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The Power of Dividends Part II: Bank Preferreds

Posted By Lineweaver Financial Group
May 12, 2022 Category: Blog, Commentary, Finance, Dividends, Series

As we all deal with continued market volatility, inflation, and other economic headwinds, qualified dividends can be a great strategy for your portfolio. This is the second in a two-part series discussing possible dividend strategies. So, what are the main benefits we can expect from qualified dividends?   There are three things you should consider when adding qualified dividends to your portfolio. First, they can be a major contributor to total return. Second, you need to carefully vet the quality. And third, they can have very beneficial tax treatment. There are many types of dividend-paying stocks, but there are two that are particularly timely: bank preferred shares, and oil and gas exploration and production.   Last week, we discussed Oil and Gas E & P, and we know from the number of calls we received, that many people were interested. This week, we’ll talk more about bank preferreds.   These are particularly timely as a strategy because many banks are flush with cash as a result of the stringent regulations after the financial crisis of 2008. These are currently attractively priced, and let you lock in your yield for at least 5 years – but possibly much longer. That doesn’t mean your money is tied up though because they can be sold any time.   And preferred shares typically decline in price as interest rates rise, so substantial discounts are already available. When you purchase at a discount to par, your total return

The Power of Dividends Part I: Oil and Gas

Posted By Lineweaver Financial Group
April 28, 2022 Category: Blog, Economy, Commentary, Dividends, Portfolio

As we all deal with continued market volatility, inflation, and other economic headwinds, qualified dividends can be a great strategy for your portfolio. This is the first in a two-part series discussing possible dividend strategies. So, what are the main benefits we can expect from qualified dividends?   There are three things you should consider when adding qualified dividends to your portfolio. First, they can be a major contributor to total return. Second, you need to carefully vet the quality. And third, they can have very beneficial tax treatment. There are many types of dividend-paying stocks, but there are two that are particularly timely: bank preferred shares, and oil and gas exploration and production.   The first thing to understand about oil and gas E&P is that these are really just common shares of U.S. or Canadian gas and energy production companies.   Many of these companies paid down debt substantially in the last 5 years, have reduced well costs, and have a break-even price with West Texas Intermediate, or WTI at $30-$35 a barrel.  And as all of us know who have bought gas recently, it’s significantly more than that!   These are generating significant free cash flow right now, which won’t surprise most of us who have been to the gas pump recently. But many companies have committed to use this excess cash flow to reward shareholders by raising base dividends, and some are even adding a variable dividend based

The Power of Dividends

Posted By Lineweaver Financial Group
September 09, 2021 Category: Blog, Economy, Commentary, Dividends, Portfolio

  If we look at the data over the past 90 years, dividends were responsible for over 40% of the total return of the S&P 500 index, according to a 2021 publication by Hartford Funds. And over the last 50 years, dividend paying stocks have produced average annual returns largely in line with the S&P 500 Index, but with a lower degree of volatility.   While dividend stocks may not receive the same popularity as growth stocks in the current environment, dividend paying stocks can meaningfully contribute to total return over time, with potentially lower price fluctuations. This is especially important in the continuing low interest rate that we’ve seen persist over the last couple of years.   In the past, investors focused on producing current income, such as retirees or individuals nearing retirement, have been able to do that through bond allocations, when yields were much higher. However, in today’s low interest rate environment, it’s become increasingly difficult to achieve that investment objective though fixed income alone.   There are many investment vehicles that can help you combat low interest rates. With the 10-year Treasury bond paying just over 1% and similar bonds in Europe and Japan paying 0% or slightly negative interest rates, but in our view, there are a number of high-quality dividend paying stocks out there that pay a 2%, 3%, or even 4% dividend yield.   Income from bonds, such as Treasury or corpora