August 27, 2024
*Analyzing the markets with Richie Naso, a Wall Street veteran of over 40 years and former member of the NYSE.
DJIA 52-wk: +19.88% YTD: +9.25% Wkly: +1.27%
S&P 500 52-wk: +27.89% YTD: +18.13% Wkly: +1.45%
NASDAQ 52-wk: +31.54% YTD: +19.10% Wkly: +1.40%
Utilities Select Sector SPDR ETF 52-wk: +18.53% YTD: +19.09% Wkly: +1.32%
After the market closes, the results will probably move the market one way or the other. Wall Street expects the $3 trillion market-cap company to report earnings of 65 cents per share on sales of $28.7 billion. The chip makerâs guidance and management commentary on customersâ investments in AI technology will be the most telling.
The investment community is expecting an interest rate cut on September 18. Avi Salzman, a Barronâs writer, thinks it increasingly looks like a âsell the newsâ eventâparticularly if the cut is a quarter percentage point instead of a half. In prediction markets, about twice as many people are expecting a smaller cut.
The problem: September has mostly brought misery to the market in the past few years, and the setup looks dicey again. For the past four Septembers, the market has fallen 3.9%, 4.8%, 9.3%, and 4.9%. âWeâre heading into a seasonally difficult period with a series of potentially market-moving data pointsâwith a significant amount of good news already priced in,â wrote Interactive Brokers chief strategist Steve Sosnick. The S&P 500 is trading at a relatively rich 22 times its expected earnings over the next four quarters, and heavyweight investors like Warren Buffett have been selling. Sosnick says heâs feeling a âbit cautiousâ these days.
A danger is that traders have built their expectations too high, something theyâve frequently done in the past.
WHAT HARRIS'S POLITICAL MIRACLE COULD MEAN FOR CORPORATE TAX RATES
A higher corporate tax rate could hurt stock market returns, said Aniket Shah, who leads Washington research for Jefferies Group. âIf you run a scenario through a financial model and you change the corporate tax rate from 21% to 28%, thereâs nothing more significant that we can talk about that would impact the stock market than that,â he said.
8 Industrial Stocks with Secure and Growing Dividends
Among the 11 sectors of the S&P 500, industrial stocks rarely stand out for their yields. Those honors usually go to the likes of energy, real estate, and utility stocks.
But industrial companies do boast the longest list of dividend-paying stocks in the indexâa distinction that leaves investors with plenty of choices. As of July 31, 67 industrial stocks in the S&P 500 offered a dividend, just ahead of financials, according to S&P Dow Jones Indices.
And the sector does have some companies with attractive and secure yields, even as industrials have contended with some economic sluggishness.
The sector âis well positioned for income, as many [companies] are well-established businesses with strong cash flows,â says Chris Senyek, chief investment strategist at Wolfe Research, adding that he expects industrials to benefit over time from rate cuts by the Fed and other central banks. Those cuts would lower borrowing costs and allow for higher dividend growth, he says.
The yields of many of these companies, however, arenât always that compelling.
Industrial issues had an average yield of 1.6%, in line with the S&P 500âs average for dividend-paying stocks as of July 31. (For the entire index, including the companies that donât pay a dividend, the average yield is around 1.35%).
âYouâre not getting a huge yield, but thatâs not necessarily a bad thing,â says Mark Freeman, chief investment officer at Socorro Asset Management.
Jason Adams, portfolio manager of the T. Rowe Price Global Industrials Fund, says that stocks in the sector often fall into the dividend growth category, meaning the payouts rise steadily over time. A number of industrial companies consistently raise their dividends every year, a big plus for long-term investors.
This year, industrials clearly have been overshadowed by tech shares. Industrials in the S&P 500 have gained about 12% this year, trailing the broader marketâs 18% result.
The sector also has had some unusual issues. âThereâs been a pretty elongated industrials downturn, relative to other industrials downturns,â Adams says, citing low rail freight volumes as an example. âIndustrials are somewhat beat up relative to other sectorsâ in terms of fundamentals.
But itâs not all gloomy. Adams points out that industrials are benefiting from electrification, automation, and infrastructure. The stocks he likes include Honeywell International, which yields 2.2% âand has the philosophy of trying to grow the dividend in line with earnings.â
Industrial issues had an average yield of 1.6%, in line with the S&P 500âs average for dividend-paying stocks as of July 31. (For the entire index, including the companies that donât pay a dividend, the average yield is around 1.35%).
âYouâre not getting a huge yield, but thatâs not necessarily a bad thing,â says Mark Freeman, chief investment officer at Socorro Asset Management.
Jason Adams, portfolio manager of the T. Rowe Price Global Industrials Fund, says that stocks in the sector often fall into the dividend growth category, meaning the payouts rise steadily over time. A number of industrial companies consistently raise their dividends every year, a big plus for long-term investors.
This year, industrials clearly have been overshadowed by tech shares. Industrials in the S&P 500 have gained about 12% this year, trailing the broader marketâs 18% result.
The sector also has had some unusual issues. âThereâs been a pretty elongated industrials downturn, relative to other industrials downturns,â Adams says, citing low rail freight volumes as an example. âIndustrials are somewhat beat up relative to other sectorsâ in terms of fundamentals.
But itâs not all gloomy. Adams points out that industrials are benefiting from electrification, automation, and infrastructure. The stocks he likes include Honeywell International, which yields 2.2% âand has the philosophy of trying to grow the dividend in line with earnings.â
Hickey provided Barronâs with a list of industrial stocks in the Aristocrats index that have yields above 1.3%, roughly the broad marketâs yield, and payout ratios below 60%. The latter ratio measures the percentage of a companyâs earnings that gets paid out in dividends. The lower the ratio, the better, because it shows that a company has more flexibility and room to increase its disbursement.
âThe relatively low current payout ratios suggest that the dividend is safe,â Hickey adds.
Industrials in the S&P 500 have a middling payout ratio. For the four quarters ended March 30, it averages in the lower 40% range, according to S&P Dow Jones Indices. Thatâs well above laggards such as communication services and information technology, at around 17% and 25%, respectively. But industrials lagged behind utilities, which are well known for paying out a big chunk of their earnings, at around 65%. Consumer staples have a similar payout level.
The stocks that made the cut on Hickeyâs screen include freight and logistics firm C.H. Robinson Worldwide, which yields 2.5%; manufacturer Illinois Tool Works, 2.5%, and industrial automation provider Emerson Electric, 2%.
Other Dividend Aristocrats in the industrial sector include construction and farm machinery equipment maker Caterpillar and A.O. Smith, both at around 1.6%. A.O. Smithâs portfolio includes building products such as water heaters, boilers, and tanks.
The Aristocrats arenât the only place to look for industrial stocks that pay reasonable yields that are growing.
Shares of Cummins, which makes truck engines and other auto components, yield 2.4%. The stock has returned 27% this year.
Last month, the company announced an 8% dividend increase to its quarterly payout to $1.82 a share, marking the 15th straight year it has raised the payout. The company has said that its capital-allocation priorities are to invest for growth, pay down debt, and increase the dividend.
Itâs another example of how the industrials sector can steadily reward income investors.
I would take a cautious approach moving forward from here.
DATA: Barronâs print edition page 23 8/26/24 Market Week Avi Saltzman
Paragraph: one Barronâs print edition page 9 This Week Barronâs
Paragraph: two, three & four Barronâs print edition page 23 Enjoy the Rest of August. Sept. is Coming. Avi Salzman
Paragraph:Â five NYT print edition 8/24/24 page B2 Stocks and Bonds The AP
Barronâs print edition 8/26/24 page 14 What Harris Political Miracle Could Mean Matt Pererson
Paragraph: Barronâs print edition 8/26/24 page 21 8 Industrial Stocks with Secure and growing Dividends Lawrence C. Strauss
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