Posted on May 24, 2013 | Dividend Investing

Management changes occurred at three of our portfolio companies this week, in what can only be described as an unusual coincidence.

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Posted on May 24, 2013 | Stock Superstars Report

Stock Superstars alert for the week ending 5/24/2013 updated.

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Be Careful About What You Invest In

Posted on May 23, 2013 | Investor Update

I want to start with a short comment about Japan before moving onto the main subject of this week’s newsletter. As you probably heard, the Topix index plunged almost 7% today, the biggest drop since 2011’s earthquake and resulting tsunami. According to both Bespoke Investment Group and James Mackintosh of The Financial Times, this was also just the ninth time in the past 50 years that the Nikkei has fallen by more than 7% on a single day. (The Nikkei encompasses 225 stocks; the Topix tracks about 1,700.)

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AAII Sentiment Survey: Optimism at Second-Highest Level of the Year

Posted on May 23, 2013 | AAII Survey

Optimism jumped to its second-highest reading of 2013 in the latest AAII Sentiment Survey. Accompanying the increase was a drop in pessimism to its lowest level in more than a year.

Bullish sentiment, expectations that stock prices will rise over the next six months, rose 10.5 percentage points to 49.0%. This is the highest level of optimism since January 24, 2013 (52.3%). This is also just the second time in the past 10 weeks that bullish sentiment is above its historical average of 39.0%.

Neutral sentiment, expectations that stock prices will stay essentially unchanged, fell 2.7 percentage points to 29.5%. This is the first time in five weeks that neutral sentiment is below its historical average of 30.5%.

Bearish sentiment, expectations that stock prices will fall over the next six months, plunged 7.8 percentage points to 21.6%. This is the lowest level of pessimism recorded by our survey since February 9, 2012 (20.2%). The historical average is 30.5%.

Both bullish and bearish sentiment are near the outer edges of what we consider to be normal readings. Though optimism is high and bearish sentiment is low, neither are at unusual levels. One standard deviation above average for bullish sentiment is 49.3%. One standard deviation below average for bearish sentiment is 20.5%.

Since bearish sentiment peaked at 54.5% on April 11, 2013 (nearly a three-year high), it has fallen by a cumulative 32.9 percentage points. Over the same period of time, bullish sentiment has rebounded by a cumulative 29.7 percentage points (from a low of 19.3%).

The market’s resilience and the ongoing record highs being set by the Dow Jones industrial average and the S&P 500 index are keeping AAII members optimistic about the short-term outlook for stock prices. Also helping sentiment were the first quarter’s better-than-expected earnings, signs of continued economic growth and a lack of new bad news. Some investors remain cautious, however, because of current valuations, the actual pace of economic growth and a lack of progress on key issues by the White House and Congress.

This week’s special question asked AAII members for their opinion of the current dividend yields. Nearly one in four respondents (23%) described current yields as being low or too low. Another 16% described dividend yields as being higher than bond yields. A similar percentage thought dividends could be or should be raised. Many in this third group expressed a desire for companies to divert money from share buybacks to dividend increases. More than one in five respondents described dividends as either being good or satisfactory.

Here is a sampling of the responses:

  • “I would rather see companies pay shareholders with increased dividends than share buybacks.”
  • “Getting leaner as we speak. Searching for value more is difficult every day.”
  • “Share price increases have pushed dividend yields too low.”
  • “Yields could be higher. More cash rich companies should declare dividends than hoarding cash beyond reasonably foreseeable requirements.”
  • “Definitely beats the current yield on bonds.”
  • “Reasonable considering the other options for income.”

This week’s AAII Sentiment Survey results:

  • Bullish: 49.0%, up 10.5 percentage points
  • Neutral: 29.5%, down 2.7 percentage points
  • Bearish: 21.6%, down 7.8 percentage points

Historical averages:

  • Bullish: 39.0%
  • Neutral: 30.6%
  • Bearish: 30.6%

The AAII Sentiment Survey has been conducted weekly since July 1987 and asks AAII members whether they think stock prices will rise, remain essentially flat, or fall over the next six months. The survey period runs from Thursday (12:01 a.m.) to Wednesday (11:59 p.m.) The survey and its results are available online at: http://www.aaii.com/sentimentsurvey

Master Limited Partnerships: Income from a Unique Structure and Industry

Posted on May 22, 2013 | AAII Journal

MLPs are pass-through entities and have been able to pay consistent distributions due to steady demand and federally regulated prices.

Kenny Feng is president and CEO of Alerian. I spoke with him about master limited partnerships and the Alerian MLP exchange-traded fund (AMLP), which is held in our Model ETF Portfolio.

Charles Rotblut (CR): Could you explain what a master limited partnership (MLP) is and how it differs from a traditional corporation?

Kenny Feng (KF): Sure. Energy master limited partnerships are engaged in four primary businesses, which are the exploration and production, transportation, storage and processing of natural resources and minerals. By confining themselves to these specific activities, MLPs are not subject to entity-level taxation as a traditional C-corporation would be. They are, however, subject to the same reporting requirements (annual reports, filing 10-Ks, filing 10-Qs, filing notices of material changes and complying with the Sarbanes-Oxley act) as publicly traded corporations. It is also worth mentioning that they trade on the public exchanges; about two-thirds of the energy MLPs trade on the New York Stock Exchange and a vast majority of the remaining one-third trade on the NASDAQ.

CR: And with their structure, the earnings flow through, correct?

KF: Exactly. They are pass-through entities.

CR: I know that creates different tax issues for investors than investing in a traditional corporation.

KF: Exactly. If you were to invest in IBM (IBM) or any other publicly traded corporation that pays a dividend, you would get a Form 1099, and you would report the payments as dividend income.

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Sell OF THE WEEK 5/22/2013

Posted on May 22, 2013 | Podcast

AAII Journal Editor Charles Rotblut Editor explains to Chuck Jaffe of MarketWatch why Molina Healthcare (MOH) is his “Sell of the Week” on the MoneyLife Radio Program. MoneyLife is a daily personal finance show that sorts through the financial clutter to bring you the information you need to lead the MoneyLife.

Audio url: Sell of the week


Posted on May 22, 2013 | Computerized Investing

You Need A Budget 4 – You Need A Budget is a popular budgeting program that seeks to help people avoid living from paycheck to paycheck, get out of debt and save more money.

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Immediate or Income Annuities

Posted on May 21, 2013 | Financial Planning

An annuity is a contract, purchased from a life insurance company, that provides for a set stream of payments or income for a set length of time, usually until the death of the annuity holder.

The concept of an annuity can be confusing because life insurance companies use the term to describe two different types of contracts: deferred annuities and immediate annuities.

Deferred annuities allow investors to put away money on a tax-deferred basis so that a lump sum can be accumulated at a later date; that lump sum can then be used to fund an annuity (the stream of payments), although many investors choose to simply withdraw the accumulated amount as a lump sum rather than use the annuity feature.

An immediate annuity has no accumulation period—an investor simply pays the insurance company a lump sum, and then receives the stream of payments for the set time period.

Annuities are primarily used as a means of securing a steady cash flow during retirement.

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Creating the Revised Graham Enterprising Investor Screen

Posted on May 21, 2013 | Computerized Investing

Creating a more realistic version of the popular Graham Enterprising Investor screen using Stock Investor Pro.

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BUY OF THE WEEK 5/21/2013

Posted on May 21, 2013 | Podcast

AAII Journal Editor Charles Rotblut explains to Chuck Jaffe of MarketWatch why Phillips 66 (PSX) is his “Buy of the Week” on the MoneyLife Radio Program. MoneyLife is a daily personal finance show that sorts through the financial clutter to bring you the information you need to lead the MoneyLife.

Audio url: Buy of the Week

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