By Jeffrey Cohen, April 12, 2022, President and Investment Advisor Representative
Today we did a special analysis. Find all dividend paying stocks that paid more than the $SPY (1.32%) last year. Then, look at those stocks that declined significantly in share price over that same timeframe.
These dividend paying stocks are down 35% to 65%.
Then, we do initial stock valuation due diligence by reading the 10-K for each firm. Out of 12 stocks we like 6, and are putting them on a dividend purchase watch list. (see image below)
The work isn't done yet. We need to set a buy price for each of these while monitoring the macro-economic factors that are impacting these stocks.
Most are retailers and they are impacted by recession fears. CPI should help them if they can pass along price increases, or find and sell lighter and more local merchandise. Optimizing shipping is important. Labor costs and supply are another driver of performance (product does not often sell itself). Supply chain costs hurt them too.
Two are in the furniture trade. These are impacted by supply chain and materials costs. Of course, economic activity and moves help them, and with increases in mortgage interest rates or fears of recession (and fewer moves), activity could slow. In one case, an acquisition was made that increased debt, and that debt is variable.
In most of these cases, the companies are financing their acquisitions or growth by borrowing money that has a variable interest rate (e.g., LIBOR + 3%). In this situation, as the US Federal Reserve raises interest rates, it will increase their interest costs. Firms that can pay down debt will do so, while others will see their Net Incomes, and ability to pay dividends, decline.
At the end of the day, we are building a set of efficient dividend paying stocks (mostly in the money management business) with one technology growth stock, and now we see 'downtrodden' retailers and furniture companies.
Once we see some 'blood in the streets' we will start to buy dividend names and build an income stream. Both for ourselves and with our clients.