We had a negative start to the trading day following a profit
warning from another transport sector bellwether Norfolk Southern (
). This came on the heels of FedEx's (
) negative outlook as well. The markets did absorb the selling well
and in fact, the indices were able to close mixed on the day.
The selling certainly hit other key rail plays such as Union
) and CSX Corp (
). The financial sector was also in the red following news Bank of
) is going to lay off another 16,000 employees. Throw in valuation
concerns from a Wall Street analyst and we had red on the screen
for the likes of Citigroup (
), Goldman Sachs (
), and Morgan Stanley (
). Bucking the early selling were companies like ConAgra Foods (
) following the company's earnings report, and Limited Brands (
), which was boosted from positive comments by a Wall Street
The Power of the Rolodex (Washington Style)
Big news out of Washington today as news came across the wires
that former Republican presidential hopeful and VP candidate Tim
Pawlenty will become the head of the Financial Services Roundtable,
the group representing the behemoths in the banking industry. The
hope is Mr. Pawlenty will keep voter interest in mind as Wall
Street and the big banks try and win back the confidence of
Only in Washington can losing (the chance to win office)
potentially pay off as much as winning! Let's hope Mr. Pawlenty
does indeed keep our best interest in mind and possibly convince
banks to be a bit more generous to those looking to park some cash
in higher-yielding liquid accounts.
Politics aside (and please don't e-mail us about hidden agenda
right-wing/left-wing takes as we just care about the ramifications
for investors and savers), inflation is continuing to eat away at
those who are sitting in cash, money market accounts, savings
accounts, or whatever liquid accounts. We all know there is a big
emphasis on pushing financial institutions back to the old levels
of lending, so the real estate market can regain its feet. However,
the biggest impact Washington must continue to focus on is jobs
(cuts still happening as Bank of America announced this morning),
regardless of which party is victorious come November. There isn't
going to be much of a sustained real estate rebound if many still
remain without work.
Dividends/Capital Gains Tax Increase Update
Staying with the Washington theme, we continue to monitor any
new developments when it comes to the possible expiration of the
Bush tax cuts, affecting capital gains rates for dividend investors
and others. The aim could be to raise the dividend tax rate for
married couples earning more than $250,000 a year and individuals
earning more than $200,000. There may also be an additional 3.8
percent tax on the unearned income of couples earning $250,000 and
individuals making at least $200,000.
At its worst-case, the tax rate for the wealthy would hit 43.4
percent in federal taxes on their dividends next year, compared to
15% currently for qualified dividends.
Continued speculation indicates some sort of compromise will be
reached, as is normally the case in politics. In the end, we could
wind up with a number closer to a 20% tax rate on qualified
dividends for the wealthiest Americans. Most dividend investors
will thus be unaffected by the new measures.
Fidelity Investments came out with a report yesterday in which
they went back and looked at the impact of previous tax policy
changes, noting little impact overall on dividend share prices.
They also noted 56% of dividend income goes to those in the top tax
bracket, with dividend payouts making up only 3% of their overall
tax bill. The wealthy tend to not let tax issues affect where they
put their money and neither should everyday investors. The road to
building wealth still boils down to accumulating assets that
produce income, regardless of what tax bracket you fall in.
25 Years of Dividend-Increasing Stocks
We recently updated our list of dividend stocks that have been
paying out dividends for 25 years or more. Be sure to check out
the latest list of names here
Dividends Really Matter
Financial blog DailyReckoning.com recently took a look at the
difference dividend payouts made in the overall return investors
saw throughout the prior decades. Here are some of the
- The Nasdaq is down 28% since the end of 1999. Even the "blue
chip" S&P 500 stocks are down 15% during that time frame…until
you add back those "boring" dividends. With dividends included, the
S&P 500′s 15% loss flips to a 6% gain.
- Without dividends, the S&P 500 index would have produced a
loss for the 25 long years from August 1929 to August 1954. Then
again, without dividends, the S&P 500 produced a 5% loss during
the 13 years from September 1961 to September 1974. But with
dividends included, the S&P's loss became a 46% gain.
- Over the course of the last half-century, dividends have
contributed more than half of the stock market's total return -
56%, to be exact.
Of course, you can't discuss the potency of dividend investing
without making mention of how awesome compound returns are. I can't
stress enough the power of compound interest: you take a small
amount of money and turn it into a large amount over time. Finding
the right companies at the right price points which not only grow
earnings, but also grow their dividend payouts as well!
New Watchlist Article Out Today
Be sure to check out our weekly Top 50 High-Yield Watchlist
Names post that is out today, exclusively for
members. This list gives readers a good idea of what stocks we're
watching behind the scenes here for potential upgrades.
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