Posted on 03/31/2015 10:40:17 AM PDT by Kaslin
Downbeat U.S. data has weighed on cyclical stocks during the past week. With the exception of the labor market data, most data has been consistently soft. U.S. economic data have been falling short of expectations by the largest margin since 2009. The latest reports to disappoint were Durable Goods for February, down 1.4% versus a consensus projected gain of 0.4%. And the Commerce Department reduced its third and final revision for fourth quarter gross domestic product (GDP) to 2.2%, worse than consensus expectations of 2.4%.
Since energy prices were sharply lower in Q4, it seems clear that the domestic economy is struggling to get real upside traction in the wake of the Fed ending its quantitative easing (QE), which induces wage inflation and core pricing inflation for most industries. The bond market has cast its vote, with the benchmark 10-year Treasury trading higher and its yield falling to 1.96% on the prospect that the Fed may talk up normalizing rates sometime mid-year. But it’s just not going to happen under current conditions.
GDP growth and earnings for the S&P are being revised lower for the first quarter even as energy prices remain weak. The S&P 500 was in the red for the week as geopolitical tensions in Yemen weighed on U.S. stocks. Yemen, really? If WTI crude can’t hold above $50 when the Middle East is in turmoil, then we have an over-supply problem, Houston. And that type of issue isn’t minimized in just a few weeks or a couple of months.
Uncertainty is currently ruling market sentiment and the market itself. Ongoing mergers and acquisitions (M&A) activity is the true bright spot for market bulls. The 3G Capital Partners’ Kraft (KRFT) deal in the last week, which combined it with Heinz, is valued at $70 billion. The union is a huge marriage of household brand names. And this won’t be the last mega-deal of the year in my view. The urge to merge when capital is super cheap and markets are so liquid could produce a string of history-making takeovers in 2015.
Aside from potential deal flow, investors are caught in what is now a neutral trading range, getting whipsawed by headlines and high frequency trading (HFT) buy-and-sell programs that dominate daily volume. So where are retail investors finding comfort and safety to dodge the wild swings in the hot sectors that suddenly go cold? Selected dividend and income-bearing assets are not trading all over the map, but instead have been exhibiting stability in an anything-but-stable market landscape.
With all of the deal-making, massive capital flows into equities and creative buying of global assets that are heavily discounted, how does an income investor get in on the action? One way is to acquire a position in the largest private equity firm that is publicly traded. That would be Blackstone Group LP (BX). With a market cap approaching $23 billion, the company manages roughly $290 billion in assets focused in private equity transactions, real estate, hedge fund solutions, non-investment-grade credit and financial advisory services involving strategic planning and restructurings.
For the fourth quarter of 2014, the company posted earnings of $1.25 per share against estimates calling for $0.93 per share, a 34% upside surprise with no fewer than 16 Wall Street analysts covering the company. The boost in the bottom line was passed on to shareholders in the form of a hike in the distribution rate by almost 50% to $0.78 per share, or $3.12 per share on an annualized basis, which translates to a current yield of 8.27%.
Shares of Blackstone now have enjoyed a high-volume upside technical breakout under the influence of bullish money flow. The stock is on a strong trajectory for considerably higher price action in the months ahead. It also is in one of the best positions to benefit from M&A, interest rates, European real estate and equity income that far exceeds conventional blue chip stocks in the form of pure yield.
The latest pullback for the major averages is a gift for those investors seeking to initiate positions in market leaders like Blackstone. While investors maintain their incessant focus on if and when the Fed will raise rates, companies like Blackstone aren’t in the waiting game. Rather, they are in the “making things happen” game and arguably the most proactive alternative asset manager one can invest in by buying its shares.
As the latest addition to the Cash Machine model portfolio, Blackstone is poised to have a banner 2015 in terms of profits, stock appreciation and income distribution. My buy under price of $39 is likely a short-term window of opportunity. When Mr. Market provides a chance to jump in alongside some of the smartest guys in the room, you jump.
Trailing earnings $2.58, dividend payout $3.12.
Of course, the predicted earnings look good, according to the analyst consensus. About $3.73 this year, $3.77 next year. But with a company like this, those are little more than guesses, as some deal could very easily blow up, or something bad could happen in the financial markets. The stock is priced as it is priced because of these risks.
So you can get a 8.2% div on your money right now, but I wouldn’t bet the house on it. If you have at least $1 million in your portfolio, you might buy 500 shares.
Yes, I am very conservative, but I seem to have made lots of money this way.
Upon further research, I have found that BX is a Limited Partnership, which will introduce all kinds of tax complexities. You will spend half your dividend paying tax accountants to perform complex calculations and fill out forms, lots of forms.
You are right about that. I held BX for a while and made a profit but there are associated tax complexities that the average investor may not want to deal with. There are easier investments (with good yields) to own with less tax hassles IMO.
Who writes this drivel?
Dividends are cash. Companies can either keep and invest the cash or give it back to investors.
The question is: Is there more value to the shareholder if the company invests that block of cash or gives it back? The answer to that is always: IT DEPENDS.
It depends on management. It depends on the investment opportunities. It depends on the investor’s need for cash versus a continued investment. Etc. It depends on literally everything.
The idea that dividends are some sort of magic is silly. Dividends are at best a signal that at a particular point in time the management has excess cash flow that it thinks it can continue to distribute. But they could be wrong about that. And their competitor who doesn’t distribute the cash may have better ideas about investing. So the dividend itself is darned near meaningless.
Lehman & AIG were also touted in 2008:(
Many banks are living the lie of not having to contend with pesky mark to market. (many would be bankrupt if they had to keep proper books)
IMHO a better play would be US oil stocks as thanks to 0’s brilliant middle east policy, much of the Mideast oil production may go up in smoke.
I agree, dividends are cash that the company had no ideas for internally investing to generate increased company value.
They also have the downside of being double taxed, versus
share price growth that isn’t taxed until shares are sold.
IMHO, worse are share buybacks, most often this is an indication of complete lack of management vision and thus rely on bookkeeping tricks to give illusion of increased company value.
T, VZ, GE, D, WIN, APPL, BP, XOM, COP, ABX, VIV are my major holdings. GE is a buy right now, as well as D. WIN hit low today. 13% dividend (if they pay)
Which is why I sell boring, but stable municipal bonds. Capital preservation with tax free income.
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Which is why I sell boring, but stable municipal bonds. Capital preservation with tax free income.”
Tell that to Detroits bond holders. Coming soon to Chicago and LA and ....
L
LOL. $4 Trillion dollar market, 2 million CUSIPS/issues, 42,000 issuers, and only 500 or so distressed issues. A couple of DOZEN in default.
Your concerns are misplaced.....akin to saying "DONT FLY!"...a plane crashed! (whilst failing to mention the hundreds of thousands of takeoffs and landings everyday).
Would I buy Detroit bonds? Sacramento? Decade long Democrat controlled enclaves? NO. I focus on the other 98% of the issues.
There IS value to be had, even in this market rate environment, if munis are suitable for your objectives.
As a Limited Partnership, BX has to pay out its full earnings to its limited partners as ‘dividends’. They are not really dividends, since you get a K-1 rather than a 1099.
I think LINN energy does that too.
Any good muni bond index fund that you would recommend?
I’m a licensed broker and can’t make recommendations without knowing you and your suitability and objectives. I don’t own any bond indexes in my personal accounts, just individual odd lots.
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