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Investing 101 Archive

  • You hear it on financial television or read it in the paper all the time: Company XYZ issues a huge stock buyback program. Conventional wisdom says buybacks are sign that the company itself thinks its stock is cheap. In theory, this would be the ultimate "inside information." The reality is quite different.

    In this edition of Investing 101, Greg Milano, co-founder & CEO of Fortuna Advisors, a company specializing in shareholder value consulting, walks us through some of the basics on stock buybacks and sheds light on whether or not they're a reliable signal to buy shares alongside the company itself.

    What's a Buyback?

    Simply enough, Milano says a buyback is just the "act of a company taking some of its cash or some money it might borrow, and buying some of its own shares."

    Significantly, an actual buyback versus one that's just announced, are different things. Often times a company will set a buyback policy of bidding for a stock under the current prices. It's a way for the board of directors to start buying its own shares when the stock price dips.

    Why Would a Public Company Buy Its Own Shares?

    It's not as silly a question as it may seem. Being public means selling a portion of the company to raise cash; usually for the purposes of cashing out insiders and investing in corporate opportunities. Selling shares to the public then buying them back sounds dangerously close to trading your own shares.

    Read More »from Stock Buybacks: Separating Fact From Fiction
  • With dividend tax hikes looming, special dividends being announced, and government security yields at all time lows, it's easy to forget the basics. Specifically, how can you create a portfolio of dividend paying stocks that separates Blue Chip yield from the value traps.

    In this edition of Investing 101, Barbara Marcin, portfolio manager of the four-star rated Gabelli Dividend Growth Fund (GABBX) walks us through the basics of building a portfolio of stocks that spins off some income to patient investors.

    Tip #1: Be Patient and "Layer" into Positions

    Dividend stocks aren't about catching every rally. The idea is to take the long-view and create a portfolio built to last. Marcin suggests investors with a 3-year horizon slowly build positions rather than dive in all at once. "Put in a third now, a third in three months, and a third after that," she suggests in the attached video.

    In a volatile environment, having a set schedule like this keeps investors from getting unnerved and making impulsive decisions.

    Tip #2: Look at the Company Then the Dividend

    Marcin says investors should buy stocks of companies they believe in first and foremost, with the yield coming second. Paradoxically, stocks with high yields can be the least safe on the market. When you see a name kicking off 5 or 6% while the rest of the blue chips are yielding half that, it's a sign that institutional investors are skeptical of both the company and its ability to pay the listed dividend.

    If 2 or 3% seems low to you, Marcin begs to differ. Dividends are "the highest current return available compared to anything 'safe'... Treasuires, CDs, anything."

    Read More »from 3 Tips to Build a Strong Dividend Portfolio
  • Everywhere you turn these days it seems that dividends are making the news. Companies are declaring them and raising them, yield-hungry investors are clamoring for them, and all the while politicians are eying them like never before as fat targets for new taxes. Yes, the lowly little dividend has found itself at the center of the fiscal cliff battle. So for this installment of Investing 101, we take a look at how potential policy changes might affect your portfolio.

    The backdrop for this renewed attention is, of course, the country's dire fiscal outlook and President Obama's proposal to raise taxes to close the gap. As Jeremy Schwartz, director of research at WisdomTree Investments (WETF), points out in the attached video, on January 1 a decade of preferential 15% tax rates is set to end, rising to 20% for capital gains, while dividends would be taxed as ordinary income again.

    "Since the President enacted a 0.9% Medicare payroll tax, plus another 3.8% to fund Obamacare," Schwartz says, "the highest tax on dividends is set to go up to 43% under that scenario for the highest income earners."

    Conventional wisdom suggests that nearly tripling the top tax rate for dividends would lower after-tax returns, thus reducing the overall demand for dividend-paying stocks. However, Schwartz says there "are number of mitigating factors" that would reduce the actual impact — namely the fact that nearly 50% of dividend-paying stocks are held in s0-called "tax insensitive accounts," such as IRAs, pension funds, endowments and non-profits. He also thinks that any sell-off in these stocks would likely be short-lived, as it "could motivate these investors" to scoop up bargains.

    Read More »from What the Fiscal Cliff Means for Your Dividend Stocks


(54 Stories)


Breakout’s Investing 101 helps you gain insight on money management and trading. Whether you’re managing your own retirement account, just beginning, or an advanced investor in need of a good refresher, Investing 101 will help you learn, grow, and keep you informed of the basic steps to effectively manage your money. Expect investing tips that focus on trading strategies, asset allocation, and portfolio management.

Investing 101

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