The Dividend Cafe - Earnings and Dividends Are All The Buzz

Episode Date: April 12, 2019

Topics discussed: Earnings over next 4 Weeks Q1 Anecdote Brexit and other Beltway Bulls and Bears Links mentioned in this episode: TheBahnsenGroup.com

Welcome to the Dividend Cafe, financial food for thought. Well hello and welcome to this week's Dividend Cafe video. You can probably tell I'm in a kind of different setting. We're in our new offices here in New York City and you know what, I will turn the camera around. Why not? I'll let you see what I'm looking at outside my window here this is Central Park and that is a big old new building construction that is the Upper East Side of Manhattan that looks out onto 6th Avenue out there so that was kind of fun anyways I'm in the new office and I don't know how the audio sounds or anything. It's kind of disarray. My people, believe me, will be the best at getting all the stuff dialed in, but we're

in transition. And it's been a very crazy week. I'm in the middle of recording here, midday on Thursday. Market's down a tiny bit on the week, not very much. But let me just kind of go through a few normal nuggets for the week. If you're listening to the Dividend Cafe podcast right now, you missed what was me just rotating a camera around the window here of the 33rd floor of our New York office on 6th Avenue and beautiful Central Park. Avenue and beautiful Central Park. So forgive me for you podcast listeners that are not getting to participate in some of the visuals of what's going on. But this week, the relative flatness in the market slide downturn is kind of normal going into earnings season. It's hard for people to get a lot of confidence if there's not any headline event to push markets. You know, there's usually not going to be a real big round of buying going into earnings season or a big round of selling. You know, the markets have been on a tear.

And right now, of course, we sit and wait to see kind of how things will shake out. As some of the big banks start reporting earnings by the time you're listening to this message, which will be the day after me sitting here recording it. And then earnings season will really last for about three to four weeks, which will be the day after me sitting here recording it. And then earnings season will really last for about three to four weeks, very heavily. By then, about 80% of the S&P 500 will have reported their first quarter results. And it will give us a comparison to the first quarter last year, which was the first quarter in which the corporate tax reform was the law of the land. And I expect that the earnings year over year will be down a slight bit this quarter versus same time last year, but that the forward guidance for earnings into the later part of this year will be revised upwards to a place where it implies

a 2019 full year earnings that is higher than full year in 2018. And so we'll see if those earnings projections and revisions that companies make for full year 2019 end up in the first quarter, suggesting such about later in the year. I believe that it will, but I very much believe that what it does will trump the actual first quarter results. A lot of macroeconomic news this week. Manufacturing data coming in very positive. Services not as positive, but still implying expansion. I really think that the macroeconomic message is firmly knowable here in the United States, and that is you have very low unemployment, you have very healthy job and wage growth in a backdrop of a healthy industrial economy. And so the question then becomes, well, what could be wrong with that? And the answer is

that if global economic weakness allows that to tip over, or if companies run into credit constriction, which we now think is off the table, but we think it was very much on the table in the fourth quarter of last year, and that we see a lot of data throughout the first quarter with money supply, with credit spreads that implied that indeed corporate America was running into that wall that was leading to a decline in business investment. And now the question is, does the Fed being on pause combined with an eventual resolution of the Trump trade situation with China move things forward? The jobs number last month was good. It had been down the month

before and then it came back above expectations this month. That rolling three month average still looks to be very healthy. But I think that there's still people worried that if you have too much job creation, too much wage growth, that that will tell the Fed, you know what, we actually should not stand pause too long. And I just don't see that being on the table right now. So let me go ahead and move forward here. Let me go ahead and move forward here. I'm looking over my dividendcafe.com this week because I want to make sure there's no charts or anything of interest there that I want to allude to. I always want people that watch the video to look at dividendcafe.com. I know some people prefer just the podcast or just the video, but a lot of the stuff

that we're dealing with right now, thinking about, talking about, relates to the stuff that we think about and talk about all the time, which is our indomitable passion for dividend growth investing. And that's on a particular conversational wavelength this week because I have a new book that just came out on the subject. And so I'm talking about it a lot, including here in New York. I've done a few media interviews about it. And here's the thing I would say. The dividend growth worldview is not, never has been, and from my vantage point, never will be, meant to be situational. It will never be something we believe in in a given situation, yet don't believe in in another situation. To the extent that we believe there are people who will be invested in U.S. equity markets and should be invested in U.S. equity markets as a means of obtaining growth and income. We believe that dividend growth

investing is the optimal way to do both of those things, growth and income, and then adds this completely miraculous yet necessary component of growth of income. And the argument that we are now in a period of low interest rates, which we are, now in a period of full equity valuations, which we are, now in a period where people may want to question the ongoing total return capability of some of the higher beta parts of the market that are no or low dividend payers. I would agree with that. But the notion of any of those things are the reason we would advocate for dividend growth is highly fallacious. We advocate for dividend growth, whether we are in a good market like the last

10 years or a bad market like the 10 years before that. We advocate for dividend growth to the extent that we advocate for companies that are growing their cash flows year over year. And from that, the dividends they pay us. And that one day we can wake up with a particular company. Email me if you want to know who these companies are. I'm not going to say it right now in the podcast or video. Just email me and ask of two companies that if you take the dividend they are paying right now in a full year, it is equal to or right around the range within a coupleies, of what the stock price was 30 years ago. Meaning you are now getting 100% per year on the invested capital if you happen to have been an investor in these companies for 30 years. 30 years is a long time.

You get the idea, though. The time is the big point there. But in the meantime, you get stocks that will, of course, if that is the case, it means the stock price itself in these two companies cases is up 39, 45 times. But my point being that this recurrence of the growth of cash flow and that does not include the reinvestment of those dividends into more shares, which is where even more magic takes place. All right. So you have really mechanical benefit in dividend growth investing. And right now, I guess I would say it's particularly of note that this is in a period where rates are themselves very low. It's very difficult to see rates grow. So bond ladders

cannot achieve a great growth of income because we're stuck in a low rate environment economically and monetarily and whatnot. And so to me, income investors have waiting right in front of them the opportunity for a premium to income with an opportunity for immediate growth of income with the upside of the underlying assets that pay the income with a greater tax efficiency. So these are arguments we would make. And yet they come at a cost. They come at the cost of equity market volatility. And that's something we manage in the context of an asset allocation for each individual investor. So that is our story this week. That is our story last week. And that is our story next week. And I'm going to get back to work now thank you for listening to different cafe podcast and you're watching our video and we will come back with both a separate video and podcast next week not in such

a rush probably probably gonna be a fun week ahead a lot going on earnings coming I'm looking forward to it there's a lot of things were absorbing right now from a portfolio standpoint I'll keep talking to you. There's a lot of things we're absorbing right now from a portfolio standpoint. I'll keep talking to you about it as we go. Thanks for listening and viewing The Dividend Cafe. Thank you for listening to The Dividend Cafe. Financial food for thought. The Bonsai Group is registered with Hightower Securities LLC,

a member of FINRA and SIPC, and with Hightower Advisors LLC, a registered investment advisor with the SEC. Securities are offered through Hightower Securities LLC. Advisory services are offered through Hightower Advisors LLC. This is not an offer to buy or sell securities. No investment process is free of risk, and there is no guarantee that the investment process

or the investment opportunities referenced herein will be profitable. Past performance is not indicative of current or future performance. This is not a guarantee. The investment opportunities referenced herein may not be suitable for all investors all data and information reference herein are from sources believed to be reliable any opinion news research analyses prices or other information containing this research is provided as general market commentary it does not constitute investment advice the team in hightower should not be anyway liable for claims and make no express or implied representations or warranties as the accuracy or completeness of the data and other information or

for statements or errors contained in or omissions from the obtained data and information reference herein. The data and information are provided as of the date referenced. Such data and information are subject to change without notice. This document was created for informational purposes only. The opinions expressed are solely those of the team and do not represent those of Hightower Advisors LLC or any of its affiliates.