The insistence of this market to fall – even though profits are soaring – has opened up a strong buying opportunity for dividend investors.
And we’re going to tap into that to get a rare “double discount” on an 8% yielding closed-end fund (CEF) that has noticed. This revenue and growth machine has soared 260% since its inception and has the potential to smash stocks this year, thanks to its undue decline.
More on that below. First, let’s talk about this disconnect on the stock market, as recent declines have lowered the price-to-earnings ratio of the S&P 500 to 23.8. It may not sound cheap, but it is far away Under last year at this time, when valuations reached a nosebleed of 43.7.
Stocks fall is part 1 in our discount story …
This is a complete disconnect from the earnings trend, which is spectacular:
… soaring profits are part 2
This chart tracks the earnings of S&P 500 companies in the fourth quarter of 2021, and what we are seeing is one of the best quarters recorded. A whopping 77% of companies saw earnings per share above expectations, with earnings of 8.6% above S&P 500 companies’ expectations for the end of 2021.
It just continues a trend we have seen throughout 2021.
Overall, profits rose by almost 90% in 2021. While much of this is due to the fact that 2020 was a terrible year, the fact is that profit growth is expected to continue, with companies expecting a 5.5% increase for the first half of 2022. Economists expect GDP growth of over 3% for the whole year.
The factory of fear
With so many strong economic indicators and a lot of earnings growth behind us, stocks Must Rise. So why are they not?
While geopolitical chaos is certainly dragging on in the short term, stocks began to decline before the crisis in Ukraine, as investors considered inflation risks for the wider economy. This risk has been heightened in article after article in the press, which has said that skyrocketing food and gas prices are pushing more people into economic stress.
The only problem? This is not exactly true.
Consumers shun inflation fears
One of the surest ways to test whether Americans are struggling is to see if they take on a lot of debt in order to survive. And although credit card debt has risen in the past year, it is nowhere near where it was before COVID and not even where it was in 2008, when at least Americans had credit cards and consumer prices were much lower.
When we look at the profits of Americans, things seem brighter than ever.
Wealthier employees than there were before the COVID
While revenue has indeed declined for a short time due to COVID-19, it remains at the highest level in history, other than the jump in late 2020 from stimulus tests.
And while the data does not show that Americans are as rich as the one-time maker did, they do show that they are richer than they were before COVID-19 – and by a large margin. Throw away a low historical unemployment rate of 4% and I think you will agree that we have a much more rosy economic picture than the media makes us believe.
How to buy at a big “double discount”
With such strong economic foundations in the US, it is quite clear that the recent sale in the market is much excessive.
We can look at history to get a hint of how such a sale could develop: there was a similar decline in early 2016, in a similar economic climate (just like then, markets are preparing for the Fed to start rising rates as the economy recovers following many generous bouts of quantitative easing). And since then stocks have soared.
The 2016 Panic Sale was a great buying opportunity
CEF at a bargain price gives us a second discount deal
Now, you can simply buy the S&P 500 through an index fund like the SPDR S&P 500 ETF (NYSE: spy) And be done with it. But why do it when you can get a lot of those stocks even cheaper – and with a dividend six times what SPY pays?
With CEF as Nuveen Core Equity Alpha Fund (NYSE: JCE), You get both of these things, thanks to the 8% dividend yield and its discount to net asset value, or NAV.
This is a discount that only exists with CEFs (ETFs, for their part, Always Trade in value).
And in JCE’s case, it amounts to a 5% “bonus” deal: while JCE’s portfolio may close for about $ 250 million today, JCE shares are actually valued at about $ 238 million. So with JCE, you get great stocks like Apple Inc. (NASDAQ: AAPL), Microsoft (NASDAQ: MSFT), Amazon.com (NASDAQ: AMZN) And other established S&P 500 names, but you pay less than if you bought these companies outright!
What’s more, JCE has recently raised its dividend by 30%, thanks to its excessive profits in recent years. Go further back and you will see that there is an amazing record behind it: Even after the last sale, JCE has risen more than 260% in the last 15 years.
JCE jumps, with most of its cash dividend profit
I think you will agree that JCE, with its double discount and growing 8% dividend, is a much better way of buying an ETF, especially in today’s uncertainty market.
8%-Yielding Fund Soared 260% (It’s Just Getting Started) Source link 8%-Yielding Fund Soared 260% (It’s Just Getting Started)