Best of the Week
Most Popular
1. Climate Change Mass Extinction - Birds, Bees and Bugs: Going Going Gone - Richard_Mills
2.A Purrrfect Gold Price Setup! - Peter_Degraaf
3.Who Finances America's Borrowing? Recession Indicator for Independent Thinkers Part 2 - F_F_Wiley
4.America’s One-sided Domestic Financial War - Raymond_Matison
5.Gold Price Summer Doldrums - Zeal_LLC
6.Two Key Events Will Unleash Gold - Jim_Willie_CB
7.Billionaire Schools Teacher in NAFTA Trade Talks - Richard_Mills
8.Get Out Of Crypto Cannabis Bubble Before It Pops and Move Into Bargain Basement Miners - Jeb_Handwerger
9.Stock Market Could Pullback for 1-2 weeks, But Medium Term Bullish - Troy_Bombardia
10.G7 Chaos, Central Banks and US Fed Will Drive Stock Prices This Week - Chris_Vermeulen
Last 7 days
How Crazy It Is to Short Gold with RSI Close to 30 - 16th Jul 18
Markets Pay Attention Moment - China’s Bubble Economy Ripe for Bursting - 16th Jul 18
Stock Market Uptrend Continues, But... - 16th Jul 18
Emerging Markets Could Be Starting A Relief Rally - 16th Jul 18
(Only) a Near-term Stock Market Top? - 16th Jul 18
Trump Fee-Fi-Foe-Fum Declares European Union America's Enemy! - 16th Jul 18
US Stocks Set For Further Advances As Q2 Earnings Start - 15th Jul 18
Stock Market vs. Gold, Long-term Treasury Yields, 10yr-2yr Yield Curve 3 Amigo's Update - 15th Jul 18
China vs the US - The Road to War - 14th Jul 18
Uncle Sam’s Debt-Money System Is Immoral, Tantamount to Theft - 14th Jul 18
Staying in a Caravan - UK Summer Holidays 2018 - Cayton Bay Hoseasons Holiday Park - 14th Jul 18
Gold Stocks Summer Lows - 14th Jul 18
Trump US Trade War With China, Europe Consequences, Implications and Forecasts - 13th Jul 18
Gold Standard Requirements & Currency Crisis - 13th Jul 18
Focus on the Greenback, Will USD Fall Below Euro 1.6? - 13th Jul 18
Stock Market Outlook 2018 - Bullish or Bearish - 13th Jul 18
Rising Inflation is Not Bearish for Stocks - 13th Jul 18
Bitcoin Picture Less Than Pretty - 13th Jul 18
How International Observers Undervalue the Chinese Bond Market - 13th Jul 18
Stocks Trying to Break Higher Again, Will They? - 12th Jul 18
The Rise and Fall of Global Trade – Redux - 12th Jul 18
Corporate Earnings Q2 2018 Will Probably be Strong. What This Means for Stocks - 12th Jul 18
Is the Relative Strength in Gold Miners to Gold Price Significant? - 12th Jul 18
Live Cattle Commodity Trading Analysis - 12th Jul 18
Gold’s & Silver’s Reversals’ Reversal - 12th Jul 18
The Value of Bitcoin - 11th Jul 18
America a Nation Built on Lies - 11th Jul 18
China, Asia and Emerging Markets Could Result In Chaos - 11th Jul 18
Bullish Gold Markets in the Big Picture? - 11th Jul 18
A Public Bank for Los Angeles? City Council Puts It to the Voters - 11th Jul 18
Yield Curve Inversion a Remarkably Accurate Warning Indicator For Economic & Market Peril - 11th Jul 18
Argentina Should Scrap the Peso and Dollarize - 11th Jul 18
Can the Stock Market Close Higher For a Record 10th Year in a Row? - 11th Jul 18
Why Life Insurance Is A Must In Financial Planning - 9th Jul 18
Crude Oil Possibly Setting Up For A Big Downside Move - 9th Jul 18
BREAKING: New Tech Just Unlocked A Trillion Barrels Of Oil - 9th Jul 18
How Trade Wars Penalize Asian Currencies - 9th Jul 18
Another Stock Market Drop Next Week? - 9th Jul 18
Are the Stock Market Bulls Starting to Run? - 9th Jul 18

Market Oracle FREE Newsletter

5 "Tells" that the Stock Markets Are About to Reverse

When You Know a Company Cares: 3 Keys to Investing in a Bull Market

Companies / Investing 2014 Nov 04, 2014 - 04:29 PM GMT

By: Submissions

Companies

Chad Shoop writes: U.S. stocks are still very much in a bull market — just one with increasing volatility. In October, stocks suffered the sharpest drop since 2011, and then rebounded just as rapidly to close the month at, or near, all-time highs. It only leaves you guessing what the markets will do next.

When the market is sitting at an all-time high, people are skeptical to purchase shares of a company. They think it’s bad investing, when all it really means is you just have to be extra careful about what you choose to invest in.


To find a company that cares about returning value to its shareholders — and that will be a good value over the longer term — you need to focus on firms that meet these three requirements:

  1. Does the company have a long history of offering dividend paying stocks?
  2. Does the company make a habit of increasing its dividend payments, as measured by three consecutive years of doing so?
  3. Does the company conduct share buybacks each year?

If the answer is “yes” to each of these questions, you can be comfortable jumping into these stocks.

Increasing Shareholder Value: What to Look For

These three items combined represent a company that has consistently grown shareholder value with its excess cash.

There are only a few options companies have to spend their excess capital on. The main three are paying dividends, buying back company shares and expanding capital expenditures. And if you’re consulting your investor checklist, two of these expenditures meet the requirements, while one is not the most ideal.

A company paying a dividend to investors shows that it cares about increasing value for its shareholders, which attracts more investors and tends to send shares higher, thereby increasing your return on investment.

Share buybacks allow the company to reduce the amount of shares outstanding, essentially boosting earnings per share without them even needing to grow. Dividing the company’s net income over a smaller amount of shares makes each share more valuable, which also boosts shareholder value.

Last on their list of things to spend excess capital on are capital expenditures. These are a great way to grow a business by investing more in research and development to create new products or simply making a strategic acquisition, and offers a potential increase in shareholder value — but it isn’t a sure thing for the company.

Take Facebook (NYSE: FB) as an example. The company recently reported a solid growth quarter, but once it announced its plans to triple its capital expenditures to invest in the business, the shares tanked.

I am not suggesting capital expenditures are bad, but when you compare them to dividends, I’ll take the cash in my pocket almost any day.

You want to invest in a company that provides dividend paying stocks, increasing the amount of those payments and increasing the value of shares. Capital expenditures are not the best way around that.

One stock that I really like today that meets all three of my proposed criteria is GlaxoSmithKline (NYSE: GSK).

Dividend Paying Stocks, Share Buybacks — Glaxo Has It All

At the peak of the stock market decline in mid-October, Glaxo was trading at its highest dividend yield ever — and that says a lot considering the company has paid a dividend every year since it became public in 1998. And today it is still yielding 5.5% despite a recent bounce.

As an added bonus, the stock is not trading at all-time highs like the rest of the market, leaving room for the security price to rise. In fact, the shares are still 16% off their 52-week high.

But, aside from paying a dividend every year, Glaxo has also steadily increased the amount of dividends paid per share. It has also reduced its shares outstanding almost every year.

Another thing that really stood out to me was Glaxo maintained these dividend increases and share buybacks right through the Great Recession without a hiccup. Take a look:

This demonstrates that the company is focused on paying dividends and increasing the value of shares — the core of building shareholder value.

In fact, the company’s dividend is expected to increase 3% this year and the firm bought back $25 million worth of shares in the third quarter.

As you can see, this is a company intent on building shareholder value that hits all three items on my checklist. In this bull market, GlaxoSmithKine is one of the few stocks that are a buy today.

Regards,

Chad Shoop
Editor, Pure Income

http://thesovereigninvestor.com
© 2014 Copyright  Ted Baumann - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2018 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules