I know it can be hard to stick to your investing plan when the stock market is making wild swings on a daily basis. But some stocks are outperforming the market, and giving their investors plenty of good news; the key is to know where to find them.
So, today, I’d like to sort through the current events that have sent stocks spiraling and explain why you shouldn’t join the kneejerk selling.
Last week’s market action was driven primarily by more headlines about the escalating trade spat between the United States and China. After the Trump administration announced more tariffs on Chinese goods, China devalued its currency and noted that it would halt purchases of U.S. agricultural products. In the same breath, however, China also stated that it would levy tariffs on U.S. farm products in August. Talk about a mixed message.
The reality is that the United States is the breadbasket of the world, and foreign producers cannot compete with the efficiency of U.S. corn, soybean and wheat farmers. And, U.S. farmers tend to beat out the foreign competition on price, too, because U.S. farms are often larger and automated. So, since China is the largest consumer of soybeans, it cannot avoid U.S. soybean farmers for very long.
Considering China’s recent actions, the Trump administration labeled China as a currency manipulator. Previous U.S. administrations have been reluctant to give China this label, but the Trump administration is clearly exasperated with the ongoing trade negotiations. So, China is now being scrutinized by the IMF and may be reluctant to impose retaliatory sanctions on American goods.
Then this morning came news that our own U.S. tariffs on certain Chinese imports will be postponed from September to December. That being said, the negotiations are far from over. Wall Street remains distracted by the trade tensions, as well as escalating anti-government protests in Hong Kong. And given that it’s August, the market remains particularly susceptible to these wild swings. After all, Europe and New York is on vacation and there’s low liquidity in the stock market.
So how do investors navigate this?
You might be expecting me to say, “Buy U.S.” – and you’d be right. Trade war or no, the ultra-low and even negative interest rates overseas are attracting capital to the United States nonetheless. I often say in my Growth Investor service that the U.S. market is the oasis, and the latest figures on second-quarter earnings prove this:
According to FactSet, about 90% of S&P 500 companies have announced earnings and sales from the most-recent quarter. Of these companies, 75% has topped analysts’ earnings estimates and 57% have beat sales forecasts. Average annual earnings growth has declined 0.7%, while average annual sales growth is running at a 4.1% pace. So, despite last week’s gyrations, the foundation under the U.S. stock market remains very strong.
But you don’t want just any U.S. stock (especially at at time like this). My specific advice is to buy dividend growth stocks. You’re looking for elite businesses that actually pay a good yield – and can sustain that dividend over time, while offering good stock performance along the way.
That’s the dream, for any investor…and at Growth Investor, that’s our reality. Our Elite Dividend Payers Buy List is enjoying 15% growth overall – while paying a 3.8% average yield – and it’s because we’re looking for income in the right places.
What You Want to See from Your Income Investments
BG Staffing (BGSF) is a great example of an Elite Dividend Payer. As we saw on Saturday, income stocks have a boring reputation but do not have to be boring – and with an 18% gain since last week’s earnings report, BGSF is anything but. In fact, the stock has risen every day since then (which is pretty extraordinary, given the trade-war sell-off!)
In the earnings report, the temporary staffing company posted a 4.1% year-over-year increase in revenue to $73.9 million, which was slightly less than Wall Street had projected. However, earnings per share came in at $0.37, which topped forecasts for $0.29 per share. So, BGSF posted a 27.6% earnings surprise.
But more importantly, in a world where even the S&P 500 large-caps stocks are paying just 2%, BGSF pays a much fatter dividend – 6.3% – and that is the attraction here.
So, we’ve already checked off two of the boxes I mentioned above: a good yield, and good stock performance.
As for sustaining the dividend, BGSF is running at a three-year annualized dividend growth rate of 2%. It’s paid dividends for 17-consecutive quarters, and it’s expected to pay $1.20 per share over the next 12 months. Most recently, it went ex-dividend on August 9, so shareholders of record on August 12 will receive a $0.30 dividend on August 19. So, purchasing BGSF now would earn you an expected forward yield of 6.3%.
And I’ve Got More Where That Came From
This is why it never hurts to balance those more powerful (and potentially volatile) stocks with bulletproof stocks like my Money Magnets.
To earn this distinction, a stock has to earn an A from my Dividend Grader tool – which assesses stocks much the way we did with BGSF above. Plus the stock has to earn an A from my Portfolio Grader – which assesses a stock’s buying pressure from big institutional cash on Wall Street, and on 8 fundamental factors.
After I run these numbers and find these AA-rated stocks, a select few will be added to my Elite Dividend Payers Buy List.
Click here for my free briefing on the warning signs I do see in the current climate. Given that we are seeing plenty of volatility, deserved or not, now is the time to own Money Magnets in YOUR portfolio.