FINANCIAL ADVISOR INSIGHTS: There's Room For Companies To Start Cranking Up Dividend Payouts
Why Investors Need To Consider Dividend Growth Stocks (The Alliance Bernstein Blog)
Investors searching for yield recently turned to fixed income-like stocks after yields collapsed. Frank Caruso at Alliance Bernstein suggests that investors look at companies with dividend growth potential. Despite slower profit growth last year, dividend payouts continued to rise. U.S. companies have record cash positions and at the end of last year were only paying out a third of their earnings as dividends. That means there's room for these dividend payouts to rise.
So, Caruso suggests investors keep an eye out for stocks with a low payout ratio. "A close look at the balance sheet can help gauge a company's capacity to finance expansion and to evaluate the percentage of normal cash flow being paid out as dividend," Caruso writes. "The goal is to identify healthy companies that are capable of sustaining macro-economic shocks and withstanding competitive threats."
A Portfolio Manager With A Stellar 2013 Performance Explains His Outlook For The Bond Market (Barron's)
Jim Dondero, co-founder of Highland Capital Management, told Barron's that he thinks "the party is definitely slowing down as far as fixed income … but it is not ending." As the Fed has begun to taper its monthly asset purchase program and as interest rates are expected to rise, Dondero said they've been "positioned more toward floating-rate assets than fixed-rate assets for the last four or five years."
"In our fixed-rate bond portfolios, we keep them short: five-to seven-year maturities and less," said Dondero. "The intention of floating-rate instruments is for the interest rate to reset on a regular basis." The Highland Global Allocation Fund posted a 30% return last year.
The SEC Will Review Broker Bonus Disclosure Plan (Reuters)
The Financial Industry Regulatory Authority (FINRA) sent its 351-page proposal requiring brokers to disclose their bonuses to the Securities and Exchange Commission (SEC). The idea is that disclosing a bonus when switching firms would make clients aware of any potential conflict of interest. Brokers would not have to disclose the exact amount, but they would have to disclose the range. They would also have to disclose it during their "first individualized contact" with a former client. Some worry that this is just a way to make poaching harder.
Advisors Need To Steer Their Clients Away From Emotional Investing (The Wall Street Journal)
Emotional investing is a common weakness among investors. It's an advisor's job to keep them on track with their asset allocation strategy during downturns and in up markets. "Often, clients are eager to change the structure of their portfolio because it just isn't clear to them that each assets has a function," writes Abigail Gunderson of Houston-based Tanglewood Wealth Management in a WSJ column. "For example, gold was a big loser last year, and clients may not appreciate its value as a non-correlated asset. Instead, they see a slumping commodity tying up money that could be put to better use in the S&P." It's important for advisors to go over the role that each asset class plays in a portfolio.
Investors Need To Be Wary Of Risks Associated With Bitcoin (FINRA)
The Financial Industry Regulatory Authority (FINRA) is warning investors about the risk of Bitcoin in a new alert called Bitcoin: More than a Bit Risky. "Speculators drawn to Bitcoin trading should understand that Bitcoin prices have fluctuated widely, and wildly, almost from the currency's inception," Gerri Walsh, FINRA's senior vice president for Investor Education said in a press release. "Investors looking to get in on the ground floor of a Bitcoin-related company should realize that fraudsters may see the latest digital currency trend as a chance to steal their money through old-fashioned fraud."