Window Closing on These Stocks
The major market indices have been on a tear in 2024. The S&P 500 continues to hit one record high after another. And the Dow hit an all-time closing high last Friday.
But, if we look beyond these benchmarks, there are groups of companies that have been left behind.
The S&P 500 is up 95.5% over the past five years. The top-performing sectors during that time were Information Technology and Communication Services, up 177% and 75%, respectively. The sectors we typically look at for new Bedrock Income positions haven’t been so hot.
The Consumer Staples sector was the third worst performer the last five years, returning just 38%. Real Estate and Utilities were the worst with gains of 14% and 25%, respectively. The bright spot in these boring dividend-paying sectors is valuations, with below average P/E ratios. But this is about to change.
The Fed just made a half-point interest rate cut. This will ripple through the banking system with lower rates on savings accounts and CDs. It won’t happen overnight, but it will happen.
And don’t forget, the Fed has two more chances to cut rates further before the end of the year.
Which means as we roll into 2025, investors will once again be looking to put their money in solid stocks with higher dividend yields.
Don’t Chase These (or Any Other) Stocks
Evidence of this movement is already hitting the market. Over the last month, five of the Yield Shark Bedrock Income positions have hit new 52-week highs.
Remember that share price and yield are inversely related. So, while it’s good for us to see share price gains, it also means lower current yields. That’s a problem if we want to add to or start a new position.
It has also pushed quite a few stocks above our recommended buy-up-to price. I calculate this price based on the yield I think we should get paid for holding a stock.
I do not have a black box system or a secret formula for coming up with these target yields. However, I do have over a decade in this industry and a pretty keen eye for patterns. So, yes, I use subjective yield targets.
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The current yield on some of our positions has dropped below our 3.5% minimum. I believe that anytime you put your money at risk you deserve to earn at least that much yield. This was even more true when interest rates on CDs and money market accounts climbed to 5%+.
As the rotation back into dividend stocks gains steam, we need to stick to this rule. As more money moves into stocks and sectors known for their dividends it will push stock prices higher… and the dividend yield falls away.
Out of the 10 Bedrock Income stocks currently labeled “buy,” half of them are above our recommended buy-up-to price. It will only get harder to find great dividend stocks over the next few months.
Lock In 5.7% on This Plastics Giant
Consumer staples and utilities are great places to look right now. To find the best deals, think about companies that sell boring but essential products and services that investors have ignored so far in 2024. Here’s one of them.
LyondellBasell (LYB) is a global chemical giant, and falls in the materials sector of the market. The meat and potatoes of its business is plastics recycling.
A lot of things we use every day are made of two or more types of plastics. This makes them nearly impossible to separate and recycle using conventional recycling techniques. LYB makes this possible through its development of innovative separation processes.
LYB generated $2.1 billion in net income and $4.5 billion in EBITDA in 2023. It is completely changing the future of plastics recycling.
During the second quarter, the company had net income of $924 million and diluted earnings per share of $2.82, both up 29% year over year. On top of this, management has identified assets to sell and others to acquire to keep the business focused on its core portfolio.
I first recommended LYB shares in October 2022. And Yield Shark readers are currently up 26.6% including dividends. If you add shares to your portfolio, you can still lock in a 5.7% yield. Our target yield is 4.75%, which makes the buy-up-to price $112.84.
So, if you’re looking for a great Bedrock Income stock before share prices head higher, LYB is my number-one recommendation right now.
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For more income now, and in the future,
Kelly Green
P.S. Yesterday, in the latest issue of Yield Shark, I introduced my readers to a pharmaceutical stock that is still beaten down by the market. We’re marking it a Current Yield stock right now, but I think it has the potential to become a long-term holding. As always, if you want all the details, you can try out Yield Shark with our money-back guarantee.
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