This page has been archived and commenting is disabled.
Looking For Yield? This Is The Definitive Presentation For You
In what can be dubbed the definitive presentation for those pursuing yield (and let's face it, in our day and age when most have given up on stocks as a capital appreciation vehicle, that would be everyone), Morgan Stanley's Jim Caron and team have created "Searching for Yield - What the Bond market is up against." Easily the most comprehensive analysis of even the smallest nuances in rates, corporates and dividend yields, it is chock full of 113 pages of must read data. And while we leave it up to the reader to make their own conclusions on which asset class is most appropriate, it bears to highlight Caron's thoughts on why stock dividend yields are surging, despite Cramer's daily begging to get people invested into companies that may pull their dividend any moment, to go with the whole cash hoarding theme.
Why Are Div. Yields Rising vs. Bond Yields
1. Possibility of a structural de-rating of stocks
2. An outlook for weak long-term earnings growth and reduced possibility of P/E expansion, meaning that div. yields are a more dominant part of total returns
3. Higher equity risk premium. We estimate the ERP is ~5.2% vs. an avg. of 3.5% since 1990, thus a higher div. yield is required.
4. Investors doubt companies can reinvest earnings to create value, thus return money back to investors.
5. Rising div. yields can be interpreted in two ways:
i) risk premiums have permanently risen (4%-5%) and dividend yields thus need to rise, or
ii) long-term earnings growth has shifted down, implying expectations of low GDP growth and even weaker earning growth. Thus div. yields need to rise in order to compensate in total returns.
If inflation continues to fall and real bond yields rise, the div. yield gap narrows. Only if this persists do we worry about a permanent shift in equity valuations. Rising dividend yields is a valuation measure that may support stock prices.
In other words, surging dividend yields is not an indication that dividend stocks are cheap: on the contrary! It indicates an increasing loss of confidence in equity as an asset class. Buyer better beware... and definitely not listen to Cramer.
Full presentation:
»
- 10393 reads
- Printer-friendly version
- Send to friend
- advertisements -
Cramer is a negative indicator. Whatever he says... do the opposite
A day or two ago he pumped SLV. Said it traded above its BB and was bullish. Look for pull back?
In June, he was touting Sketchers SKX at $42. It's now $26.
Cramer who?
I prefer "mute"
Interesting that on page 108 MS is showing GDP projections of 2.7% for 2010E and 2.7% for 2011E.
Really? I thought the street was taking down estimates? Who is this line of bullshit intended for?
Research reports used by JT Marlin.
"despite Cramer's daily begging to get people invested into companies that may pull their dividend any moment"
I don't like to say never, but I would think that if a company managed to not cut its div back in November 08 - March 09, they'll be able to hold it for the future.
However, I wouldn't recommend blindly chasing high div yields. Chase moderate yields with a strong history of growth and stability.
I agree with everything else about the div yield being decoupled from any sense of value due to structural changes.
i agree with this general premise. i once met a pretty young girl drinking by herself in a casino. i really wanted to believe she was not a hooker. in reality, it was just good camouflage. same thing with dividend chasing - to get that yield you have to traverse to the center of the spider web.
Ever' time I buy a stock for a dividend they up and cut it :( No more. PFE and GE come to mind - they are still resting in our account swathed in mediocrity, like lazy dogs on the front porch. Thanks for the article.
Interest Rate Strategy
What the Fed Is Trying to Accomplish
Jim Caron (New York) +1 212 761-1905
The Fed surprised the market last week.
Its plan to buy US Treasuries across the yield curve caught the market by surprise. The intended impact was to reduce interest rates and spur a refinancing wave in mortgages to add stimulus to the economy. The Fed intends to enter the market to buy US Treasuries at pre-determined intervals throughout the month in Open Market Operations. You might recall this from the quantitative easing (QE) days for US Treasuries back in March 2009.The stated goal is to maintain the size of the Fed balance sheet
by offsetting the natural run-off of maturing bonds and paydowns from mortgage securities — this offsets a de factotightening. The wild card is the speed at which these mortgages pay down (see the Appendix).
The Fed action should keep Treasury yields lower.
Based on our deficit projections, we expect around $100 million of Treasury issuance per month. So the amount the Fed is buying back in the open market is roughly 30% of the float, based on our assumptions for prepay speeds.It is unclear how big and how long this program will be.
Unlike QE in 2009, where the end date and size were pre-announced, this time all we know is that Fed purchases will follow a schedule of paydowns. The absolute extreme is $1.5 trillion, which represents the entire size of the Fed’s mortgage-backed security (MBS) and Agency holdings. This is unlikely, however, as not every mortgage will be refinanced. We estimate approximately $316 billion over 12 months. Although the Fed will buy Treasuries across the curve, we expect the purchases to be centered on the 7-year point, which offsets the duration of the newly created current coupon mortgage of ~6.5 years.Not all rates are created equal.
Consumer mortgage rates may stay sticky at higher levels despite the decline in UST rates. There are technical reasons for this: 1) the sell-off in mortgage bonds (worst sell-off since May 2009 last week) may contribute to keeping rates elevated; 2) there are capacity constraints — it will take mortgage originators a few months to hire enough people to efficiently process the new loans from refinancings.This stimulus could fall short of its goal.
Mortgage rates were already historically low prior to the UST purchase announcement. And consumer mortgage rates did not fallhttp://www.morganstanley.com/im/emailers/retail/pdf/wr_ria_20100820_StratForum.pdf
Powerful technical factors driven by a seasonal
issuance lull and the encroachment of Build
America Bond supply, in conjunction with a white
hot US Treasury market, have facilitated repeated
record low yields in the tax exempt arena. Not
surprisingly, the most popular late-summer muni
question has become “Can it continue?” If the US
Treasury (UST) market is able to retain its solid
footing, which we admit is a major “if”, we believe
there is little in the way of muni-centric pressures
through the first half of September. But there are
definitely uncertainties and challenges in the
coming months, including an extended difficult
credit environment for many state and local
governments. In this edition we examine some of
those challenges. We also offer some input on the
second most popular late-summer muni question:
“What to do now?”
https://www.morganstanleysmithbarney.com/contentmanagement/pdf/MuniBondMonthly.pdf
High dividend rates can also indicate doubts about the company's ability to maintain the stated payment.
UPDATED CHARTS:
http://stockmarket618.wordpress.com
To those seeking investment income I have often wondered why folks don't more readily buy shares in various LPs like PVR. I am unable to do so in a tax-deferred account so have held off for fear of the possible tax implications. Anyone have experience with these who can testify (positive or negative)?
any way to print this? hard to read on the screen.
MS estimates that the current "topping off" Treasury buys will total $316B over 12 months.
That's more than the original $300B official Treasry monetization!
Anyone have a printable link for this?
Thank u, i found this for a long time.
cheap site hosting | windows web hosting | windows vps hosting