Reasons To Include International Investments In Your Portfolio

The United States currently represents 60% of the global equity market.¹ This means investors with an extreme home bias are ignoring 40% of the equity universe. In truth, doing so over the last 14.5 years would have worked out for you, but markets are cyclical, so it’s unlikely this lasts forever. There’s also a long history of throne-swapping between U.S. and international stocks (see chart). Particularly in today’s challenging market environment, investors should think twice before giving ex-U.S. assets the cold shoulder.

The U.S. stock market doesn’t always dominate

The United States doesn’t always dominate the global equity market! When U.S. stocks are facing headwinds, international stocks may rise to the occasion. Sustained periods of outperformance by one region have been fairly common historically.

These bouts can be significant. For example, consider the ‘lost decade’ for U.S. stocks that started in the early 2000s. Between 2000 – 2009, the cumulative total return for the S&P 500 was negative 9.1% vs positive 30.7% for the MSCI All Country World Index ex U.S.

International stocks could outperform if U.S. stocks are struggling

The graphic above breaks down performance of the S&P 500 vs the MSCI EAFE. During periods when domestic stocks produced below-average returns, international equities did better, by over 2% on average. Further, during all rolling 10-year periods since 1971, the top performer was almost a coin toss: the U.S. only did better 56% of the time.

Since trying to time regime changes is very difficult in real time without the benefit of hindsight, there are reasons to consider allocating both U.S. and ex-U.S. equities to an asset allocation.

Ex-U.S. equity may be able to help reduce risk in a portfolio

Having international exposure in your portfolio in the early 2000s and throughout the Global Financial Crisis would have been a key ingredient in reducing overall risk and maintaining some level of investment return.

By way of example, consider this hypothetical 60/40 portfolio of stocks to bonds. The U.S. only portfolio includes the S&P 500 and Bloomberg Barclays U.S. Aggregate Bond index while the U.S. & international portfolio allocates 20% of the equity exposure to the MSCI All-Country World Index ex-U.S.

Other reasons to consider international assets in your portfolio

  • Different sector concentrations. The U.S. is fairly tech heavy. The S&P 500 is currently about 27% technology companies. Compare that to Europe at 7%. Exposure to other sectors like financials and commodities in emerging markets can add overall diversification.
  • Currency risk and return. At a high level, the relative strength of foreign currencies to the dollar has the potential to help or hurt returns. Asset managers can engage in different strategies to hedge or boost returns around foreign exchange rates, but the takeaway is that currency can be another layer of diversification.
  • Valuations. Valuations outside of the United States have been much cheaper to the long-run averages for quite some time. Especially relative to the U.S., international stocks look much more attractive on a valuation standpoint. Despite the selloff in 2022, the S&P 500 is only now just in line with the 20-year average P/E ratio.

The takeaway

Adding ex-U.S. stocks to your portfolio may be able to help reduce risk over the long-term. But there are downsides to be aware of. Most notably, international assets tend to be more volatile. These swings can be to the upside or the downside. And just as the unique elements of investing overseas (like foreign exchange rates or sector exposure) can help investors at times, they can also hurt U.S. investors in other circumstances.Quintex3-1-2-2-1-1-1-1-1-1-1-1-1-1

As with anything in investing, consider your personal risk tolerance, time horizon, and circumstances. Diversification isn’t a magic bullet, and if you do add international exposure to your portfolio, be sure to appropriately size the position to meet your needs.

I’m a Certified Financial Planner professional specializing in stock options and sudden wealth.

Source: Reasons To Include International Investments In Your Portfolio

International markets are generally divided into 2 categories:

  • Developed markets are located in countries that have established industries, widespread infrastructure, secure economies, and a relatively high standard of living.
    Examples of developed markets include the United Kingdom, Japan, Australia, Canada, and France.
  • Emerging markets are located in countries that have developing capital markets and less-stable economies. However, they’re considered to be in the process of transitioning into developed markets, and they may be experiencing rapid growth. Currently, emerging markets make up about 15% to 20% of international markets in total.
    Examples of emerging markets include India, China, Egypt, South Africa, Mexico, and Russia.

Not surprisingly, developed markets are similar to the United States when it comes to volatility levels and the range of potential returns. Emerging markets are more volatile than developed markets and have a wider range of potential outcomes. For that reason, we recommend that you don’t overweight your allocation to emerging markets.

How to choose an international investment

There are a few ways you can invest in foreign markets:

  • International funds invest only in foreign markets, excluding the United States.
  • Global or world funds provide exposure to both foreign and U.S. markets.
  • Regional funds invest primarily in a specific part of the world, like Europe or the Pacific region.
  • Developed markets funds focus on foreign countries with proven economies, like Japan, France, or the United Kingdom.
  • Emerging markets funds combine investments in countries that are considered to have “developing” economies, like India, Brazil, or China.

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ProShares ETF Targets Bitcoin Selloff

BITI, which seeks to obtain exposure through bitcoin futures contracts, will track the opposite performance of the S&P CME Bitcoin Futures Index each day. The launch comes as Bitcoin and other cryptocurrencies have struggled in sympathy with the broader stock market, which is contending with scorching-hot inflation.

The world’s largest cryptocurrency is currently trading around $20,000 per coin on Monday, well off its 52-week high of $68,990.90 hit last year, after briefly falling to a 52-week low of $17,601.58 per coin over the weekend. “As recent times have shown, bitcoin can drop in value,” ProShares CEO Michael Sapir said in a statement. “BITI affords investors who believe that the price of bitcoin will drop with an opportunity to potentially profit or to hedge their cryptocurrency holdings.”

ProShares will also launch BITIX on Tuesday, a mutual fund with the same investment objective as BITI. “With the additions of BITI and BITIX, ProShares and ProFunds will be the only fund families in the U.S. offering funds that allow investors to express their view on the direction of bitcoin — no matter whether they believe the price will go up or down,” Sapir added.

Ticker Security Last Change Change %
BITO PROSHARES TRUST BITCOIN STRATEGY ETF 12.95 +0.23 +1.81%

The launch of BITI and BITIX comes after ProShares launched BITO, the first U.S. bitcoin-linked ETF, in October 2021, which attracted more than $1 billion in assets from the public in just two days. The firm also launched the first bitcoin-linked mutual fund, BTCFX, in July 2021.  ProShares, which offers one of the largest lineups of ETFs, manages more than $50 billion in assets in partnership with its affiliates.

Eight months after establishing the first U.S. bitcoin futures ETF, ProShares plans to launch the first short bitcoin-linked ETF on Tuesday in the U.S., the provider of investment products announced Monday. The ProShares Short Bitcoin Strategy, which will trade on the New York Stock Exchange under the ticker BITI, is designed to give investors a way to profit from declines in the price of the cryptocurrency. It will have an expense ratio of 0.95%.

Bitcoin fell to new a new 2022 low over the weekend of $17,601.58, according to Coin Metrics, after six months of declines amid the broader sell-off in risk assets. “As recent times have shown, bitcoin can drop in value,” ProShares CEO Michael Sapir said in a news release Monday. “BITI affords investors who believe that the price of bitcoin will drop with an opportunity to potentially profit or to hedge their cryptocurrency holdings. BITI enables investors to conveniently obtain short exposure to bitcoin through buying an ETF in a traditional brokerage account.”

BITI will be the first ETF of its kind in the U.S. Horizons ETFs has a short bitcoin ETF listed on the Toronto Stock Exchange. ProShares said BITI is designed to deliver the opposite of the performance of the S&P CME Bitcoin Futures Index and that it seeks to obtain exposure through bitcoin futures contracts. How well-timed the launch is remains to be seen. Markets remain fraught with uncertainty as investors await next steps from the Federal Reserve and signs of peaking inflation, but many are still speculating about the crypto market being at or near a bottom.

On Monday, bitcoin sat about 70% from its all-time high, which it hit in early November just a couple weeks after ProShares launched the Bitcoin Strategy ETF (BITO). Bitcoin quickly reversed lower, and has been falling since then.

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Housing Market ‘In Free Fall’ As New Construction Plummets

The number of housing starts, or ​​new houses on which construction started, plunged 14.4% to about 1.5 million last month from 1.8 million in April—sharply below economic projections calling for nearly 1.7 million starts, the Census Bureau reported Thursday.

Building permits also fell more than expected, coming in at less than 1.7 million in May despite expectations they would remain roughly flat from April at about 1.8 million. In emailed comments Thursday, Pantheon Macro chief economist Ian Shepherdson attributed the sharper-than-expected decline to an “abrupt and rapid” drop in new-home sales facing builders, who “overbuilt” since early 2021 to capitalize on demand that’s now “in free fall” and must slow construction to prevent a big hit to profits.

“This is still the early stages of the housing rollover,” adds Shepherdson, predicting the next few months will bring further steep declines in housing construction as additional interest rate hikes make home buying more expensive and push demand even lower.

Home builder stocks took a hit after the data, with the S&P Homebuilders Select Industry Index, which includes home-manufacturing giants such as Masco and Owens Corning, plunging more than 4% Thursday, while the S&P 500 fell 3%. One bright spot in the report: Home completions climbed to the highest level since 2007, which should help home price increases—clocking in at the quickest pace this century—slow from about 20% to the low single digits by the end of next year, says Comerica Bank chief economist Bill Adams.

Historically high savings rates and government stimulus measures helped ignite a home buying frenzy during the pandemic, but signs of a slowdown have quickly emerged as the Federal Reserve embarks on its most aggressive interest-rate-hiking cycle in two decades. According to data released last month, pending home sales slid for the sixth consecutive month in April to the lowest level in nearly a decade, while new home sales plunged nearly 17% from March. More recently, the average interest rate on the popular 30-year fixed mortgage spiked 5.5% to more than 6.2% this week—the highest level since the 2008 financial crisis.

The Fed’s Wednesday rate hike is “likely to accelerate the slowing of the housing market” and eliminate construction jobs, says Mace McCain, chief investment officer at Texas-based Frost Investment Advisors. “We’ll be watching job openings and layoffs closely as the Fed continues to tighten into a slowing economy.”54

“[Fed Chair Jerome] Powell yesterday said the housing market is undergoing a reset, but it’s much more than that,” says Shepherdson, referring to comments Powell made after instituting the largest interest rate hike in 28 years on Wednesday. Speaking to reporters, the Fed chair suggested rising mortgage rates may not be long-lived, saying, “Home buyers need a reset. . . . Ideally, we do our work in a way where the housing market settles in a new place and housing and credit availability are at appropriate levels.”

I’m a senior reporter at Forbes focusing on markets and finance. I graduated from the University of North Carolina at Chapel Hill, where I double-majored in business

Source: Housing Market ‘In Free Fall’ As New Construction Plummets—Here’s When ‘Reset’ Could Cool Prices

Critics by Dean Baker

Given other economic data it is certainly plausible that the rate of house price decline is accelerating. The unemployment rate has risen by more than 3 percentage points from its low in 2007, with involuntary part-time rising by another 2 percentage points. If there are twice as many people who fear unemployment or short hours as who actually end up unemployed or working short hours, then the weak economy would have reduced the number of potential homebuyers by 15 percent.

In addition, the plunge in house prices will also reduce demand, since it has destroyed home equity. By some estimates, close to 20 percent of mortgage holders are underwater. After deducting realtor fees and other closing costs, tens of millions of current homeowners would not have enough equity left to make the down payment on a new home. In this respect, many long-time homeowners will face the same difficulty as first-time homebuyers in raising the money needed for a down payment. With the sharp drop in the stock market destroying savings, few of these homeowners will have enough financial wealth to make a down payment.

The danger in this situation is that house prices will go into a downward spiral, with declining house prices destroying equity. The loss of equity reduces the number of potential buyers in the market, putting further downward pressure on prices. This sort of downward spiral will have further negative effects on the economy. As homeowners lose more equity, they will feel the need to cut back further on consumption. In addition, with more homes underwater, default rates will rise with the losses on each foreclosure increasing.

Unfortunately, there has been little real discussion to date of measures that could arrest this sort of price decline. A serious effort would focus on sustaining prices in markets where the bubble has already deflated. Efforts to sustain house prices in markets where the bubble is still deflating will almost certainly fail, and will result in the government wasting money on a failed effort.

However, in the markets where sale prices are in line with rents, it would be desirable for the government to try to prevent prices from overshooting. It can do this by directly intervening in the market, buying up foreclosed properties. This could be an effective policy that carries little downside risk. In fact, this policy certainly carries less risk than continuing to allow Fannie Mae and Freddie Mac to guarantee mortgages in markets where the bubble is still deflating……

Related contents:

Mortgages Surge Past 6% And Hit Their Highest Level Since 2008: Housing Market Could ‘Torpedo’ US Economy, Expert Warns 

Housing Market Boom ‘Is Over’ As New Home Sales Implode–Here’s What To Expect From Prices This Year 

Mortgage Demand Plunges To 22-Year Low As ‘Worsening’ Affordability Deters Buyers—But Here’s Why Prices Will Still Rise

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Five Oversold Small Cap Stocks And One Mid Cap For Bear Market Bargain Hunters

The S&P 500 is hitting new 2022 lows in this year’s brutal selloff leading up to Wednesday’s Federal Open Market Committee meeting where the Federal Reserve’s policy committee is expected to hike short-term interest rates aggressively to tamp down inflation. The large cap index is down 22% from its peak on the first trading day of the year and tumbled 10% in just the past week as the latest readings on inflation showed price increases accelerating. For small caps, the market’s stumble into bear market territory has been exceptionally severe, with the Russell 2000 index down 30% from its peak last fall and back to pre-pandemic levels.

There could be plenty of near-term volatility ahead as the Fed accelerates its rate-tightening cycle. JPMorgan and Goldman Sachs both expect a hike of 75 basis points this week, even though Fed chair Jerome Powell dismissed that possibility at its last meeting a month ago. Last week’s 8.6% inflation reading put central bankers on their heels. But with the stock bloodbath already well underway, investors and asset managers are licking their chops at some valuations, if they have dry powder to deploy.

“The risk in the stock market is far lower today than it was six months ago just by virtue of the correction that we’ve seen. A lot of the excesses are being flushed out as we speak,” says Nicholas Galluccio, co-portfolio manager of the $57 million Teton Westwood SmallCap Equity fund. “We think it’s a perfect setup for possibly a strong 2023.”

Galluccio’s fund has outperformed the market, losing 13% so far this year after a 30% gain in 2021, to earn a 5-star rating on Morningstar. He’s been on offense this year adding to his positions in several small caps trading at low valuations, including Carmel, Indiana’s KAR Auction Services, which builds wholesale used car marketplaces and generated $2.3 billion in 2021 revenue.

Used car retailer Carvana bought its physical auction segment for $2.2 billion in February, larger than the market cap of the company at the time, though the proceeds were used to pay down debt. The acquisition prompted a 38% one-day pop in KAR’s stock, but it has given back most of those gains in the recent correction. The deal hasn’t been as kind to Carvana, which has lost 91% of its value this year.

“We got very lucky that Carvana we believe overpaid for their physical auction business for $2 billion, which is an enormous sum,” Galluccio says. “Now they’re strictly digital with a virtually debt-free balance sheet.”

Another of Galluccio’s picks is Texas-based Flowserve (FLS), which manufactures flow control equipment like pumps and valves. Many of its customers are petrochemical refiners and exploration and production companies in the energy industry. Most energy-linked businesses have had a strong year with the price of crude oil surging, though Flowserve has lagged with a 5% decline. Its bookings rose 15% in the first quarter to $1.1 billion, and Galluccio expects its margins to improve as it builds its backlog.

Value investors are also looking at oversold areas of the market for stocks trading at tiny multiples and now offering attractive dividend yields. John Buckingham, portfolio manager and editor of The Prudent Speculator newsletter, likes the Whirlpool Corp. (WHR), a century-old home appliance manufacturer headquartered in Benton Charter, Michigan. With home sales falling, Whirlpool has exposure to an anticipated recession, but its stock is down 34% this year, trading at six times earnings, with a dividend yield over 4% and an appetite for buying back shares. While not a small cap, at $8.7 billion in market capitalization, this mid-cap has long been a favorite of value investors.

“Lower home sales are certainly a headwind, but the market has already discounted something far worse than what we think will ultimately occur,” Buckingham says. “If we have a quote-unquote ‘mild recession,’ I think that many of the businesses have already been priced for a severe recession.”

Another consumer business Buckingham singles out from his portfolio: Foot Locker (FL). The shoe retailer is down 36% this year, including a 30% drop in one day on February 25 when it said its revenue from its biggest supplier Nike NKE +2.5% would decline this year as the apparel giant increasingly sells directly to customers. Now, Foot Locker trades at a tiny 3.5 times trailing earnings, with a 5.7% dividend yield to attract income investors.

While those value plays are cheap, Jim Oberweis, chief investment officer of small-cap growth firm Oberweis Asset Management, makes the case that growth stock valuations are even more attractive after taking the worst of the selloff so far. The Russell 2000 growth index is down 31% this year, and Oberweis’ small-cap opportunities fund has declined 22%. One outperformer is its top holding, Lantheus Holdings (LNTH), which has already more than doubled this year.

Lantheus makes nuclear imaging products that can be injected into patients and make body parts glow during medical scans to help diagnose diseases. It received FDA approval last year for a product called Pylarify which can identify prostate cancer, and fourth-quarter revenue rose 38%. The Massachusetts-based company trades at about 20 times expected 2022 earnings.

“It’s very hard to find a company at 20 times earnings with those growth numbers and those kinds of moats in terms of patents and defensible market positions that are very difficult for competitors to attack,” Oberweis says.

Oberweis boasts that Lantheus has no correlation to the broader economic environment and recessionary fears. Some of his other top holdings do have some inflation exposure but have already been deeply discounted this year and are trading at multiples more typical of value names. Axcelis Technologies (ACLS), which sells components to chipmakers like Intel INTC and TSMC to make semiconductors, grew its revenue by 40% in 2021 and another 53% in the first quarter of 2022, but has declined by 25% this year and trades at 15 times trailing earnings.

“Small growth stocks, which have been bludgeoned, I think have much better prospects to do well in an inflationary environment because many more innovative companies have pricing power, the ability to quickly raise prices and get the customers to actually pay them,” Oberweis says. “I don’t know if it’ll be this year or next year, but I think people buying right now are likely to earn significant positive returns because of the low valuations.”

I’m a reporter on Forbes’ money team covering investing trends and Wall Street’s difference-makers. I’ve reported on the world’s billionaires for Forbes’

Source: Five Oversold Small Cap Stocks And One Mid Cap For Bear Market Bargain Hunters

In trading on Tuesday, shares of the Vanguard Small-Cap ETF (Symbol: VB) entered into oversold territory, changing hands as low as $180.29 per share. We define oversold territory using the Relative Strength Index, or RSI, which is a technical analysis indicator used to measure momentum on a scale of zero to 100. A stock is considered to be oversold if the RSI reading falls below 30.

In the case of Vanguard Small-Cap, the RSI reading has hit 29.8 — by comparison, the RSI reading for the S&P 500 is currently 33.6. A bullish investor could look at VB’s 29.8 reading as a sign that the recent heavy selling is in the process of exhausting itself, and begin to look for entry point opportunities on the buy side.

Looking at a chart of one year performance , VB’s low point in its 52 week range is $180.29 per share, with $241.06 as the 52 week high point — that compares with a last trade of $183.66. Vanguard Small-Cap shares are currently trading down about 0.5% on the day.

ACV Auctions (ACVA)

The company has been public for just under one year, having held its IPO on March 24 of last year. The initial offering saw ACV put more than 19 million shares on the market, at a price of $25 each, and the company raised $414 million in new capital. Since the IPO, however, ACV stock price has fallen by 63%.

Despite the fall in share price, ACV has been reporting solid year-over-year revenue gains. In the last quarter reported, 3Q21, the company showed $91.8 million at the top line, up 36% yoy. This included a 41% gain in Marketplace and Service revenue, which accounted for $78.3 million of the total.

Arbe Robotics (ARBE)

The company entered the public markets in October of last year, completing a SPAC combination at that time with Industrial Tech Acquisitions. The ARBE stock started trading on the NASDAQ on October 8, and the company realized $118 million in gross proceeds from the transaction. The stock quickly surged to a peak above $14 in November, and has since fallen 48% from that level.

Even though the stock has fallen, Arbe has had some solid wins to report in recent months. BAIC Group, a Chinese auto manufacturer, announced in November that Arbe’s radar systems are expected to be installed on BAIC Group’s new vehicles going forward, and that same month, Weifu, a Chinese tier-1 auto parts supplier launched a customer road-pilot phase of Arbe’s radar systems and chipsets. Weifu expects to have the systems in full production by the end of this year.

ALX Oncology Holdings (ALXO)

The company has had several recent updates on its evorpacept programs, and released the announcements in January. The updates include the expected initiation of a Phase 2/3 clinical trial for the treatment of great gastric/GEJ cancer. This trial will evaluate evorpacept in combination with several other therapeutic agents, including Herceptin (trastuzumab), Cyramza (ramucirumab) and paclitaxel.

Another upcoming catalyst announced in January concerns the Phase 1b trial of an evorpacept-azacitidine combo in the treatment of MDS, myelodysplastic syndromes. The company will be releasing the dose optimization readout of this trial during this year.

The final January update came from the FDA, which granted evorpacept its Orphan Drug Designation in the treatment of gastric cancer and gastroesophageal junction cancer. Orphan Drug Designation comes with financial benefits, including tax credits and user fee exemptions for the company….

More contents:

Dividend-Payers Still Shine Brightly As Stocks Stage Bounce-Back Rally

After seven straight down weeks for the S&P 500 Index and eight weeks of declines by the Dow Jones Industrial Average, stocks staged a big comeback from lows last Tuesday to finish the week with robust gains across the board. Sentiment gauges from the AAII survey to Investor’s Intelligence’s roundup of investment newsletter editor outlook had been flashing multi-decade highs in pessimism. Technically, put-call ratios had also spiked to levels associated with widespread panic. but now they are on the decline and helping to thrust stocks higher as pessimism recedes from unsustainable peaks.

The most important piece of economic news came out on Friday after the rally was well underway when the Commerce Department reported that the core personal consumption expenditure (PCE) price index rose at a 4.9% annual rate in April, which was a deceleration from the 5.2% pace in March. The report provided hope that the Federal Reserve would not need to be as aggressive as planned in hiking rates in the coming months. Next Friday’s nonfarm payrolls report for May will be another critical piece of data for handicapping the Fed’s moves.

By the end of the week, both the S&P 500 Index and the Russell 2000 Small Cap Index had both gained 6.6%. It would not be unreasonable to see this rally take the S&P 500 to it’s declining 50-day moving average, but there is a lot to prove for the bulls to make this burst of buying anything more than a rally within a larger downtrend.

The biggest gains last week came from the sector that has been the most beaten down this year: Consumer staples jumped higher by 9.5%. A 4.3% increase in crude oil prices helped drive the energy sector higher by 8.3%. Growth stocks outperformed value, and domestic equities performed better than international stocks.

Equity Income Universe: Last week, the top performing equity income funds that we track were the WisdomTree MidCap Dividend (DON DON +6.6%) and FlexShares Quality Dividend (QDF QDF +6.3%).

Dividend growth funds have been big underperformers this year, but the style shined last week with T. Rowe Price Dividend Growth (PRDGX +6.2%), WisdomTree U.S. Quality Dividend Growth (DGRW DGRW +6.2%) and Vanguard Dividend Appreciation Index (VIG VIG +6.2%) all gaining more than 6%.

Also jumping more than 6% were the year-to-date total return leader, Alerian MLP (AMLP AMLP +6.2%) master limited partnership ETF, and the VanEck BDC Income (BIZD BIZD +6.2%) business development company ETF.

FDI Portfolio Action: Last week’s Forbes Dividend Investor portfolio of 22 stocks gained an average of 4.87%, with only two stocks failing to post positive returns.

Our top performer was master limited partnership Holly Energy Partners, L.P. (HEP +8.9%). Also higher by more than 8% for the week were Luxembourg-based steel maker Ternium TX SA (TX +8.7%), chemicals maker LyondellBasell Industries LYB NV (LYB +8.5%), and International Business Machines (IBM +8.4%).

Capturing Call Premium On The Bounce

A medium-term bearish environment with at least a temporary burst of bullishness is one in which selling covered calls makes sense. Last Monday, we sold covered calls on Tyson Foods TSN (TSN +6.8%) and Kraft Heinz (KHC -0.3%). Both companies had ex-dividend dates last week.

Selling the same TSN $87.50 July 15 calls would now earn you $5.30, based on Friday’s closing price for Tyson of $91.04. With Kraft Heinz, the $39 July 1 calls we sold for $1.30 last Monday now trade for only $0.65-$0.70. Going out to the July 15 expiration and selling slightly in-the-money KHC $37.50 calls earns premium of $1.65-$1.70.

John Dobosz

I am the deputy editor of investing content for Forbes Media. I’m responsible for money and investing coverage on Forbes.com and in Forbes magazine.

Source: Dividend-Payers Still Shine Brightly As Stocks Stage Bounce-Back Rally

Highest Dividend-Paying Stocks in the S&P 500

Part of the reason we are seeing a “risk-off” environment on Wall Street in 2022 is because – for the first time in a long time – you can get a decent payday in traditional fixed-income investments thanks to a rising interest rate environment. Consider that 10-year Treasury bonds pay almost 2.9% right now – more than double the yield of last summer – while the S&P 500 averages a dividend yield of just 1.4% right now. Many income investors aren’t willing to settle for the risk of stocks when they can instead get significantly higher yield in bond markets. However, the following S&P 500 components offer a way to tap into outsized yield that may make them worth a look – with a minimum yield of 4.7% and payouts as high as 8.6% at current pricing.

By now, everyone knows how bad smoking is for your health. But as with sugary soft drinks or fatty fast food, just because something is unhealthy doesn’t mean consumers will stop buying it. And as we enter a period of volatility for the stock market thanks to price inflation, many investors are learning that smokers are incredibly reliable customers. That makes $160 billion tobacco icon Philip Morris a slam dunk thanks to leading brands such as Marlboro, the best-selling cigarette in the world, along with its other popular products. PM dividends have roughly doubled from 64 cents quarterly back in 2011 to $1.25 as of the beginning of this year, adding up to one of the best yields in the S&P 500 index.

Office real estate operator Vornado has a portfolio concentrated in the nation’s key metropolitan markets, including prime properties in New York City, Chicago and San Francisco. Vornado is also the leading firm when it comes to sustainable commercial properties, with over 23 million square feet of Leadership in Energy and Environmental Design, or LEED, certified buildings. Structured as a REIT, or real estate investment trust, VNO must deliver 90% of its taxable income back to shareholders each year – meaning a mandate for consistent and generous dividends for shareholders.

Another REIT, Simon differs from Vornado in that it is one of the largest mall owners in America. Its locations are focused on shopping, dining, entertainment and mixed-use destinations instead of commercial real estate high-rises. COVID-19 was naturally quite tough on Simon; however, the recovering economy and the decline of social distancing restrictions has allowed SPG to get back on track. Shares have more than doubled from this time two years ago, and Simon just gave dividend investors a lot more to like with a big boost of almost 27% in its payout this year.

Old-school tech giant IBM isn’t often included in the same conversations as dynamic and younger firms like Amazon.com Inc. (AMZN) or Google parent Alphabet Inc. (GOOG, GOOGL). However, “Big Blue” still has a lot to offer. Its deep enterprise technology relationships in software, consulting and IT infrastructure make the company tremendously profitable. Though the company forecast earnings per share north of $10.50 next fiscal year, dividends currently only add up to $6.56 annually. That means the generous dividends aren’t just sustainable but ripe for future increases down the road, even if earnings don’t grow at the outsized rates you’ll find at more ambitious Silicon Valley firms.

Big Oil companies have gotten a lot of attention this year, but integrated energy giants that have risen along with crude oil are not as generous with their dividends as smaller and more focused players like Oneok. OKE is a play on the “midstream” portion of the energy business alone, which involves transportation and storage and is not exposed to the risks of commodity price volatility. Oneok helps move natural gas around the U.S. and charges fees for that service, then passes a portion of that cash on to shareholders. Income investors will take comfort in this stable model, which supports strong cash flows regardless of the price of a barrel of oil in 2023 and beyond.

KMI is another energy infrastructure company operating across North America, with a network of natural gas and crude oil pipelines, as well as storage and processing facilities. All told, the stock owns roughly 83,000 miles of pipelines and almost 150 terminals and is valued at nearly $45 billion. With a scale like that, alongside a midstream focus that insulates it from the ups and downs in oil and gas prices, it should be no surprise that KMI is one of the most reliable income plays in the S&P 500 right now.

You may see AT&T stock in some screening tools with a higher yield, but keep in mind that is based on previous payouts before a recent spinoff of Warner Bros. Discovery Inc. (WBD) that reduced both the market value of parent AT&T along with its dividend potential. However, a new dividend run-rate of about 28 cents per share quarterly annualizes to a yield that is more than four times the typical S&P 500 component. And furthermore, the spinoff helps management focus on the core business of this long-standing telecom leader. Shares have rallied strongly since March as Wall Street has looked ahead to life after the split, and with a big-time payout there’s reason to think this run could continue in 2022.

The $100 billion tobacco icon Altria is behind some of the biggest brands in North America, including its flagship Marlboro cigarettes, Black & Mild cigars and smokeless tobacco products including Copenhagen and Skoal. Yes, the health risks of these tobacco products are real. But that doesn’t stop millions of customers from buying Altria products despite this. And with the company increasingly looking beyond this core revenue stream to cannabis-related goods and vaping products, there’s a good chance this “sin stock” will see consistent profits and generous dividends for the foreseeable future regardless of whatever morality you assign to its business model.

Lumen is a telecommunications company offering voice and data connections, along with related services including cloud solutions and cybersecurity add-ons. CenturyLink rebranded itself Lumen Technologies a few years ago, in the wake of a series of big-time acquisitions including the purchase of Level 3 Communications for about $25 billion, but despite that big price tag the current LUMN stock valuation is only about $12 billion or so. There are challenges for this second-tier telecom, including its large debt load from those previous deals. However, income investors who don’t mind the risk may be interested in the big-time yield of this top S&P dividend stock as a hedge against potentially lackluster share performance.

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