The longest bull market in history is about to turn 11 — can it outrun the coronavirus?


The longest bull market in U.S. history is set to hit another milestone on Monday. But with worries over the economic impact of the spread of COVID-19 sending major stock indexes well into correction territory, it’s no surprise that investors are questioning how much further it can run.

“I recognize that bull markets don’t die of old age…but it is pretty evident that aging bull markets have more fragility,” said Jonathan Treussard, partner at Research Affiliates, in a phone interview.

Cracks had emerged long before anyone was aware of the coronavirus threat, Treussard said. Warning signs included the previous inversion of the yield curve, a reliable precursor of recession; renewed stress in the repo market; a rising percentage of corporate debt rated just one rung above junk status; historically high stock-market valuations relative to U.S. history and developed and emerging markets, and uncertainty over the 2020 presidential election.

And while no one can predict with certainty when the bull market will come to an end, it’s important that investors recognize that those underlying vulnerabilities makes it more difficult for bull market to overcome challenges, regardless of where the threat comes from, as it grows older, he said.

Happy birthday?

The current bull market is certainly aging — at least according to the most commonly used dating method, which marks the beginning of the bull run on March 9, 2009, the closing low for the S&P 500
SPX,
-1.70%

during the bear market that accompanied the worst global financial catastrophe since the Great Depression. From the start of the bull market through March 5, the S&P 500 had delivered a cumulative return of 462.1%, according to FactSet. (For more on the debate on how to measure bull and bear markets, read this archived article.)

And it also appears fragile. The S&P 500 logged a record close on Feb. 19. A global selloff attributed largely to worries about the spread of COVID-19 outside of China and the potential hit to supply chains and the global economy saw the large-cap benchmark enter correction territory — defined as a drop of 10% — in just six trading days. The Dow Jones Industrial Average
DJIA,
-0.98%

and Nasdaq
COMP,
-1.86%

also tumbled into correction territory on Feb. 28.

Stocks saw volatile trading over the past week. Equities fell sharply on Friday, but pared the decline to end well off session lows and in positive territory for the week. After all that, the S&P 500 remains down 12.2% from its all-time high, ending Friday at 2,972.37. The Dow finished at 25,864.78, 12.5% below its own record close, while the Nasdaq Composite has retreated 12.7% from its peak.

Meanwhile, a flight to safety saw investors pile into Treasurys and other traditional havens, underscoring fears about the economic outlook. The yield on the 10-year Treasury note
TMUBMUSD10Y,
0.767%

tumbled 21.5 basis points Friday to end at 0.709%, hitting an all-time low as it saw its biggest weekly fall since December 2008. Yields fall as debt prices rise.

Meet the bear?

For stocks, a fall of 20% from the peaks would mark the end of the bull market and meet the widely used definition of a bear market. For the S&P 500 that would require a close at or below 2,708.92, while the Dow would need to end at or below 23,641.14, according to Dow Jones Market Data. The bear-market threshold for the Nasdaq stands at 7,853.74.

The current correction is hardly the first nor, so far, the deepest of this bull market. Pullbacks in 2011 and late 2018 saw the S&P 500 retreat more than 19% from its previous highs, putting the index within a whisker of ending the bull run, before recovering to push to new heights.

Bullish investors and analysts argue that the current pullback is largely an overreaction to the threat posed by COVID-19. While uncertainty abounds over how the outbreak will spread and its near-term impact on supply chains and growth, underlying economic fundamentals, at least in the U.S., remain solid, they said.

Resilience intact?

While the selloff has reflected fears that a coronavirus-inspired slowdown will dent earnings, “our base case is that we will see a V-shaped recovery” once the outbreak ebbs, said Kristina Hooper, chief global market strategist at Invesco, in a phone interview.

Meanwhile, the Federal Reserve’s decision to deliver an emergency rate cut on March 3 underscored a commitment by the central bank to maintain looser financial conditions, which should at least be a positive for risk assets, she said.

There’s still plenty of scope for near-term volatility, however, and the potential for deeper near-term losses, she said. In fact, it is possible stocks could complete a pullback of 20% or more and meet the technical definition of a bear market. But, she argued, stocks would likely still remain in a “secular” bull market, which analysts define as a long-term rise in asset prices lasting a decade or more despite occasional bear-market downturns.

Buy the dip?

Skeptics have argued that the threat posed by the coronavirus outbreak could break the long-run market dynamic that has seen investors rewarded for buying market dips. They contend that the potential supply shock from the closure of factories and curtailed travel plans won’t be easily countered by looser monetary policy or even some forms of fiscal policy.

Given high U.S. stock valuations, particularly for highflying growth stocks, investors should consider rebalancing toward higher yielding U.S. and international value stocks, Treussard said. Uncertainty around the coronavirus outbreak means investors would likely be more comfortable relying more on intrinsic value and dividend distributions.

Meanwhile, the outbreak and its response will likely continue to set the tone in the week ahead.

That will put the spotlight on the European Central Bank when policy makers meet on Thursday.

With rates already in negative territory and the ECB’s bond-buying program already back under way, the central bank is seen with relatively little room for maneuver.

If it does take action, “the main thrust would likely be through an increase of the QE purchases and potentially other measures (such as starting a debate about the inclusion of other assets and/or purchase limits),” wrote analysts at RBC Capital Markets. “A small rate cut would clearly be a point of discussion for the Governing Council, however.”



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U.S. stocks end lower, but book weekly gains, as coronavirus cases break above 100,000


U.S. stocks finished lower Friday, but after a volatile session that saw the Dow recover about half of the day’s losses and even notch a gain for the week as investors watched cases of COVID-19 climb above 100,000 globally while and oil prices tumbled by the most in five years.

The potential for the spread of the coronavirus world-wide to disrupt economic activity has placed pressure on safe-haven asset prices, notably driving the U.S. Treasury 10-year bond yield to a new record low below 0.8% and gold prices saw the biggest weekly gain since 2016.

See:Why stocks tanked despite the Fed’s emergency rate cut

How did major benchmarks fare?

The Dow Jones Industrial Average
US:DJIA
settled 256.50 points lower, or 1%, to 25,864.78, while the S&P 500
US:SPX
lost 51.57 points, or 1.7%, to close at 2,972.37. The Nasdaq Composite
US:COMP
finished 162.98 points lower, or 1.9%, at 8,575.62.

On Thursday, the Dow closed at 26,121.28, down 969.58 points, or 3.6%, while the S&P 500 lost 106.18 points, 3.4%, to close at 3,023.94. The Nasdaq fell 279.49 points, 3.1%, to close at 8,738.60.

For the week, the Dow turned positive to gain 1.8%, the S&P 500 added 0.6% and the Nasdaq rose 0.1%, following a sharp rally in late afternoon trade.

What drove the market?

Stocks ended a volatile week with further losses as the spread of the viral outbreak that was first identified in Wuhan, China cast a shadow over economic activity, accelerating purchases of assets perceived as safe havens and placing additional pressure on those considered risky like stocks.

Adding to market woes, oil futures plunged 10% on Friday after talks between the Organization of the Petroleum Exporting Countries and their allies collapsed, with Russia refusing to agree to a Saudi-led plan for additional crude production cuts.

Read: OPEC+ oil-deal failure may lead to $30 oil

“There is an element to this that’s like dynamite fishing,” said Hans Olsen, chief investment officer at Fiduciary Trust Company, about the shocks to stocks and other financial assets from U.S. spread of the coronavirus. “The boom happened last week. Now we have to wait for the casualties to emerge,” he said of potential distress for investment funds due to the volatility in financial assets.

The ongoing equities selloff overshadowed a better-than-expected jobs numbers from the Labor Department, which reported that the U.S. created 273,000 new jobs in February. However, the data was compiled before the coronavirus contagion spread world-wide. Economists polled by MarketWatch had forecast a 165,000 increase.

“The US [jobs] number was decent but it failed to tame the turmoil in the equity markets and investors are not even remotely interested in riskier assets,” wrote Naeem Aslam, chief market analyst at AvaTrade in a note after the nonfarm payrolls report.

The unemployment rate fell a notch to 3.5% and matched a 50-year low, with average wages paid rising 9 cents, or 0.3%, to $28.52 an hour.

Optimistic market participants, however, say, one positive takeaway from the jobs report is that it reflects that the domestic economy stands on a solid footing as it braces for the impact the infectious disease might bring. “Given the strength of the data though, the economy appears to have enough positive momentum to slow for a time without significant risk of tipping into recession,” wrote Jim Baird, chief investment officer for Plante Moran Financial Advisor, in a Friday research report.

However, “the COVID-19 infection rate is multiplying and more states in the U.S. are imposing emergency orders,” wrote Tom di Galoma, managing director of Treasurys trading at Seaport Global Securities, in a Friday note.

The disease has sickened more than 100,000 people so far and the death toll has risen above 3,300, while disrupting international trade and travel, compelling central banks to reduce their benchmark interest rates. On Tuesday, the Federal Reserve cut its federal-funds target rate by a half a percentage point to a 1%-1.25% range, in the first emergency rate cut by the U.S. central bank since the 2008 financial crisis.

See:Coronavirus update: 101,733 cases, 3,460 deaths

Late Thursday, Dallas Fed President Rob Kaplan said the epidemic’s impact might last for three to five months but expressed optimism about the U.S. chances of avoiding a recession due to the illness.

“I still believe we can get through this year without a recession,” Kaplan said, in an interview on Bloomberg Television. Kaplan is a voting member on the rate-setting Federal Open Market Committee’s which will meet on March 17-18.

However, some are doubtful that policy makers have the firepower to curb the potential economic harm from a deadly pathogen that is spreading rapidly.

“We disagree with central bank pronouncements that there is room to fight the crisis.” wrote George Saravelos, Deutsche Bank’s head of global head of currency research, in a recent research note.

Which stocks were in focus?
  • US:TSLA
    Tesla Inc.s stock  lost 2.9% Friday, extending Thursday’s decline.

  • US:AAPL
    Apple Inc.’s stock price target was cut to $295 from $395 at Deutsche Bank. Shares fell 1.3%.

  • US:BGG
    Briggs & Stratton Corp.  shares lost 4.7% after the company announced a charge in strategy.

  • US:ON
    Apple supplier ON Semiconductor Corp. issued a revenue warning for the first quarter on Friday, due to the change in business conditions being created by the coronavirus COVID-19. ON shares were 3.1% lower.

  • US:SKX
    Skechers USA Inc. shares  slipped 0.9%, after the sporting shoe retailer said the fallout from the coronavirus has gotten worse since it last updated investors when it reported earnings last month.

  • US:COST
    US:BJ
    US:KR
    Shares of Costco Wholesale Corp. , BJ’s Wholesale Club Holdings Inc.   and Kroger Coended mixed, despite a surge in demand for hand sanitizer, cleaning and disinfecting materials, canned and dry grocery items and other products associated with the fight against the spread of COVID-19.

  • US:JPM
    US:MSFT
    Leading the Dow’s slump were shares of JP Morgan Chase & Co., which shed 5.2% as CEO Jamie Dimon was recovering from an emergency heart-related surgery, and Microsoft Corp. , which ended 2.8% lower. 

  • United Airlines
    US:UAL

    US:DAL
    Airline stocks recovered some ground after Trump’s chief economic advisor Larry Kudlow said the White House is considering “targeted measures” to offset the negative impact on the industry from the coronavirus outbreak. jumped 2%, while Delta Air Lines   rose 1%.

How did other assets perform?

The benchmark U.S. 10-year Treasury note
BX:TMUBMUSD10Y
dipped to a record low of 0.71%, while booking its largest weekly drop since Dec. 2008.

Gold for April delivery
US:GCJ20
finished a choppy session 0.3% higher at $1,672.40 an ounce, but had been approaching the psychologically important, round-number price of $1,700, before paring gains after the jobs report.

April crude futures
US:CLJ20
closed 10.1% lower to settle at $41.28 a barrel on the New York Mercantile Exchange, after Russia resisted a call by its OPEC allies to made additional cuts to crude output.

The Cboe Volatility Index
US:VIX
rose 19.5% to 47.36 on Friday. The VIX is a gauge of implied volatility in the stock market. Its historic average is around 19.

The U.S. dollar
US:DXY
was down 0.8%, as gauged by a gauge of a half-dozen currency trading partners. The index is down 2.4% so far this week,

In Europe, stocks finished broadly lower. The FTSE 100
FR:FTSE
was 3.6% lower, and the Stoxx Europe 600 index
XX:SXXP
closed 3.7% lower.

In Asia overnight, the Shanghai Composite Index
CN:SHCOMP
fell 1.2% and Tokyo’s Nikkei 225
JP:NIK
skidded down 2.2%. The Kospi
KR:180721
in Seoul lost 2.2%. China’s CSI 300 Index
XX:000300
retreated 1.6%.



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TGIF? Dow industrials are on pace for the longest Friday losing streak in 14 years as coronavirus has Wall Street dreading weekends


Thank God It’s Friday? That is not the case for Wall Street investors with stocks in the Dow Jones Industrial Average, which is on pace for a dubious distinction if the 124-year-old index finishes in negative territory tomorrow.

Fridays have become a source of dread for Wall Street investors lately because of the uncertain landscape that the viral outbreak of COVID-19 has created heading into the weekends.

In fact, if the Dow
US:DJIA
closes lower Friday, it will mark its longest string of losses on that day, seven straight, since the string of eight straight Friday losses ending July 2006, according to Dow Jones Market Data.

“Fridays have become the scariest day of the week because we know with a high percentage of certainty that there’s going to be more bad news and we have seen how that manifests in equity valuations,” Art Hogan, chief market strategist at National Securities, told MarketWatch.

The epidemic that reportedly originated in Wuhan, China in December has sickened nearly 98,000 people and claimed at least 3,300 lives so far, as it spreads rapidly around the globe.

A series of travel restrictions put in place by various governments as well as policies from large employers recommending that workers reconsider business and personal trips in some instances is negatively impacting the travel industry and is likely to dent the global, if not the domestic, economy.

For that reason, the Federal Reserve cut benchmark interest rates on Tuesday by a half-point to a 1%-1.25% range, marking the first time the central bank has conducted an emergency rate cut since the 2008 financial crisis. Market participants are anticipating another half-point cut at the Fed’s scheduled March 18 meeting.

Read: What the Fed’s surprise interest rate cut means for mortgage rates

The infectious disease is an exogenous factor that economists and investors are finding difficult to model, and weekends have come with a greater — though somewhat expected — degree of increases in cases outside of China and increased steps by governments to limit the outbreak, which in turn threaten to slow down economic expansion.

See: Fed expected to continue cutting interest rates, beginning as soon as later this month

Testing for the illness hasn’t gotten under way robustly in the U.S. because the U.S. Centers for Disease Control and Prevention initially distributed flawed tests, USA Today reported.

At least 206 people have tested positive for COVID-19 in the U.S. and 11 people have died, as of Wednesday, according to figures from the Johns Hopkins Whiting School of Engineering’s Centers for Systems Science and Engineering.

Large corporations including Google-parent Alphabet Inc.
US:GOOGL,
US:GOOG
and Microsoft
US:MSFT
have asked staffers to work from home, and shares of airliners Delta Inc.
US:DAL
, American Airlines
US:AAL
and United Airlines Holdings Inc.
US:UAL
, as well as travel site Tripadvisor Inc.
US:TRIP
, have been hammered by flight cancellations and reduced business and personal travel.

Even before the coronavirus anxiety reached its recent apex, the Dow has been trading tentatively on Fridays. So far this year, the blue-chip benchmark has been down eight of the past nine Fridays.

On Thursday, markets appeared to set the stage for another down session, as the Dow closed at 26,121.28, down 969.58 points, or 3.6%, while the S&P 500
US:SPX
lost 106.18 points, 3.4%, to finish at 3,023.94. The Nasdaq Composite
US:COMP
fell 279.49 points, 3.1%, to close at 8,738.60.

The big catalyst for markets tomorrow may be any signs of the outbreak of the novel coronavirus impacting U.S. jobs. The U.S. likely added a healthy 165,000 new jobs in February after a preliminary 225,000 gain in the first month of the year, according to economists surveyed by MarketWatch.

If there is a big deceleration in the pace of what has been heady gains for jobs, markets could be in for another woeful Friday.



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Dow’s losses deepen as benchmark government bond carves out new record low


U.S. stocks lurched lower Thursday as anxieties about the world-wide spread of COVID-19 lingered and concerns about the ability of governments to control the impact of the disease on their economies sent the benchmark U.S. Treasury note yield to a fresh all-time low.

See:Why stocks tanked despite the Fed’s emergency rate cut

How are major benchmarks faring?

The Dow Jones Industrial Average
US:DJIA
traded about 951 points, or 3.5%, lower, near 26,140, while the S&P 500
US:SPX
was down about 106 points, 3.4%, to trade near 3,024. The Nasdaq Composite
US:COMP
fell 264 points, 2.9%, to trade near 8,7754.

On Wednesday, the Dow advanced 1,173.45 points, or 4.5%, to settle at 27,090.86. The S&P 500 rose 126.75 points, or 4.2%, to end at 3,130.12. The Nasdaq Composite climbed 334 points, or 3.9%, to 9,018.09.

For the year to date, the Dow is now down 8.6%, the S&P 500 has lost about 6.6%, and the Nasdaq is about 2.6% lower.

What’s driving the market?

Markets are fixated on the economic implications of efforts to contain the spread of COVID-19, the infectious disease that reportedly originated in Wuhan, China in December, sickening at least 95,000 people since then.

Worldwide, there are now 95,748 cases of COVID-19 and at least 3,286 deaths, according to the latest figures from the Johns Hopkins Whiting School of Engineering’s Centers for Systems Science and Engineering.

“Clearly some of this morning’s decline is just normal give back from yesterday’s explosive rally, although economic fears are continuing to mount as the number of canceled events, gatherings and conferences continues to rise,” wrote Tom Essaye, president of The Sevens Report, in a morning note.

The Dow has had two 4% or more gains in the last three days. The last time the index had two 4% gains or more in a three trading day span was when the index had back to back gains of over 4% in November 2008, according to Dow Jones Market Data.

“Coronavirus headlines will continue to drive trading, and broadly speaking any reports of U.S. or global economic stimulus will be a tailwind on stocks, while any reports of an acceleration of the spread will obviously be a headwind,” Essaye added.

See: World braces for months of trouble as virus pushes west

That news comes after U.S. lawmakers passed an $8 billion emergency spending package on Thursday to combat the coronavirus, and the International Monetary Fund announced a $50-billion lending programs to help businesses harmed world-wide by the epidemic.

In U.S. economic data, first-time applications for unemployment insurance declined in the most recent week, the Labor Department said Thursday morning. Productivity and unit labor costs in the fourth quarter were both lowered from an initial read. Factory orders declined 0.5% in January, the government said.

Which stocks are in focus?
  • US:BURL
    Burlington Stores Inc. shares jumped more than 2.3%Thursday after the discount retailer beat profit estimates for its fiscal fourth quarter but offered guidance for the first quarter that lagged behind estimates.

  • iBio Inc.
    US:IBIO
    shares surged on hopes for a partnership with a Chinese company to develop a coronavirus vaccine.

  • US:BJ
    BJ’s Wholesale Club Holdings Inc. reported Thursday fiscal fourth-quarter profit and revenue that matched expectations, while same-store sales came up a bit shy.Shares jumped more than 5%.

  • US:UAL
    US:AAL
    US:LUV
    Airline stocks sold off hard Thursday morning after a string of revenue warnings and the collapse of a U.K. air carrier. United Airlines Holdings Inc. slid about 10%, American Airlines Group, Inc. shares were down nearly 12%, and Southwest Airlines Co. shares fell about 4.5%.

  • US:HTZ
    US:CAR
    Car-rental companies were even harder hit after an analyst warning on travel disruptions. Hertz Global Holdings Inc.  shares lost more than 14% and Avis Budget Group Inc.  saw shares fall about 13%.

  • US:ZM
    Zoom Video Communications Inc. shares jumped nearly 8% Thursday as analysts cheered rosy fourth-quarter earnings and forecast increased demand for the company’s services, which enable remote working.

  • Dollar Tree Inc.
    US:DLTR
    shares rose after a Deutsche Bank upgrade.

How are other assets performing?

The benchmark U.S. 10-year Treasury note
BX:TMUBMUSD10Y
ticked down about 7 basis points to yield 0.92%. Bond yields rise as prices fall. The 10-year briefly breached 0.90%, a new low, midday, spooking stock investors.

Gold for April delivery
US:GCJ20
gained 1.7% to trade at $1,670 an ounce on renewed demand for assets perceived as havens, while
US:CLJ20
April crude futures traded 1.3% lower to $46.216 a barrel on the New York Mercantile Exchange

The Cboe Volatility Index
US:VIX
roared to 40, up 25%. The so-called VIX rises as stocks fall and is used as a gauge of implied volatility in the stock market. Its historic average is around 19.

The dollar
US:DXY
was 0.5% lower compared with a basket of currency trading partners.

In Europe, stocks were mixed. The FTSE
FR:FTSE
jumped 1.5%, but the Stoxx Europe
XX:SXXP
fell 1.4%.

In Asia overnight, the Shanghai Composite Index
CN:SHCOMP
gained 2% and Tokyo’s Nikkei 225
JP:NIK
rose 1.1%. The Kospi
KR:180721
in Seoul gained 1.3%. China’s CSI 300 Index
XX:000300
rallied 2.2%.

Related: Buy the dip? Here’s how some analysts say investors should play it



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These stocks may be your best choice for income as interest rates keep falling


Income-seeking investors have faced the same problem for four decades — declining bond yields. But it keeps getting worse.

Richard Saperstein, chief investment officer of Treasury Partners in New York, tailors strategies across asset classes for clients. He narrowed two approaches for investors who need to find a way to squeeze more income from their portfolios.

On Tuesday, the Federal Open Market Committee lowered the federal funds rate by 50 basis points to a target range off 1% to 1.25%. Yields on short-term U.S. Treasury bills declined, as expected, but the yield on 10-year Treasury notes
BX:TMUBMUSD10Y
declined by 8 basis points to 1.02%. That was down from 1.92% on Dec. 31. Then on Wednesday, the 10-year yield dipped below 1.00%.

“A 1% 10-year yield reflects recession concerns and global negative debt,” Saperstein said during an interview March 4. He sees a long-term risk of a bursting of the bond-market “bubble,” pointing to about $14 trillion in bonds with negative yields issued outside the U.S., with some denominated in dollars. “At some point this dollar-denominated debt is going to have to be paid off. The risk is the dollar continues to strengthen. It could come home to roost at some point.”

Saperstein, 60, founded Treasury Partners in May 2009 as a division of High Towers Advisors, after his team left J.P. Morgan Chase, which had acquired the advisory group as part of its acquisition of the distressed Bear Stearns in May 2008. Treasury Partners manages $8 billion in client assets.

What income-seekers can do now

Investors who need income “now have a fundamental decision to make,” Saperstein said. “Do they take more risk for returns or keep this risk profile and accept massively lower returns?”

For investors who cannot take additional risk, the answer is simple: Your income will fall.

For investors who can only assume moderately higher risk, Saperstein pointed to corporate bonds with short maturities, which have had improving spreads over the yields of U.S. Treasury securities with the same maturities. He named three examples:

• Notes issued by Kraft Heinz
US:KHC
that now have a yield to maturity of about 2.40% and mature in July 2022.

• Canadian Natural Resources
US:CNQ
notes that yield about 2.10% and mature in February 2025.

Newell Brands
US:NWL
notes that yield about 2.69% and mature in April 2023.

Those yields are low, but they are attractive when compared to a yield below 1% for 10-year Treasury notes or 0.71% for five-year Treasury notes
BX:TMUBMUSD05Y.

Dividend stocks

“If [investors] are looking to generate equivalent levels of yield that they have been used to over the past 10 years, they cannot do it in the fixed-income market,” Saperstein said “If return is critical and the investor is willing to assume more risk, our discussions center around shifting your allocation away from fixed income and toward equity.”

Richard Saperstein, chief investment officer at Treasury Partners in New York.


Treasury Partners

That means stocks with attractive dividend yields well-supported by cash flow. Saperstein said he also prefers companies that are deploying some of their free cash flow by repurchasing shares. A lower share count means shareholders’ percentage ownership increases, and that per-share results are boosted.

Saperstein cautioned that this approach “changes your risk profile.”

“Your fixed-income investor now owning equities takes on a much greater volatility perspective in their portfolios,” he added. So if you have had difficulty tolerating the volatility since the S&P 500
US:SPX
hit its last closing record Feb. 19, you may have to rethink your approach.

Saperstein named as examples three stocks of companies that are buying back shares and also have attractive dividend yields:

• Shares of CVS Health
US:CVS
have a dividend yield of 3.20%. One way to gauge a company’s ability to support its dividend is to look at its free cash flow yield. This can be done by dividing the past 12 reported months’ free cash flow per share by the current share price. On this basis, CVS’s free cash flow yield is 12.68%, leaving massive “headroom” for dividend increases, share repurchases, business investment or other corporate purposes.

• AT&T’s
US:T
dividend yield is 5.73%. The free cash flow yield is 10.90%, leaving headroom of 5.17%.

• Gilead Sciences
US:GILD
has a dividend yield of 3.67% and a free cash flow of 8.81%, with headroom of 5.14%.

One thing to consider is these are trailing free-cash-flow yield calculations. Disruptions in supply chains and demand for products and services as the coronavirus unfolds may lower cash flow considerably over the next two quarters.

Saperstein said his “base case” is that “by April, the virus will be under control.” He expects slower, or even negative, economic growth in the U.S. for the first half of 2020, but also said: “We have tremendous factors that can lead to a second-half recovery,” including monetary policy and pent-up demand.

Screening more dividend stocks

The three companies that Saperstein named are quite large, with an $81.5 billion market capitalization for the smallest, CVS. So here is a screen of the 15 S&P 500 companies with market-caps of at least $50 billion that have had the highest free cash flow yields over the past 12 months while also having current dividend yields of at least 3.00% and stock-repurchase plans in place. The list is sorted by dividend yield:

Company

Ticker

Dividend yield

Free cash flow yield – past four quarters

‘Headroom’

Altria Group Inc.

US:MO 8.02%

9.75%

1.73%

AT&T Inc.

US:T 5.73%

10.90%

5.17%

AbbVie Inc.

US:ABBV 5.39%

9.82%

4.43%

Wells Fargo & Co.

US:WFC 5.03%

17.38%

12.35%

International Business Machines Corp.

US:IBM 5.03%

10.84%

5.81%

Broadcom Inc.

US:AVGO 4.74%

8.12%

3.38%

Verizon Communications Inc.

US:VZ 4.42%

7.72%

3.30%

PNC Financial Services Group Inc.

US:PNC 3.67%

12.38%

8.71%

Gilead Sciences Inc.

US:GILD 3.67%

8.81%

5.14%

U.S. Bancorp

US:USB 3.64%

11.34%

7.70%

Cisco Systems Inc.

US:CSCO 3.60%

8.69%

5.10%

ConocoPhillips

US:COP 3.49%

8.44%

4.95%

CVS Health Corp.

US:CVS 3.20%

12.68%

9.49%

Morgan Stanley

US:MS 3.15%

44.31%

41.15%

Source: FactSet

If you see any securities of interest here, it is important to do your own research and not only look at yields and cash flow, but also to consider a company’s business strategy and its ability to remain competitive for the next decade, at least, before considering an investment.

Don’t miss:The coronavirus has sunk cruise line stocks — now it’s time to buy them



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