Market Wrap-Up for Nov.28 (COST, PVH, ADI, VFC, COH, NKE, more)
Despite the market being lower early on based on fundamental concerns, all it took was a headline out of Washington from House Speaker Boehner mentioning confidence in the “fiscal cliff” talks to send the markets shooting higher. Don’t get me wrong, we prefer an up market, but the focus should be on earnings and what can drive share prices higher over the long run. Counting on Washington to be part of the long-term path to prosperity for corporate America just doesn’t work. Share prices need to get back in line with fundamentals and not so much with how politicians want to grab the spotlight. In real news today, new home sales fell in October despite expectations for an uptick — yet no one seems to be talking about that point much today.
Looking at individual stock movers, Costco (COST) shares were higher following news the company will be paying a $7 special dividend in December (more on the special dividend situation below). PVH Corp (PVH) continued its dominant 2012 performance, up again as the company reported its latest earnings results. It’s too bad PVH won’t reward shareholders with something better than its minuscule dividend.
Elsewhere, Analog Devices (ADI) rallied from an early drop to close with slight gains, this after the company reduced its 2013 profit guidance. There were plenty of winners by the close, especially after headlines the Federal Reserve remains adamant on continued liquidity for the markets. Some of the big gainers by the close included VF Corp (VFC), Coach (COH), Nike (NKE), and The Limited (LTD).
As always, check the Dividend Daily for all our latest coverage of earnings reports, company news, analyst moves, and much more.
Frustrations Mount With Special Dividends
I had a conversation with a reporter from Reuters yesterday, and the topic was special dividends and accelerated dividend payments. My frustration has been building as more companies turn to paying special dividends ahead of the dividend tax changes likely coming due in 2013.
I get the positives from special payouts, but my preference would have been to have these companies that were sitting on all this cash to have been more generous with regular payouts over the past few years. Companies like Wynn Resorts (WYNN), Las Vegas Sands (LVS), Brown-Forman (BF-B) and this morning’s special dividend name, Costco (COST), could have had better yields for the previous couple of years and likely would have been on our Recommended list as a result. At this point, if we rush in to recommend these names because of the payout, we will be left with low-yielding plays once the special dividend is paid out.
We always try and avoid playing see-saw with the names on our list. Going in and out of names is not the aim for building wealth through dividend stocks. In the meantime, we sit and watch the special dividend announcements and try and figure out if the names only make sense for the dividend-capture strategy crowd or would they be names that we should be giving stronger merit to because of the one-time payout jewels. All this thanks to the uncertainty out of Washington. Ugh!
More Debt to Forgive Coming Soon as Delinquencies Soar
News was out late yesterday that total U.S. student debt outstanding surpassed $1 trillion for the first time. According to the Federal Reserve Bank of New York, 11% of student loans were 90 days or more past due in the third quarter, up from 8.9% in the previous quarter and 8.8% a year prior.
Ironically, this data comes at a time when delinquencies on many other consumer debts, including credit cards and mortgages, are dropping. Students who graduated with a bachelor’s degree this spring left school with roughly $28,700 in student debt, up 31% from five years ago, according to FinAid.org. And in many cases, borrowers who’ve fallen behind on loans dropped out of college. Now, we all know the government can come up with all sorts of payment options including income-based payments, since these loans have to get paid at some point. If the trend continues, expect to hear about what Washington may want to do to keep this fire from getting out of control.
Median Family Income at 43-Year Lows
A recent study done by New York University professor Edward N. Wolff shows the median net worth of American households has now reached a 43-year low of $57,000 (in 2010 dollars). According to Wolff, between 1983 and 2010, the percentage of households with less than $10,000 in assets rose from 29.7 percent to 37.1 percent. Over the same period, the richest 1 percent of households increased their average wealth by 71 percent. Now whatever is the exact blame could vary from family to family — poor job record/prospects, mediocre academic performance, too much spending/debt, family crisis, zero ability to invest, etc.
What the future will be for these struggling families is hard to say. They certainly won’t have the financial flexibility to spend discretionary income, which adds pressure to an already sluggish economic recovery. There certainly isn’t an end to the recent spike in governmental financial assistance, but to stop the bleeding, better programs must be in place from day one. The education system as it is today needs to get with how the world is currently working and can’t just go with business as usual. We have many good jobs in this country where many of our graduates simply don’t possess the knowledge to fill those holes. This is a major problem and despite tuition hikes being pushed through year after year, the knowledge gap still exists.
Beyond that, there are blue-collar labor skills that many lack as well. There are many opportunities coming in the energy sector and again, we will have a shortage of qualified employees to fill those roles. Something needs to start being coordinated between labor and academia if we are ever going to stabilize the job market and get struggling families hope beyond worrying about when their potential assistance benefits may run out. Will the politicians who ran on the message of better job opportunities and education step up, or will they fade out of sight until the next election season is upon us? We’ll see soon enough.
Thanks for reading everybody. I’ll see you tomorrow!
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