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Forbes
32 minutes ago
- Business
- Forbes
The Latest Debt Downgrade Is Our Shot At Cheap 9% Dividends
This latest US debt downgrade is a buying opportunity for us contrarians. I say that because we had the same (profitable) setup the last three times the ratings agencies took Uncle Sam's credit rating down a peg. You might find that last sentence surprising. Three times? Indeed, the US government has seen its debt downgraded on three different occasions: 2011, 2023 and most recently a couple of weeks ago. You can be forgiven for not remembering all of these: In some cases (2023 comes to mind), they didn't really make headlines. In others, they set up a small dip in stocks (and stock-focused closed-end funds yielding 8%+) that was well worth buying. Let's go through all three occasions and see what they can tell us. We'll also look at how they affected the performance of the Adams Diversified Equity Fund (ADX), a holding in my CEF Insider service. ADX pays a roughly 9% dividend as I write this and sports a discount to net asset value (NAV, or the value of its underlying portfolio) of around 8%. The fund holds some of the biggest (and most credit-worthy!) US stocks, like Apple (AAPL), Microsoft (MSFT) and Visa (V), not to mention top-quality lenders like JPMorgan Chase & Co. (JPM). Let's start in August 2011, when debt-ceiling wrangling in Congress prompted Standard & Poor's to downgrade US government debt. At the time, this move was historic: No agency had ever downgraded the US government's credit, which was considered incredibly safe. What happened next? US long-term Treasuries (in blue below) surged some 20% from the day of the downgrade through the end of 2011. The S&P 500 (in orange) also had a good run, returning nearly 6% over those few months. ADX (in purple) trailed behind, but as we'll see next, this lag made it the best opportunity of the three. ADX 2011 Ycharts Buying the S&P 500 was clearly a smart move here. But playing the contrarian and buying bonds after the downgrade delivered even faster returns. Over the long run, however, it was ADX (in purple below) that won out, with dividends reinvested: ADX Total Returns Ycharts Now let's look at the next downgrade, in August 2023. This time it was Fitch that cut Uncle Sam to the agency's second-highest rating. ADX 2023 Ycharts ADX (in purple above) has returned about 44% since then, as of this writing, well ahead of the S&P 500's 30% gain (in orange). Meantime, Treasuries (in blue) are in the red. Why the difference in government-bond action between this downgrade and the first one? That's another article on its own, but suffice it to say, it had more to do with slower-than-expected Fed rate cuts than the downgrade. The most recent downgrade, just a couple weeks ago, did cause a dip in stocks, ADX and bonds, however—though ADX has fallen the least as I write this. These declines are likely the result of tariff uncertainty, which has caused more anxiety than we saw in late 2023, when stocks were recovering from the 2022 pullback. ADX 2025 Ycharts As you can see above, all three stayed flat until falling a little on May 20, then falling sharply the next day, when Walmart warned about price increases (and therefore lower consumer spending), and Target reported disappointing sales. The smart money did not sell when the news was first released on the 16th, but we are probably seeing more selling pressure as the retailers' warnings have added anxiety. In the coming days, we could see stocks go flat or slightly negative if the sour attitude sticks around. But that would be a buying opportunity—especially for equity CEFs like ADX—similar to the openings we saw in 2023 and 2011. Another important point: the downgrade doesn't impact all US assets. In its announcement, Moody's makes clear that the downgrade impacts America's 'long-term issuer and senior unsecured' debt, but 'the US long-term local- and foreign-currency country ceilings remain at Aaa.' In other words, the downgrade applies to US Treasuries greater than one year in duration (government bonds, basically, up to and including 30-year issues). Those bonds now have the second-highest rating from all three ratings agencies. At the same time, non-government debt issuers in the US can still have the top rating—including American companies. In fact, Apple (AAPL), Microsoft (MSFT) and Johnson & Johnson (JNJ) still have the Aaa rating from Moody's. (Note that ADX holds Apple and Microsoft, so it's a good pick if you're still concerned about credit quality.) Michael Foster is the Lead Research Analyst for Contrarian Outlook. For more great income ideas, click here for our latest report 'Indestructible Income: 5 Bargain Funds with Steady 8.6% Dividends.' Disclosure: none
Argaam
3 days ago
- Business
- Argaam
S&P maintains 'A-' credit rating on GIG; outlook positive
Gulf Insurance Group (GIG) announced that the global rating agency Standard & Poor's (S&P) maintained its 'A-' credit rating on the company with a positive outlook. In a statement to Tadawul, the insurer said the rating reaffirms the company's strong capabilities in managing its operations and financial strategies. It also highlights GIG's ability to achieve growth and profitability while preserving long-term financial stability.
Yahoo
5 days ago
- Business
- Yahoo
Reports may show if economy is toughing out tariffs
An observation one hears regularly from everyone from Federal Reserve Chairman Jerome Powell to stock market bulls goes like this: "Gee, this economy is doing pretty well. What's everyone worried about?" This week may well see many economic analysts offering a one-word answer: "Plenty." 💵💰 💰💵 There will be separate reports on how consumers feel. The National Association of Realtors will offer a report on pending home sales. On Wednesday, the Fed will release the minutes of its last meeting, held on May 6-7, which will shed light on its current maybe we will see soft data and hard data start to converge. The soft data — which gauges how people look at things — will come from the Conference Board Tuesday morning with its Consumer Confidence report. In April, the business-research group said consumer expectations for the future dropped to its lowest level since October 2011. The opinion on present conditions was down only a little. The report took survey responses until April 21 — not long after the stock market greeted President Trump's tariff plan with a huge Bronx cheer. The Standard & Poor's 500 Index fell 12.1% over the first four days after release of the plan; it was off as much as 14% at one point. So, one can understand if opinions were, shall we say, frayed. The index is up 12.5% since April 21 — and 16% from the post-tariff announcement low. However, thanks to President Trump's threat on Friday to slap Apple () and the European Union with big tariffs, it is still off 1.3% for the year. (On Sunday, the president said he would suspend the EU tariff increases until July 9. Stock index futures promptly rallied.) A second bit of soft data will come Friday from the University of Michigan's revised Consumer Sentiment Index for May. Like the Conference Board, this survey looks at current and future expectations. The index has been trending lower for some time, with worries about tariffs and the economy top of mind. At the end of April, a report from Oxford Economics forecast that U.S. industrial output would shrink by 0.8% between 2025 and 2026 as a direct result of the tariffs. The hard data that should shed light on the issue comes Thursday with the weekly report on jobless claims. Any kind of a jump will be worrisome. (Hard data is based on government and related reports.) So, too will the National Association of Home Builders' pending home sales report, also due Thursday. (The survey measures contracts signed but not yet closed.) The April report showed gains, but that may have been due to winter weather easing. This one won't have weather as a factor. The street estimate is for a 1% decline. The report will list interest rates as a worry. Mortgage rates were hovering right around 7% on Friday, up from 6.6% at the end of is a big-time issue for many buyers — a function of price and financing. Mortgage rates have been troublesome this year. Big home builders have been forced to subsidize mortgage rates to get sales to close. But, in many cases, sales have fallen apart. One in seven home sales — about 56,000 deals — fell through in April, online real-estate company Redfin reported last week. That was the highest cancellation Redfin () had seen since since the Covid-19 pandemic erupted in 2020. Redfin has been collecting data on the topic since 2017. One more housing report to watch: the Case-Shiller National Home Price Index for March, released by Standard & Poor's Core Logic. The February report showed 4.5% home-price inflation with the New York area seeing 7.5% year or year gains. Tampa saw a 1.5% decline. Because the act of buying a home generates a large amount of ancillary spending: appliances, power tools, lawn mowers, curtains, paint, furniture. Economies in states like Florida, Texas and Arizona depend on housing growth. Housing has had a weak year. You can see it in the iShares U.S. Home Construction exchange-traded fund () . It tracks homebuilding and home-improvement stocks and was down 0.5% on Friday. It's down 13.2% in 2025. The ETF's include Lowe's Companies () , paint maker Sherwin-Williams () , and home builders Lennar () and PulteGroup () . More Economic Analysis: Fed inflation gauge sets up stagflation risks as tariff policies bite U.S. recession risk leaps as GDP shrinks Like it or not, the bond market rules all Durable goods orders from the Commerce Department. Orders jumped 7.5% in March as businesses bought equipment and to get ahead of tariffs. Look for a decline in April. Due Tuesday. The Personal Consumption Expenditures Index from the Commerce Department — and the Fed's preferred inflation measure. The Street estimate is 2.3% year over year and 2.6% once food and energy are stripped out. The numbers would confirm the likelihood the Fed leaves its key federal funds rate at 4.25% to 4.5% until at least July. Due Domestic Product — the government's snapshot of economic activity. The Street estimate is for a 0.3% decline in its first revision. Due Thursday. Chicago Business Barometer. From the Institute of Supply Management. This is seen as a leading indicator the domestic economy. The April index was 44.6%, meaning business was declining. The report also suggested that businesses were adding temporary surcharges to cope with tariffs. Due may show if economy is toughing out tariffs first appeared on TheStreet on May 27, 2025 Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Forbes
6 days ago
- Business
- Forbes
Five Companies That Consistently Buy Back Their Own Shares
The MetLife corporate logo at the top of a New York city skyscraper. MetLife is one of several ... More companies that stand out for consistently buying back their own stock. Photo byWhen a company buys back its own shares, shareholders often benefit. With fewer shares outstanding, each share is likely to be worth more. In the past 20 years, buybacks have become increasingly popular. Many companies prefer them to dividends because they have a softer tax impact. Dividends stick shareholders with taxes on their next tax return, while buybacks don't. Of course, companies can also do both – dividends plus buybacks. Buybacks can be a sign that a company's board of directors considers the company's stock undervalued. To be sure, buybacks are a bad idea if a company takes on excessive debt to fund them, or if the buyback siphons off cash that would be better used to beef up the company's core business. On the whole, though, I view buybacks as a good sign. Standard & Poor's has a Buyback Index (basically the 100 stocks in the S&P 500 with the highest percentage of buybacks). In the past five years, it has beaten the S&P 500 Total Return Index by about seven percentage points cumulatively, returning 16.29% a year versus 15.61% for the S&P 500. Over the past 25 years, the Buyback Index has outperformed the benchmark S&P 500 18 times out of 25. Here are five companies that stand out for their consistent use of buybacks. Each has bought back more than 4% of its shares per year over the past one, three and five years. MetLife Inc. (MET), based in New York City, is one of the largest insurance companies in the U.S. It specializes in group benefit packages. Last year it took in about $45 billion in premiums, and another $18 billion or so in investment income. It paid out roughly $43 billion in claims. In the past five years, MetLife has bought back, on average, 5.8% of its stock each year. During that time, the stock has risen about 114%. The stock seems reasonable priced to me, selling for less than 13 times earnings and about 0.75 times revenue per share. Nobody wants homebuilding stocks these days. Mortgage rates are unpleasantly high, and home prices are steep (a mixed blessing for homebuilders). New home sales this year have been weak, bordering on terrible. Several homebuilding companies have been buying back their own stock. One that I like is PulteGroup Inc., whose average home sells for about $570,000. That's a few notches higher than the U.S. average (about $504,000) and median price (about $438,000). Who knows when industry conditions will improve? It's not clear, but if you're a patient investor, you can take heart from the fact that homebuilders have enjoyed periodic booms in the past. Pulte stock, like that of other homebuilders, is cheap at present, selling for about seven times earnings. Pulte has bought back about 6% of its stock annually in the past five years. Also at seven times earnings is Academy Sports and Outdoors Inc. (ASO), which has its headquarters in Katy, Texas. It has averaged a 4% buyback in the past five years, and picked up the pace to 8% last year. Wall Street analysts are split on Academy. Of 20 analysts who cover it, half rate it a 'buy' or 'outperform' and half don't. But the average one-year price target for all analysts is more than $55, well above the current market price of less than $41. A nearly debt-free choice is Employers Holdings Inc. (EIG), out of Reno, Nevada. It's a workers' compensation insurer, concentrating on 'small and mid-sized businesses engaged in low-to-medium hazard industries.' Growth has been slow here, but profitability has been consistent: No losses in the past 23 years. The company has only a speck of debt, and more than $26 in cash for each dollar of debt. Known for high-end cookware and home goods, Williams-Sonoma Inc. (WSM) has seen its stock quadruple in the past decade. It has been astonishingly profitable, with a return on equity recently of 52%. Analysts obviously think the party's over: Our of 25 analysts who cover the stock, only five recommend it. The reason for analysts' gloom is obvious: The company imports about 23% of its merchandise from China, the target of the harshest tariffs proposed (though currently paused) by the Trump administration. The stock is down more than 15% year to date (through May 23). It sells for about 18 times earnings, which I think is not bad considering that Williams-Sonoma has grown earnings at better than a 22% annual clip for the past ten years. Disclosure: I own MetLife for some of my clients.
Forbes
19-05-2025
- Business
- Forbes
The Tax Revenue Problem Affecting The U.S. Credit Rating Downgrade
A sign for Moody's rating agency is displayed at the company headquarters in New York, September 18, ... More 2012. AFP PHOTO/Emmanuel Dunand (Photo credit should read EMMANUEL DUNAND/AFP/GettyImages) Moody's has cut the U.S.'s sovereign credit rating from the highest possible rating (Aaa) to one notch below (Aa1). According to CNBC, the agency lowered the rating due to the growing burden of the federal government's deficit and the rising costs the U.S. now faces due to interest rates. Moody's joins Standard & Poor's, which downgraded the U.S. in August 2011, and Fitch Ratings, which downgraded the U.S. rating in August 2023. The U.S. credit rating has significant market wide effects, as demonstrated by the Dow, S&P 500, and NASDAQ indices all being down at the start of trading. In this article, I discuss these effects and why U.S. tax revenues are affecting this downgrade. Like individual consumers, rating agencies provide sovereign countries with a credit rating. The country then uses this rating to issue debt; better ratings allow countries to pay lower interest, and weaker ratings require countries to pay higher interest. Six factors are important in determining a country's credit rating: per capita income, GDP growth, inflation, external debt, level of economic development, and default history. A credit rating agency like Moody's independently evaluates a country on these primary factors and more to provide a rating that ranges from Aaa (highest quality and lowest credit risk) to C (lowest quality, usually in default and low likelihood of recovering principal or interest). According to Forbes, Moody's is concerned that the government's debt is a significant contributor to the U.S. credit rating downgrade. This debt sits at an inflection point at the House of Representatives, which is in the process of developing and passing Trump's second major piece of tax reform. If passed, this tax bill will make many of the original provisions from the 2017 legislation permanent and will lower tax liabilities for many U.S. taxpayers. As reported by Reuters, this bill would add $3 trillion to $5 trillion to the U.S. debt (which currently sits at $36.2 trillion). As this debt continues to accumulate, the U.S. increasingly faces the risk of default, which has undoubtedly influenced Moody's decision to downgrade the credit rating. While tax collections are not one of the six explicit factors highlighted above, they appear to be a significant driver of Moody's decision. For instance, Fortune cites a statement by Moody's that interest payments on U.S. debt will take up 30% of [tax] As with any tax revenue problem, the U.S. has two options: spend less money or collect more money. In terms of the former, the U.S. appears to be poised to continue to increase spending via many of the provisions from the 2017 Tax Cuts and Jobs Act being renewed and made permanent. As reported by Forbes, several additional provisions are expected to be added, like enhanced State and Local Tax Deductions, increased Child Tax Credits, higher Federal Estate Tax exemptions, and tax deductions for corporate R&D activities. While the current House bill does have plans to increase collections from places like university endowments, The Tax Foundation estimates a significant increase in spending over the next ten years to the tune of over $4 trillion. In terms of the latter, the current administration appears to be set on diminishing the U.S. ability to collect tax revenues. As reported by Forbes, the IRS workforce continues to be dissolved, which can lead taxpayers to avoid or evade income taxes at higher rates. Academic research published in The Accounting Review provides evidence that funding the IRS is critical to enforcing tax laws and that the amount of tax revenues collected from IRS enforcement exceeds what the U.S. must spend to fund the agency. Put differently, for every dollar the U.S. invests in the IRS, the study suggests that more than one dollar gets returned in the form of higher tax collections. Given the signals Trump and the House of Representatives have sent regarding their plans to lower tax revenues, lax tax law enforcement, and raise debt, it is unsurprising that Moody's has responded with a credit rating downgrade. While the U.S. no longer has a perfect credit rating with any of the three major credit rating agencies, it is important to point out that it is just one notch below perfect. With an agency like Moody's, there are 22 notches, and moving from Aaa to Aa1 does not suggest imminent financial disaster. However, this lower credit rating means the government will pay more money for its debt. These impacts are already seen with U.S. 10-year treasury yields moving above 4.5%. Higher treasury yields tend to trickle down to individual taxpayers with higher borrowing costs for things like mortgages and car loans, which can slow down the economy. Given this warning signal sent by Moody's, the U.S. may want to consider expanding tax collections as a means to offset the negative impacts of a credit rating downgrade.
