The Dividend Investor's Edge Newsletter - February 28th 2022

Volume 6

Author

Mark Roussin
February 28, 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.

We had a potential turning point in the markets this past week as the S&P 500 retested the prior lows and rebounded, which is typically a positive sign moving forward. Now there is still a ton going on with the war in Ukraine, supply chain issues, and the pending interest rate decision that could have changed of late. Many were beginning to expect a 50 basis point rate hike by the Fed in March, but the war in Ukraine may slow that to a 25 basis point hike. We will see very soon.

Although the market rebounded, it was a bit of a mixed bag as you can see from the heat map below. Stocks like Microsoft and Google climbed while Apple, Disney, and Banks fell. Year-to-date the S&P 500 is still down 8.0%, after climbing0.8% last week.

Here is the last weeks heat map for the S&P 500:

Top Sectors For The Week

Real Estate +2.22%

Heath Care 1.87%

Utilities 1.71%

Worst Sectors For The Week

Consumer Discretionary -2.85%

Financials -0.39%

Consumer Staples -0.20%

Fear Factor

Volatility continued to remain high for the week, which is not unexpected given the geopolitical climate currently.

The Russian invasion of Ukraine certainly does not help the global supply chain issues and is expected to put even further pressures on consumers at the pump, as Russia is a heavy oil exporter. The Biden administration is yet to put any sanctions on Russian oil nor have they dropped any restrictions here in the US, therefore Americans will undoubtedly pay higher gas prices in the near future.

If there is any positive to be found, the two countries, Ukraine and Russia, did meet over the weekend on hopes of coming to some sort of agreement, so that will be something investors are watching closely. Any sort of ceasefire or resolution could catapult the markets higher.

Tomorrow will be the first day of March which is the month of when the Federal Reserve will begin the long process of increasing interest rates. This will have an impact across many markets and industries. High growth stocks with large amounts of variable debt will be paying more in interest, but on the flip side, financial institutions will be able to charge more for on their loans, which will increase their Net Interest Margin, or NIM. I mentioned NIM and why I believe Bank of America is a great stock to look at during this rising rate environment.

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 30.65 with the 50-day moving average finishing at 23.25. We have seen the 50-day MA move higher for two 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 24, which is pretty much lower that the prior weeks reading of 39, still indicating 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 volatility we have seen of late, investors, especially newer investors are really confused with where things are headed. Welcome to the world of investing.

If you think about it, we have had huge inflows of new investors since the pandemic hit in 2020, meaning many of them have only seen a market that felt like it went one direction…..UP.

However, this is a time for many of them to start learning even more about the markets, different types of stock investments, how geopolitical tensions impact their investments, and how a change in monetary policy changes things.

All of those things are on the table in the weeks and months ahead. However, there seems to be a large amount of institutional money sitting idle that is ready to invest. Institutional money is what really moves the market.

On February 24th of last week, we saw the S&P 500 fall to around the $4,100 level before snapping back positive in a strong way. This was a very positive sign that this was a level big money was looking to step in. If we do retest that $4,100 level again any time soon and we see a similar pattern, that would indicate a very strong buy signal for me, on a technical basis

In terms of macro news, Consumer spending rose more than expected in January, even as inflation continued to increase throughout the month to reach another four-decade high.

According the the Bureau of Economic Analysis, personal consumption increased by $337.2 billion, or 2.1%, which was more than the 1% growth predicted by economists.

On the job front, initial jobless claims fell by 17,000 to 232,000, economists were expecting 235,000, so this was a slight surprise. The number of people already collecting jobless benefits fell by 112,000 to 1.48 million.

Those of you looking to purchase a new home have been hit from all angles. Low inventory has led to higher prices and bidding wars and homebuilders have not been able to keep up with demand. Surging home prices led to the number of houses going under contract in the U.S. to fall in January for the third consecutive month to the lowest level since April 2021. The Pending Home Sales Index, a leading indicator of home sales based on contract signings, decreased 5.7% to 109.5 in January compared with the previous month.

New home sales did not fare much better, with U.S. new-home sales decreasing 4.5% to an annual rate of 801,000 in January. Compared to a year earlier, sales were down more than 9.3%. Economists expected new-home sales in December to rise to an annual rate of 803,000. The slowdown has been a mix of rising interest rates, price increases, and COVID impacts according to builders.

This week we saw earnings updates from a few favorites amongst the dividend community. Let’s take a brief look at some of the reports from last week.

  • HD: Home Depot reported a solid quarter, considering the comps were very difficult considering the home improvement surge we have seen over the year. However, shares sold off as much as 9%, due to the company issuing weaker than expected 2022 guidance that was calling for sales growth to be “slightly positive” on the year. One must remember that this is a company that is firing on all cylinders. They are very efficient and very well run, and the sell-off has shares trading at a very intriguing multiple. In addition, the company increased the dividend another 15%.

    • Adj EPS: $3.21, vs. $3.18 expected.

    • Revenue: $35.72 billion, vs. $34.85 billion expected

  • O: The Monthly Dividend Company, a fan favorite REIT amongst dividend investors due to the MONTHLY dividend they pay, reported solid Q4 earnings that were well received by investors. The company has a strong portfolio of real estate properties, and that continues to expand as the company saw record acquisitions in 2021 reaching $6.4 Billion during the year. The company ended the year with a portfolio occupancy of 98.5%.

    • FFO: $0.89, vs. $0.88 expected.

    • Revenue: $0.69 billion, vs. $0.67 billion expected

  • LOW: Lowe’s COmpanies reported earnings a day after Home Depot, so shares actually sold off a little leading up to the report, but to a surprise of shareholders, it was an entirely different story. The Q4 numbers were strong and management saw enough at the end of the year to boost its full year guidance, due to “home improvement demand remaining strong.” Lowe’s is trading at a very reasonable valuation as well and has a strong dividend track record.

    • Adj EPS: $1.78, vs. $1.67expected.

    • Revenue: $21.34 billion, vs. $20.91 billion expected

This week continues to have some big dividend names reporting earnings that I will be following. Here is a look at companies that are reporting earnings this week (via @eWhispers).

Notable Earnings Calls I am watching closely:

  • TGT

  • CRM (non-dividend)

  • BBY

  • COST

Here are some key data reporting due this week:

  • 3/3: Initial & Continuing Jobless claims

  • 3/4: Unemployment Rate

  • 3/4: Non-farm Payrolls

As we have seen, volatility remains 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.

The plan in the week ahead is to start picking some spots into high-quality dividend stocks. I will be looking to potentially add some HD and also watch my defense stocks because many countries are thinking more about defense now, which could lead to further contracts for the likes of LMT, GD, NOC, and RTX. I own all except NOC.

Also, another area, which is mostly non-dividend stocks, but another area I am watching for opportunities is within cybersecurity. I currently own shares of CRWD.

Lastly, energy has been a strong sector and with the Ukraine/Russia fighting, energy prices are expected to continue climbing. Some names I am looking at include Devon Energy as well as Exxon Mobile and Chevron.

⏫ Stock Upgrades/Downgrades ⏬

In this section moving forward, I will add any notable analyst Upgrades or Downgrades I came across during the previous week.

  • Deere (DE) price target raised to $432 at Oppenheimer

  • Dollar Tree (DLTR) price target increased to $181 at JPMorgan

  • Devon Energy (DVN) price target raised to $70 at Raymond James

💰 Dividend News

In this section I will detail what I am watching and any Dividend related news.

  • Prologis (PLD) increased their dividend by 25%

  • Foot Locker (FL) increased their dividend by 33%

  • Essex Property Trust (ESS) increased their dividend by 5%

  • Occidental Petroleum (OXY) increased their dividend back to $0.13

  • Ebay (EBAY) increased their dividend by 22%

  • Danaher (DHR) increased their dividend by 19%

  • TJ Maxx (TJX) increased their dividend by 13.5%

  • Diamondback Energy (FANG) increased their dividend by 20%

  • Camping World (CWH) increased their dividend by 25%

  • Macy’s (M) increased their dividend by 5%

  • Home Depot (HD) increased their dividend by 15%

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:

New to investing or looking for a new brokerage? Check out M1 Finance where they are giving away $50 FREE for any new account funded with $100. Click HERE to receive the promotion.

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Have a Great Week!

Mark

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