An Alternative To Money Market Funds
August is behind us and both the Dow Jones Industrial Average and S&P 500 continued their retreat from their all time highs during the second quarter. China’s economy continues to struggle, along with the economies of other emerging market countries. During August, China devalued its currency while its central bank cut interest rates for the 5th time since November.
Interest rates in the US and Europe remain low as the Federal Reserve has kept rates at zero in 2015. The Fed will meet September 16-17 and is not expected to raise rates at this meeting with the global economy weak. In fact, Barclays, the highly regarded international investment bank, now forecasts the Fed will not begin raising rates until early next year. The Fed’s final two meetings of 2015 are set for October 27-28 and December 15-16.
Several retailers reported disappointing results last month. Walmart, Tiffany’s and Whole Foods hit their 52 week lows after providing weak results and guidance in August. Meanwhile, Williams Sonoma shares plunged after it provided weak guidance going forward. These retailers reinforced the view that consumers from the upper middle class down to the lower income bracket have curbed their spending.
Tumbling crude oil prices drilled the shares of the oil majors leading several analysts to predict the oil majors will cut their dividends to conserve cash. These concerns seem overdone as these firms have exceptionally strong balance sheets and cash flow. Exxon raised its dividend in April for the 33rd straight year. Chevron has raised its dividend 27 straight years and Occidental has increased its dividend 13 straight years. Conoco has paid a dividend 37 consecutive years, raised its dividend again in July, and has never once cut its dividend.
Schlumberger has agreed to acquire Cameron International for nearly $15 billion in cash and stock as the energy sector continues to consolidate due to low oil prices. Back in November of 2014, Halliburton agreed to acquire Baker Hughes for nearly $35 billion in cash and stock in another oil services combination and should close by year’s end. Southern Co. agreed to acquire AGL Resources last month for about $8 billion in cash or $66 per share. Upon completion, Southern Co. will be the 2nd largest utility in the US based on revenue.
Maintaining a defensive stance continues to be our focus as we employ our conservative dividend capture strategy. Even though sectors such as the major telecoms, utilities, the major oils and the oil and gas pipelines have fallen out of favor, these companies offer generous dividend yields with the opportunity for significant capital gains over the next year.
My weekly radio show on WWPR 1490 AM will return at 2pm on Friday, September 11. The show can also be heard live on the station’s website (www.1490wwpr.com). My prior radio shows and news columns are available on my firm’s website (www.amescapmgmt.com).
If you are unhappy with the returns now offered by money market funds feel free to contact us.