CPA Client Bulletin Select January 2018

What’s Inside

Investing In 2018: Dividend Stocks
Investing In 2018: Defensive Funds
Small Companies Need Plans for Natural Disasters
Tax Calendar


Factoid: Slippery Slope

From late 2007 to late 2017, oil prices fell from over $100 a barrel to under $50 a barrel.

 

Did You Know ?

 

In 2017, the national median cost of home health aide services was $21.50 an hour. Annualized, based on 44 hours of care per week for 52 weeks, that’s nearly $50,000 a year. Costs are highest in North Dakota (around $64,000 a year) and lowest in Louisiana ($35,000).

Source: Genworth 2017 Annual Cost of Care Survey


Article: Investing In 2018: Dividend Stocks

As of this writing, it appears that 2018 may be a difficult year for investors. Yields on bonds, bank accounts, money market funds, and other savings vehicles are extremely low, with questionable prospects for substantial increases. Stock market indexes, on the other hand, are at or near record levels.
In essence, relatively low-risk places to put your money this year appear to offer scant returns. Equity markets have been rising since early 2009, so the chance of a pullback may be just as great as the possibility of solid gains.
Given this environment, where might investors go for opportunities for respectable returns with some protection against a steep decline? One possibility is in the stock market.

Paying dividends

Equity markets are notoriously difficult to predict. Nevertheless, dividend paying stocks might tilt the risk-reward odds in your favor. During recent bear markets, dividend payers generally fared better than those that didn’t pay dividends.
This seems reasonable because dividend paying companies may be enterprises that generate ample cash flow—enough to distribute some profits to investors. Companies in strong financial condition could be favored by investors in stormy economic weather, and the prospect of ongoing dividend payouts might stem panicked selling.

Floor and ceiling

Whereas dividend paying stocks may offer some protection during down markets, they also might deliver solid returns. The yield on the benchmark Standard & Poor’s 500 Index currently is nearly 2%. That’s the yield for the broad index, so some of the large companies included in the index have dividend yields of 3% or more. When an investment starts with such a payout, it’s less likely to fall into negative territory and is already on the way to possible robust returns.

Dividends can grow, too. Indeed, many public companies have long histories of raising their payouts.

Example: Nancy King is a widow who depends on investment income for her lifestyle. She invests $50,000 in shares of GHI Corp., currently paying a 4% dividend, or $2,000 a year. If GHI raises its annual dividend to $2,500 over the next few years, Nancy will collect a 5% return on her initial investment.

In addition, qualified dividends (see Trusted Advice box) receive favorable tax treatment. Nancy, in a low tax bracket in our example, could owe 0% on qualified dividends. Other taxpayers owe 15% or, for those in the highest ordinary tax bracket, 20%. These rates are lower than ordinary income tax rates. The Trump Administration’s tax reform framework, released in the fall of 2017, does not mention the possibility of ending this tax break.

 

Go with a pro

 

It’s true that dividend paying stocks can offer many advantages. However, investing in equities carries risks; even the most established company, with excellent management, can see its share price tumble in a broad selloff. Selecting individual dividend paying stocks can require thorough research and portfolio monitoring.

 

Therefore, many investors prefer to invest in mutual funds or ETFs that focus on dividend stocks. There are dozens of such funds available, with portfolio managers who are responsible for stock selection. Other funds track a custom index of dividend paying stocks. Dividend stock funds tend to fall into two broad categories:

 

High payout. Some funds are designed to pay higher yields than the S&P 500, perhaps 3% or 4%. They may use “dividend capture” strategies, buying funds just before a dividend payout. High dividends may be appealing, but a robust payout can indicate a relatively low share price due to concerns about the company’s growth prospects.

Dividend growth. These funds may have yields similar to the S&P 500 or lower. However, the stocks they hold are chosen because the companies have enjoyed growing earnings along with rising dividends and are considered likely to continue such profitability. 

 

Quality counts

 

Dividend oriented investors may hold individual stocks, specialized funds, or a combination. They aim to own successful, profitable companies that will provide a steady stream of cash flow, bull market or bad. There’s no magic about dividend paying stocks and there have been instances in which a dividend cut has been followed by a plunging stock price. Still, buying successful companies that pay appealing dividends is one way to approach equity investing this year, with current prices at lofty levels.

 

Download Full Article

 

 

 

 

What’s Inside

 

Investing In 2018: Dividend Stocks

Investing In 2018: Defensive Funds

Small Companies Need Plans for Natural Disasters

Tax Calendar

 

 

Factoid: Slippery Slope[Office1] 

 

From late 2007 to late 2017, oil prices fell from over $100 a barrel to under $50 a barrel.

 

Did You Know[Office2] ?

 

In 2017, the national median cost of home health aide services was $21.50 an hour. Annualized, based on 44 hours of care per week for 52 weeks, that’s nearly $50,000 a year. Costs are highest in North Dakota (around $64,000 a year) and lowest in Louisiana ($35,000).

 

Source: Genworth 2017 Annual Cost of Care Survey

 

 

Article: Investing In 2018: Dividend Stocks[Office3] 

 

As of this writing, it appears that 2018 may be a difficult year for investors. Yields on bonds, bank accounts, money market funds, and other savings vehicles are extremely low, with questionable prospects for substantial increases. Stock market indexes, on the other hand, are at or near record levels.

            In essence, relatively low-risk places to put your money this year appear to offer scant returns. Equity markets have been rising since early 2009, so the chance of a pullback may be just as great as the possibility of solid gains.

            Given this environment, where might investors go for opportunities for respectable returns with some protection against a steep decline? One possibility is in the stock market.

 

Paying dividends

 

Equity markets are notoriously difficult to predict. Nevertheless, dividend paying stocks might tilt the risk-reward odds in your favor. During recent bear markets, dividend payers generally fared better than those that didn’t pay dividends.

            This seems reasonable because dividend paying companies may be enterprises that generate ample cash flow—enough to distribute some profits to investors. Companies in strong financial condition could be favored by investors in stormy economic weather, and the prospect of ongoing dividend payouts might stem panicked selling.

 

Floor and ceiling

 

Whereas dividend paying stocks may offer some protection during down markets, they also might deliver solid returns. The yield on the benchmark Standard & Poor’s 500 Index currently is nearly 2%. That’s the yield for the broad index, so some of the large companies included in the index have dividend yields of 3% or more. When an investment starts with such a payout, it’s less likely to fall into negative territory and is already on the way to possible robust returns.

            Dividends can grow, too. Indeed, many public companies have long histories of raising their payouts.

            Example: Nancy King is a widow who depends on investment income for her lifestyle. She invests $50,000 in shares of GHI Corp., currently paying a 4% dividend, or $2,000 a year. If GHI raises its annual dividend to $2,500 over the next few years, Nancy will collect a 5% return on her initial investment.

            In addition, qualified dividends (see Trusted Advice box) receive favorable tax treatment. Nancy, in a low tax bracket in our example, could owe 0% on qualified dividends. Other taxpayers owe 15% or, for those in the highest ordinary tax bracket, 20%. These rates are lower than ordinary income tax rates. The Trump Administration’s tax reform framework, released in the fall of 2017, does not mention the possibility of ending this tax break.


 [Office1]Email

Include a Factoid section in your next client email, then copy and paste this item.

 

Image tip: Include a photo of a declining arrow or barrels that are full and half full.

 

Twitter

#Factoid: Over the past 10 years, the price of oil has fallen nearly 50% per barrel. [link to newsletter] #Trivia

 

Facebook/LinkedIn/GooglePlus

Factoid:  From late 2007 to late 2017, oil prices fell from over $100 a barrel to under $50 a barrel. That’s a reduction of 50 percent! [link to newsletter] #Factoid #Trivia

 [Office2]Email

Include a “Did You Know” section in your monthly email and include this tip.

 

Image tip: Health care worker

 

Twitter

Trivia: The national, median cost of home health aide services is nearly $50,000 annually. Can you guess which states have the highest and lowest costs? [link to newsletter] #DidYouKnow #HealthCare

 

Facebook/LinkedIn/GooglePlus

How costly are home health aide services?

According to the Genworth 2017 Annual Cost of Care Survey, the national, median cost of annual home health aide services is $50,000. Can you guess which states have the highest and lowest costs? Find out >> [link to newsletter] #DidYouKnow #HealthCare

 [Office3]Email Tip: Include a portion of this story in an email to your clients, then link to the newsletter or your blog page created from this content.

 

Consider the headline, “2018 May Be a Difficult Year for Investors.” Include a snippet from the article, then link to the full story as a “Read more…” [link to newsletter story]

 

Twitter/Instagram

2018 May Be a Difficult Year for Investors
Where to go in case of a steep decline? Here are some ideas. [newsletter link] #Money #Investing [include a popular hashtag for your city/geography]

 

Facebook/Google Plus/LinkedIn

2018 May Be a Difficult Year for Investors

Where might investors go for opportunities for respectable returns with some protection against a steep decline? Here are some ideas. [newsletter link] #Money #Investing [include a popular hashtag for your city/geography]

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