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Week In Review

Week 7 of Lockdown Fatigue

We have just finished week 7 of ‘social distancing’ and the ‘lockdown’ here. I think by this point most people have a new schedule of some sort. Although based on the number of cars on the road yesterday I think most people have lockdown fatigue from the restrictions and being at home most of the time. Some things have changed quite a bit from pre-coronavirus times. We use our home gym equipment a lot more now. We walk, run, and bike the park trails more often. Our Wi-Fi usage is way up due to online school, teleworking, and NetFlix (NFLX). I am getting a few weeks per tank now in one of our two cars. We cook almost every day, and we have opened up cookbooks that we have not touched in years. I like to think that we are eating healthier now than before. Certainly, our dining out expenses are down quite a bit, but it has not been offset by a significant increase in groceries. I view that as a net gain in savings and being frugal. Despite having lockdown fatigue I do not see much changing in the next few weeks.

Coronavirus Dividend Cuts and Suspension List in 2020

I updated my coronavirus dividend cuts and suspensions list this past Wednesday. The number of companies on the list has risen to 178, which is a lot. There are roughly about 3,000 U.S. stocks that pay dividends. So, about 6% have cut or suspended the dividend in the past two months. I am fairly certain that we will have over 200 companies on the list by the next update. The big cut this past week was from Royal Dutch Shell (RDS.A) or (RDS.B). The company cut the dividend for the first time since World War II. I will have an article about the company posted tomorrow. As an aside, I did a Twitter (TWTR) survey asking people if ExxonMobil (XOM) will cut the dividend or not. Roughly 26.7% said yes and 73.3% said no. I asked this question due to the dividend cut by Shell and the dividend cut by Occidental Petroleum (OXY). I personally feel that ExxonMobil will need to make a cut to the dividend if oil prices do not recover in a meaningful way. But at the same time, management is likely trying to maximize liquidity and maintain the dividend since the stock is a long-time Dividend Aristocrat. It will be interesting to see how this plays out.

Stock Market Volatility

I have been tracking the CBOE VIX since the coronavirus hit the U.S. After spiking over 75 in mid-March, the VIX has been consistently between 30 to 40 since April 24th. This is still high since the long-term average is about 19. You can see in the chart below that the last time volatility spiked like this was during the financial crisis from 2008 – 2009. But the Great Recession was caused by losses in the subprime mortgage market and weak lending standards leading to a stock market crash. Today, volatility is due to uncertainty in future revenue and earnings. The timing of when the economy returns to ‘normal’ is largely unknown at this point.

Source: Google

I have also been tracking the Fear & Greed Index. It has been between about 40 to 50 for the past couple of weeks in Fear. We are not quite at Greed yet, but eventually investors large and small will return to the market in greater numbers. However, this may be several months away.

Source: CNN Business

Warren Buffett’s Berkshire Hathaway Loses $50 Billion

Warren Buffett’s Berkshire Hathaway (BRK.A) and (BRK.B) reported its first quarter 2020 results. The company lost $49.7 billion or $30,653 per class A share. This was mostly a trick of accounting and not due to operating losses. On an operating basis the company made $5.9 billion or $3,619 per class A share, but the company lost $54.5 billion on its investment portfolio. Most of the losses are due to reporting unrealized losses on investments. So, this dollar value changes each quarter depending on market action. Last year, unrealized investment gains added $15.5 billion to Berkshire’s profits. Interestingly, there was little buying and additions to Berkshire Hathaway’s investment portfolio. However, the company did completely exit airline stocks including positons in American Airlines Group (AAL), Delta Air Lines (DAL), Southwest Airlines (LUV), and United Airlines Holdings (UAL). Buffett’s view on airline stocks has changed stating, “The airline business, and I may be wrong, and I hope I’m wrong, changed in a major way…” Currently, Buffett’s Berkshire Hathaway is sitting on $137 billion in cash because he has not able to find good large acquisition opportunities. My personal guess is that Buffett will put some of that money to work as opportunities present themselves. Based on relatively recent history during the Great Recession, Buffett got some pretty good deals on warrants and preferred shares when other companies needed cash. In general, Buffett gets better deals than most small investors.

Dividend Power’s Market Strategy During the Downturn and Lockdown Fatigue

I did some buying at the end of March and in early April adding to some positions and taking new positions. The lockdown fatigue gave me plenty of time to research stocks. My focus was on dividend growth stocks as usual. Many stocks were trading at depressed valuations due to low expectations for future earnings and the uncertainty with COVID-19. Stocks mostly dropped due to fear of losses and probably margin calls leading to indiscriminate selling. However, I have not bought too much recently since the market has bounced back relatively quickly. There are still pockets of value out there, but one has to be selective. In general, I am looking for yields at least over 3.5% now. It was very difficult to find yields over 3% even three months ago. In fact, I had written an article in late-January entitled “Dividend Kings Analysis: Most Are Overvalued.” But on the other hand, it was fairly easy finding yields over 4% four to six weeks ago. I also personally find it difficult to time the bottom. So, in some cases I am early in starting a position. However, my strategy is to dollar cost average with no trading commissions and hold for a long time period. This is more systematic and leads to lower risks during market down turns. However, there is also an argument to be made for lump sum investing if you receive a bonus or money from your tax refund.

Here are my recommendations:

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Prakash Kolli is the founder of the Dividend Power site. He is a self-taught investor, analyst, and writer on dividend growth stocks and financial independence. His writings can be found on Seeking Alpha, InvestorPlace, Business Insider, Nasdaq, TalkMarkets, ValueWalk, The Money Show, Forbes, Yahoo Finance, and leading financial sites. In addition, he is part of the Portfolio Insight and Sure Dividend teams. He was recently in the top 1.0% and 100 (73 out of over 13,450) financial bloggers, as tracked by TipRanks (an independent analyst tracking site) for his articles on Seeking Alpha.

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