A Tale of Two Recoveries
The recession is over for the rich and wealthy, but it is not over for those in lower income brackets or with a lesser amount of assets. This recovery after the depths of the pandemic is really a tale of two recoveries. The very rich, rich, and wealthy are seemingly doing well, and the recession is over for them for the most part. On the other hand, those that work on an hourly basis and have a lower income are struggling. Let me outline why I think that this is a tale of two recoveries.
The very rich are doing very well in this recovery and the recession never really impacted them. Jeff Bezos is still the richest man in the world. His wealth has increased by several tens of billions of dollars since the pandemic began. He is now worth roughly $190 billion. Much of his wealth is tied to the price per share of Amazon (AMZN) stock. After bottoming in mid-March Amazon’s stock price has surged to a record high. Take a look at the chart below. The stock is up over 70% year-to-date. If Bezos was still married he and his former wife’s total wealth would probably be over $230 billion. This is greater than the market cap of many companies. For perspective, IBM is the largest IT services company in the world and employs over 300,000 people. It has a market cap of about $112 billion. So, Bezos can by all of IBM if he wants to and still have billions left over. Any thoughts on this?
The merely rich are also doing well during the recovery. Tim Cook, the CEO of Apple (AAPL) is now reportedly a billionaire. Apple stock price is also at a record and is up over 55% year-to-date. The company is now the largest by market capitalization at nearly $2 trillion. The pandemic seemingly has benefitted the largest most well-capitalized businesses as they take market share and increase revenue. On the other hand, many small businesses are barely breaking even during the pandemic. This has benefitted people with assets such as stocks, particularly mega-cap tech stocks.
The wealthy are also doing well during the recovery on the strength of the stock market, rising home prices, and a recovery in the jobs market. The stock market is being driven by the trillions of dollars of liquidity being pumped into the financial system by the U.S. Federal Reserve. The Fed has reduced the Federal Funds rate to ~0.25% and has essentially announced unlimited bond buying.
Consequently, mortgage rates are the lowest in history and future homeowners are taking advantage of this. They are buying bigger houses, prices are up, houses are getting multiple offers, and sometimes they are going above asking price. Home purchases are up over 20% and refinances are up over 50%. Renters though are facing higher eviction rates as millions were not able to pay rent last month. It is estimated that nearly 12 million will face eviction in the next four months. As I said, it is a tale of two recoveries.
The job market has largely recovered for those with college degrees. Jobs for those that earn over $60,000 per year are down only about 0.5% for the year. Jobs for those that earn less than $27,000 per year are still down 16% for the year. Jobs are down 6% for those in the middle of those numbers. On an hourly basis, employment is still down 20% for those that earn under $14 per hour. Again, a tale of two recoveries. This is not surprising. Many of those with college degrees can work virtually. On the other hand, hourly workers in retail, travel, hotels, restaurants, gyms, daycare, etc. generally cannot. Many companies in these industries are still only operating at a limited basis. The unemployment rate is still 10.2%, which is more than the peak during the Great Recession. Food banks are reporting a surge in demand. Consumer spending is still down about 8% from before the start of the pandemic. This points to the difficulty of lower income workers in the pandemic job market.
So, we can see from the above discussion that it really has been a tale of two recoveries.
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List of Dividend Champions in 2020
I updated the List of Dividend Champions in 2020. There were several deletions to the list but also some additions. Recall that the Dividend Champions are stocks that have raised the dividend for at least 25 consecutive years. There is no other requirement. Hence, it includes more stocks than the List of Dividend Aristocrats including ones with smaller market capitalization. A Dividend Champion can also be a Dividend King and a Dividend Aristocrat.
Additions include International Business Machine (IBM), Polaris Inc (PII), and RenaissanceRe Holdings (RNR). Almost all investors are familiar with IBM, which is the largest IT services company in the world. I wrote a recent article on IBM. Polaris designs and makes off-road vehicles including ATVs, snowmobiles, boats, motorcycles, etc. RenaissanceRe is s reinsurance company.
Deletions include Urstadt-Biddle Properties (UBA), Tanger Factory Outlet Centers (SKT), Meredith Corporation (MDP), Ross Stores (ROST), and Helmerich & Payne (HP). I have article published on each of these companies. Click on the links to read a more detailed analysis.
The other change was United Technologies Corp (UTX) merged with Raytheon (RTN) forming Raytheon Technologies Corp (RTX). RTX replaced UTX on the List of Dividend Champions as the successor organization. RTX is also a Dividend Aristocrat.
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 340. We are over 10% of companies that pay dividends having cut or suspended them since the start of the COVID-19 pandemic. The number of companies on the list continues to rise each week.
This past week there were four companies added to the list, but I also included another 11 companies that I had previously missed. The four new companies were BlackRock TCP Capital (TCPC), Chesapeake Granite Wash Trust (CHKR), GEO Group (GEO), and Garrison Capital (GARS). The eleven companies that I missed were were MV Oil Trust (MVO), MetroCity Bankshares (MCBS), Wyndham Destinations (WYND), San Juan Basin Royalty Trust (SJT), AllianceBernstein Holding (AB), The Blackstone Group (BX), Suburban Propane Partners (SPH), Dorcester Minerals (DMLP), Kimbell Royalty Partners (KRP), Capital One Financial (COF), and Hanmi Financial (HAFC).
None of the companies listed above are really dividend growth stocks. Some had fairly high yields though. AllianceBernstein’s dividend payout typically fluctuates, but the trailing 12-month yield is a little over 9% at the moment. The company is an asset manager and thus results are largely tied to the market. This can lead to some volatility in the stock price.
Stock Market Volatility – CBOE VIX
The CBOE VIX finished this week lower than last week at 22.1. It still remains elevated relative to the long-term average, but we are almost there. The long-term average is approximately 19 to 20. Since early-June, the CBOE VIX has largely declined simultaneously with the 10-year U.S. Treasury yields and weakening dollar but inversely with the rising stock market. That said, the U.S. budget deficit is running at a record this year due to the pandemic. Treasury yields have recently spiked due to higher debt issuance and probably more investors moving into stocks. The last time this happened in early-June it was followed by a spike in the CBOE VIX and decline in stock prices.
Fear & Greed Index – A Tale of Two Recoveries
I also track the Fear & Greed Index. There are seven indicators in the index. They are Stock Price Breadth, Put and Call Options, Stock Price Strength, Junk Bond Demand, Safe Haven Demand, Market Momentum, and Market Volatility.
The current reading is now at 72, which is in Greed. This is the same as last week. The index has been in Greed now for five straight weeks. Note that this index rarely stays above 60 for an extended period of time. Typically, once this index goes over 60 there is a move down. However, this is not a hard and fast rule. Sometimes the index does go higher to even over 80. Historically, once the index goes over 80 it comes down pretty fast.
Several of the underlying sub-indices are signaling Extreme Greed, while others are signaling Greed. This is largely due to the breadth and duration of market momentum. Recall that Fed is still providing a large amount of monetary stimulus. Only the Market Volatility sub-index is signaling Neutral due mostly to the elevated trailing CBOE VIX. In any case, we are probably due for a pull back in the Fear & Greed Index.
Market Valuation – A Tale of Two Recoveries
The S&P 500 is trading at a price-to-earnings ratio of 29.0X and the Schiller P/E Ratio is at about 31.2X. These have ticked up again since last week. Note that the long-term mean of these two ratios are 15.8X and 16.7X, respectively. Take a look at the charts below. I continue to believe that the market is largely overvalued at this juncture. In my opinion caution is warranted for investors.
S&P 500 PE Ratio
Shiller PE Ratio
Here are my recommendations:
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If you want to simplify your portfolio management and stop using spreadsheets take a look at my article on Passiv – A Modern Portfolio Management Website Review. Note that I an affiliate of Passiv.
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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.