Your Slice of the Pie
NOW IS THE TIME FOR INVESTORS TO CASH IN AS THE COST OF MONEY GOES INTO FREE-FALL!
As the phantom threat of inflation metamorphoses into a cancerous spectre of deflation, the prices of all things everywhere fall, including interest rates – the cost of money.
Deflation is scary because it paralyzes investors and consumers. Prices are expected to fall and economic agents do nothing.
In all economic scenarios there are ways to make money and the opportunities are there for those who nimbly seek them out.
With deflation now a stark reality, the relative attractiveness of some shares receive a welcome double whammy. Their cost of capital falls and this has an immediate effect on the bottom line. This is especially true for capital intensive and highly geared companies.
Adding further to investor interest is the fact that dividend streams start to look very racy when compared to the yield on bonds, fixed deposits and money market accounts. The dividend yield on some quality stocks now have an after-tax yield that exceeds the after tax yield on many bonds. Under these circumstances investors can expect a substantial rerating of growth stocks. This rerating is already underway. Investors receive a substantial dividend income and have an option on an ever increasing share price thrown into the bargain.
So what should you look for? Obviously the company must have a strong balance sheet and established track record. This normally means increasing profitability every year. After you have checked balance sheets and income statements going back a few years, look at the dividend cover and dividend payments.
The dividend cover refers to the ratio of the profit made to what is paid out in dividends each year. If this is conservative, say 20% (that is, the dividend is covered 5 times), then the dividend is more likely to be increased and maintained in the future.
An ideal candidate is a company with a conservative dividend payment history, but one that increases its dividend payments each year roughly in line with steadily increasing earnings per share.
And what should you buy now? Which companies are the new winners? I am not going to make this too easy for readers but I will point out that the stocks that I have mentioned in this column over the last 2 years have performed fantastically. Look it up! These shares have more than doubled.
For a confidential discussion call Fenestra.