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Dividend Power Week In Review – Saving Money During COVID-19

Week 11 of Lockdown – Saving Money During COVID-19

Saving Money During Covid-19 and Anne Scheiber. We finished Week 11 of the lockdown here and it’s a beautiful day. After a fairly wet and rainy Spring the past few days have been sunny and mild. It’s been great for biking and running. I took the kids on a seven-mile bike ride yesterday. Long enough to get some exercise but not too long that they would not like it. We explored may of the local trails. They enjoy bike riding and it’s a good family activity now that they are older. There were some people with masks and some without masks on the trials. However, most people are following a protocol of moving to their right, so we pass each other in opposite directions roughly six feet apart. It works well. I guess unconsciously most people are social distancing now. Interestingly this has led to a much higher rate of saving money during the COVID-19 pandemic.

I saw a graph this past week on personal savings in America, which has spiked during the COVID-19 pandemic to 33% of disposable income. This is a really high rate. In general, Americans do not save compared to the rest of the world. The personal savings rate was trending down for decades since the mid-1970’s until about the Great Recession. Check out the graph below from the St. Louis Fed. At one point the rate was below 5% right before the housing market crash. Since then it has trended back up. However, it is still lower than in the past.

Source: St. Louis Fed

What is going on? Why are Americans saving so much money during the COVID-19 pandemic? Obviously, people are spending less on consumer discretionary items. This has translated to higher savings rates. So, what are we personally doing for saving money during COVID-19? 

How are We Saving Money During COVID-19?

First, we are not really eating out. Eating in a restaurant is expensive. If we spend $100 in a restaurant for dinner that is one meal for the family. One hundred sounds like a lot. But four meals with drinks, taxes, and tip and one is pretty much at $100. But the same $100 can buy groceries for part of the week when cooking and eating at home. The added side benefit is that we are eating healthier. Here are some more tips on savings $100+ during COVID-19.

Next, we are spending less on gas. Some of this is due to working at home. But we are also not really going too many places and getting most things delivered. Delivery is free for the most part from almost all stores if we spend enough. During the pandemic it is not too hard to meet the minimums of most stores.

Lastly, we are spending less on discretionary items. For instance, my youngest kids’ soccer camp during Spring Break was canceled. We have not gone to any sports events, museums, movies, gyms, and many other things. This all adds up to savings.

With that said, we will likely go back to our regular schedule as the year progresses. But we intend to continue eating less at restaurants and keep on using delivery services. I think that the pandemic has accelerated our transition to online shopping as it has for many people. I hope that we continue our enhanced saving of money during the COVID-19 pandemic into the future too. You can read about the consequences of not saving money.

Coronavirus Dividend Cuts and Suspensions 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 272. We are now at about 9% of companies that pay dividends having cut or suspended them. Right now, a handful of companies are being added to the list each week. This will likely continue through the end of earnings season for the second quarter. I foresee an uptick again during third quarter earnings season. Dividend cuts and suspensions are not limited to U.S. stocks. I recently read an article that there have been 80 dividend cuts or suspension from stocks on the Toronto Stock Exchange. There have also been dividend cuts and suspensions on exchanges in Europe.

The most interesting development for dividend cuts and suspension this past week was that Occidental Petroleum (OXY) announced a second dividend cut. The company announced on May 29th, 2020 an approximately 91% dividend cut. This brings the dividend to $0.01 per share from $0.11 per share. Ouch! But to make matter worse this was the second dividend cut the Occidental announced in the past three months. On March 10th, Occidental first cut the dividend from $0.79 per share to $0.11 per share. The impact of COVID-19, the steep drop in oil prices, and too much leverage has taken a toll. Most oil and gas majors are being impacting by COVID-19 and low oil prices. Occidental Petroleum also has too much debt and needs to get its balance sheet in order. This makes the dividend a low priority in my opinion. The company took on debt to buy Anadarko for $38 billion. Further, some of this debt is coming due over the next couple of years. You can read my updated article on Occidental Petroleum’s dividend cut.

Besides Occidental, the most well-known company to cut or suspend its dividend this past week were Ralph Lauren Corporation (RL) and DXC Technology (DXC). DXC Technology was the result of the merger between Computer Sciences and the enterprise service business of Hewlett Packard Enterprise (HPE). In addition to the impact of COVID-19 this business is also being hurt by the transition to the cloud.

Lastly, I will have an article on Rollins’ dividend cut out soon. This company was a favorite of the dividend growth investor community. The stock was a Dividend Contender and many people thought the stock would eventually become a Dividend Aristocrat. The stock powered through the Great Recession due to its focus on pest control, but COVID-19 seems to be having a greater impact on the company.

Stock Market Volatility

The CBOE VIX is still below 30 and continues to trend down. It means that volatility is low for the stock market in aggregate. It also means that we are returning to more of a ‘normal’ market condition after the surge in the index in February and March. This is a net positive for investors. Values above 19 or 20 are considered indicators of higher market volatility. 

For the past few months the VIX has been arguably responding to the spread of coronavirus around the globe and the U.S. This is not surprising as the VIX tends to respond to crises type events. Take a look at the chart below. This is the CBOX VIX from about 2004 to present. You can see periodic spikes when the VIX goes above 20. The two very large spikes are the Great Recession and COVID-19. 

Source: Google

Why am I tracking the CBOE VIX? The important thing here is that the VIX tends to move inversely with the S&P 500, Dow Jones Industrials, and the NASDAQ-100 over longer periods of time. This is clear from the recent spike due to COVID-19 and also the spike during Great Recession in 2008 – 2009. But one can also see smaller spikes on the VIX that are inversely correlated with declines in the aforementioned market indices. Ultimately, this goes with the Baron Rothschild quote, “the time to buy is when there’s blood in the streets.” This essentially means that the time to buy is when people are panicking in the market. Of course, that is not for everyone. But it works for me.

Source: Yahoo Finance

Fear & Greed Index – Saving Money During COVID-19

I have also been tracking the Fear & Greed Index. It has been roughly between about 40 to 50 for the past several weeks in Fear. However, it is now inching up over 50 and it is at a value of 52. In my opinion this has to do with the recovery in the stock market and reopening of some states. With that said, I do not think that we are out of the woods yet for the coronavirus pandemic. There are still roughly 20 thousand news cases per day and one thousand deaths per day in the U.S. These are still not low numbers.

Source: CNN Business

SpaceX Successful Launch

I thought that I would write about SpaceX today. Space Exploration Technologies Corporation or ‘Space X’ is a private American aerospace manufacturer and space transportation services company. The company’s goal is to reduce the cost of space transportation and enable the colonization of Mars. The company was founded by Elon Musk in 2002, who is still the CEO. Elon Musk is also the founder and CEO of Tesla Inc. (TSLA), Solar City, Neuralink, and the Boring Company. For those of you who don’t know, Elon Musk made his initial money when he founded Zip2, which was sold to Compaq for $340 million. He then founded X.com, an online bank, which was merged with Confinity, which then became PayPal (PYPL), and was bought by eBay (EBAY). PayPal was then spun out of eBay a few years ago.

SpaceX successfully launched a Falcon 9 rocket with a crew of two astronauts. This was the first launch of humans on a private commercial rocket into orbit and space. Note that only three countries have successfully launched humans into orbit: USA, Russia, and China. Virgin Galactic has launched people into sub-orbital flights but not yet space. SpaceX has developed and successfully launched reusable rockets. It launched the Falcon Heavy, which had three boosters and 27 engines. SpaceX also opened up the military launch market. Elon Musk knows how to get things done.

The main point here is that the nature of space transportation is changing. NASA is focusing on deep space, while commercial companies will focus on near space. With SpaceX, Virgin Galactic, and other companies racing to fly humans into sub-orbital and orbital flights, it will likely only be a matter of time before it becomes more routine. In the meantime, NASA should focus on unmanned deep space exploration, and the space station.

Secret Dividend Millionaires – Anne Scheiber

In this installment of my series on Secret Dividend Millionaires I am highlighting the story of Anne Scheiber. She died in 1995 at the age of 101 and was a secret dividend millionaire. By the time that she died, Anne Scheiber had built a fortune of $22 million. She left her entire fortune to Yeshiva University’s Stern College for Women and the Albert Einstein School of Medicine in New York City. 

Anne Scheiber did not come from money nor did she ever have a large salary. Anne completed college and law school. She then worked as an IRS auditor and was never promoted. Interestingly, she was probably an early proponent of the Financial Independence, Retire Early or ‘FIRE’ movement. She retired at the age of 51 in 1944 with an annual pension of only $3,150 per year. Over the next 50 years Anne Scheiber turned about $5,000 in capital and her small pension into a $22 million fortune. How did Anne become so wealthy?

She was extremely frugal probably to the point of austerity. Reportedly, Anne Scheiber saved as much as 80% of her annual income. This is much higher than the 33% I mentioned above that America in aggregate is saving money during the COVID-19 pandemic. She supposedly wore the same clothes for many years, lived in the same rent-controlled apartment for decades, did not have a family, and did not have much of a social life living as a recluse. This kind of lifestyle is probably a bit too frugal for most people. But still, it points to the importance of savings for building wealth.

She relied on the power of compounding. Anne Scheiber essentially followed a buy-and-hold strategy. She bought stocks and held on to them for decades reinvesting the dividends. Her longevity and time in the market worked to her advantage in the context of leveraging compounding and building wealth.

Anne Scheiber bought what she knew. By the time of her death, Anne owned stocks of many large cap companies including Bristol-Myers, Coca-Cola, Chrysler, Paramount, Pepsi, Schering-Plough, Exxon, Warner-Lambert, AlliedSignal, Rockwell, Pfizer, Loew’s, and other companies. In 1944, some of these companies were small, but most of the companies grew with time into giants generating capital appreciation and dividends to Anne’s benefit.

Anne Scheiber had some big successes in stock picking. At the time of her death, she had a few stocks that formed the bulk of her wealth despite owning many stocks overall. She had invested $10,000 in Schering-Plough in 1950. This eventually became $7.5 million at the time of her death. Her Coca-Cola stock increased in value from $28,000 to $720,000 in the last 15 years of her life. She also had major holdings in Loew’s, Pepsi, AlliedSignal, and Bristol-Myers. This points to the fact that some stocks will far outperform others.

Over time, Anne Scheiber out saved and out invested many people. She was also extremely patient and had the advantage of a long life. Admittedly, she may have been more frugal and more intensely involved in the stock market than most people. But still, she became a secret dividend millionaire. 

You can also read about the other Secret Dividend Millionaires.

Here are my recommendations:

If you are unsure on how to invest in dividend stocks or are just getting started with dividend investing. Take a look at my Review of the Simply Investing Report. I also provide a Review of the Simply Investing Course. Note that I an affiliate of Simply Investing.

If you are interested in an excellent resource for DIY dividend growth investors. I suggest reading my Review of The Sure Dividend NewsletterNote that I am an affiliate of Sure Dividend.

If you would like notifications as to when my new articles are published, please sign up for my free weekly e-mail. You will receive a free spreadsheet of the Dividend Kings! You will also join thousands of other readers each month!

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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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