysts covering them for Wall Street. That means that in the next 12 months, including dividends, a 25% total return would be 100% justified by fundamentals. That's not a forecast; it means "If and only if these companies grow as expected and return to historical market-determined fair value, a 25% gain in the next 12 months would be 100% sanctified by the righteousness of fundamentals." The long-term yield is 7.3%, and growth is 5.6%. These are 2X the long-term expected inflation rate, which means 12.9% long-term total returns. If you live on dividends, analysts expect income growth of 5.6% or 2.3% inflation-adjusted. If you reinvest dividends and rebalance annually, 12.9% long-term income growth is the current analyst consensus. What if you're living on the dividends? Then, 3.3% inflation-adjusted dividend growth means an inflation-adjusted 10% yield on cost in 10 years for retirees. Over the next five years, the FactSet consensus expects a 15.1% annualized return potential. OK, that's impressive income potential, but what about safety? 89% safety and 83% overall quality is Super SWAN quality and safety, similar to what the dividend aristocrats offer. S&P rates these ultra-yield blue-chips as BBB+ stable, with 5.59% 30-year bankruptcy risk, which is the fundamental risk of losing all your money as an investor. S&P rates companies on over 1,000 kinds of risk, everything from brand management, regulatory risk, and cybersecurity risk to talent retention risk. These ultra-yield blue chips rank in the top 25% of global companies, indicating strong corporate cultures built to adapt and overcome all challenges. OK, seven Super SWAN quality ultra-yield blue chips offer junk bond-like yields but with BBB+ credit ratings, exceptional risk management, and incredible long and short-term return potential. What evidence is there that these ultra-yield Super SWANs can deliver impressive returns and income growth? For the last 26 years, these ultra-yield blue chips delivered 12% annual returns, 50% better annual returns than the S&P, and with similar levels of volatility. 12% to 14% annual returns, similar to the 13% analysts expect in the future. They beat the market over time and have much better consistency of returns, with a loss of five years being the worst returns compared to a lost decade for the S&P (lost 15 years adjusted for inflation). Notice how the S&P's income growth of 8.5% is almost identical to the rolling total returns. The same with the ultra-yield blue-chips. 13% average annual returns and 13% income growth. This is why total returns matter; they determine long-term income growth. You might not think that 4.6% better income growth over time matters, but it made a massive difference in cumulative income, 10X higher income. Today, these ultra-yield blue chips pay long-term investors over 150% of their initial investment each year in dividends that are still growing around 6% per year. Adjusted for volatility, returns were exceptional, with almost 3X higher excess returns (vs. risk-free bonds) per unit of volatility (Treynor ratio). But you don't have to wait decades to benefit from these ultra-yield blue-chip bargains' 7.3% low-risk yield. Average: 66% = 18.5% annually vs 40% or 13% annually S&P. 1-Year Fundamentally Justified Upside Potential: 25% vs 11% S&P. These eight blue-chips are concentrated in just three sectors. They are not meant to represent a complete portfolio. Ultra-yield blue-chip investing seems like a dream...on paper. These eight blue chips historically average 6.2% yields and today yield 7.3%, a 15% historical discount. So you buy them and earn a 7.3% low-risk yield with almost 6% dividend growth. And if the valuation returns to its historical norm within a year and grows as expected, a 25% return would be justified by fundamentals. An attractive 7.3% dividend carry trade with significant capital gains appreciation potential. While short-term returns are 93% luck/sentiment-driven, over the long-term, steady growth in earnings, cash flow, and dividends makes long-term profits far less speculative than most growth stocks. But the catch is that Wall Street has no guarantees, just probabilities. These consensus estimates change over time. For these low volatility stable blue-chips, typically not much. But it's important to note that consensus return potentials are NEVER forecasts. These are NOT price targets. A 25% upside return potential in 12 months would be 100% justified by fundamentals, but it doesn't mean it will happen. The long term is not one year or even a few years. It is 10+ years, and that's why valuation discounts exist. Many investors are unwilling to wait years for a company to exist in a bear market, even if all its fundamentals say it should have returned to historical fair value years ago. Dividend carry trades, as many income investors have learned over time, can be very frustrating. A stock that yields 6% historically yields 7%. You buy it. A year later, the yield was 8%. You buy more and reinvest the dividends. A year later, it yields 9%. You buy more and reinvest the dividends. A year later, it yields 10%; you buy more and reinvest the dividends. This describes British Americans for the last few years, which peaked at a yield of 10.5%. The sales, earnings, cash flows, and dividends grew the entire time. According to the bond market and credit rating agencies, the balance sheet was getting steadily stronger; the fundamental risk was either stable or declining. Many BTI investors were upset that the price, after falling to a 50% discount, remained at similar levels for years. They forget that they earned the dividends and thus enjoyed a 9% annualized return during the longest bear market in BTI history. Income investors must endure This kind of patience because market envy or fear of missing out is a very real psychological risk to high-yield blue-chip investing. And, of course, this example chart doesn't highlight the intense volatility income investors endured over the years. These blue chips have spent nearly three years underwater, much better than the S&P's six years. But in our V-shaped recovery bear market era, when investors expect stocks to end yearly at record highs, you must have historical context and realistic expectations. In other words, no matter how tempting it might be, NEVER EVER think of high-yield blue chips as "bond alternatives." They are not designed to be and seldom go up in corrections and bear markets. Many of these ultra-yield blue chips are Ultra SWANs, but that doesn't mean they can't fall hard and fast. EPD and ENB fell 40% in the Pandemic crash, with EPD hitting a record 65% undervalued. At a 60% historical discount, EPD was a screaming buy. It fell another 12.5% before bottoming. It would help if you remembered that asset allocation and prudent risk management, optimized for your financial and psychological risk profile, can help you weather market downturns. In the 5% of worst months, the S&P falls 10%, and so do these ultra-yield blue-chips. Over the last 36 years, they have captured 66% of the market's upside in exchange for 40% of its downside. But that doesn't mean they fall 60% less in every market downturn. (Source: Portfolio Visualizer) The worst months for these blue chips are usually, but not always, in late 1999. Due to the tech bubble and value bear market, these blue chips fell almost 15% while the S&P went up. Imagine seeing your portfolio fall by 15% in two months while stocks were soaring. You might have sold at the bottom in March 2000, right before tech stocks collapsed 82% and value had the best decade relative to growth since the Great Depression. (Source: Portfolio Visualizer) Some of these blue chips were the best months ever when the market was flat or even down. Like January 2022, they rose 9% while the S&P fell 5%. In February 2001, the market fell 10%, and they rose 7%. In other words, owning individual stocks means market tracking error by design. To paraphrase Rodrigo Gordillo, "High-yield blue-chip investing, done responsibly, over the long-term, is indistinguishable from magic." Great income, great returns, and if you have the right asset allocation for your needs, volatility so low, it's like riding over the market's biggest potholes in a hovercraft. However, the key is to remember safety and quality first, as well as prudent valuation and sound risk management. You can't just aim for the highest yield. Doing so risks disaster and turns your retirement plan into a prayer for luck. In contrast, when focusing on fundamentals and risk management, you never have to pray for luck because you'll make your own.

Are AI Stocks A Better Investment Then Value Stocks?

The best-balanced stocks provide potential returns three times that of the Magnificent Seven. I have been using FASTGraphs to estimate future returns of stocks. I published an article on August 1 presenting the key parameters - earnings growth, dividend yield, valuation - and estimated future returns of 54 primarily dividend stocks selected to provide high total returns Don't Buy AI Stocks, Buy The Best Dividend Total Return Stocks Although the title of my previous article started with Don't Buy AI Stocks, I didn't analyze them. This article adds analysis of each of the Magnificent Seven stocks to an updated analysis of deep value, primarily dividend, high total return stocks. My approach is to use FASTGraphs to find deep value primarily dividend stocks that have the potential to provide a much higher future rate of return than the S&P 500. I've expanded that to include the Magnificent Seven stocks. Those seven stocks make up 31% of the S&P 500 (SPY) as well as 43% of the Nasdaq 100 (QQQ). The most important metric for future stock performance is its future earnings. Price will eventually follow earnings. I will illustrate the stock analysis approach I use with one of the Magnificent stocks - Microsoft (MSFT) The earnings growth rate of MSFT from now until the end of 2026, per FASTGraphs, is a robust 15.6% annually. I first try to find a long-term price history with a similar historic earnings growth rate as its current estimated growth rate. As shown below, MSFT's earnings growth rate over the last 20 years, 13.4%, is close to its current estimate. The black line shows MSFT's price history. The average price multiple, Price to Earnings ratio, that the market has placed on MFST's earnings over the period was 21.57. MSFT's current blended PE ratio is 34.82. This is the first sign that MSFT is undervalued. The blue line shows the price MSFT's stock would be if it were at its 20-year average 21.97 P/E. Given its dividend yield and estimated 2026 earnings, MSFT's stock will give a -1.2% annual rate of return if it reverts to its normal 20-year P/E by the end of 2026. I then look at a more recent price history of the stock to assess the current price multiple against its recent price multiple. MSFT's earnings over its last five fiscal years (18.2%) have grown at a faster rate than 20-Year or current estimates. Its normal P/E ratio over the last five fiscal years, 33.1, is slightly lower than its current 34.8 P/E. If MSFT's stock reverts back to the average P/E it had over the last five fiscal years, it would give a 14.2% annual rate of return by the end of 2026. Finally, if MSFT did not revert to its historic P/E, if its price multiple stayed at its current 34.82 P/E, its annual return would be its annual earnings growth rate plus dividend yield. That would give: Rate of return = EG + DY = 15.6% + 0.7% = 16.3%. With earnings estimated to grow a little slower than historic averages, MSFT's price multiple will most likely eventually revert to a lower historic price multiple number. The 20-year price history has the earnings growth rate most similar to its current estimate. Best case is it keeps its current price multiple. I average the three different estimates for future rate of return to compute an average estimated rate of return. Estimated Rate of Return = (-1.2% + 14.2% + 16.3%) = 9.8%. Meta Platforms (META) is not as overvalued as MSFT's stock. As shown below, it is fairly valued compared to its 12-year long term average. Current P/E is 28 compared to a 28.1 P/E over the last 12 years. Earnings are estimated to grow at an annual rate of 17.4% through the end of 2026. If META reverted back to its 12-year average P/E it would give an annual gain of 17.9% by the end of 2026. META's average P/E over its last five fiscal years was actually lower than its current or longer-term average. META will only return about 9% if it reverts back to the average P/E it held over the last five fiscal years. Finally, if META kept its current P/E, its annual return would be its annual earnings growth rate plus dividend yield. That would give: Rate of return = EG + DY = 17.4% + 0.4% = 17.8%. Average the three estimates for rate of return give: Estimated Rate of Return = (17.9% + 8.8% + 17.8%) = 14.8%. Nvidia (NVDA) is an AI focus stock. This Yahoo article says that NVDA is the best way to play AI in the next ten years. NVDA Best Way to Play AI NVDA's long term price history is shown below. Earnings grew at an average annual rate of 35.9% over the last 20 years. Earnings are expected to grow at a similar 33.5% annual rate through the end of 2026. NVDA's average P/E ratio over the last 20-Years was 35.7. Currently, NVDA has a 64.4 P/E significantly greater than its long term average signifying that NVDA is overvalued at the present time. If NVDA reverts back to its long-term average P/E, it will only return an average of 7.8% through the end of 2026. If it maintains its currently overvalued 64.4 P/E, its annual return would be its earnings growth rate 33.5%. So what NVDA returns in the future really depends on its valuation and how much the market is willing to pay for NVDA's earnings. Average the three estimates for future rate of return gives an estimated 26.4% annual rate of return. I performed this FASTGraphs analysis on the rest of the Magnificent Seven stocks and the Fifty-Four stocks I previously analyzed. This analysis uses updated prices, price multiples, earnings growth, and dividend yields as of August 9, 2024. The result of the analysis is shown in the two tables below. I used FASTGraphs estimate of Adjusted Operating Earnings and earnings growth for most stocks. I used Operating Cash Flow - Funds From Operations for the REITs, Master Limited Partnerships, and several financial stocks when FASTGraphs recommends using that to analyze the company's stock. Those stocks are highlighted in blue. The table lists stock symbol, price on August 9, 2024, current trailing P/E, dividend yield, 2023 and 2026 earnings or cash flow per share, earnings growth rate from now through the end of 2026, the normal P/E and computed rate of return for two different periods - longer term with similar earnings growth rate as current and last 5 fiscal year period, earnings growth + dividend yield, and finally the average rate or return from the three different approaches to estimating future return. The stocks in the tables are ranked by average estimated rate of returns from now through the end of 2026. The first table is of stocks with an estimated rate of return of 21% or greater. The second table are stocks with a rate of return of less than 21%. The S&P 500 (SPY) is highlighted in yellow in the second table. The chart below compares stock dividend yield versus estimated annual rate of return through 2026. Circle symbols are stocks analyzed using adjusted earnings from operations. Diamond symbols are stocks analyzed using funds from operations. The Magnificent Seven stocks are labeled in brown. I like using this chart to compare dividend stocks. The line below is my "goodness line". I am willing to buy a stock with zero dividend yield if it has an estimated return about triple the S&P 500's. I will trade some total return for a higher dividend yield. I would be willing to buy a stock with a 13% dividend yield but only has a 13% estimated rate of return. This is the bird in hand worth two in the bush scenario, trading off potential total return for the higher probability dividend return. Also, a stock which gives a 13% dividend with 13% total return would, by definition, have zero price appreciation. That return would be analogous to a bond but with about triple the yield of current government 10-year bonds. Stocks to the right of the line are better investments, have higher estimated returns for the same dividend yield, than stocks to the left of the line. The further to the right, the better the potential investment. HESM, Main, and ESEA are off the chart because they have estimated returns of less than negative 10%. HROW is off the chart because it has an estimated return greater than 80%. The stocks labeled in blue are the best stocks discussed below. The primary drivers of future rate of return are earnings growth rate, dividend yield, and stock price earnings ratio especially compared to historical P/E averages. Peter Lynch's favorite stock valuation measure was PEG ratio which is P/E divided by (earnings growth rate + dividend yield). The relationship of estimated stock rate of return to P/E / (EG + DY) is shown below. Stocks with lower PEG ratios tend to have higher estimated rates of return. The best stocks in each of three categories are listed below. The ten stocks with the best estimated total return are shown below. One of the Magnificent Seven stock Amazon (AMZN) made the list. These ten stocks offer average yields three times greater than the S&P 500 combined with potential returns five times the S&P 500. Estimated returns are almost triple those of the Magnificent Seven. The ten stocks with the highest dividend yield are shown below. It is important, however, to not chase yield. Dividend safety should be a consideration if one is primarily buying the stock for income. One proxy for dividend safety is earnings growth rate. Companies that are continually growing earnings tend not to cut dividends. Conversely, companies with no or negative earnings growth are at risk of cutting dividends particularly if the dividends are high yield. MPW, for example, cut its forward dividend this week. A plot of dividend yield versus earnings growth rate is shown below. Negative earnings growth rates are noted in red in the best yield table above. Although some of these stocks may have superior total estimated returns the dividend part of total return may be at risk. One more note on these stocks. Two of the companies are Master Limited Partnerships - Alliance Resource Partners (ARLP) and Western Midstream Partners (WES). Never ever buy a MLP in a tax differed account like an IRA. All capital gains when the stock is sold are treated as Unrelated Business Taxable Income (UBTI). The brokerage firm where the IRA sits has to pay a UBTI tax on the gains. It pays a tax at the firms Trust marginal tax rate not your personal tax rate. The upper marginal rate is 37% if the total gains on all the MLP's you sold in a given year are over $13,450. Further information on MLP's and UBTI in IRA's can be found can be found here Impact of UBTI in IRA accounts If you buy a MLP and eventually sell it for a gain then take the gain out of your IRA, you could be hit with 37% tax plus the typical federal and state marginal rates on deferred taxable account withdraws. For me, it was a marginal tax rate of over 70%. Do not buy MLP's in IRA's! The best-balanced stocks - those furthest to the right of the goodness line - offer average yields six times greater than the S&P 500 combined with potential returns five times the S&P 500. Potential return is 2.7 times that of the Magnificent Seven. The best-balanced portfolio offers almost twice the yield of the best return stocks with only a small reduction in estimated total return. These are the best current deep value, high dividend yield, high estimated return stocks to buy now. The chart below shows the average yield and estimated returns of the three best 10 stock portfolios as well as that of a portfolio of the Magnificent Seven stocks portfolio of ten stocks. Individual Magnificent Seven stocks are labeled brown. The Best Return and Best Balanced stock portfolios have estimated returns superior to the S&P 500 as well as any and all of the Magnificent Seven stocks. There are three principal risks to investors. The first is that the companies do not achieve their estimated future earnings. Earnings estimates are the best estimates of analysts that follow each company. The companies may or may not achieve the estimated earnings. The companies may exceed or miss earnings estimates. Investing in a group of stocks minimizes the risk of any one company underperforming. The second risk is that the undervalued stocks stay undervalued and do not revert to their longer-term price multiples over the next 2 1/2 years. If this happens and the P/Es of the funds do not change, their price would still appreciate at their earnings growth rate, while an investor would collect a dividend yield. In the case of the best-balanced portfolio, earnings would appreciate an average 32.2% a year. Add in the 7.6% dividend yield and an investor could earn a 39.8% annual return while waiting for price multiples to revert to long-term mean. Finally, the third risk is the risk of an economic downturn, which may affect small and mid-caps more than large caps. That said, value investing does fine in recessions. Value Stocks During Recessions

Implementing VanEck's Macro Views In Your Portfolio

The Trump and Biden administrations have been large spenders, creating a budget deficit of 7% despite being in an economic boom with low unemployment. Diversify beyond U.S. mega-caps, stay short on fixed income while selectively adding duration, and seize global growth opportunities with our targeted strategies to navigate today's market challenges. CEO Jan van Eck recently shared his outlook on the markets from a macro perspective. Jan's outlook pieces are always nuanced and timely, and in my conversations with clients, I know that many advisors appreciate his insights. That said, a response I often encounter when I share Jan's outlook is: this is really interesting, but how do I implement these views in my portfolio? Here's the punchline for today's markets: We believe advisors should diversify due to U.S. equity market distortions, stay short on fixed income while selectively adding duration for a barbell approach, and look to commodities and select emerging markets as global growth picks up. Below, we explore these three points in more detail and share how advisors can make these allocations using VanEck's product suite. Although the S&P 500 Index had an impressive 15.5% rally through the first half of 2024, this rise was notably distorted. When we compare the performance of large-cap growth vs. value stocks, we see that growth outperformance mirrors the levels seen during the so-called internet bubble of 1999. Following the 1999 peak in growth stocks, the Nasdaq 100 Index fell in the 2000-2007 period. The tech boom leading up to 2000 shows performance patterns remarkably similar to current market trends. Today's tech giants are exhibiting more solid sales growth and profitability than during the 1999 internet bubble, and their high earnings helped drive up their valuations. However, we note that there is a difference between high growth companies and high ROIC (return on invested capital) companies. High absolute growth levels tend to mean revert over time. In periods where above-average growth is concentrated in a small handful of companies, capital tends to be over-allocated to chase high growth, which is based on short-term momentum and often unsustainable. Meanwhile, high ROIC companies are focused on sustainable growth and thoughtful allocation of capital aimed at protecting and growing market share over time. We saw the risk of over-exposure to mega-caps play out in July's tech sell-off, which may indicate the start of a market rotation into more value-oriented stocks. How to invest: We suggest advisors ensure that their equity portfolio is diversified and not overly concentrated in the S&P 500 market cap index. Consider including mid caps, small caps, and international stocks to spread risk and capture broader market opportunities. Rather than short-term growth prospects, we favor high ROIC companies that accrue value more consistently over time. This environment is also a good reminder for advisors to make sure they are actively rebalancing their equity portfolios to avoid overexposure to overvalued growth stocks. While the presidential election is still several months away, I get no shortage of questions from advisors about our views on geopolitical risk and how the outcome of the election is likely to impact markets. Advisors likely face these same questions from their clients. Regardless of who wins, government spending levels are currently very high, and addressing this issue will likely become a priority after the presidential election. The Trump and Biden administrations have been large spenders, creating a budget deficit of 7% despite being in an economic boom with low unemployment. Looming Medicare and Social Security deficits make 2025 a critical year for fiscal policy. This may contribute to the Fed's hesitation to cut interest rates in the aftermath of pandemic-related spending and monetary policies. A significant drop in interest rates is unlikely unless a severe economic contraction occurs. Our view is that the government will need to employ a combination of tax increases and spending cuts to manage the debt, while the Fed may opt to cut rates to stimulate that. Though not necessarily negative for stocks and bonds, there is a risk of 10-year interest rates spiking if these fiscal challenges are not adequately addressed. How to invest: Given the high interest rates on short-term fixed income, we are encouraging advisors to adopt a barbell approach to fixed income. With 4-6 interest rate cuts priced into the market in the next year, capturing yield through collateralized loan obligations (CLOs) and floating rate notes may make sense over nominal treasuries, but selectively adding some duration also makes sense in the near-medium term. As high yield spreads widen, bank loan investors may want to consider a rotation into longer duration high yield corporate bonds, particularly higher quality ones. This barbell strategy balances the benefits of short-term yield with potential opportunities in longer-term investments. There has been a noticeable uptick in global growth, which has positive implications for various sectors, including commodities. The U.S. is growing at a slower pace, but growth engines like India have been growing rapidly. How to invest: With global growth picking up, commodities are likely to benefit, making them a viable addition to a diversified investment strategy. Our discussions with clients have been focusing on the longer term structural forces that are coming together. These include low capital expenditures and investments in new discoveries as well as a trend towards onshoring and nearshoring, which is influenced by structural demand for clean energy, grid and infrastructure upgrades, and new sources such as crypto mining and AI demand. In addition, we have written extensively on the strong growth prospects of India, as the country's rapid digitization, thriving equity market and demographic trends are creating compelling investment opportunities that we believe investors should be exploring. Important Disclosures Return on invested capital is a performance ratio that aims to measure the percentage return that a company earns on invested capital and shows how efficiently a company uses funds to generate income. When comparing ICE US Fallen Angel High Yield 10% Constrained Index and ICE BofA US High Yield Index. ICE BofA rating is a proprietary composite of various rating agencies. This is not an offer to buy or sell, or a recommendation to buy or sell any of the securities, financial instruments or digital assets mentioned herein. The information presented does not involve the rendering of personalized investment, financial, legal, tax advice, or any call to action. Certain statements contained herein may constitute projections, forecasts and other forward-looking statements, which do not reflect actual results, are for illustrative purposes only, are valid as of the date of this communication, and are subject to change without notice. Actual future performance of any assets or industries mentioned are unknown. Information provided by third party sources are believed to be reliable and have not been independently verified for accuracy or completeness and cannot be guaranteed. VanEck does not guarantee the accuracy of third party data. The information herein represents the opinion of the author(s), but not necessarily those of VanEck or its other employees. Index definitions: S&P 500 Index consists of 500 widely held common stocks covering industrial, utility, financial and transportation sector. Russell 1000 Value Index consists of value-oriented U.S. companies selected from the large-cap focused Russell 1000 Index. Russell 1000 Growth Index consists of growth-oriented U.S. companies selected from the large-cap focused Russell 1000 Index. Nasdaq 100 Index comprises equity securities issued by 100 of the largest non-financial companies listed on the Nasdaq stock exchange. UBS Constant Maturity Commodity Total Return Index represents a basket of commodity futures contracts of 29 commodity components. ICE US Fallen Angel High Yield 10% Constrained Index (H0CF, Index) is a subset of the ICE BofA US High Yield Index (H0A0, Broad Index) and includes securities that were rated investment grade at time of issuance. ICE BofA US High Yield Index (H0A0, Broad Index) is comprised of below-investment grade corporate bonds (based on an average of various rating agencies) denominated in U.S. dollars. An investor cannot invest directly in an index. Returns reflect past performance and do not guarantee future results. Results reflect the reinvestment of dividends and capital gains, if any. Certain indices may take into account withholding taxes. Index returns do not represent Fund returns. The Index does not charge management fees or brokerage expenses, nor does the Index lend securities, and no revenues from securities lending were added to the performance shown. ICE Data Indices, LLC and its affiliates ("ICE Data") indices and related information, the name "ICE Data", and related trademarks, are intellectual property licensed from ICE Data, and may not be copied, used, or distributed without ICE Data's prior written approval. The licensee's products have not been passed on as to their legality or suitability, and are not regulated, issued, endorsed, sold, guaranteed, or promoted by ICE Data. ICE Data MAKES NO WARRANTIES AND BEARS NO LIABILITY WITH RESPECT TO THE INDICES, ANY RELATED INFORMATION, ITS TRADEMARKS, OR THE PRODUCT(S) (INCLUDING WITHOUT LIMITATION, THEIR QUALITY, ACCURACY, SUITABILITY AND/OR COMPLETENESS). The principal risks of investing in VanEck ETFs and mutual funds include sector, market, economic, political, foreign currency, world event, index tracking, active management, social media analytics, derivatives, blockchain, commodities and non-diversification risks, as well as fluctuations in net asset value and the risks associated with investing in less developed capital markets. VanEck ETFs may also be subject to authorized participant concentration, no guarantee of active trading market, trading issues, passive management, fund shares trading, premium/discount risk and liquidity of fund shares risks. VanEck ETFs or mutual funds may loan their securities, which may subject them to additional credit and counterparty risk. ETFs or mutual funds that invest in high-yield securities are subject to subject to risks associated with investing in high-yield securities; which include a greater risk of loss of income and principal than funds holding higher-rated securities; concentration risk; credit risk; hedging risk; interest rate risk; and short sale risk. ETFs or mutual funds that invest in companies with small capitalizations are subject to elevated risks, which include, among others, greater volatility, lower trading volume and less liquidity than larger companies. Please see the prospectus of each Fund for more complete information regarding each Fund's specific risks. An investment in a Collateralized Loan Obligation (CLO) may be subject to risks which include, among others, debt securities, LIBOR Replacement, foreign currency, foreign securities, investment focus, newly-issued securities, extended settlement, management, derivatives, cash transactions, market, operational, trading issues, and non-diversified risks. CLOs may also be subject to liquidity, interest rate, floating rate obligations, credit, call, extension, high yield securities, income, valuation, privately-issued securities, covenant lite loans, default of the underlying asset and CLO manager risks, all of which may adversely affect the value of the investment. There are inherent risks with equity investing. These risks include, but are not limited to stock market, manager, or investment style. Stock markets tend to move in cycles, with periods of rising prices and periods of falling prices. There are inherent risks with fixed income investing. These risks may include interest rate, call, credit, market, inflation, government policy, liquidity, or junk bond. When interest rates rise, bond prices fall. This risk is heightened with investments in longer duration fixed-income securities and during periods when prevailing interest rates are low or negative. Please call 800.826.2333 or visit vaneck.com for a free prospectus and summary prospectus. An investor should consider the investment objective, risks, and charges and expenses of the investment company carefully before investing. The prospectus and summary prospectus contain this and other information about the investment company. Please read the prospectus and summary prospectus carefully before investing. © Van Eck Securities Corporation, Distributor, a wholly owned subsidiary of Van Eck Associates Corporation. Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.

Beyond The Obvious: 3 Dividend Stocks Changing The Game

Looking for more investing ideas like this one? Get them exclusively at iREIT®+HOYA Capital. Learn More " If there's one thing we discuss a lot, it's "the big picture," as I believe staying on top of major trends is key when it comes to improving the odds of making profitable investment decisions. To make matters more complicated, all of these issues are related. For example, politics impact consumer sentiment and supply chains (i.e., the Inflation Reduction Act). In general, it's close to impossible to view supply chains, politics, and macroeconomics as separate issues. I only do this to make the research process a bit more structured. With that said, in recent articles, we have discussed a lot of macroeconomics. This includes my recent article titled "Dividend Darlings: 3 Fantastic Stocks To Hold Rain Or Shine." In that article, we discussed issues like rising pressure on the consumer, which has led to defensive consumer stocks outperforming cyclical consumer stocks. Generally speaking, that's a bearish development. Based on that context, if I wanted, I could go even further, as there's a lot more bearish data to make the case that the consumer is in trouble. This includes the chart below, which shows that consumers are very downbeat when it comes to their household income expectations over the next 1-2 years. In fact, that's why the current macro environment is so tricky. There is so much data out there with conflicting takeaways. For example, small business optimism just made a huge comeback. It's still at subdued levels, but it's the trend that matters. It also needs to be said that strength mainly came from soft data, which means future expectations. Moreover, as Bloomberg's John Authers explains, the NFIB asked companies what their biggest problem is. This includes sales. Usually, this confirms consumer trends, as a weak consumer translates to poor sales expectations. The problem is that the trend is in the wrong direction. This is confirmed by the opinion of some of the biggest money managers. Between August 2 and August 8, fund managers were asked by Bank of America if they expected a stronger economy. As we got bad news for unemployment numbers and a stock market sell-off during this survey period, it is no surprise that fund managers have become quite downbeat. To make things confusing (again), the number of fund managers expecting the Fed to achieve a "soft landing" increased from 68% in July to 76% in August - a clear signal that some weakness is expected, yet not enough to derail the economy. Essentially, the question is why fund managers are negative on the economy without expecting anything bad to happen. The answer is interest rate expectations. The market expects rates to come down, supporting the economy. Almost every single fund manager who took part in the survey expects short-term rates in the next 12 months to come down. That's the highest conviction this survey has ever shown. Using CME Fed funds futures, we see the market expects gradual rate cuts to the 3.25-2.50% range in mid-2025. Although these numbers are highly volatile and by no means a guarantee that the Fed will cut this aggressively, it shows quite well that the market expects lower rates to support the economy, preventing a hard landing. Having said all of this, predicting the economy is tricky - very tricky. But regardless of what happens, I think a few things are certain: Hence, I am seeking investments with secular growth tailwinds, fantastic balance sheets, and income. After all, as I wrote in recent articles (like this one), once rates come down and risk-free assets start to yield less, I expect trillions to rotate into high-quality income alternatives - like dividend stocks. The three dividend stocks we'll discuss in the second part of this article all bring something special to the table, making them key players in their respective areas and excellent long-term dividend stocks. Topaz is a C$3.8 billion market cap gem from Canada. It's a company I have discussed a number of times in the past (including in this article). However, I have never given it the attention it deserves. Topaz Energy is a very special company with a very important task: it owns mineral rights that oil and gas companies need to produce natural gas, oil, and related products. The only reason I have not bought Topaz Energy is that I already own two American royalty companies that account for roughly 18% of my total net worth. These companies are Texas Pacific Land (TPL) and LandBridge (LB). However, I still may buy Topaz, as it's truly a fantastic company. As I already briefly mentioned, Topaz Energy owns the mineral rights that oil and gas producers need for their operations. Most of these rights cover high-margin liquid-rich natural gas. This business segment comes with an operating margin of 99%, as TPZ does not need to do anything except collect royalties. It also has an infrastructure segment, with an 80% fixed take-or-pay revenue flow and an operating margin of 90%. Most of the company's operations are located in high-growth areas like the NEBC Montney, Clearwater, and others that are part of Canada's Western Canadian Sedimentary Basin, one of the areas with the most oil and gas reserves in the world. In addition to benefitting from high margins, Topaz benefits from the fact that it is expected to grow production by up to 40% by 2028 without any additional capital requirements. Moreover, between 2020 and 2023, 120% of its production was replaced by operators finding new reserves. In general, most of its acreage is still undeveloped, providing long-term growth potential for TPZ and its customers/clients. Close to 20% of its acreage is located in the NEBC Montney, where more than 90% of production is still undeveloped. Since the company was spun off from its largest tenant, Tourmaline Oil (TOU:CA), it has hiked its dividend eight times to a current level of C$0.33 per share per quarter. The dividend is safe. According to the company, 45% of its dividend is protected by its low-risk infrastructure operations. This makes the dividend even less dependent on commodity prices. Speaking of commodities, because Topaz does not have to deal with production costs (that's what its customers are dealing with), it has super low breakeven prices. This year, the dividend is expected to be breakeven at $55 WTI and C$0 AECO. You read that right. Even if gas in Canada is "free," the company can support its dividend if WTI trades at $55 or higher. Hence, in an environment of elevated oil and gas prices, free cash flow potential is extreme. Based on 2024 estimates, an environment of C$4 AECO and $85 WTI could lead to a free cash flow of roughly C$320 million, 8.4% of its market cap. If we include expected long-term production growth, we get very fertile ground for a high-yield dividend investment in one of the most important production areas in the world, supported by long-term demand tailwinds from artificial intelligence data centers, LNG exports, and the ongoing coal-to-gas transition. Given the company's elevated yield and growth potential, I believe it's a Strong Buy. With that said, while TPZ is critical in the oil and gas sector, the next stock is critical in precious metals. Franco-Nevada is also a Canadian company. However, it reports its earnings in U.S. dollars and is listed on the New York Stock Exchange. Although the company is often put in the gold and silver mining category, it does not produce precious metals. Franco-Nevada is a steamer. This means it finances mining operations in return for the right to buy a part of future production at a discount to the spot price. This allows the company to benefit from potentially rising gold and silver prices without having to deal with any of the operating risks. While I also like a few miners, I believe the streaming business model is superior, as it comes with a margin profile that is difficult to beat. Last year, for example, the company achieved an adjusted EBITDA margin of more than 80%, with an adjusted net income margin of 56%. Using the data below, we see the majority of its revenue comes from gold. Total precious metal exposure is roughly 75%. On top of that, the company has oil and gas royalties, similar to Topaz Energy. It also helps that this business model comes without any gross debt and $2.4 billion in liquidity. Most of this liquidity consists of cash and cash equivalents. Looking ahead, Franco-Nevada's guidance for 2024 suggests a strong second half, with expected contributions from newly producing mines like Salares Norte, Greenstone, and Tocantinzinho. Although the company expects to be at the lower end of its GEOs (gold equivalent ounces) sold guidance range (480 thousand to 540 thousand total GEOs), the expected recovery in production at Candelaria and Antapaccay should provide a significant boost, according to the company. Moreover, the company's recent strategic acquisitions, mainly SolGold's Cascabel project, present substantial upside potential. The Alpala deposit within Cascabel is seen as a world-class copper-gold porphyry and is expected to significantly contribute to the company's revenues in the coming years. That said, one of the reasons why the company's stock price isn't going anywhere is issues in Panama, where the Cobre Panama mine is still under preservation and safe management. This is a $10 billion mine that is currently not adding any revenue due to Panama's decision that its operation is unconstitutional. The impact on FNV's GEOs and revenue can be seen below. Essentially, investors are now able to buy a cheap company. FNV trades at a blended P/OCF (operating cash flow) ratio of 25.1x, below its long-term average of 25.7x. Excluding the massive mine of Cobre Panama, per-share OCF growth is expected to be 17% next year, potentially followed by 8% growth in 2026. This paves the way for 9-12% annual returns. While I'm painting with a broad brush, investors get a cheap streamer and Cobre Panama for "free." Although I dislike the geopolitical risks that tend to come with mining operations, I like FNV a lot at current prices. On top of that, FNV has massive royalty growth opportunities, as it can grow its reserves to almost 120 million ounces at no additional cost. Regarding its dividend, the company has a 1.2% yield. Although that may not be attractive to income-focused investors, it has one major benefit over most miners: consistency. The company has hiked its dividend for 17 consecutive years, regardless of the price of gold (thanks to its high-margin business model). Currently, it has a payout ratio of just 41% and significant growth opportunities. Moreover, over the past ten years, FNV has returned 126% in New York, 76% more than the VanEck Gold Miners ETF (GDX). As I believe that weakening economic growth could force the Fed to cut rates, potentially stimulating inflation, I am very bullish on gold and believe Franco-Nevada is a Strong Buy. Both Franco-Nevada and Topaz are key in the industries they serve. They either provide drilling rights or financing for expensive operations. Prologis is a real estate company. It's one of the few companies in a low/no-moat sector that brings something truly special to the table, making it critical in a wide variety of supply chains. On July 8, I wrote an in-depth article titled "Unboxing Dividends: Why Prologis Is A Shareholder's Dream." In that article, I explained how Prologis has become one of the most important warehouse owners in the world. It currently owns roughly 1.2 billion square feet on four continents, with a focus on the United States and critical areas like Southern California, a market with favorable supply/demand dynamics. Its footprint is so large that the equivalent of 2.8% of global GDP flows through its distribution centers each year. Moreover, looking at the overview below, we see the company caters to some of the world's largest companies dependent on efficient supply chains. This includes Amazon, Home Depot, FedEx, UPS, Geodis, Walmart, Deutsche Post-DHL, and many others. All of these companies are dependent on an efficient network of distribution centers to provide advanced services. Even better, less than a third of its tenants are focused on cyclical spending. The remaining 69% come from companies enjoying secular e-commerce growth and the safety of selling daily basic needs. Moreover, the company is increasingly focusing on value-adding operations, including solar on roofs and data center conversions, an opportunity that will likely require between $7 billion and $8 billion in investment capital from the company over the next five years. Another thing that makes the company stand out is its balance sheet. Prologis is one of the few REITs with an A-rated balance sheet. It has close to $6.0 billion in liquidity, a net leverage ratio below 5.0x EBITDA, and a weighted average remaining term on its debt of more than nine years. Currently yielding 3.1%, the dividend has a payout ratio of 71% and a five-year CAGR of 12.6%. The company has hiked its dividend every single year since the post-Great Financial Crisis recovery started to heat up. Valuation-wise, the stock has recovered somewhat from its recent lows. Currently, the world's largest warehouse owner trades at a blended P/AFFO (adjusted funds from operations) ratio of 27.9x, slightly above its long-term average of 25.7x. However, growth expectations make up for that. Using the data in the chart above, analysts expect per-share AFFO growth of 17% in 2025, potentially followed by 11% growth in 2026. Especially if Cushman & Wakefield are right, we could see a strong rebound in industrial real estate in 2025, potentially leading to lower vacancy rates and stronger growth expectations. As such, I give PLD a Buy rating, expecting it to return 10-12% per year, making it a great buy on weakness and a winner if the Fed cuts rates. When we look at the big picture, it's clear that the current macro environment is tricky, as we're seeing mixed signals. While consumer sentiment is downbeat, there's also optimism among small businesses, and fund managers are increasingly hopeful for a "soft landing." This complexity makes investing challenging, but also full of opportunity. That's why I focus on companies with strong fundamentals and secular growth potential. In this environment, I'm especially bullish on dividend stocks like Topaz Energy, Franco-Nevada, and Prologis. Each brings something unique to the table, from high-yield royalties to strategic real estate, making them excellent long-term holds in a volatile market and critical to the areas they serve.

Holding Or Selling? - July Dividend Income Report

Microsoft reported another solid quarter with revenue up 15% and EPS up 10% which only slightly beat the analysts' expectations. In September of 2017, I received slightly over $100K from my former employer, representing the commuted value of my pension plan. I decided to invest 100% of this money in dividend growth stocks. Each month, I publish my results on those investments. I don't do this to brag. I do this to show my readers that it is possible to build a lasting portfolio during all market conditions. Some months we might appear to underperform, but you must trust the process over the long term to evaluate our performance more accurately. This month, I also share more thoughts on when to sell. Let's start with the numbers as of August 2nd 2024 (before the bell): Original amount invested in September 2017 (no additional capital added): $108,760.02. In the past, I have discussed when to sell several times. However, I tend to use "extreme" examples to illustrate my strategy. I either discuss major losers and dividend cutters which should generate an immediate sell, or, on the other side, my strongest winners. An alternate question was brought up by a DSR member recently: "what to do with stocks in the middle?". In other words, if you lose just a small amount of money or if the stock in your portfolio is up, but still not overweight; what is the best way to deal with those situations? As is often the case in investing, a simple question leads to many more: As you can see, most of these questions lead to one conclusion: finding the right time to sell. Instead of being a Monday Morning Quarterback and playing the hindsight game, I would rather try to help you with a set of specific rules to determine if you should hold or sell any of your holdings. This is the methodology I have used to sell many of my holdings over the years. I review my holdings quarterly using my DSR PRO report. This is an easy read that takes a couple of hours. Once I have reviewed all the earnings, I look at the dividend triangle. If nothing has changed (e.g. my investment thesis is still valid and the dividend triangle remains strong), then I keep my stocks. I'm not looking to actively trade my holdings, and I prefer to keep them a little longer than being trigger-happy. We all wish businesses would remain the same and the economic environment would be stable. Unfortunately, however, change happens all the time. Therefore, it's crucial to constantly validate the reasons why you bought a stock are still valid today. For example, I had to sell Andrew Peller (OTCPK:ADWPF) as the company stopped growing through acquisitions and that was one of the reasons I wanted this holding in my portfolio. I also sold Enbridge (ENB) as its growth potential had been seriously impacted by higher interest rates. When a company starts to move in a different direction than I originally expected, I will not sell right away. I usually monitor the company's results and actions for a period of 12 to 24 months. It's a "long" period of time for many, but that's the time required for me to gain full certainty I'm making the right move. It also gives the company's management enough time to show me if they can generate value under their new direction. After that delay, I must take action and sell. One other trick I use is to keep a short list of stocks I really like that are not in my portfolio. It's always easier to sell a holding when you already have candidates in mind to replace them. While the investment thesis may remain valid for a longer time, dividend triangles can be measured quarterly. We can think of what recently happened to Nike (NKE) and Starbucks (SBUX) as both companies suffered from customers being tight with their budgets. Again, in an ideal world, revenue, EPS and dividends would always go up at a steady pace. When there is a slowdown in any of those metrics, we must know what to do. First, you must add some context as to why revenue or earnings are slowing down. You must understand what is happening first before taking any action. Then, once you have a clear explanation, you must determine if this "problem" is permanent (e.g. Nike is constantly losing market shares, and most people don't buy sports apparel anymore, and we all hate being active) or if it's likely temporary (Nike is facing economic headwinds as consumers don't spend as much due to higher interest rates). If it's clearly a temporary problem, you can wait several quarters or even a couple of years. After all, the economy could recover within 2-3 years, and you will see signs of improvement quickly. Similar to the investment thesis review, I'm willing to keep a stock for 2 maybe 3 years with a weaker dividend triangle, especially if we are talking about a cyclical company. This is why I ended up selling a company like Hasbro (HAS) with a decent profit just as revenue, earnings, and dividend growth were slowing down. I sold Magna International (MGA) (MG.TO) not too long ago, mostly for showing hectic financial metrics with no clear direction for resolution of that problem. In many cases, you must trust your gut and remind yourself that you have done your due diligence when you added the position to your portfolio. Giving between 12 to 36 months when there are minor changes is giving you time to reflect, and you are also giving enough time to management to turn things around. As you can see, at no time did I look at the stock performance in this process. Regardless of whether the stock price is up or down, I'd rather follow my process than trade based on short-term price fluctuations. I've seen too many price movements create more noise than anything else. Slowly but surely, the portfolio is taking shape with 11 companies spread across 7 sectors. My goal is to build a portfolio generating 4-5% in yield across 15 positions. I will continue to add new stock monthly until I reach that goal. My current yield is 4.85%. Last month, I made a "larger play" into CWB.TO by purchasing about $1,500 worth of shares. I used my regular $500 per month plus $1,000 from the margin account to make that purchase. This month, I'm not doing a new buy and simply reimbursing a portion of the margin account. I'm using the margin account when I see a good opportunity and I want to bolster my position quickly. Once again, keep in mind that it's not a significant amount compared to all my assets and that's why I'm "playing" with this money. My account shows a variation of +$4,143.69 (+3.98%) since July's income report. A few Canadian companies have reported their earnings as of late. Let's do a quick review! Brookfield Renewable reported a good quarter with revenue up 22% and FFO per share up 6%, but it wasn't enough to generate any love from the market. The company reported FFO of $339M (+9%), and management confirmed it's on track to achieve its goal of generating FFO growth of 10%+ per year. The hydroelectric segment delivered FFO of $136M, benefiting from strong all-in pricing, particularly in North America, and solid generation in Brazil. The wind and solar segments generated a combined $194M of FFO, driven by recent additions in North America, Europe and India. The distributed energy, storage, and sustainable solutions segments generated a combined $86M of FFO in the quarter. Fortis reported a good quarter with EPS up 8%. The increase was driven by strong earnings in Arizona reflecting new customer rates at Tucson Electric Power, and higher retail electricity sales associated with warmer weather. Rate base growth across their utilities and the timing of recognition of the new cost of capital parameters approved for FortisBC in 2023 also contributed to earnings growth. The increase was partially offset by lower earnings for Central Hudson and the Other Electric segment which largely reflected higher operating costs. FTS reported capital expenditures of $2.3 billion in the first half of 2024 which fully supported their $4.8 billion annual capital plan. Toromont Industries reported a mixed quarter as revenue jumped by 16%, but EPS declined by 2%. The Equipment Group was up 15% and CIMCO was up 19%. Higher revenue in the Equipment Group resulted from solid equipment deliveries against their order backlog. Product support revenue was healthy, while rental revenue declined slightly on easing market conditions. CIMCO's growth reflects good package and product support activity levels. Unfortunately, EPS was affected by lower gross margins and higher expenses. TIH will expand its product and service offerings within the Equipment Group, particularly in digital solutions and telematics, to enhance equipment efficiency and customer service. Here's my US portfolio now. Numbers are as of August 2, 2024 (before the bell): My account shows a variation of +$5,409.73 (+4.87%) since July's income report. Apple reported a solid quarter with revenue up 5% and EPS up 14% which easily beat the analysts' expectations. This new June quarter revenue record was driven by strong performance in the services segment, which achieved an all-time revenue record of $24.2B (+14%). The growth in services was complemented by the launch of new iPad models, contributing to Products revenue of $61.6B (+2%). Apple has worked on several strategic initiatives, including the expansion of Apple TV+ productions, new features for Apple Pay, and updates to Apple Fitness+. The company also introduced Apple Intelligence; a generative AI system integrated into its devices. Automatic Data Processing reported a solid quarter, beating analysts' expectations with revenue up 7% and EPS up 11%. Employer Services revenues increased 7% and new business bookings increased 7%. PEO Services revenue increased 6%. The company reported EBIT margin improvements of 80 basis points, pushing EPS higher. For its fiscal year of 2025, ADP expects revenue to grow 5%-6%, adjusted EBIT margin to expand 60-80 basis points, and adjusted diluted EPS to increase 8%-10%. In other words, we are in for another year with a strong dividend triangle! BlackRock reported a good quarter which beat analysts' expectations, with revenue up 8% and EPS up 12%. This growth was driven by higher performance fees which increased by 39% to $164 million, and a 10% rise in technology services revenue. The company's strong revenue performance reflects its ability to leverage market conditions and its diversified business model. Operating income also saw a significant increase of 12%, reaching $1.9 billion. BlackRock's adjusted operating margin improved by 160 basis points to 44.1% which demonstrated effective cost management and operational efficiency?. LeMaitre Vascular is on a roll with another strong quarter, beating the analysts' expectations where revenue increased by 11% and EPS jumped by 41%. This growth was driven primarily by strong sales in the biologic vascular patch and collagen vascular graft segments. The company's strategic focus on expanding its product portfolio and increasing its market share in vascular devices contributed significantly to this revenue increase. LeMaitre's gross margin improved due to better cost management and a favorable product mix. They maintained a stable operating margin despite increased investments in R&D and marketing initiatives. LMAT also increased its guidance! Microsoft reported another solid quarter with revenue up 15% and EPS up 10% which only slightly beat the analysts' expectations. By segment: Productivity and Business Processes +11%, driven by Office commercial products (+12%), LinkedIn (10%) and Dynamics 365 (+19%). Intelligent Cloud was up 19% (Azure +29%). Ironically, the market was disappointed by Azure's performance. More Personal Computing +14%, driven by Xbox (+61%) as it integrated the acquisition of Activision Blizzard (previously ATVI). MSFT has many growth vectors in place! It wasn't a glorious quarter for Starbucks, but it was expected. Revenue was down slightly by 1% and EPS decreased by 7%. Global comparable store sales fell 3% which was expected, but it is still not good news. The average sales ticket was up 2%, but the overall transaction count was 5% lower during the quarter. The decline was attributed to a challenging macroeconomic environment, although strong performance in specific product categories provided some offset. Starbucks is accelerating its store development efforts, with plans for 580 net new stores and over 800 renovations in North America for FY 2024. This means, lower EPS to come before it bounces back. Texas Instruments reported a weak quarter with revenue down 16% and EPS off 37%, but it was expected by the market. The year-over-year decline was primarily due to significant drops in the analog (down 11%) and embedded processing segments (down 31%). However, personal electronics and enterprise systems showed strong sequential growth, with personal electronics up nearly 20% year-over-year. The gross margin improved by 60 basis points sequentially due to higher revenue and lower manufacturing unit costs. For Q3 2024, Texas Instruments provided revenue guidance of $3.94B to $4.26B and EPS guidance of $1.24 to $1.48. Visa reported another "clockwork" quarter with revenue up 10% and EPS up 12%. This growth was driven by a rise in payment volumes, processed transactions, and cross-border volume. The company's new flows revenue grew by 14% year-over-year on a constant dollar basis, highlighting the expansion of Visa Direct and other payment solutions. The company's gross margin remained robust, contributing to the higher EPS. The company also highlighted its strategic investments, including the expansion of Visa Direct and other technological advancements, to support future growth. Each quarter, we run an exclusive report for Dividend Stocks Rock (DSR) members who subscribe to our very special additional service called DSR PRO. The PRO report includes a summary of each company's earnings report for the period. We have been doing this for an entire year now, and I wanted to share my own DSR PRO report for this portfolio. You can download the full PDF showing all the information about all my holdings. Results have been updated as of June 30, 2024. 118% increase! All right, that is mostly driven by new stocks paying on that quarterly cycle. Toromont Industries and Automatic Data Processing are new additions to my portfolio and helped bolster my weakest dividend quarterly cycle. Couche-Tard and Granite showed small increases mostly because I had to sell shares of ATD as part of my rebalance portfolio strategy. Currency fluctuation helped on the ADP dividend since the currency rate was $1.3399 CAD to $1 USD last year. We are now getting close to $1.40! Since I started this portfolio in September 2017, I have received a total of $26,754.64 CAD in dividends. Keep in mind that this is a "pure dividend growth portfolio" as no capital can be added to this account other than retained and/or reinvested dividends. Therefore, all dividend growth is coming from the stocks and not from any additional capital being added to the account. Ironically, many investors thought that "selling in May" this year was a smart move, as the market was trading at an all-time high. Once again, the "stay invested" strategy proves that it's not only easier to follow (you literally have nothing to do!), but it is also more profitable most of the time. I'm not going to avoid the market crash whenever it happens, but my portfolio will have benefitted from years of gains before getting hit by the storm. That's the benefit of having a clear strategy, isn't it? Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.