Over 60 years of trading. I’ve rarely run a credit balance. More likely, I’d be scrambling for capital, run a debit balance in stocks and curse our Federal Reserve Board for hiking up interest rates and cutting back on margin capacity for investors, big and small.
You know what the academics say! Stocks discount their expected stream of dividends over a lifetime. If General Motors earns $5 a share and has a 60% payout ratio its dividend would tot up to $3. This number would result in a 5% yield at $60.
With Treasuries finally buoyant, 10-year paper yields 4.19% , the market can decide if GM’s yield is competitive with 10-year Treasuries. First thumb back in your chart book on Treasuries over 30 years to see historic yield spreads.
If you believe as I do, that the present yield on long term Treasuries should be closer to 5% then 4%, you keep your maturities in short term paper, certainly no more than 2 years duration.
But, the spectrum of investments doesn’t end with Treasury paper, except to denote historic exceptions in yield spreads. A year ago, for example, 10-year Treasuries sold at a 60 basis point discount to 2-year paper. I never understood such a mish mash. God only knows why.
You’re supposed to short stupidity and go long intelligence. I did sell some 10-year paper but not enough to matter. Same goes in stocks which get mismatched for a year or longer. I’m thinking of growth stocks vs Industrials. Monday, the premium of the S&P 500 and even Dow Industrials is overly generous. There’s still chit chat over the right P/E for growth houses like Tesla so I stayed away but proved wrong past couple of months.
But, I’m double weighted in financials, particularly bank stocks like Citigroup.I don’t understand the huge valuation premium in JP Morgan so I’m weightless here
Prime growth stocks like Microsoft find me overweighted I find such stocks analyzable but bring no special point of view to the table. My overweight in Amazon and in Goldman Sachs represents the feel that their earnings are underestimated for a bull market setting.
Both stocks trade under 20 times my earnings power estimate. Goldie, at this level, needs a frothy market in dealmaking. Let’s not forget that Amazon is a viable player in the Artificial Intelligence sector and a major beneficiary of consumer spending strength.
My biggest overweights rest in MLP’s that pay shareholders nearly all their cash flow. The market believes the price of oil is their leading indicator for through-put in their pipelines.
You can get nearly a 6.5% cash yield on Enterprise Products Partners, where I’m grossly overweighted.
I see them approaching a 5% yield because there’s so little yield paper around where you can make a case for fundamentals. I own Energy Transfer as well.
Only a bear market in crude oil would hurt, but that’s not my call. Yield hungry players need this kind of paper. Where else do you get nearly a 7 percent dividend yield? The MLP group is just starting to share in the energy sector.
ExxonMobil is dependent on rising prices for crude oil and stable refining margins. Not an easy call, particularly if crude oil peaks and takes down refining margins. Exxon management is pretty miserly on its dividend payout, always lagging earnings by at least a year. MLP’s to date are a great contrary call while fundamentals just turned stronger.
What more does a shareholder need to stay connected?
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