THE WEEK ON WALL STREET
Stocks were mixed last week as investors gauged potential outcomes of the Middle East conflict amid an ongoing ceasefire. The S&P 500 Index rose 0.55 percent, while the Nasdaq Composite Index advanced 1.50 percent. By contrast, the Dow Jones Industrial Average fell 0.44 percent. The MSCI EAFE Index, which tracks developed overseas stock markets, declined 2.75 percent.
FACT OF THE WEEK
On April 27th, 1942, sugar became the first household staple rationed as part of the US war effort. The government issues ration books with tear-out stamps allowing every American, kids included, to buy 26 pounds of sugar per year.
MARKET MINUTE
Mixed Markets As Investors Look Ahead
Stocks began the week lower after tensions in the Middle East escalated over the weekend. They remained under pressure through Tuesday’s close as Wednesday’s expiration of the ceasefire loomed.
Markets opened higher on Wednesday as investors cheered a ceasefire extension, while solid Q1 corporate earnings results boosted market momentum. Oil prices rose above $100/barrel, and all three major stock averages closed higher, with the S&P 500 and Nasdaq logging new all-time highs.
The S&P and Nasdaq recovered from a slump in software stocks, while higher oil prices put stocks under pressure, logging fresh intraday highs along the way. Investors appeared increasingly desensitized to the Middle East conflict.
Consumer Paradox
Fresh news on Friday showed consumer sentiment slipped to an all-time low in April. Consumers may be thinking about inflation, the job market, and geopolitical tensions.
However, the paradox is that consumers keep spending. Last Tuesday’s retail sales report showed consumer spending rose 1.7 percent in March, the highest monthly rise in more than 3 years.
FINANCIAL STRATEGY OF THE WEEK
A Primer on Dividends
When looking for income-generating investments, some investors turn to dividend-yielding stocks.
When a company makes a profit, that money can be put to two uses:
- It can be reinvested in the business.
- It can be paid out to the company's shareholders in the form of a dividend, a taxable disbursement typically made quarterly or monthly.
Dividend Ratios
Investors track dividend-yielding stocks by examining a pair of ratios.
Dividend per share measures how much cash an investor is scheduled to receive for each share of dividend-yielding stock. It is calculated by adding up the total dividends paid out over a year (not including special dividends) and dividing by the number of shares of stock that are outstanding.
Dividend yield measures how much cash an investor is scheduled to receive for each dollar invested in a dividend-yielding stock. It is calculated by dividing the dividends per share by the share price.
Other Dividend Considerations
Investing in dividend-paying stocks can create a stream of taxable income. But the fact that a company is paying dividends is only one factor to consider when choosing a stock investment.
Dividends can be stopped, increased, or decreased at any time. This is unlike interest from a corporate bond, which is normally a set amount determined and approved by a company's board of directors. If a company is experiencing financial difficulties, its board may reduce or eliminate its dividend for a period of time. If a company is outperforming expectations, it may boost its dividend or pay shareholders a special one-time payout.
When considering a dividend-yielding stock, focus first on the company's cash position. Companies with a strong cash position may be able to pay their scheduled dividend without interruption. Many mature, profitable companies are in a position to offer regular dividends to shareholders as a way to attract investors to the stock.
Qualified dividends are taxed at a maximum rate of 20%. Ordinary dividends are taxed at the same rate as federal income taxes, or between 10% and 37%. State income taxes also may apply.
Be cautious when considering investments that pay a high dividend. While past history cannot predict future performance, companies with established histories of consistent dividend payment may be more likely to continue that performance in the future.
In a period of low interest rates, investors who want income may want to consider all their options. Dividend-yielding stocks can generate taxable income, but like most investments, they should be carefully reviewed before you commit any dollars.
Keep in mind that the return and principal value of stock prices will fluctuate as market conditions change. And shares, when sold, may be worth more or less than their original cost.