WHAT WE DO? WE SELL OPTIONS FOR INCOME. WE USE THAT INCOME TO BUY DIVIDEND GROWTH STOCKS!
CHECK OUR TRADES ON OUR MeWe PAGE!


Posted by Martin April 23, 2013
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Supper quicky note #2


(JNJ) – is Johnson and Johnson heading into a parabolic run up to crash later?
Although JNJ is excellent company with a wide moat and a great dividend payer, the recent trend is too close and similar to a parabolic uptrend. Trend like this always ends up with a crash. I would be however happy with it because I want to add more shares of JNJ to my portfolio.

Check the chart of JNJ

JNJ

Click to enlarge

Pay attention to a 5 year chart on the lower right corner which resembles an image of a parabolic run up. I may be wrong, but try to get ready in case to correction comes.

 




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Posted by Martin April 22, 2013
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Supper quicky note #1


Remember the market last week? All looked like we are going into a correction. I was anticipating it and hoping for it, since I wanted to add more shares to my current holdings. But, it didn’t materialized. Today the market reversed and marched up at earnings.

Last week everybody in media was freaking out what a bad earnings season we have and this week an optimism overruled the trend again. Another bump on the road up, though.

But nothing is lost. The market can create a lower high this time and then we will witness a trend reversal. So what to do now? I am sitting tight hoarding cash for the next major correction. The only exception was Gold (GLD) which I bought last week.


Once again I was able to beat the market last week. With gold and other stocks falling sharp I expected my account taking a blood bath, so I was quite surprised when I saw my account down only by -0.67% compared to S&P 500 which tanked by -2.11%. If this trend continues until the end of the year, I will have a very successful year.


If you want to see my trades and quick notes in real time (or almost in real time) check my Facebook Fan Page. I am posting my ideas there a lot faster than here.


My GLD trade from last week seems to be working well and I am seeing nice gains already (this was probably the reason for my account beating the market). Some analysts out there however say, that the gains in Gold may be temporary. I do not believe them, but we will see. If the gold market tanks further, I will buy more shares.


A massive wave of Asian buying of precious metals is emptying dealer shelves across the region. “I haven’t seen this (kind of) gold rush for over 20 years,” says the head of the HK Gold & Silver Exchange, adding that old-timers haven’t seen anything like this for 50 years.

 




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Posted by Martin April 21, 2013
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My inspiration in the last week #18

My inspiration in the last week #18

This week I would like to present the following interesting web sites and links.

I often browse the internet to find ideas about investing, trading stocks, options, investing opportunities and strategies. I like to read about investors and what their investing/trading approach to create income you can live on is.

 

 
 




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Posted by Martin April 18, 2013
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Market outlook, trend still unchanged


Market Market slid again today and the “we-know-the-future” experts out there are competing among themselves who comes up with the best reason why. All of them are united however that the reason is a fear of the US economy slowing down after weak earnings reports.

I believe if you go out there and ask any average American how he or she feels about economy, all of them will tell you what those “I-hear-nothing-I-see-nothing” experts discovered just this morning. When I was browsing the internet, all discussions are full of post saying one thing – the economy isn’t good, companies aren’t hiring and macro data definitely do not match the growth of the market.

Recently my friend blogger Marvin was asking on his blog an interesting question in his post “Open Letter About Real Estate“. He was asking how increasing interest rates, which would hit us potentially in the near future, would affect people’s ability to purchase a house. When I was answering to his question with my rhetoric question-response I was thinking that with rising interest, we may see also our salary rising and that would offset, at least partially, the negative effect of higher interest rates.

His response struck me. He said: “…I certainly haven’t gotten a raise the past 2 years.”

That still indicates that the economy is fragile and companies very cautious in hiring and raising salaries. And this may take for a long time, because of artificial money pumping into the economy. I understand the reason – to support and encourage customer spending. But if people are not secured in their salaries and do not know what may come tomorrow, they will not spend. At least those savvy ones.

And that brings up the question, will the market continue in its fabulous bull trend, or will we see a long time anticipated correction? Is the trend over? Will the weak economic data finally open eyes to investors blindly jumping in the market at any bump on the road?

SPX

Click to enlarge

The metrics I usually watch, such as Chaikin Money Flow indicate the market still has money flowing in and ultimate oscillator indicates the market in somewhat oversold territory. The new low the market is forming is higher than the previous, so from this perspective I am seeing the trend unchanged and I would expect the trend to continue, unless something changes. For example the new high the market will create would be lower than the previous one. In that case we may witness a market reversal. It is not happening yet however.

Regards and happy trading!

Image courtesy of Zuzzuillo / FreeDigitalPhotos.net

 




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Posted by Guest April 17, 2013
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Record Gold Sale At The U.S. Mint


By: Kenneth Schortgen Jr.

US Mint

On April 17, the U.S. Mint reported a record 63500 ounces of gold being sold to the public in one day, despite central banks driving down the paper spot price by over 9% in the past week. This record one day sale brings total Mint sales for April to 140000 ounces, and is already twice the total amount of sales for the previous two months combined.

According to today’s data from the US Mint, a record 63,500 ounces, or a whopping 2 tons, of gold were reported sold on April 17th alone, bringing the total sales for the month to a whopping 147,000 ounces or more than the previous two months combined with just half of the month gone. – U.S. Mint via Zerohedge

The disparity between the spot price, and the physical price of gold, proves that the disconnect is official, and paper no longer represents true value in the precious metal markets. While central banks dumped 500 tons of paper gold on Friday, leading to a spot price drop of more than 9%, most physical gold and silver dealers like Kitco and SQ Metals were selling out of stock very quickly as investors and collectors rejoiced in the falling prices.

Besides the U.S., Asian central banks and investors are purchasing physical gold in high volume due to the price drop. Australia, China, and Japan all saw daily sales of precious metals nearly doubled from their biggest dealers, and shortages were occurring for many reputable online retailers.

As Western central banks are forced to short or sell paper gold in the markets to cover margin calls on other investments, the additional volume is quickly being bought up in the physical markets, with the U.S. Mint alone selling an all-time one day record of 63500 ounces.

This post was originally published at Examiner.com




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Posted by Martin April 17, 2013
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Trade adjustment – Gold (GLD) addition #2

Trade adjustment - Gold (GLD) addition #2

I am posting this trade a few days later than when I actually opened it. If you want to see my trades earlier, you can do so on my Facebook page, where I typically post my trade at the same time when it happens.

Yesterday I added a few shares of GLD into my portfolio as Gold suffered a huge sell off. Some analysts call it the biggest sell off in Gold history. Although many of them predict further drop in price of the yellow metal, I decided to take a trailing buy price approach. Last Friday I entered a conditional order, which didn’t materialized and on Monday I lowered the price. The trigger fired yesterday and I bought 7 shares of GLD. You can see the trade history on my Facebook.

I wrote in my older posts and on Facebook that I believe that this sell off is an overreaction of investors once again, caused by panic and stop loss triggers.

I added shares to my portfolio:

04/16/2013 09:44:52 Bought 7 GLD @ 134.43

If the stock continues falling as is predicted by some, I will be adding more shares.




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Posted by Martin April 15, 2013
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Gold Sank Faster Than Titanic. Are You Panicking?


Ship WreckToday’s trading was fascinating. My account was red and full of blood as never before. A true blood in the streets. A massacre. It was not only Gold which sank deeper than on Friday on a lot larger volume than on Friday, but the entire market followed. If you follow my Facebook fan page, I posted that the volume would increase by the end of the day. And sure enough, it happened. It was an indication that selling pressure increased and gained more speed. And that speed may last for extended period of time than just Friday or today.

Are we done with selling? Maybe yes, maybe not. However, last Friday I already considered this drop in Gold as a great opportunity to buy more shares. I opened a new conditional order to buy 6 shares if the stock rose at or above $147.40 a share with a limit at $147.40 a share.

Sell offToday the stock fell down with a huge gap. I think it is now even better opportunity to add more shares at a cheaper price. So today I lowered my conditional order to $134.43 a share. This price allows me to buy 7 shares instead of 6 as originally planned.

But let’s go to my question. If you are investing into gold, are you panicking?

Out there, there are many analysts, prognosticators, forecasters, soothsayers, astrologers, fortunetellers, predictors, wizards, gurus, so-sayers, and who knows who else telling you that they told you so, and that Gold is doomed to crash, and it will go down to $370 an ounce, and it will take years to recover, and gold is not an asset, and gold has no value, and it shouldn’t be in your portfolio, and it will go to 1200 an ounce (120 a share of GLD) and so on.

I do not know what about you, but this remains me the same euphoria six or so months ago when those so called professionals were challenging themselves in predictions to which heights gold will go. Do you remember bank analysts predicting gold ending at $2000 an ounce by the end of 2012, $3000 by the end of 2013 and I have even seen predictions of gold reaching $10,000 an ounce in the near future.

Does this mania sound familiar to you?

Here is how I see it

Let me know if I am wrong, but we may agree on that investors invest into gold, because they consider gold a safe haven. They want to preserve value in bad times in case of disasters in financial markets or expectation of high inflation, weakening dollar or stock market not performing. Am I correct?

GoldIn the past I observed that gold usually went in the opposite direction than the dollar and in many cases in the opposite direction of the stock market.

I remember once, a few years ago an adviser who was administering our company 401k plans told us how we should keep our portfolios balanced. If we invested in stocks and money market funds for example, and we had a set allocation in those stocks what would you do to keep it always balanced?

Well, you would be trimming those stocks (selling portion of your holdings) which are running high and invest proceedings and new contributions into the money market or less performing stocks. As the cycle changes and the stocks which were originally performing are now correcting, you start trimming your money market funds or previously lacking stocks, which are now running high and moving your proceedings back to the now lacking stocks.

Do you get the point? Let me repeat it. You have a stock A and stock B. You always want 50% allocation in each. If stock A runs high, so your allocation changes to 55% and 45% in the stock B, you sell 5% of the stock A and buy 5% of the stock B to keep it allocated per your original plan. When the cycle changes and the stock B starts running high, you start doing the same in reversed manner.

BUYThese days, stocks were running high and gold was lacking. Today’s gold and stock sell off may be a sign of a trend reversal in the stock market. It was hard to find stocks in which you would be willing to invest and pay a fair price without overpaying. But gold was falling and providing buying opportunity. Now we may see the reversal. Gold rising and stocks falling. I do not want to be a doomsayer, but I think, stocks deserve correction the same way as we are seeing in GLD these days, don’t you think?

At the same time, I still believe, that in long time horizon the dollar will be losing value as it has ever was and gold will counter this trend. In my opinion the dollar is growing because of Euro and China’s troubles. Also the FED’s policy will have a negative impact to the dollar in the future and the bubble (dollar, bonds) will burst once again.

These are the reasons why I am buying GLD these days and take the blood on the streets as a great opportunity. What about you?

Image courtesy of Boykung, Stuart Miles, sakhorn38 / FreeDigitalPhotos.net




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Posted by Martin April 14, 2013
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My inspiration in the last week #17

My inspiration in the last week #17

This week I would like to present the following interesting web sites and links.

I often browse the internet to find ideas about investing, trading stocks, options, investing opportunities and strategies. I like to read about investors and what their investing/trading approach to create income you can live on is.

 

 
 




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Posted by Martin April 13, 2013
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My Accounts Caught The Benchmark Up And Keep UP


AnalyticsI am satisfied with my recovery efforts. All my accounts are up to pre-options loss trading and on top of that they caught up the pace with the benchmarks S&P 500 and DJIA.

I monitor my accounts performance on weekly basis and you can see my Weekly Monitor on top of the page. Lest few weeks I was able to beat the market several times and this trend continues. Today I updated the metrics of the account performance and the benchmarks and once again I was able to exceed the market:

 
 

My Portfolio

NASDAQ

S&P 500

10 Year Bond

+4.14%

+2.84%

S&P 500

+2.29%

$17,204.66

3,294.95

1,588.85

1.72

I am hoping that with this trend I soon will be able to exceed and beat the benchmarks.

 
 




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Posted by Martin April 11, 2013
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How Do You Evaluate Dividend Payout Ratio?

How Do You Evaluate Dividend Payout Ratio?

Today I came across a post from a fellow blogger MMD and his article on his blog “Using the Dividend Payout Ratio to Help Evaluate Stocks“. The author is writing about looking at the payout ratio of dividend paying stocks and evaluating their ability to sustain their dividends or even their financial strength and profitability in the future.

His reviews came up based on an article in Money Magazine. I haven’t read the article in the magazine, but from my fellow blogger’s post it is apparent that even the authors of the article in the magazine are wrong in using payout ratio metrics to evaluate a stock.
Dividends
My post shall not be, by any mean, considered as a criticism, but rather an explanation of what misconceptions beginning investors are falling for and as is clear from my fellow blogger’s post, even so called professionals do the same mistake.

There are many aspects you should take into consideration when looking at payout ratio, but in this post I will look at two of them only. One is probably very widely known (although the Money Magazine seems to be making that mistake too) and the other one is less known.

What Is Payout Ratio

Before I dig deeper into the proper look at payout ratio, let me quickly review, what payout ratio is. The definition is a percentage of dividends paid out compared to earnings the company makes. The equation of payout ratio is as follows:

Dividend Payout Ratio = Dividend Per Share [DPS] / Earnings Per Share [EPS]

Now that you know what dividend payout ratio is, let’s take a look at two common and deadly misconceptions. Why deadly? If you fall for those traps, you get rid yourself from juicy profits in the future.

Comparing Companies Across The Board

First mistake investors typically do is comparing companies across the stock universe. Don’t think that I was a genius from the beginning. No, I was doing the exact same mistake in my investing past.

As is true with any other metrics such as P/E ratio, PEG, and others it is a wrong approach comparing two companies and their payout ratios from a different industries. The fellow blogger uses an example from Money Magazine comparing McDonald with AT&T stating MCD‘s payout ratio to be 54% and AT&T ratio to be 144%. A commenter William posting his comment under the mentioned article even ads Annaly to a pool for comparison.

Never compare payout ratio among companies across the stock universe.

In my opinion it is a serious mistake comparing two different companies and different sectors or industries. It is not possible to compare REITs and their payout ratio with Telecommunication services or Consumer Discretionary as they have totally different requirements. For example REITs are required to pay out 90% or more of their earnings (which is called distribution and not dividends) to the shareholders. MLPs have similar requirements. Thus you will rarely see RETs or MLP with ratio at 70% or less. Most likely the ratio would be around 200%.

Unfortunately, I have seen many advisers and well known brokers providing an advice to their clients that they should be picking stocks with payout ratio at 60% or less. Some at least add that some sectors are OK with higher payout ratio.

Never compare ratios between different companies. If you still want to do the comparison, do it for at least among the companies in the same sector or industry, ideally among the company’s peers only. In my opinion it makes no sense comparing companies’ payout ratio whatsoever.

Put Payout Ratio In Proper Context

The second serious mistake investors do when evaluating the payout ratio is not that widely known and I have seen many of them not knowing how to look at this metrics from the proper perspective.

To demonstrate the mistake investors do I will use AT&T as an example. As my fellow blogger states, you do not have to calculate the payout ratio manually. Just go to Yahoo! Finance and there you can easily find it.

To do so, you can find that as of this writing AT&T has a payout ratio of 144%. You may then question the company’s dividend policy and consider AT&T at the verge of dividend cut, financial sustainability and company to avoid.

Well doing so you would dump a good company which was increasing it’s dividend for 8 consecutive years and has a great prospect of continuing so.

Always look forward, never behind.

The only reason, why you do not see the real value is that you are looking at the ratio from the wrong perspective. If you go back to the top of my post to see how the ratio is constructed, you will see that it is made of dividend rate per share divided by earnings per share. So let’s take a look at it.

AT&T has a current dividend rate at $1.8 a share.

AT&T earnings at the end of 2012 was 1.25 a share

Adding these two numbers to the equation you get a dividend payout ratio of 144%

(payout ratio = 1.8 [DPS] / 1.25 [EPS] = 1.44 or 144%)

Did you notice what’s wrong with the ratio? The ratio is calculated from a number which already happened in the past. But I do not care what happened in the past! I want to know what is happening today or what will be happening in the near future.

Calculating ratio using numbers from 2012 has no longer any value, there is no sense in it. It was, it is gone, it is history, and I have no longer interest in it.

Companies set their dividends based on their estimate of their financial future and not the past.

The proper way to check the ratio is to look forward. Look at the company’s outlook and their own expectations.

To do that, I want to pull the estimates for 2013 year. It is actually what is happening now anyway. Not what was three months ago. The expected EPS for 2013 is 2.52 and since the dividend ratio is still the same, let’s plug these numbers into an equation though:

(payout ratio = 1.8 [DPS] / 2.52 [EPS] = 0.71 or 71%)

A totally different picture, right?

You may say that AT&T may miss annual estimates, so let’s take a look at quarters and payout ratios:

Quarter Dividend EPS Payout ratio
2Q 2012 0.44 0.66 66%
3Q 2012 0.45 0.63 68%
4Q 2012 0.45 0.44 102%

As you can see, in the past quarters the company had enough earnings to cover the dividends and it even increased the dividends.

In 1Q 2013 we do not have data yet. The company will be releasing its earnings in April 23, 2013, however the estimate range is 0.60 to 0.67 and the analyst consensus is at 0.637.

How likely is the company going to miss?

Although it may happen, AT&T never missed analysts estimates (reviewed since 2009 until today) and it actually had 7 quarterly EPS surprises since 2009. So I do not expect the company to miss. But to be conservative, let’s stay at the low estimate of 0.6 EPS. With that, the company’s payout ratio in the 1Q 2013 was 75%.

Again, AT&T made enough money to cover the first quarter dividend.

What is the payout ratio outlook?

Quarter Dividend EPS Payout ratio
1Q 2013 0.45 0.64 70%
2Q 2013 0.45 0.71 63%%
3Q 2013 0.45 0.67 67%
4Q 2013 0.45 0.50 90%

I can also look at estimates for 2014 and 2015 and if the dividend rate stays the same as today, the dividend payout ratio for 2014 will be 64% and for 2015 52%.

Based on the future outlook, it is clear that AT&T is confident paying it’s current dividend. It has enough earnings to pay the current dividend although the financial websites and advisers may tell you otherwise. The company may terribly miss the future estimates of course and when that starts happening then we should be concerned although the financial websites will be telling you “all is good” because their numbers are based on history.

When evaluating dividend payout ratio, always look in the future and never look back. Check what the estimate is, because the current dividend rate per share reflects the company’s present and mostly it nearest future and not the past.

Of course, there are other metrics I usually use when checking the company’s payout ratio such as cash flow and comparing the dividend payout ratio with cash flow, but that is a different story.

Dividend payout ratios used on financial websites are useless. Do your own math.

With this post I wanted to show that the number you may find on financial websites is basically worthless. It is the current rate versus the future of company’s earnings what matters. If you see the dividend rate suddenly increased and estimates stay as they are and the payout ratio starts screaming at you, you should start paying attention. The company is either doing very well (better than analysts estimates) or something else is going on under the hood. On the other hand if estimates start dropping and analysts start lowering their outlooks, again it is time to get worried.

How do you check the dividend payout ratio?

 




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