The Beauty In The Beast
Great Ones, I’m afraid I’ve been thinking…
A dangerous pastime.
But that whacky old coot is called Wall Street. And its sanity is only “so-so.” Now the wheels in my head have been turning since I looked at these loony bull “stans.”
See, I’ve promised myself I’d be better than that. And right now, I’m evolving a plan!
Wait … why does this sound familiar?
Well, there’s a big hint in that heading up there … or you can just click here for the song.
(Note: Clicking this non-ad link will also let your email provider know you’re interested in keeping Great Stuff emails … so there’s that too.)
Alright … so what’s the plan, Stan?
Not that kinda “Stan,” man. But, I’ll get to the point…
You see, I realized that in my rush to explain to Great One Karl why cryptocurrencies have value, I completely glossed over the real concern many of you have about such investments.
By the way, David H., I saw your email on crypto valuation. I’ll be sure to follow up in this week’s Friday Feedback. But to tide you over until then, check out my deeper dive on crypto valuation from back in January 2021: “O Crypto! My Captain!”
I have to give Karl the benefit of the doubt on this particular topic … heck, he even spelled it out for me.
Y’all need safety and income potential.
Now, normally, I’m a firm believer in investing in the future with technology stocks and high-growth stocks … even during periods of market turmoil like right now.
The losses don’t bother me because I’ve seen this game time and time again. I know my Nvidia, AMD, Plug Power, yada yada yada … stocks will come back and I’ve got time to wait on those gains.
But quite a few Great Ones don’t have that luxury. Nor do they have the risk tolerance to ride out such a storm.
Well, today I’ve got something specifically for the investing stability and income crowd: the iShares Core High Dividend ETF (NYSE: HDV).
Now, I don’t normally like to recommend exchange-traded funds (ETFs). I feel like they can be a cop-out for investors unwilling to research and find the best-performing stocks within a sector. I mean, there are clearly outperformers within every sector … so why not invest in those instead?
But this year has been quite a bit different … and frustrating across the board. I don’t have to tell you, but the S&P 500 has lost more than 15% this year, and the Dow is its own dog, with a loss of about 12%.
The iShares Core High Dividend ETF, however, has banked a gain of nearly 6% in 2022. And with the way things are going, those gains could grow even more through mid-to-late 2023. That kind of return in this market is like playing on easy mode … and easy is very, very good right now.
So, what is the iShares High Dividend ETF?
According to ETF.com:
HDV offers complex high-dividend yield exposure in an ETF wrapper. Eligible securities must pass two Morningstar proprietary screens, each designed to ensure sustainability. The first is the presence of an economic “moat” something that sets the firm apart from its peers. This helps the fund weather downturns. (The MOAT ETF uses this approach without the high-dividend yield focus.)
The second is a forward-looking comparison of assets to liabilities. REITs are excluded. HDV targets 75 stocks by dividend yield. Stocks are weighted by the total dollar amount of dividends paid rather than yield. It is perhaps this last step that gives the fund it bias towards larger firms, while the sum total of all the steps produces unique sector biases. In all, HDV delivers a high-yield play with robust sustainability screens. The index undergoes quarterly rebalance and reconstitution.
In layman’s terms, HDV focuses on companies that pay a high dividend, with checks and balances to make sure those companies have solid free cash flow and sustainability. In other words, HDV has holdings in the exact stocks I’ve been telling you to invest in for a while now to protect yourself from a deepening market downturn.
Currently, HDV’s top holdings come from the health technology, consumer non-durable goods and energy minerals sectors. The top three holdings in HDV are currently Exxon Mobile, AbbVie (a onetime Great Stuff Picks holding) and Johnson & Johnson.
Admittedly, these are far from exciting stocks. They aren’t going to blow your doors off, like investing in Tesla or Apple or even Microsoft … but they’ll get the job done all the same. Plus, you can save a bit on Mylanta right now by investing in boring.
Now, comparing HDV’s 6% return to the S&P 500’s 15% loss this year makes it a near no-brainer for investment potential. But the icing on the cake is that HDV pays a dividend yield of 3.24% … and that’s on top of the ETF’s 6% gain this year.
Finally, there is a case to be made for holding HDV even after this market madness subsides. The ETF has roughly doubled in the past 10 years, rising from about $57 in May 2012 to $108 in May 2022.
This sounds all fine and dandy, doesn’t it? But before you rush off to buy HDV, there is one minor caveat. Companies tend to cut dividends in periods of market recession.
Luckily the iShares Core High Dividend ETF rebalances every quarter, which should help smooth things out … but I would be remiss if I didn’t mention potential dividend issues down the road that could impact HDV’s performance.
So while I’m not particularly fond of ETFs myself — and thus I’m not adding HDV to the Great Stuff Picks portfolio — the iShares Core High Dividend ETF certainly looks rather tempting … especially in this market.
I hope that helps. And, Karl, no hard feelings bud. I get where you’re coming from.
And Now For Something Completely Different…
According to our resident crypto expert, there’s another crypto rally headed our way. And it has the potential to be 20X larger than the last one.
But this time the gains won’t be coming from bitcoin. They’ll be generated by an alternative crypto that experts are calling the “Next Gen Coin.”
The Good: Home-Free Home Depot
Not even record inflation could ruin Home Depot’s (NYSE: HD) delivery this quarter.
The company posted surprisingly strong sales that resulted in revenue and earnings growth — on top of full-year guidance that came in well above Wall Street’s expectations.
Here’s the breakdown: Earnings hit $4.09 per share, revenue reached $38.91 billion, same-store sales rose 1.7% in the U.S. and overall sales are slated to climb 3% this year.
Drilling down on Home Depot’s performance, new CEO Ted Decker said consumer shopping habits have remained relatively stable despite ongoing inflation — a revelation among other retailers right now.
Decker also said: “We believe that the medium- to longer-term underpinnings of demand for home improvement have never been stronger.”
After an abysmal start to the quarter, HD’s earnings offer a rare bright spot for shareholders.
However, seeing isn’t always believing — and investors are clearly still surprised that Home Depot’s house didn’t burn down this quarter. As such, the stock slumped 1%.
The Bad: A Red Dead Redemption?
For the noobs out there, Take-Two is the creator of several popular franchises in the video game market, including Red Dead, Grand Theft Auto and BioShock.
In particular, Red Dead Redemption Online has seen consistently strong engagement post-pandemic, proving there’s still a captive audience for the gaming community to reach, despite people going back to school and the office.
What concerns me, however, is Take-Two’s net bookings (aka revenue), which only rose 8% year over year to $846 million — missing analysts’ $883 million mark.
With light guidance rounding out the gaming giant’s report, I’m surprised to see TTWO stock rallying 10% today … especially after seeing Home Depot fall despite issuing a much, much better quarterly report. If only the stock market came with one of those handy user guides…
The Ugly: Better Watch Yourself, Walmart
OK, so clearly not everyone is handling inflationary pressure like Home Depot…
Enter Walmart (NYSE: WMT), which went off the rails this quarter as costs from fuel prices, higher inventory levels and overstaffing ate into profits.
While revenue beat expectations at $141.57 billion, earnings fell a full $0.18 below analysts’ projections. Walmart’s 2022 sales guidance also dropped 1%, compared with the mid-single-digit increase the company previously called for.
To make matters worse, sales from grocery items — Walmart’s top sales category — fell because of rising food costs and strapped household budgets changing consumer behavior.
In other words, Walmart’s results show shoppers are already pulling back on spending as they brace for more inflationary pain ahead. Even CEO Doug McMillon sounded surprised at Walmart’s performance, calling the store’s quarterly outcome “unexpected.”
That’s exactly what Wall Street wanted to hear (I kid), which explains why WMT stock slid 9% on the news.
Now, with inflation continuing to … well, inflate … some investors are looking for alternative places to stash their cash and still make money on the side.
Not to toot our own horn or anything — ha — but Great Stuff’s been whittling away at potential inflationary hedges, and we think we’ve found an investment opportunity that checks all the right boxes. (Hint: It’s not Walmart.)
How does one fight spam?
With more spam, obviously. Would you expect anything else from the would-be Twitter (NYSE: TWTR) chief?
Oh great. More Elon Musk news. My favorite.
Gee, easy on the sarcasm. You’d think this was the third week in a row we’ve talked about the tumultuous Twitter takeover — actually, it might be more like week four. (Lucky you, it’s just getting good!)
The latest hubbub in this bub’s ever-elongating quest to remain in headlines? Bots. Lots. Of. Bots.
Riddle me this: Do you know just how many Twitter users are actually bots coded to interact, troll and post? If you don’t know how many, that’s all fine, because neither does Twitter, apparently.
According to company filings, at least 95% of the platform’s users are human. But the other 5% … probably not human. (Note: This is not a criticism of the average Twitter user.)
This 5% estimate appears to be the latest sticking point for Mr. Musk. And according to him, unless there’s an accurate counting of the bots … the Twitter deal absolutely, positively, undeniably won’t happen.
With the deal now on hold over BotGate, Twitter CEO Parag Agrawal chimed in on the bot-counting:
Ah yes. Here we see the free public discourse that Elon so desperately wants to save.
As the conversation goes on (or doesn’t), the clearer it is that Elon is just wasting everyone’s time here … like usual.
He doesn’t want to buy Twitter or he’s pushing hard for a lower purchase price. Clearly, Musk was all gung-ho at one point, but that was so last month. Now he’s looking for any and every potential way out of the mess he’s made — all while TWTR stock dangles in the market breeze.
Maybe it’s because Musk realized that his “free speech utopia” would get sued into oblivion in the U.S. … or would be outright shut down for breaking laws outside the U.S.
Also, just because a Twitter account is run by an actual human … Elon … doesn’t make it any less spammy.
What do you think, Great Ones? Does Elon actually want to buy Twitter? Is the bot conversation a big red herring for … well … whatever the Musk man’s plan actually is?
Let me know at GreatStuffToday@BanyanHill.com. Once you’ve shared your thoughts, here’s where else you can find us across the interwebs:
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Until next time, stay Great!
Editor, Great Stuff