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- The Dividend Investor's Edge Newsletter - March 7th 2022
The Dividend Investor’s Edge is a weekly newsletter designed to give you the investor a full picture of where the stock market is, and to equip you with important information I came across during the week, and what to look for in the week ahead, all constructed in an easy to understand format.
This newsletter is designed for investors of all levels.
Each Week I will discuss:
• An update on the Stock Markets major averages
• Stock Market: On The Horizon
• Notable Upgrades/Downgrades
• Dividend News
📈 Quick Look At The Markets 📉
As a reminder or for those of you new readers, in the “Quick Look At The Markets” section I plan to give you a recap on the prior week for the S&P 500 as a whole as well as the top performing and worst performing sectors. In addition, I will touch on volatility and fear, which are important factors to consider when investing.
Following a week in which we saw some strong rebounds in the market, last week was a return of intense selling pressures. Last week was yet another negative week for the stock market, something that investors have been seeing way too often. Much of the selling has to do with the Russia invasion of Ukraine, which has sent oil prices to the moon and how this will impact the Fed’s plan for interest rate hike this month.
The Russia/Ukraine war has impacted many businesses and supply chains around the globe. The US and its allies have stepped up sanctions and are considering the biggest sanction to Russia, which would be cutting off their gas and oil exports, which is really how they make most of their money.
Businesses around the world have begun excluding Russia on their own. Digital payment companies like Paypal, Visa, Mastercard, and American Express have all cutoff ties with Russia. Disney and Netflix have pulled the plug as well as many other companies.
The Fed is now in a tough spot because I believe they wanted to hike rates 50 basis points this month, but it could be too much too fast with everything going on, and I am of the belief we will see a 25 basis point rate hike. Expect a decision towards the end of the month.
Looking at the heat map below, there is a lot of red, especially from big tech. Energy was a HUGE winner on the week and has led for the entire year, up a staggering 35%. Year-to-date the S&P 500 is still down 9.2%, after falling 1.2% last week.
Here is the last weeks heat map for the S&P 500:
Top Sectors For The Week
Energy +9.26%
Utilities 4.78%
Real Estate 1.72%
Worst Sectors For The Week
Financials -4.87%
Information Technology -3.01%
Communication Services -2.67%
Fear Factor
Volatility continued to climb higher last week, which is expected given the uncertainty around the geopolitical climate.
The Russia/Ukraine war continues to intensify with multiple failed talks and Russia continuing with its heavy artillery assault on large cities within Ukraine as it marches towards the capital city, Kyiv. This crisis combined with countries pondering to cutoff Russian oil exports has sent oil prices soaring. This is directly impacting prices at the pump, which were already sky high prior to this crisis. How the Biden Administration deals with all of this could be a huge talking point in the mid term elections and the next presidential election in two years.
The uncertainty surrounding these things we have discussed has also brought opportunity in some high quality stocks. In my latest video, I detailed some of the best Dividend stocks I am looking at for the month of March.
Here is that video: “Best Dividend Stocks To Buy | March 2022”
Fear and uncertainty is often expressed in the stock market through volatility. One way for investors to understand where the market as a whole is in terms of volatility is by monitoring the CBOE Volatility Index (VIX). The VIX represents the market’s expectations for near-term price changes within the S&P 500 index. The index is derived from index options with near-term expiration dates, projecting a 30-day forward projection.
The VIX ended the week with a reading of 31.98 with the 50-day moving average finishing at 24.05. We have seen the 50-day MA move higher for three consecutive weeks now, continuing to show that investors remain fearful at least in the near term. A reading under 20 is when I consider things to be closer to normal.
Here is a look at the VIX chart with the 50-day moving average:
Another resource you can look at is the Greed and Fear Index that measures market sentiment based on the following seven factors: put/call ratios, junk bond demand, stock price breadth, market volatility, stock price strength, safe-haven demand, and market momentum.
When it comes the the Greed and Fear Index, things have really taken a turn as it currently reads EXTREME FEAR. Currently, the index has a reading of 13, which is again lower from the prior weeks reading of 24, indicating even higher levels of fear.
📰 Stock Market: On The Horizon 📰
In this section labeled “Stock Market: On The Horizon” I will discuss a variety of different topics that have gone on in the market and are on the horizon.
Due to the rising volatility we continue to see, investors are anxious and even a little frustrated. The thing is, from what we have seen in the latest round of earnings is the fact that companies continue to perform really well. Some ultra growth names have been re-valued as they had unreasonable multiples, but on the flip side, there are some great companies trading at very reasonable valuations.
Now, with volatility as high as it is, expect a bit of a roller coaster in the near term, and layer into your positions. Never go all in on a position all at once. If you have $1,000 to invest and say you want to buy a company like Microsoft (MSFT), buy a little this week, a little next week, and then save for the final third of the investment on any pullbacks. Make dollar cost averaging your friend.
In terms of macro news, we received solid employment information, but due to everything going on, it was one of the least scrutinized payroll numbers in recent memory. The US gained 678,000 jobs in February as unemployment fell to 3.8%. This number could fall further as everywhere you go these days it seems as if there is a “Help Wanted” or “Now Hiring” sign in the window.
However, on the flip side we still have a low workforce participation number here in the US. It is a very tricky workforce environment companies are having to wrestle with because many workers are jumping from job to job due to the opportunity of receiving hire wages as employers fight to fill their open positions.
The earnings seasons has finally slowed, but we still saw a few releases I would like to note from last week. Let’s take a brief look at some of the reports from last week.
TGT: Target had an awesome earnings report which investors cheered and sent the stock soaring roughly 10% during the session. Same-store sales were up 8.9% during the quarter and digital sales rose 9%. Margins were hit due to labor and freight charges.
Adj EPS: $3.19, vs. $2.85 expected.
Revenue: $31.0 billion, vs. $31.38 billion expected
CRM: Salesforce is a non-dividend stock, but one I like to track. The company reported strong earnings which led to an INCREASE of their full year guidance.
Adj EPS: $0.84, vs. $0.75 expected.
Revenue: $7.32 billion, vs. $7.24 billion expected
BBY: Dividend investors loved what they heard from Best Buy this past week. The company reported decent earnings and they INCREASED their dividend by 26% in addition to announcing a new $5B buyback program. The company is making strong investments to further growth in the future.
Adj EPS: $2.73, vs. $2.71 expected.
Revenue: $16.37 billion, vs. $16.20 billion expected
COST: Costco has been a darling for years now. The pandemic did not slow the company one bit, in fact, it fueled it. COST reported earnings that beat on the top and bottom line with same-store sales coming in at an impressive 11.1% in Q4. The company makes massive amounts of profit from its membership fees, something that could see an increase in the near future.
Adj EPS: $2.92, vs. $2.79 expected.
Revenue: $51.9 billion, vs. $51.51 billion expected
Earnings are slowing for many of the big names I follow, but we still have a few reporting this week. Here is a look at companies that are reporting earnings this week (via @eWhispers).
Notable Earnings Calls I am watching closely:
DKS
CRWD (non-dividend)
As we have seen, volatility remains very high and markets are expected to continue to remain choppy. Do not invest blindly and perform your due diligence because valuations matter again as investors have returned to their senses.
Given the amount we have fallen this year, and knowing much of this is temporary, I am going to be looking to put some money to work into not only high-quality dividend stocks, but also some big tech names are looking enticing, namely Alphabet (GOOGL).
⏫ Stock Upgrades/Downgrades ⏬
In this section moving forward, I will add any notable analyst Upgrades or Downgrades I came across during the previous week.
AbbVie (ABBV) price target raised to $170 at Citi
Chevron (CVX) price target increased to $170 at BMO Capital and increased to $173 at Piper Sandler
Exxon Mobile (XOM) price target increased to $110 at BofA and increased to $86 at BMO Capital
Best Buy (BBY) cut to HOLD at Raymond James after the big move in the stock post earnings
💰 Dividend News
In this section I will detail what I am watching and any Dividend related news.
Digital Realty Trust (DLR) increases the dividend by 5.2%
Best Buy (BBY) increased the dividend by 26% and announces a new $5B buyback program
General Dynamics (GD) increases the dividend by 6%
Ross Stores (ROSS) increases the dividend by 8.8%
Domino’s Pizza (DPZ) increases the dividend by 17%
Kohl’s (KSS) DOUBLES their dividend and announces a $3B buyback plan
Linde (LIN) increases their dividend by 10% and announces a $10B share buyback plan
Other Resources
If you are interested in my Dividend Portfolio, I dropped a video that covered an updated to my entire Dividend Portfolio
Here are a few of my latest YouTube videos to watch:
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Have a Great Week!
Mark
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