Are Dividend Stocks Still Worth Owning?

The following first appeared on Money & Markets.

I probably don’t need to tell you 2020 has been a rough year for the stock market. Even after a spectacular rally, the S&P 500 is still down close to 20% on the year. And frustratingly for a lot of income investors, high-yielding dividend stocks generally thought of as “safe” were some of the hardest hit.

I should know. I have a portfolio full of them, and some are still down more than 50%.

From 5% to 7% is considered a really high yield for dividend stocks these days. But is it worth risking a 50% decline in order to squeak out a single-digit yield?

I’ll answer my own question with an emphatic “yes.”

And to prove my point, I’ll use one of my very favorite long-term income machines, Energy Products Partners (NYSE: EPD). Enterprise owns one of the largest networks of natural gas and natural gas liquids pipelines in the country. It has an excellent management team.

Enterprise Products is an MLP and pays “distributions” rather than “dividends.” But for our purposes here, that’s a distinction without a difference. Enterprise Products is a dividend stock, and a fine one at that. The MLP yields a whopping 11.3% and has raised its payout every year since 1998.

Still, it’s been a rough road for this pipeline blue chip. The stock got slapped down during the 2015-16 oil crash and then was utterly obliterated during the March coronavirus meltdown and corresponding collapse in energy prices.

Today, the shares trade at 2010 prices.

dividend stocks

An investor holding Enterprise Products over the past 10 years — through one of the most explosive bull markets in history — wouldn’t have earned a single red cent … unless, of course you consider reinvested dividends. Taking into account reinvested dividends gives us a very different picture.

During one of the most difficult decades in history for energy-relative stocks, Enterprise Products managed to return about 127%.

dividend stocks

Sure, that’s a lot less than the S&P 500. But that’s not the point here. The takeaway is that high-dividend stocks can still be fantastic investments even during extremely rocky periods.

Consistent dividend payers are getting harder to find these days. Already, about 5% of the stocks in the S&P 500 have reduced or eliminated their dividends since the onset of the coronavirus scare, and we’re not done yet. The longer the lockdowns stay in effect, the more dividend cuts I expect to see. Goldman Sachs recently forecast that S&P 500 companies would spend 23% less on dividends this year.

So, you shouldn’t just buy a stock based on its yield and hope for the best. You need to be confident that the business supporting the dividend is healthy and sound.

As an interesting aside, the single biggest buyer of S&P 500 stocks over the past decade has been the companies themselves. It’s debatable exactly how much of the market’s epic run since 2009 was due to buybacks alone, but it’s safe to say it was substantial.

S&P 500 companies bought back $5.5 trillion of their own stocks between 2009 and 2019.

That’s trillion. With a T.

That represents about a fifth of the entire market cap of the S&P 500.

With a given pool of investors fighting over a shrinking pool of available stock to buy, prices had nowhere to go but up.

That came to a screeching halt with coronavirus. Companies are rightly hoarding cash. And Congress has effectively banned buybacks for any company taking federal assistance (which they should have!) Goldman Sachs expects buybacks to fall by about 50% this year.

One of the biggest drivers of stock returns — buybacks — is going to be on ice for the foreseeable future. This actually makes dividends all the more important. If we can’t depend on general asset price inflation, then we’ll have to settle for getting paid in cold, hard cash.

This article first appeared on Sizemore Insights as Are Dividend Stocks Still Worth Owning?

Update on EPR Properties

As more data comes in, we’ll get a better idea of what the financial situation looks like for REITs, specifically how much rent they are able to collect from tenants.

EPR ran the numbers, analyzing their cash “burn rate” with and without their dividend.

Per the press release,

Since the prior update, tenants and borrowers have paid approximately 15% of April 2020 contractual base rent and mortgage payments. The Company has agreed to defer the rent and mortgage payments on a month-to-month basis for substantially all of the customers that have not paid rent for the month of April 2020. While deferments for this period delay rent or mortgage payments, these deferments generally do not release tenants from the obligation to pay the deferred amounts in the future.

Several larger tenants of the Company have recently announced additional sources of liquidity including the Company’s largest tenant, American Multi-Cinema, Inc. or “AMC,” representing approximately 18% of the Company’s total revenue for the year ended December 31, 2019. On April 17, 2020, AMC’s parent announced the pricing of a private offering of $500.0 million of first lien notes and has indicated that these additional proceeds would provide it with sufficient liquidity to withstand a global suspension of operations until a partial reopening ahead of Thanksgiving. Despite this increase in short term liquidity, the Company believes it is prudent to begin recognizing revenue for AMC on a cash basis. Accordingly, the Company will record a non-cash write-off of straight-line rent receivable of approximately $12.5 million for the quarter ended March 31, 2020 related to AMC as well as two small tenants where a similar assessment has been made that cash accounting is appropriate.

Charles here. 15% rent collection is awful. That’s even worse than I expected. Still, there are signs of encouragement. The largest tenants are still solvent and still obliged to pay rent. Though importantly, EPR has run the numbers to see what its own liquidity situation looks like if they don’t pay rent, potentially for multiple years.

Months of Available Cash Assuming Rent Collection Levels

 
 0%15%25%50%100%
Estimated remaining months of cash, excluding
common share dividend; Monthly Cash Burn Rate: $23M
436599no limitno limit
 
Estimated remaining months of cash, including
common share dividend; Monthly Cash Burn Rate: $51M
19232640no limit
Source: EPR Press Release

Note that these figures include cash outlays for a $150 million share repurchase.

By EPR’s math, rent collection could go to ZERO, and they could maintain all operations and the dividend at current levels for 19 months. Scrapping the dividend, they can maintain operations for 43 months.

If even 15% of their tenants continue to pay rent, they can maintain all operations and the dividend for 23 months. And scrapping the dividend gets them to 65 months.

I would take these figures with a healthy grain of salt, of course. If rents remain at 15% of normal for more than a couple months, EPR should suspend or reduce its dividend for at least a few quarters.

If you believe that Americans will get back to skiiing, water parks, and movie viewing in the next two years, then EPR’s stock is a bargain.

Of course, if you believe that we stay in quarantine forever or that society devolves into anarchy or zombie apocalypse… well… none of this really matters, and the only investments you should be making are in canned goods and shotgun shells.

Disclosures: Long EPR

This article first appeared on Sizemore Insights as Update on EPR Properties

When Finance Breaks: Negative Oil Prices

This article first appeared on Money & Markets.

It finally happened.

On Monday, we saw negative oil prices. The price of West Texas intermediate crude oil dipped into below zero and not by a trivial amount. The price of the front month contract fell below negative $40 per barrel.

In movement that should be mathematically impossible, the price fell by 300% in a day. Stop and let that sink in for a moment. Oil producers at these prices are having to pay people to haul the stuff away.

Negative oil prices can’t persist forever, of course. To paraphrase the old joke, oil producers can’t lose money on every sale and then expect to make it up on volume. It doesn’t work like that. Faced with the prospect of a loss, companies simply stop producing until prices improve.

And prices will improve. We saw negative oil prices partly because no one driving and flying while under coronavirus quarantine. There’s so much unneeded crude oil building up, there’s literally nowhere to store it. If you look at futures contracts for later months, prices are positive and healthy.

But some of this also comes down to financial plumbing. Futures contracts are actual agreements to deliver commodities. They’re not just blips on a computer screen. Given that there was only one day to expiration on the May contract, anyone buying was someone who planned to take physical delivery. And as much as I would love to have some oilman pay me $40 per barrel to take his crude away, I would have nowhere to put it and no way to get it there. I can’t just stretch a long hose all the way to Cushing, Oklahoma and fill my swimming pool with the stuff.

So while buyers were few and far between, sellers were abundant. Everyone speculating on oil prices had to sell the contract in order to roll to the next month. And we’re not just talking about wide-eyed speculators. The large crude oil ETFs and ETNs were selling too.

But here’s the deal. Negative oil prices are just the latest instance of the financial markets being broken, and it’s not something that can be explained away by the coronavirus disruptions. Negative interest rates have been with us for years in Japan and Europe, and parts of the U.S. yield curve went negative during the March meltdown. Last year, we even saw the first mortgages with negative interest rates. Homebuyers in Denmark were literally being paid by the bank to borrow money to buy a house.

Negative oil prices and negative interest rates are market perversions. These things shouldn’t happen. Ever.

But they’re happening more often, and there’s a simple reason why. Our policymakers seem to think the cure for a debt problem is more debt… which is a lot like saying the cure for alcoholism is more booze. Sure, it’s a short-term fix. But it’s hard to see that working out over the long-term.

In 2008, the Federal Reserve and its peers lowered short-term rates to zero (or negative rates in some cases) and pushed down longer-term rates with quantitative easing. It arguably helped to goose the economy a little. But it definitely incentivized companies to borrow heavily and buy back their shares. The money was practically free. Why wouldn’t they?

It also inflated the price of homes, making it harder for younger would-be buyers to buy their first property, and helped fuel the income and wealth inequality that made Bernie Sanders a legitimate contender for the presidency.

There’s no way out of this problem. Continuing along this path just makes it worse, yet sobering up and weaning the economy off of debt risks a nasty, multi-year recession that no one wants.

So, what can we do?

As I mentioned recently, I like real estate. It’s a dicey situation today with calls to halt rent payments due to the virus quarantines. But hard assets make sense if you think currency weakness and inflation might be in the cards.

I also like gold as a hedge. I agree with Warren Buffett that gold is mostly useless, but I also believe that having 5% or so of your savings in gold is perfectly rational in this environment.

And lastly, owning shares of the best companies that are the least exposed to financial stability would seem like a no brainer. For the first in years, I’ve been nibbling on Amazon, Alphabet and a host of other big tech names.

Alas, I am not, however, building crude oil storage facilities in my home. I figured that might upset my neighbors.

This article first appeared on Sizemore Insights as When Finance Breaks: Negative Oil Prices

Retirement Planning in the Middle of a Pandemic

The following first appeared on Money & Markets.

If you’re reading this, I hope you’re still employed or that your business hasn’t been too badly disrupted. I’ve been impressed by the ability of millions of Americans to carry on business as usual despite the stay-at-home orders and closure of offices. It’s a testament both to modern technology and to the get-it-done spirit of America’s business owners and workers.

I’ve lost count of the number of business calls I’ve been on with crying babies, barking dogs or screaming Peruvian mothers-in-law in the background (OK, so that last one might be specific to me as I’m stuck in Peru). But business is still getting done even under those conditions, which is commendable. Unfortunately, there are still a lot of people hurting financially and looking for liquidity where they can find it. And some are naturally looking to their retirement accounts for lack of other options.

I don’t like to give our fearless leaders in congress and the White House credit for much. In fact, I’m generally happy to throw all of them under the bus. But they did throw us a few bones in the CARES Act that directly affect retirement planning. The longer this crisis lasts, the more relevant some of these options will be.

Let’s jump into some of the highlights.

Retirement Planning Amid the COVID-19 Pandemic

No RMDs in 2020

If you are over 70 ½, as part of your retirement planning you should already know you’re required to take required minimum distributions (RMDs) from your IRA or 401(k) plan.

Well, the CARES Act waives RMD requirements for this year. So, if you don’t need to take an RMD this year because you have liquid savings in a bank account or regular taxable brokerage account you can live on, it’s really better if you don’t. Every dollar you take out of your IRA is a dollar you have to pay taxes on. Keeping the cash in the retirement plan for another year kicks the tax liability into a later tax year.

Ultimately, you’re still going to pay the taxes. You know Ben Franklin’s quip: The only two certainties in life are death and taxes. But as far as I am concerned, a dollar in taxes postponed to a later tax year is a dollar saved.

Retirement Plan Emergency Distributions

If you don’t need to take distributions, great! But not everyone is in that situation. If you’re out of work or your business is shuttered due to the coronavirus closures, you may be looking for cash anywhere you can get it.

The CARES Act allows us to withdraw $100,000 per taxpayer without the customary 10% penalty that is levied if you’re younger than 59 ½. And if you pay back, or “recontribute” the funds in your retirement plan within the next three years, there are no tax consequences either.

The criteria here is pretty loose. In order to qualify for this hardship distribution, you have to have a member of your immediate family diagnosed with COVID-19, or you have to have suffered a financial setback due to virus and associated closures. I don’t claim to speak for the IRS, but I’m guessing they’re not going to check all that hard. If you claim to be suffering hardship, that’s likely evidence enough.

Additionally, you can potentially borrow more from your 401(k) retirement plan. Previously, the limits were the lesser of $50,000 or 50% of the account balance. The limit is now the lesser of $100,000 or 100% of the plan’s balance.

But Should You?

Here’s the rub. While you might be eligible to take funds out of your retirement plan, it doesn’t necessarily mean you should.

Remember, IRAs and 401(k) retirement plans are generally untouchable by creditors in the event of bankruptcy. The worst thing you could do would be to liquidate your retirement plan to support your business, only to have it fail in another three months if conditions don’t approve.

Should you be forced to declare bankruptcy – and let’s face it, a lot of people will be in that situation through no fault of their own – it’s better to keep your retirement accounts off limits.

Furthermore,  remember that you’re not the only person suffering right now. If you’re having a hard time making rent or payroll, try negotiating with your landlord or bank. They might not like it, but you won’t be the first person to ask them for help. It’s better to leave your retirement plan intact and deal with an angry landlord or banker than liquidate it and still deal with the same angry landlord or banker a few months later.

There’s also the government. The Paycheck Protection Plan (PPP) hasn’t gone as smoothly as we might like, and it’s already out of money. But it’s a foregone conclusion that the program will be restarted. If you think you might quality, call your bank and start the paperwork now so that you’ll be ready once the plan is given fresh funds.

And if, after all that, you still need to dip into your retirement account … well, do what you need to do. It’s rough out there.

Just make sure you keep this as your absolute last resort. You’ve worked too hard for it to risk exhausting it now.

This article first appeared as Retirement Planning in the Middle of a Pandemic.

This article first appeared on Sizemore Insights as Retirement Planning in the Middle of a Pandemic

Missing Out on the Recovery? Your Plan to Get Back Into the Stock Market

The following first appeared on Money & Markets.

I had a good chat this week with a basketball buddy of mine.

I realize this immediately raises two questions. And to answer the first one, yes, I am a 40-something white man of average height and sub-average knees, and I play basketball. I’m not claiming to play well, mind you, and I’m comfortable admitting that I’m a sad, frail shadow of what I used to be.

But I can still hit the three, dammit. And the exercise gets me out of the house and staves off my eventual and inevitable life-ending heart attack by at least a few years.

To answer the second question, no. Under current social distancing guidelines, we are no longer playing. I’ve been bunkered down on a South American ranch for the past month, and he fled to rural Canada.

At any rate, my buddy was really kicking himself. He’s been sitting in cash and completely missing out on the recovery in stock prices over the past few weeks. The S&P 500 is up a shocking 30% from its March panic lows.

But here’s the thing. Rather than kicking himself, he should be patting himself on the back. He started to feel like the market was getting frothy back in January and had started taking his chips off the table. He travels a lot for work and was one of the first people I knew to legitimately worry about the outbreak. After seeing what was happening in Europe, he reduced his stockholdings further in February. And by early March, before the bottom fell out, he was completely in cash.

He largely avoided one of the worst market sell-offs in history. Yet he was still kicking himself for missing out on the recovery.

I broke down the numbers for him and showed him that he was far ahead of the game. The market is still a good 20% from its old highs, and it remains to be seen how much damage has been done to corporate earnings. He may still get a chance to buy low.

We’ll see. In any event, you may also be kicking yourself if you’ve been sitting in cash throughout this move.

Don’t do that. Getting upset will only cloud your judgment and probably lead you to make additional mistakes.  Instead, make a plan. We’ll go over a few steps today.

Missing Out on the Recovery? Here’s a Game Plan to Get Back In

Step No. 1: Get your allocation down

Before you do anything else, figure out how much of your portfolio you want in stocks under “normal” conditions. If you’re young, it might be 80% or more. If you’re near or in retirement, it might be closer to 50%. Figure out what sounds right for you, and set that as your baseline. You don’t have to get there tomorrow. But this at least gets you a road map.

Step No. 2: Average in

Regret avoidance can be paralyzing. You don’t invest because you are afraid of buying at the top, losing money and probably worst of all, looking and feeling like an idiot. And then when the market goes up without you, you still end up looking and feeling like an idiot.

I struggle with these emotions, too. We all do. The  best way I have found to deal them is to average into my positions over time. I make an initial purchase of 20% to 50% and then trickle into the rest of the position in even increments over the course of a few months.

It’s not particularly scientific of me, and I don’t claim that it’s optimal. But it helps me manage my emotions and avoid regret.

Step No. 3: Take the win

It’s important to remember that you don’t have to be invested at all times. Like my basketball teammate, you can take the win, sell high and walk away for a while.

Of course, this gets us back to minimizing regrets. It’s painful to sit in cash and watch the market rip higher without you.

This is the beauty of rebalancing. I rarely sell my entire portfolio and sit in cash. But I do regularly rebalance, selling off pieces of my winners and rotating the proceeds into bonds, cash or nonstock alternatives. That way I always have at least a little skin in the game, but I’m also taking profits along the way.

Take the win!

This article first appeared on Sizemore Insights as Missing Out on the Recovery? Your Plan to Get Back Into the Stock Market

What Coronavirus Sales Boosts Will Actually Stick After the Shutdown?

The following first appeared on Money & Markets.

Last week, I asked what changes once the coronavirus scare passes, and what doesn’t. Today, we’re going to expand on that theme, looking at company earnings.

We’re obviously not going to live under lockdown forever. Though I can tell you it’s starting to feel that way, and after weeks of not shaving and generally letting myself go, I’m starting to resemble Tom Hanks from Castaway. My children don’t see the humor in talking to their soccer ball and insisting on calling it Wilson.

At any rate, the virus lockdowns have been windfalls for several companies, including major retailers with a strong web presence like Amazon.com (AMZN) and Walmart (WMT). As I mentioned last week, both companies are picking up market share at the expense of less web-savvy retailers and those deemed to be less “essential.” Those earnings may dissipate over time to some extent, but probably not anytime soon.

But let’s dig deeper.

Company Earnings: Coronavirus Winners and Losers

Disposable Items

We’ve seen photos for over a month now of empty grocery store aisles where toilet paper and cleaning supplies would normally be. We haven’t seen earnings releases yet for Procter & Gamble (PG) or Kimberly-Clark Corporation (KMB), makers of the Charmin and Scott brands, respectively, and the largest manufacturers of branded toilet paper.

We can assume they got a bump to earnings last quarter due to hoarding. But no one in their right mind could argue that bump will be durable or permanent because we’re not actually using more toilet paper than usual. We’re just stockpiling it for reasons that still aren’t entirely clear to me, which means that excess purchasing today are simply reducing our future buys tomorrow.

But compare that to, say, Clorox (CLX), which makes bleach, disinfecting wipes and other assorted cleaning products. There was a rash of panic buying of these too. But the difference is that we really are cleaning more than before, and that’s not super likely to change in the coming months. Every school, office, or retail property on earth will be scrubbing every square inch of space for months to come … just in case. No one wants their place of business tied to another virus outbreak.

So, as you look at stocks for post-coronavirus trends and earnings trends, ask yourself the following question: Was any increase in sales due to one-off situations that won’t be repeated? Or are the conditions likely to stick around for a bit?

The Cloud

When I hear colleagues or acquaintances talk about losing data due to hard drive failure, I just sort of shake my head. I made myself disaster-proof over a decade ago, putting all of my data in the cloud before “the cloud” was a popular expression.

Were my children to jump on my laptop and crush it (purely hypothetical situation, of course …) I could buy or otherwise acquire another computer and be up and running again in 10 minutes. In a pinch, I could even access my files on my phone. It’s baffling to me that there’s still anyone out there who’s not in the cloud.

Every company, school, governmental organization and even church or synagogue just got a major reminder of why they need their operations to be disaster-proof and in the cloud. This means that the major tech themes of the past several years such as software as a service (“SAAS”), moving critical data and systems to cloud servers, etc. is only going to accelerate. No one wants to get caught with their pants down again.

This obviously helps the big boys in this space like Amazon, Microsoft (MSFT) and Google (GOOGL). And upstarts like Zoom (ZM) have also seen a surge of use.

Not every communications app is a winner, and there is always the risk that someone new comes along tomorrow with a better mousetrap. But sector wide, the coronavirus bump in communications and tech spending — and company earnings — isn’t likely to be a flash in the pan.

This article first appeared on Sizemore Insights as What Coronavirus Sales Boosts Will Actually Stick After the Shutdown?

Don’t Go Bargain Hunting in Carnival (CCL) Quite Yet

The following first appeared on InvestorPlace.

Few companies have been battered as hard as Carnival Corporation (CCL) by the coronavirus pandemic and resulting lockdowns. Along with hotels and airlines, Carnival has the misfortune of being a travel and leisure company with high overhead and effectively no income for the foreseeable future.

In mid-January, when COVID-19 was hitting the Chinese economy hard but seemed a world away from Europe or the United States, CCL stock traded around $52 per share.

But as the virus spread and investors started to appreciate how quickly the virus had spread, Carnival’s shares went into freefall, dropping all the way to $7.80. At the time of writing, shares were trading at $12.42, 76% below the mid-January levels.

After a drop like that, the bargain hunters start sniffing around. After all, on paper the stock looks cheap, trading at 4.5 times trailing earnings, 0.37 times sales and 0.36 times book value.

Looking at that book value number, you could hypothetically sell off Carnival for spare parts, pay off all its liabilities and still walk away with a substantial profit of over $22 per share.

But resist the urge to run out and buy shares. It might look cheap on paper, but Carnival and its peers among the cruise lines are by no means a safe bet.

To continue reading, see Don’t Go Bargain Hunting on Carnival Stock Quite Yet

This article first appeared on Sizemore Insights as Don’t Go Bargain Hunting in Carnival (CCL) Quite Yet

A Post-Coronavirus Retirement Action Plan

The following fist appeared on Money and Markets.

We’ll never know the exact numbers, but I suspect a lot of Boomers will be delaying retirement for a couple years following the coronavirus bear market. While the S&P 500 is sitting at March 2019 levels, shares of the sorts of high-yielding stocks loved by retirees – equity REITs, mortgage REITs, energy stocks, preferred stock, etc. – have taken brutal losses that won’t be as easily recovered.

I’m wildly bullish on REITs, by the way, as I mentioned last week. But I expect that a lot of investors panicked, sold near the lows, crystalizing losses they may never fully recover from.

At any rate, the coronavirus might be shutting down the economy and keeping us in our homes. But the clock doesn’t stop ticking, and we all still have retirements to plan for. So today, we’re going to make a post-coronavirus retirement action plan.

Assess your job stability

There were 6.6 million jobless claims filed last week. Hopefully, you weren’t one of them. But even if you’re still employed, you need to take a sober look at your job stability. There’s a lot of solidarity today, a sense that we’re all in this fight together. And many companies, either through a sense of duty or fear of public backlash, are trying to keep as many people employed as possible. But once the dust settles and employers get a better gauge of what demand will look like once the virus scare passes, many more rounds of layoffs may be coming.

If you think there is even a modest chance of losing your job, start hoarding cash. Now. Cut out expenses you can cut and stockpile every dollar you can.

Yes, if everyone does what I am suggesting, it becomes a self-fulfilling prophecy. I get that. But you have to look at your situation and take care of yourself.

Assess your access to cash and credit

This next part will be controversial, but hear me out. It could be particularly relevant to small business owners.

If, because of coronavirus and the lockdowns, you think that your business or job may no longer by viable, you’re still going to want to tough it out for a few months to see. You put your heart and soul into it, so you owe it to yourself to do whatever you can to keep it afloat.

All the same, don’t mortgage your house, liquidate your retirement savings or completely deplete your cash. Try to borrow what you can, ideally from the federal government’s Small Business Administration. Depending on the situation and loan program, the loans may be partially or entirely forgiven. For example, Paycheck Protection Program loans are forgiven if the proceeds are used to maintain payroll and certain other expenses.

But if you reach the conclusion that your business simply cannot survive, even with government help, it’s better to walk away early and let it fail. Do what you can to keep the liabilities contained to the business itself and try to preserve as much of your outside assets as possible. You’re going to need them to launch your next business once the time is right. The worst thing you can do is use up your precious capital or take out personal loans to save something that cannot be saved.

Also, remember that 401(k) and IRA balances generally can’t be seized by creditors, and, depending on the state, neither can home equity. Remember your rights, and don’t be pressured into liquidating assets to pay debts you may not be legally obligated to pay.

If you can, try to max out your 401(k)

Ok, let’s say that your job or small business is secure. You’re confident that you’ll ride out this storm just fine.

In that case, make a real effort to get as much cash as you can into a 401(k) or other tax-advantaged account.

Let’s face it. Taxes are going to be higher down the road. The government is throwing budget constraints out the window throughout this crisis. That’s fine. I don’t blame them, and I don’t see that they really have much of a choice at this point. But once the crisis abates, debts have to be repaid, and budget deficits have to be brought to a heel. That means less spending and higher taxes. So, every dollar you can legally hide from the taxman in your retirement account is a dollar they can’t get their grubby hands on later.

In 2020, you can put up to $19,500 into a 401(k) plan or $26,000 if you’re 50 or older. If you are self-employed, the number is even bigger at $57,000.

I’d like to think the worst is now behind us, and I really think it’s possible that it is. But we don’t know that, which is why having a plan is more important today than ever before.

This article first appeared on Sizemore Insights as A Post-Coronavirus Retirement Action Plan

Is the Market Actually Cheap?

The following is an excerpt of “Is the Market Actually Cheap?“, which first appeared on Money & Markets.

It’s not so clear that this is the generational buying opportunity some of the bulls seem to think it is.

Let’s take a look at market valuations. This is where the cyclically-adjusted price/earnings ratio (“CAPE”) comes in handy. The CAPE was made famous by Yale professor Robert Shiller, though Benjamin Graham – Warren Buffett’s mentor and the father of value investing – suggested a similar methodology as far back as the 1930s. Rather than compare stock prices to current-year or expected next-year earnings, the CAPE compares prices today to a 10-year average of earnings. The idea is that any stretch of a decade has likely seen a boom, a bust and everything in between.

The S&P 500 started February with a CAPE of 33, putting it roughly at the level of the 1929 pre-Depression top. The CAPE has only been significantly higher once in the entire history of the American stock market, and that was at the peak of the 1990s tech bubble.

The bloodletting we saw in February and March took a lot of the speculative froth out of the market and knocked the CAPE down to about 23. It’s since recovered to just shy of 26 as I write this.

A CAPE of 26 looks a lot better than a CAPE of 33. But it’s far from cheap.

To put it in context, the CAPE was sitting at roughly these levels at the 2007 top. The CAPE bottomed in 2009 at 13, literally half of today’s levels.

Data site GuruFocus ran the numbers and found that a starting CAPE value at today’s levels suggest annual returns of just 0.9% over the next eight years.

Take this with a grain of salt, of course. Interest rates and inflation are both lower today, meaning that stock prices should be higher, all else equal. (Lower interest rates reduce the time value of money). And it’s also worth noting that the S&P 500 is dominated today by high-margin tech companies with quasi-monopolies. Again, all else equal, this suggests that stock prices should be higher today than the historical average.

But even allowing for some generous wiggle room, it’s hard to really call the market cheap here.

Does this mean that the market has to retest its lows or plummet to new depths?

Absolutely not. The market doesn’t have to do anything. But it does mean that the S&P 500’s annual returns will likely be below average over the better part of the next decade.

To read the full article, see Is the Market Actually Cheap?

This article first appeared on Sizemore Insights as Is the Market Actually Cheap?

20 Stocks for a Post-Coronavirus World

The following first appeared on Kiplinger’s as The 20 Best Stocks to Buy Now

The coronavirus crisis will end. I don’t know when, and you don’t know when. But it will end. We won’t live under lockdown conditions forever.

By this stage of the game, you should have already made the defensive moves you were going to make. The market may very well have another leg down. It’s far too early to say we’re out of the woods given that most of America is under quarantine and we have yet to see what first-quarter earnings and second-quarter guidance looks like. But it’s a bit late in the game to be thinking about defense. That’s closing the barn door after the horse has already bolted. Now is the time to start planning for the next bull market.

Even professional bears are seeing the light at the end of the tunnel. “I’m selectively buying in my personal accounts,” says John Del Vecchio, co-manager of the AdvisorShares Ranger Equity Bear ETF (HDGE). “There were plenty of companies that went into this crisis on life support, kept alive by cheap debt. You’re going to see a lot of these companies fail. But at the same time, a lot of high-quality blue chips are on sale right now at prices we may never see again in our lifetimes.”

Not every company gets out of this unscathed. It may take years for airlines to return to pre-crisis passenger numbers, and they may go through bankruptcy or a government conservatorship in the meantime. Likewise, retailers and restaurants might be dealing with the fallout from lockdowns for months or years, as will their banks and landlords.

But there are plenty of companies that have been only minimally affected by this crisis and may actually benefit from it by picking up market share. Many of these stocks are in the tech space, but certainly not all. Plenty are in the gritty, old-fashioned real economy.

Today, we’ll take a look at 20 of the best positioned for a post-coronavirus world.

Walmart (WMT)

Like Amazon, Walmart (WMT) has been knocking the cover off the ball throughout this crisis. While most retailers have been forced to close their doors, Walmart has reportedly seen its sales jump by 20% over the past month.

Americans on lockdown are eating more at home, which helps Walmart’s grocery business. But electronics, toys, cleaning supplies and just about everything else Walmart sells is also in high demand these days.

Much of this is a one-off windfall that won’t be repeated. You can only stockpile so much bleach and toilet paper. But Walmart stands to benefit for years or even decades after the lockdowns are lifted.

It comes down to the “retail apocalypse” we’ve been hearing about for years. It’s well established that America has vastly more store square footage per capita than any other country in the world, roughly five times the amount of store square footage per capita as the United Kingdom and six times that of France. And a lot of that square footage is occupied by weaker retailers that have been limping along for years, kept alive by cheap credit.

Some of these retailers won’t survive this recession or, at the very least, will need to consolidate and reduce store count. And their loss will be Walmart’s gain. It’s during a recession when, in true Darwinian natural selection, the fittest survive. And other than perhaps Amazon, no retailer has proven to be fitter than Walmart.

To read the remainder of the article, please see The 20 Best Stocks to Buy Now.

This article first appeared on Sizemore Insights as 20 Stocks for a Post-Coronavirus World