Special Dividends

This December we will be seeing a glut of special dividends from corporations across all sectors.  We are told that these special dividends are in order to reward investors prior to the forthcoming possible tax hike in January 2013.

But are these special dividens really as rewarding as they seem?
I say NO!

These special dividends are nice chunks of money of course. But that money is coming out of the various companies in many forms. Some are using cash reserves, some are even borrowing money.

Using cash reserves is only ok if the company can really do without that cash in the short term. Personally I would rather take a slow steady smaller dividend and accept the risk of a tax hike myself, after all I have most invested in tax efficient vehicles such as a ROTH IRA for my non efficient brokerage account I have strong allocations of stocks in Muni Bond funds generating cash so limiting tax there.

Companies borrowing money to pay special dividends is stupid in the extreme. Why borrow money to give it away. If you can't pay a dividend then don't put yourself in debt for the future.

Some of the biggest earners from special dividends are members of the boards of some of the companies. They are in fact lining their own pockets  and claiming to have the best interests of shareholders in mind.

In order to reecover from these special dividends we will probably see dividends as a whole reduced for a year or two at least. This is because companies will need to either service the debt of loans or have little cash in the next year to maintain investment in growth of their business.

These special dividends are not the free money that they are hailed as. They come at a cost and I just hope that we the shareholders do not pay the ultimate cost, loss of our money.

Floating Along

Well, the past couple of weeks has seen a pretty dramatic fall for some stocks.

Personally I am waiting until after the election here in the U.S. to buy much more. Past experience tells me that stocks will continue to drift until we know who wins.

Generally there is a little bounce as we learn the result and another dip towards Thanksgiving week. I will buy that dip.

Wall Street loves a long vacation weekend and stocks rise as brokers look forward to a break.  Cautious buying should be the rule. I get defensive myself, stocks like Consolidated Edison (ED) and Walmart (WMT) , both of which I own , attract me for short term holdings as well as long term holdings.

Following the Thanksgiving break we could see a dip as wall street catches up with other markets if they drop over the long weekend, but after that I see a steady rise towards the Christmas "Bonus" season.

Call me a cynic but who would not want a nice holiday bonus from a nice rise in the markets?

The Day After a Stall

Did you notice yesterday was a stall day?

Stall days occur periodically in both up and down markets.

You have a rush for several days, weeks or even months where things  maintain an up or down trend. Then suddenly prices of stocks which had traded freely for a while judder to a stop. A stock moving dollars moves for pennies. It just happens.

You are in a Stall condition.

When this happens look for the markets to reverse for a while. Pundits and media advisors will give you reasons for the Stall. "Bad employment numbers", "Good  employment numbers." "A broker changing from buy to hold" any excuse will do.

What is happening is the market makers are running out of steam. They have pushed the market to where they wanted it to be. Now they momentarily hesitate, prices hover before the reverse.

Don't move to buy in the immediate aftermath of a stall. They can overstoot on the reverse, going too low in the down. Rising too quickly for you to catch the bus on an upturn, then leaving you stranded as they over correct again.

Yesterday saw a stall. I would hold tight for the next month or so. Pundits will blame economic factors and election uncertainty, but we will see a bouncy period in the markets until Thanksgiving, I feel.

After Thanksgiving however look for a surging rally towards Christmas. This is the period of Annual Bonuses so look for a major upturn in the markets as the end of the year approaches.

The old proverb, A Broker loves a Christmas Bonus should be writ large on every investors calendar.

Then plan to rebalance to cash for a New Year buying spree at the Wall Street January Sales.

Summer's Gone. Starbucks Anyone?

If, back in May you had taken the traditional advice espoused by many stock market pundits, "Sell in May and go away!" you would have missed this summers rally in the market and now becoming back.

Over the summer I did not do much. It has never seemed to be good practice to sell in May to me. This year proved it to be very unwise.

Last weeks extra little jump in the markets however caused me to pause and look at my portfolio's and rebalance them.

One stock I had bought with some hope a while back was Qualcomm (QCOM) this chip company never really performed well for me, so with the Apple (AAPL) move up last week Qualcomm made a rise which took it into reasonable profit territory for me, so I sold out in order to look for another more profitable opportunity

. With Bernanke's move on Wednesday last, I am thinking that some US consumables might be interesting. I am still a hold on Apple (AAPL) buying on that pullback in early summer has left me with some nice earnings. I plan on holding to about $700 and then clipping off a few shares that will return most of the initial purchase for all the shares I bought, back at $550. Any pullback then will mean the stock would have to fall along way for me to lose all of my money.

Another stock that looks interesting at under $60 is Starbucks (SBUX). I plan to use a good portion of the Qualcom sale proceeds to buy in here.

Why Starbucks?

Well a couple of reasons.

They have paid a reasonable dividend, 17cents per share.

With the forecast of lower coffee prices over the next few months and an acquisition of a food supplier for bakery services things look good to expand breakfast and snack services

. If Bernanke's policy works, We could see the American people move back to spending more money on small treats and rewards. Starbucks has always been seen as an indulgance and a reward. A daily life luxury and I see a return, if only a brief one, as people will see themselves as a little more prosperous following the stimulus and possibly post election euphoria may help, depending on the winner.

Investor Tip to Remember #1

This is the first of a series of investmenrt tips for you to remember throughout your investment career.

Beware saying "It is only ..."

You will often hear this phrase followed by a sum of money. "It is only a penny per day." The person telling you this wants to convince you that something costs you so little that you'd be a fool to refuse to buy-in.

So in the example one penny per day is $3.65 per year. In an average year. OK still not a lot but you get the drift, it still builds to something substantial.

A bank salesman once told me that an investment would "Cost ONLY 5% per month." I could easily make that up in the stock market, it was rising and "You'll Earn 10% easily at current investment rates." He told me that in September 2007. The week before the slide in the stock market. Of course he could not forecast the crash of 2007-8, what he could forecast was HIS commission on my initial $15,000 investment. A nice little earner for him.

You will also tell yourself "It's ONLY ..." whatever as you look at stock prices. Penny stocks look like a bargain, the are only $1.30 that is much more affordable than Apple Inc at $600. I could buy hundreds of those penny stocks compared to one Apple (AAPL) stock. But realistically, Apple deserves to be higher and is cheaper than that penny stock. Apple has global impact that penny stock may be little known outside one corner of Noname City, Peoples Republic of Nowhere. But because of the theory of, "It is only ..." you but 500 shares and see it disappear over the next few months.

You will tell yourself trading charges "Cost only $9.99" then order hundreds of different trades, seeing various stocks rise and gove you a profit of $10, you will then rarely say "My profit is only ..."

See "It is only ..." as your greatest investing enemy. It will become a red flag to warn you of possibly poor decision making or someone trying to convince you to make a mistake to their advantage.

Of Falling Knives. Missed Boats and Markets

There is an old saying that investors should bear in mind; "Never catch a falling knife."

OK so much for the knives in this post. Be sure they will cut you and can cut your profits.

But what do investors do when markets rise so far that things get dizzy and there looks to be a fall, or as the professionals call it 'a correction.'

We should be sitting tight, waiting for the knife, erm stock market to drop.

Riight now we are in a falling market. I am sitting tight on some orders right now. I and you want to maximize our profits and things are looking good for us to buy in on this correction.

Some good stocks are getting reasonable pricings.

I stated in an earlier post that Apple Inc is going to be a buy for me below $550. that holds true not matter what the results posted this week say. Unless they are totally disasterous.

Another interesting falling stock today is Walmart (WMT) the have been accused of paying bribes to Mexican authorities, in order to open stores. So on that news their stock is falling. The bad news is an excellent opportunity to buy in stock. I am an owner of WalMart (WMT) and this fall is an opportunity  to top up on a few less expensive stocks as the initial panic stops and the stock regains its basic confidence.
The trick now is to pick the stocks you like on fundamental levels, good stocks, good profit stream, lots of strong cash flow and set a level where you like a company. Buy in at those levels or cheaper and keep buying until the stock rises then follow it up.

It is easy to say but hard to do.  Buy in as market and stocks reach you value levels not those of a TV or press pundit. If you wait for the good news, you'll be waiting too long and miss the boat.

This 'correction' is a boat you should look to catch, even the correction of 2007-8 was no Titanic for those who bought in on the down turn.

Begin Tax-Planning for Next Year

It may seem strange to think at the end of this tax season of preparing for next tax season.

Planning now however can make investing while paying lower taxes next year much easier.
For instance, many of the tax breaks given to investors in previous years expire on December 31st 2012.

This means a possible increase in dividend taxes and also Capital Gains taxes.

Planning now to invest the maximum in tax efficient products will pay off in the long run.

You should put as much money as you can into an IRA or ROTH IRA these vehicles shelter your investmentsfrom taxation both State and Federal.

Anyone under 50 can add $5,000 in the current tax year, over 50 and you can invest $6,000.

If you add $600 per month to your IRA you will find at the end of the year you will have filled up your savings and not have a struggle topping up your allowable sum.


Also look towards tax efficient products such as Municipal Bond offerings.  I personally invest in A municipal bond fund, (Ticker MUB) it trades at about $109.00 at the moment, but it pays a reasonable yield about 3% and it is free of state and federal tax on its dividends. A nice little earner if you top out your IRA and need to save more money on dividends.

These products are available at a wide number of retailers such as banks and brokers.

One tip, don't waste time putting a product like MUB into your IRA you waste your tax allowance on a product which at present pays no taxes at all. Save your IRA for taxable resources.