The ultimate dividend stock is still dirt cheap

Good morning! 👋

China’s surprise numbers overnight have traders running for the hills, or at least that’s the impression I get looking at today’s headlines.

The real issue isn’t the data itself, though.

Wall Street’s merry marauders were caught by surprise that China’s central bank lowered rates, putting it at odds with basically the entire cabal of Western central banks.

Doesn’t bother me, and I encourage you not to be bothered either:

1. The markets were due for some summer consolidation, so this is entirely normal for mid-August market conditions; and,
2. Chaos inevitably creates opportunity.

Here’s my playbook.

Fitch warns it may be “forced” to downgrade JPM and other banks

Gimme a break.

Ratings agency Fitch is now grousing that it may be forced to downgrade dozens of banks including JPM Chase… if there’s another “one-notch” downgrade of the overall industry’s score from AA- to A+. (Read)

Said analyst Chris Wolfe, “if we were to move it to A+, then that would recalibrate all our financial measures and would probably translate into negative rating actions.”

Puuuuulllllleeeeeaaaasssssseeeee…

Fitch’s models are broken, just like the Fed’s.

The real reason for the looming downgrade is that banks cannot be rated higher than the environment in which they operate (according to Fitch’s busted models).

A rational executive team would seek new counsel, ask why the models aren’t working as anticipated, or even chart a new course.

Sigh.

What to do:

• If you’re a trader, buy JPM “married puts.”
• If you’re an investor, make the decision to ride it out or bail now.

My $0.02, JPM CEO Jamie Dimon knows exactly what he’s doing, even if Fitch hasn’t got a clue.

HD earnings: No surprise to me

I named three companies this week as being important to watch during a conversation with the incomparable Stuart Varney ahead of Monday’s opening bell: HD, TGT, and WMT. (Watch)

The first of ‘em, Home Depot, has just reported. As I expected would be the case, consumers are still cautious when it comes to tackling big projects, and they’re clamping down on discretionary spending.

The company beat on earnings, but sales slid. (Read)

I still don’t like the stock.

NVDA 1, Keith 

I’ve been involved in global markets for 43 years, and if there’s one thing I’ve learned in all that time, it’s that the fastest way a stock will rise is for me to buy speculative puts betting it won’t. 🤦‍♂️

No doubt you’ve been there, too.

Case in point, I purchased a few speculative options spreads known as Put Butterflies yesterday, betting that the stock would retreat at least a skosh to around $420.

Then, bam… whaddya know… UBS, Wells Fargo, and Baird all raised their estimates overnight, which, of course, means the stock is up again in early going.

The investor in me is undeniably happy, considering that the stock has now tacked on 304.85% off 52-week lows set last October.

The trader in me, meh.

No matter.

Learning to trade around core positions is an important skill, which is why I’ll probably shift strategies to make lemonade from lemons.

How?

I’m mulling over selling cash-secured puts deep out of the money as a way of getting paid to shop (for more shares) and taking advantage of higher-than-average volatility on an otherwise dull day.

**Note: The One Bar Ahead® Family is already looking forward to the relaunch of Trade with Keith as a way to learn about such things, and I encourage you to keep reading along if this sounds intriguing or like something you could use to improve your chops.

Beating inflation easily

According to Moody’s Analytics, Americans now spend $709 per month more on their bills than just two years ago. (Read) No wonder that songs like Oliver Anthony’s working-class lament, “Rich Men North of Richmond” have become overnight smash hits. (Listen)

Moody’s Mark Zandi says there’s a light at the end of the proverbial tunnel: “[The] trend lines look good and suggest that inflation is set to moderate further.”

I agree.

Meanwhile, you know the drill.

The way to beat inflation is to buy great companies with rock-solid margins, particularly if they make “must have” products and services the world cannot live without AND are capable of influencing consumer behaviour.

Like, I dunno… Apple.

The company has returned 38.71% this year alone versus the S&P 500, which has returned a much lower but still very respectable 18.06% over the same time frame.

The ultimate dividend stock?

Many investors think that dividends and growth are mutually exclusive, meaning that you cannot have one without the other.

That’s hooey.

AbbVie might just be the best in class right now.

The company has increased dividends for 51 consecutive years and is trading at just $152.27 a share as I type. What’s more, their gross margin is 71.83%, and the payout ratio is a healthy 86.40% for the year, according to Refinitiv Eikon.

So, you say?

ABBV has increased its dividend by 270% over the past decade.

AbbVie, BTW, is just one of a special group of stocks I share with savvy investors monthly as part of a group I call the Dividend Fortune Builders in my premium research journal, One Bar Ahead®. You can check it out here (along with a dozen other high-income, dividend-driven choices) if that’s helpful. Upgrade to Paid

Bottom Line

As always, let’s MAKE it a great day.

You got this—I promise!

Keith 😊