Revenge Against the Dividend Cutters!

Posted On Dec 28, 2015 By Dave Gonigam

  • And the best-performing asset class of 2015 is…
  • If earnings are weak, why are companies still raising dividends?
  • How to pull down income even when companies cut their dividends
  • The go-nowhere U.S. stock market of 2015… and a longer view
  • Secrets of Berkshire Hathaway’s success
  • Airport scanners — now less awful!… who benefits from economic sanctions… $25 retirement notes… and more!

With only four trading days left in 2015, we see it’s been a terrific year — if you were invested in Russian stocks.

Winner and Losers 2015

You also did well investing in Chinese stocks. Sure, the Shanghai Composite tumbled 43% from June through August… but the year-to-date numbers are a darn sight better than what you find stateside.

Ditto the Japanese stock market, despite a moribund economy. And Germany. And France.

While the U.S. stock market will end the year flat to slightly down (more about that shortly), dividends per share have grown 9% this year, according to research from Barclays.

“Dividends have been very resilient in the face of weaker earnings,” says Barclays’ Jonathan Glionna. That’s because there’s a natural lag effect. “Companies tend to cautiously raise dividends during periods when profits are expanding and reluctantly lower them when conditions worsen.”

To date, 341 companies in the S&P 500 have raised their dividends this year.

A total of 15 have cut dividends — or in the estimation of our income specialist Zach Scheidt, they’ve forfeited their investors’ trust.

“We trust the team in charge of managing our company to pay us a portion of the profits that are earned,” Zach explains.

“This trust is based on communication from our management team and our research of how much money the company is expected to make in a given quarter or year.”

Unfortunately, two of the 15 S&P 500 companies that cut their dividends were recommendations in Lifetime Income Report.

First came the private-equity outfit KKR & Co. (KKR). Historically, the company paid a dividend that went up and down depending on quarterly profits. But in October, KKR announced a shift to a more conventional dividend of 16 cents a share. The effect was a 60% dividend cut.

Then came pipeline firm Kinder Morgan Inc. (KMI) — which slashed its dividend 75% this month. True, many energy names are hurting right now and are cutting their payouts. But “the thing that made me absolutely irate,” says Zach, “was that Kinder Morgan has the cash to pay us. But they decided not to so they could use that cash to grow the company.”

Zach is going through all his recommendations with the proverbial fine-tooth comb. “If the last two months have taught us anything, it is to be careful how much faith we put in the promises of management teams.

“We’ll continue to hold our positions that are paying healthy dividends. But we also won’t hesitate to sell these positions if it looks like there’s a high probability of more dividends getting slashed.”

Here’s the bigger takeaway today: “One thing you may not realize,” says Zach, “is that you can actually collect income in your investment account, regardless of decisions made by management.

“In fact, using a little-known strategy, you can collect income at will from these very same companies that may or may not make their dividend payments. The best part is that you don’t have to count on a management team to approve the payments that you receive.”

Zach learned about this strategy working at a $130 million hedge fund in Atlanta — where his mentor racked up 23 straight years without a loss. Zach calls it the “ultimate retirement loophole” — and it was key to that track record. “The simple strategy allowed me to collect millions in our clients’ accounts — sometimes without even owning any shares of stock.”

Nowadays, Zach shares this strategy with his premium subscribers to help them collect instant income payments every week — $1,120 just last week, when there were only three trading days.

Skeptical? We understand. Even our own team in the Baltimore offices are skeptical — until they learn how to make it work in less than five minutes with a few clicks of the mouse. See for yourself right here.

Concludes Zach: “This strategy is extremely safe (it’s actually even safer than investing in blue chip dividend stocks), and it takes the control out of the hands of Wall Street’s executives and gives you complete control of your own income.”

[Ed. note: As mentioned last week, there’s no small amount of controversy attached to the demonstration of the “ultimate retirement loophole” linked above. “Misleading rubbish,” said one reader. But that was countered over the holidays by another note we got: “Very clever marketing ploy,” says one reader who watched it all the way through.

The final call is yours. But the moneymaking potential is undeniable. Click here for the step-by-step proof.]

With Wall Street pros sunning themselves in the Caribbean this week, the interns are in charge… and they’ve sent the major U.S. indexes down more than half a percent as we write this morning. The S&P 500 is at 2,047.

Gold has shed about $5, the bid $1,071 at last check. But the big mover is crude. After topping $38 last week, it’s off more than 3% this morning at $36.87.

With the S&P 500 at 2,047, the index is down 0.57% year to date. “Put simply, stocks aren’t in a very bullish position right now,” says Jonas Elmerraji of our trading desk.

The Short-Term View

A new downtrend began to form in late October… and that downtrend’s still in place right now. As with last week, the level to watch is 2,000. “That remains an important level we’ll want to see get tested in the coming sessions,” Jonas says.

“But zoom out on the chart a bit and things suddenly start to look a lot more attractive for anyone who owns stocks:

The Long-Term View

“The uptrend that began back in 2008 is still very much intact,” says Jonas. “In fact, every touch of that primary uptrend line has acted like a springboard for higher ground — and the S&P 500 touched that line in October for the first time since 2011.”

We’ll share Jonas’ outlook for the new year next week… and show you how to claim your share of $2 million or more in gains during 2016.

“Even after a glorious 50-year run, Berkshire Hathaway still has plenty of legs,” says our investment director Chris Mayer.

Chris ventured to New York last month for a conference at the Museum of American Finance. The topic — how Warren Buffett’s Berkshire Hathaway has stayed so strong for so long. It is No. 1 on the list Chris and his team compiled this year of companies that have returned at least 100-to-1 since 1962. It’s returned 18,216-to-1.

“Professor Lawrence Cunningham delivered the keynote,” says Chris. “He is most known for compiling The Essays of Warren Buffett: Lessons for Corporate America.

“Cunningham talked about Berkshire’s culture of parsimony, loyalty and permanence. Berkshire has never hired a banker or a broker. Its board of directors is more akin to an old-fashioned advisory board. Board members get no options, and there is no director’s insurance. And most importantly, board members are significant owners of stock.

“One point from my notes, though it’s not clear who said it: Berkshire’s stock has been cut in half four different times,” Chris points out.

No, the road to 100-baggerdom is not an easy one.

“There was also an interesting panel on the merits of Berkshire as an investment today,” says Chris. “Berkshire has a huge pile of cash and other liquid assets. Much of Berkshire’s earnings are not particularly sensitive to the economic cycle. The stock trades for 22% below its intrinsic value, which is growing 6-8% per year.”

Wall Street pro Whitney Tilson said that works out to the potential for a 45% gain during 2016. “And of course, if you can’t afford to shell out $204,000 to buy a share of Berkshire,” Chris reminds us, “the B shares trade for just $136.”

Gentle reminder: We still have available copies of Chris’ book 100 Baggers: Stocks That Return 100-to-1 and How to Find Them. If you spot us the shipping, we’ll send you one free.

“One solution to the TSA goons,” a reader writes after we noted a change to the opt-out policy last week, “is if you’re not a U.S. citizen, make sure you don’t take any flights or connecting flights to the USA. Boycott this police-state country!”

“I thought I’d offer a bit more insight into today’s body scanners, as the actual invasion of privacy is quite a bit less than a few years back and hopefully is worth sharing!” writes another.

“When the TSA began testing full-body-imaging devices a number of years back, there were two major competitors: ProVision and Rapiscan. Both took full-body images based on two different types of imaging technology. Both technologies created a 3-D topographical map of the body (or, more accurately, materials more dense than clothing) to more adequately see disallowed objects. Both technologies also required that an agent to be in a dark room somewhere looking at Gumby-style images to determine if there were surface inconsistencies in the image presented.

“The main differences between the two devices were than one was much slower and used backscatter X-ray (Rapiscan) whereas the other used millimeter wave imaging (think more like Wi-Fi frequencies). The backscatter X-ray raised health concerns, especially for frequent flyers. That plus the overall speed of the ProVision made it the winning device.

“In the last two years (at least), all of the ProVision devices have been upgraded with ATD (automatic target detection), meaning that software algorithms, looking for nonorganic surface inconsistencies, are responsible for ‘viewing’ the images, rather than people. No longer is your finely fit figure in view of a perfect stranger!

“How do I know all this? I used to work for an electronics services company that designed and built the ProVision (they don’t manufacture the device any longer) — I happened to be involved in developing a refreshed electronics architecture for it in order to enable the ATD features (and reduce cost).

“FYI — I’m all about privacy and think the TSA security is only effective for those who want to follow the rules. However, it may be opined that today’s full-body-imaging systems are actually only as invasive as metal detectors.

“Happy Holidays, and safe travels!”

The 5: Thanks for the insight. But it’s hard not to think of the whole thing as “security theater” — to use the delicious phrase of the security expert Bruce Schneier — when the TSA misses 95% of guns and bombs in a “red team” test carried out at dozens of the nation’s busiest airports.

Too, there’s the conditioning aspect of it — spotlighted last week by the recovering Wall Streeter-turned-blogger Michael Krieger at his Liberty Blitzkrieg website.

“Whatever shred of human dignity an American citizen has left,” he wrote, “is relinquished the moment one consents to raising his or her arms in the air like a prisoner, while a machine that never met a terrorist it could catch scans an image of your body in yet another superfluous display of imperial slave-training…

Hands up, don’t shoot…

“Can such people truly think of themselves as free, empowered individuals,” asks Mr. Krieger, “or have they been conditioned to think of themselves as helpless prisoners, grateful to the all-powerful security state for their continued survival?”

“I do not think you fully appreciate the sanctions against Cuba,” a reader writes after we cited Cuba as an example of how futile economic sanctions are.

“The crooks in the U.S. sugar industry and the ones in our government who got paid to keep the sanctions in place all benefited significantly from them. You act like everyone lost.”

The 5: An excellent point. As the late Murray Rothbard was wont to remind us, it always pays to ask the question cui bono? — who benefits?

Best regards,

Dave Gonigam
The 5 Min. Forecast

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