The End Of The Bear Market Bounce

The Dividend Investor’s Edge is a weekly newsletter designed to give you, the investor, a better understanding on where the stock market is, and to better equip you with information to help you make more informed decisions.

This newsletter is designed for investors of all levels. Whether you are just starting out or a seasoned investor, it is our goal to deliver information in a format that is easy to articulate.

Each Week I will discuss:

• An update on the Stock Market To Date

• Stock Market: A Look Ahead

• 3 Quick Pick Dividend Ideas

• 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 S&P 500 as a whole as well as the sector Leaders/Laggards from the prior week. In addition, I will touch on volatility and fear in the market currently, which are important factors to consider when investing.

Hey everyone, I am excited to RE-LAUNCH The Dividend Investor’s Edge Newsletter. I have been a way for a few months, but happy to be back as I have been working on some exciting projects. You will hear more about those projects in the coming weeks, but one of them I can tell you about since you are reading it right now.

As a current subscriber to The Dividend Investor’s Edge, you can expect to receive this newsletter in your inbox EVERY Monday morning. Some parts of the newsletter will resemble some of what you saw previously, but we will be adding more to the newsletter as well.

We will continue by opening up with some thoughts on the previous week along with performance we have seen in the market as a whole as well as to sector Winners/Laggards for the week. We will also continue briefly touching on the pulse of the market.

We will also continue providing you with our thoughts on the market ahead. This will include key events that could alter markets in the short-term for you to be aware of.

A new section that will be added will be titled “3 Dividend Ideas.” In communicating with many of you via email (I love connecting with my subscribers, so please feel free to email me), it was clear that you wanted a little more in terms of individual dividend names. This new section is intended to fill that void. We will highlight 3 Dividend stocks for our viewers.

Another new added benefit for subscribers will be individual from this regular newsletter. During the month, subscribers will receive 2-3 individual stock analysis write-ups which will go directly to your email and be posted here on substack. These write ups will go more in-depth into the focus dividend stock for that week discussing the following:

• Nature of the business

• Industry Outlook

• Individual Company Outlook

• Valuation

• Price Target

• Dividen Safety

• And Much More

Being that we have a lot of extra content in this weeks re-launch, the emailed newsletter will most likely get cut off due to length, so make sure you read the entirety of the newsletter on substack.

If you have specific dividend stocks you would like us to look into, please feel free to comment below or email me directly.

Thank you again for being a loyal subscriber, and I look forward to delivering you an exceptional product that you find useful as we all venture on this journey of building wealth.

Thank You!

Mark

After four consecutive weeks of weekly gains in the S&P 500, the snap was finally broken. This past week, the S&P 500 broke trend and fell 0.84% during the week, falling 1.29% on Friday alone.

Since bottoming in June, the S&P 500 has rallied 17% and the Nasdaq has climbed 20%. Was this sharp rally a Bear Market Bounce or was this the start of a new Bull Market?

Bank of America analyst Michael Hartnett put out a note last week that strongly suggests that what we just witnessed in the market was a “textbook” bear market bounce. Here is the data he was referring to:

This data is simply saying that, since 1929, when the stock market has been in a “Bear Market,” there have been 43 times in which the S&P 500 has gained more than 10%. When the market gains over 10%, it has typically gained up to 17.2% on average before falling back down. The average timespan of those rallies has lasted 39 trading days.

Right now, markets are up 17.4% and the rally that started back in June, has lasted 41 trading days. That is some extremely fascinating data to look at and be worried about, at least in the short-term.

There are a lot of headwinds on the horizon for the market, which is one reason many economists are expressing doubts regarding the recent rally. We will take a look at some of those in our “Look Ahead” segment below.

Looking at the US 10-Yr Treasury, yields have risen from 2.64% at the start of August to 2.98%, as of the time of this newsletter. Bond yields should continue to fluctuate until we get more clarity from the Fed, which could be sooner rather than latter. We have the upcoming Jackson Hole gathering this week and then the September meeting, which could result in another large rate hike in order to further combat high inflation.

Another piece of news that came last week was the July home sales data, which showed a 6% decrease from the prior month. The adjusted annualized rate fell to 4.81 million units, which was the slowest pace the housing market has seen since November 2015, per CNBC.

Home Sales compared to the same month in 2021, showed a decline of 20%, suggesting housing is now technically in recession as well. Builders have slowed operatings down and pushed takedowns out in order to combat this, plus we are beginning to see more price slashing and incentives for previously owned homes and new constructions homes, respectively.

Here is a look at the heat map over the past week for the S&P 500. Year-to-date the S&P 500 is down 11.8%, after falling 0.8% last week.

Source

Top Sectors For The Week

Consumer Staples +1.94%

Utilities +1.23%

Energy +0.99%

Worst Sectors For The Week

Communication Services -3.28%

Materials -2.45%

Real Estate -1.94%

Fear Factor

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 at 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 based on S&P 500 index options with near-term expiration dates, projecting a 30-day forward projection.

The VIX ended the week with a reading of 20.6 with the 50-day moving average finishing at 25.06. A reading under 20 is when I consider things to be closer to normal, which is where things stand currently.

Here is a look at the VIX chart with the 50-day moving average:

Source

Another resource you can look at is the Fear & Greed Index, which 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 Fear and Greed Index, things remained at a NEUTRAL rating. Currently, the index has a reading of 51, which is practically saying investors are split on where the market is heading in the near-term. The index was little changed from last weeks reading of 54.

Source

📰 Stock Market: A Look Ahead 📰

In this section labeled “Stock Market: A Look Ahead” I will discuss a variety of different topics that face the market in the coming week(s) ahead. Remember that the stock market is forward looking , typically looking roughly six months ahead.

As we mentioned above, the US economy has a lot of headwinds currently making for a push higher in equity prices more difficult. Obviously, this does not make gains impossible, but it could be tough sledding in the near-term.

Some of those headwinds include:

• Rising interest rates

• Quantitative Tightening

• Housing Recession

• Consumer Sentiment remains historically low

• September Stock Performance

At the end of July, the Federal Reserve increased their benchmark rate by 0.75 basis points. What does this mean you may be asking?

A fed rate increase essentially raises the cost to borrow money. Interest rates to obtain a mortgage increase or a car loan go up. Some mortgages are what is referred to as variable rate, which means the rate is not fixed, instead it fluctuates based on this vary rate. These are just a few examples, but it is a tool the Federal Reserve can use to slow the economy, which in turn will have consumers spending less, which can help bring down inflation.

It is an art though because if they raise interest rates too fast, it could harm the economy in a way that could lead to a large number of layoffs and a harmful recession. What the Fed is effectively trying to do is have what is called a “soft landing” in which they can raise interest rates without bringing too much harm to the economy and labor force.

Investors are looking for clarity in terms of the Fed’s plan moving forward. There is talk of the fed looking to pivot within the next six months, which is not the camp that I am in. I believe we will continue seeing rate hikes over the next six months, but they may slow the pace of which they are hiking. The last two hikes being 0.75 basis point hikes has been very aggressive, but necessary given the late start they got as inflation numbers jumped higher.

We may get some clarity this week as Fed Chair Jerome Powell is set to address his colleagues on Friday. Investors are trying to gain an understanding on how far Fed officials are willing to continue on this path to combat inflation, so be on the lookout for that.

In addition, September has historically been one of the worst performing months for stocks, and that is just around the corner. Historically, the S&P 500 has declined an average of 1% during the month of September since 1928. Take this with a grain of salt.

Other notable newsworthy items this week include:

• Tuesday: New Home Sales data

• Wednesday: Pending Home Sales data

• Thursday: Initial Jobless Claims, Real GDP

Given everything going on combined with the hawkish tone I expect to be set at the Jackson Hole event, the market appears setup for a pullback in the coming week(s) ahead. Given that, I will be playing some options to the downside (buying puts and selling covered calls). Defensive sectors could gain from all this, think healthcare and energy.

With that being said, let’s take a look at our 3 Quick Pick Dividend Ideas.

💵 3 Quick Pick Dividend Ideas 💵

In this section, I will share 3 dividend ideas that are at the top of my watchlist. Please remember that I am not a financial advisor, so please perform your due diligence before investing.

Quick Pick #1 - AbbVie Inc. (ABBV)

If you have followed me at all on social media or YouTube, then you already know that AbbVie is not only one of my favorite positions, but also one of my top 5 positions within my dividend portfolio.

I like to refer to them as the “Dividend Trifecta.” An investment in AbbVie gives you the potential at:

1. Stock Growth

2. High-Yield

3. Dividend Growth

Over the past year, the stock has gained over 20%, so the yield is not as high as it once was back in 2020, when it was over 5% for much of the year.

Being that ABBV operates within the healthcare sector, which is known as a defensive sector, I expect to see them weather the storm if we do get a pullback in the markets.

The company has the best-selling drug in Humira, which treats moderate Crohn’s disease, but they will lose patent protection in 2023. However, although revenue growth will drop off in 2023, the company has been working at diversifying its portfolio of products to be a more all-around business.

A few years back, Humira accounted for roughly 70% of total sales, but today it is below 40%. Part of that is due to the slowdown internationally due to the international patent expiring, but also due to the growth in other drugs as well.

Shares of ABBV currently trade at a P/E of 10.7x and over the past five years they have traded closer to an average of 11.4x.

The company continues to grow its free cash flow, which is up 13.5% over the past 12 months. Free Cash Flow is where the dividend is paid from, so increasing FCF should lead to an increasing dividend.

Over the past five years, ABBV has increased their dividend at an average annual rate of 17.5%. In addition, they have increased their dividend every year since the company was spun off 9 years ago from Abbott Labs (ABT).

Quick Pick #2 - Alexandria Real Estate (ARE)

Alexandria Real Estate is a Real Estate Investment Trust or a REIT. For those of you unfamiliar with REITs, they are corporations that derive their revenues from Real Estate related activities or assets (Rental income, interest income, etc.)

They must follow a set of rules to maintain REIT status and for doing so, they are are not taxed at the corporate level. One of those rules includes paying out at least 90% of their taxable income to shareholders in the form of dividends. This can typically lead to some nice dividends.

Alexandria operates as an Office REIT, meaning they own office properties. You may be thinking to yourself, well why are you suggesting an office REIT considering all the work from home options companies are offering. Great point, but ARE is not a typical office REIT. Instead, they are unique in the fact that they own properties in which they lease out to life science tenants.

ARE earns annual revenues of around $2.1 billion. Its earnings before interest, taxes, depreciation, and amortization (EBITDA) are $1.34 billion. And its interest expenses are around $142 million.

The company has a BBB+ rated balance sheet with solid debt coverage ratios.

ARE currently pays a dividend that yields 2.8% and trades at a P/AFFO multiple of 25x compared to the company’s five-year average of 30x, suggesting shares appear undervalued.

Quick Pick #3 - Bristol-Myers Squibb Company (BMY)

BMY happens to be another pharmaceutical name that I own within my Top 10 positions. The stock is up 22% year-to-date, but has been trading sideways for much of the past few months.

Given where I see the market heading, BMY is another defensive name, similar to ABBV, that could further benefit from investors looking for more defensive oriented names. BMY is just that!

BMY has a very strong pipeline of current products and up and coming products that should continue to grow top line revenues and cash flows through the next few years. BMY is in a similar boat to ABBV in the fact they lose patent protection on some of their best-selling products, but have some great products that are expected to replace those revenues.

Getting FDA approval and going through the R&D testing phase can be a cexperimentiement, which is why cash flows are so closely monitored when investing in a biotech company.

BMY pays a dividend of $2.16 per share which equates to a dividend yield of 2.9%. Over the past five years, the company has increased the dividend an average of 6.4% per year. The payout ratio currently sits below 30%, which suggests there is plenty of room to continue growing the dividend moving forward.

That concludes today’s newsletter. I hope you all have a great week and wish you the best of luck on your investing journey. Please let me know your thoughts on the newsletter down in the comments section below.

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Have a Great Week!

Mark