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Successful "INCOME" Investing Isn't Only About The "YIELD"

Friday, August 12th, 2022
Successful "INCOME" Investing Isn't Only About The "YIELD"

Suppose I offered you a million dollars "CASH" today???

OR... I could give you one penny today, two pennies tomorrow, four pennies the following day, and so on, for an entire month.
Many would choose the "COOL" million. After all, option B would only yield a grand total of $1.27 after the first week and $163.84 after the second. But that amount will continue to grow "EXPONENTIALLY". A steady doubling would produce a little over "$5 MILLION" after thirty days.
You’re probably familiar with stories like this. They’ve been around for ages.

For example, there’s an old folk tale involving a king and a peasant that illustrates the same concept. After doing a favor for the king, the peasant asks for a seemingly humble request: To receive one grain of rice for the first square on a chessboard, two for the second, and so on until reaching the 64th square.
We already know that by the 30th square, the peasant would be looking at a "HALF BILLION" grains of rice — probably enough to make him the wealthiest person in the kingdom.
So where am I going with all this???
Well, it’s simple. As investors, YOU, ME, WE, the ATWWI FAMILY can not underestimate the importance of "DIVIDEND GROWTH" over time. A stock might only dish out a few pennies per quarter today. BUT over time, that distribution could multiply several times over, greatly enriching shareholders.

Systematically Build Wealth Over Time
So let’s try this another way...

Would you invest in a stock with a dividend yield of 1%??? Probably not if you’re an "INCOME" investor. BUT, by definition, dividend investing is a "LONG TERM" approach to "SYSTEMATICALLY" build wealth over time. So it’s not about what a stock paid last quarter, but what it might distribute over the next 10 to 20 quarters or more.
That being the case, dividend growth prospects should ALWAYS factor heavily into your decision.

Consider Lowe’s (LOW). Just 10 years ago, the home improvement retailer offered a meager 16-cent quarterly dividend, barely enough for a payout of 2%. But the distribution rose relentlessly each and every year thereafter. Before long, the dividend doubled, and then nearly doubled again. The latest hike brought the quarterly payment up to $1.05.

This is what gets lost on most investments… Sure, the stock has gone on an amazing run. But investors who bought just a decade ago are also earning a yield-on-cost of nearly 20%. Also, they would have collected substantially more income along the way than with stocks that had a higher starting yield, but fewer and smaller dividend increases.
Meanwhile, the strengthening bottom line that fueled those dividend hikes has also propelled the stock from around $22 to nearly $200. So the dividend yield hasn’t really changed much over the years and still stands around 2%. But investors would be sitting on a total return more than 800%.

One last hypothetical scenario:

Would you rather take a job that pays a flat $50,000 annual salary with no growth, or one that pays $40,000 to start, with 10% yearly pay hikes?
The first job would generate $500,000 in cumulative salary over the ten-year period. The second, while less lucrative in the early years, would reach $50,000 in salary by the fourth year and continue to grow ever higher. By the tenth year, you would be pulling in $94,000 annually and would have earned a total of $637,000.
Now, if we drop the extra zeroes and add a percent sign, you see what I’m really getting at.
While a 2% or 3% yield won’t put as much money in your pocket today as a 5% yield, it might well generate significantly more cash over the next five to 10 years if the payouts are growing at a faster pace.
If the math is compelling for stocks with modest 2% yields (like Lowe’s), then you can imagine the potential for stocks that yield more and continue to raise their dividends well into the future.
Thus, it is evident, "INCOME" investing is not just about the "YIELD"..."DIVIDEND GROWTH" is the weapon that get's you "P.A.I.D."!!!

It’s about to become even more popular for a couple reasons.
1) Stocks with rapidly rising dividends will help investors be better equipped to keep pace with inflation.
2) Strong double-digit dividend growth is becoming increasingly hard to find.

Kenneth Reaves, Ph.D.

Two (2) Stocks That Will Get You "P.A.I.D." During The 2022 Recession and Beyond

Thursday, August 11th, 2022
Two (2) Stocks That Will Get You "P.A.I.D." During The 2022 Recession and Beyond

Let’s take a look at how this recession will affect the giant mega-cap companies that most investors follow, and smaller companies operating in specific business niches.
The difference will show you where to put your money to "WORK" at next…
It would be very difficult, if not impossible, for huge, publicly traded companies like Apple, Walmart, Google, and Amazon not to have their business results track the ebb and flow of the broad economy. I see these large companies as being the broader economy. If the economy slows or enters recession, their business will likely follow.
When we look at smaller companies, the individual business may operate in areas that are not directly affected by the broader economy, or may even be countercyclical. For example, as we have discussed, vehicle "REPO" work gets very busy during a recession.
Looking more towards investing, apartment owners the in the Sunbelt benefit from falling home purchase affordability and the general migration to warmer, lower-tax states. 
My point is that there is a tremendous difference when analyzing mega-cap stocks compared to the investment prospects of smaller companies.

Business Development Company (BDC) stocks give us a double portion of investing goodness into smaller companies that are doing well in a tough economy.
BDCs provide debt and equity financing to their small to mid-sized corporate clients. By law, they operate low-leverage businesses, so rising interest rates don’t add a lot to expenses. On the flip side, the loans made to BDC client companies are almost 100% adjustable rate. As a result, rising interest rates positively increase BDC interest rate spreads.
The client companies of a BDC are, by definition, smaller businesses with the flexibility to quickly change to meet current economic conditions. The BDC will receive the loan payments as long as a client company stays in business. Many BDCs also take some equity in their clients, so when the clients thrive, the BDCs share in the gains.

My thesis was proven out by two dividend announcements made this year (2022).

With a $9.5 billion market cap, Ares Capital Corp (ARCC) is the largest of the publicly traded BDCs. Last week the company announced it had increased its dividend by 2.4%, to $0.43 per share. The boost is well above the 1.6% five-year average annual increase. ARCC yields just under 9.0%.

In February (2022), Hercules Capital Inc. (HTGC) announced a $0.15 per quarter supplemental dividend on top of the $0.33 regular dividend to be paid for all four quarters of 2022. Last week Hercules increased its regular dividend by 6.1%, to $0.35 per share. HTGC yields 9.6% based on the regular dividend.

Despite the slowing economy, these two BDCs and their portfolio companies are doing fine and will get you "P.A.I.D." inspite of the current "RECESSION".

Kenneth Reaves, Ph.D.

Three (3) Cybersecurity Stocks That Are Poised To Get You "P.A.I.D."

Wednesday, August 10th, 2022
Three (3) Cybersecurity Stocks That Are Poised To Get You "P.A.I.D."
Tech stocks are rallying. Within the sector, cybersecurity stocks offer the best combination of growth and value especially as the sector’s importance grows everyday. Read on to find out why YOU, ME, WE, the ATWWI FAMILY should consider buying top cybersecurity stocks like Fortinet (FTNT), Qualys (QLYS), and OneSpan (OSPN).
After more than a year and a half of a brutal bear market, tech stocks are finally catching a bid. Since the mid-June lows, the Nasdaq 100 (QQQ) is up 17.4%. Some of the factors behind the rally are an unwinding of extreme bearish sentiment, the Fed’s “dovish hike’, and a better-than-expected Q2 earnings season.
To be clear, the economy and stock market continue to face significant challenges. However, it’s quite likely that tech stocks will bottom before the broader market just like they topped well before the Dow Jones Industrial Average and the S&P 500. Within the tech sector, YOU, ME, WE the ATWWI FAMILY should consider cybersecurity stocks especially as these companies continue to deliver earnings growth while their total addressable market (TAM) continues to expand at a healthy clip.
Additionally, cybersecurity continues to grow in importance. It’s a necessity for every company to secure their cloud infrastructure and IT stack which are increasingly integral to daily operations. It’s also an area of national security importance as cyberspace is another frontier on which countries battle. Given the bear market in stocks and improving prospects for cybersecurity stocks, YOU, ME, WE, the ATWWI FAMILY should consider these three (3) cybersecurity stocks for inclusion into our portfolios upon completion of our ATWWI "DRILL DOWN".

1) Qualys (QLYS)
QLYS is a pioneer and leading provider of cloud-based IT, security, and compliance solutions. The company offers Qualys Cloud Apps, Threat Protection, Continuous Monitoring, Multi-Vector Endpoint Detection and Response, and Web Application Scanning, among other solutions. Its customers include enterprises, government entities, and small and medium-sized businesses across several industries.
QLYS has been an impressive outperformer as it’s only down 10% YTD and is up 19.8% over the past year. The major factor is that unlike so many other tech and cloud-based stocks, it’s continued to see impressive growth in terms of earnings and free cash flow. Additionally, the need for security regarding cloud-based applications continues to grow at a faster rate than in other markets, and QLYS is one of the premier companies in this space.
In its last quarter, QLYS had revenue growth of 17%, and an increase in operating income of 27%. Next quarter, analysts expect this pace of growth to continue with an 18% increase in revenue and 31% jump in operating income.
From a more qualitative sense, QLYS offers investors an opportunity to buy the leading cloud security companies at a very reasonable valuation. 
Within the Software – Security industry, it is ranked #5 out of 29 stocks.

2) Fortinet (FTNT)
FTNT is a provider of cybersecurity and networking solutions and services. Its customers include enterprises, communication service providers, government organizations, and small businesses.
It’s a leading provider of firewall services and VPN services. Its premier product is FortiOS, which is a network operating system to manage network security appliances. Its cloud security offerings are available for deployment in public and private cloud environments and include application security.
Like QLYS, FTNT has been a relative outperformer with a 9% gain over the past year. While most tech stocks have been mired in a brutal bear market, FTNT has consolidated in a tight range, indicating that institutions are using adverse market conditions to accumulate shares.
Over the past year, FTNT’s revenue has increased 34% to $954.80 million. More impressive is that its revenue is accelerating. Next quarter, analysts are expecting 35% revenue growth and 39% EPS growth.

3) OneSpan (OSPN)
OSPN is a provider of digital solutions for identification, security, and business productivity. Some of its most well-known products are OneSpan Sign, which captures and processes a range of e-signatures for transactions, OneSpan Cloud Authentication, a cloud-based multi-factor authentication solution, and OneSpan Identity Verification, which enables identity verification services for banks and financial institutions.
Compared to its peers, OSPN has been an underperformer with a 35% YTD decline. However, the company is well-positioned in a growing market. For the full year, the OSPN is forecasting adjusted EBITDA between $5 million and $7 million. It also sees annual recurring revenue growth between 16% and 18%.

Kenneth Reaves, Ph.D.

Multiple Recession-Resistant Dividend Paying Stocks

Tuesday, August 9th, 2022
Multiple Recession-Resistant Dividend Paying Stocks
On Thursday (July 28th, 2022) the U.S. Bureau of Economic Analysis reported that real gross domestic product (GDP) decreased at an annual rate of 0.9% for the second quarter of 2022 — marking the second consecutive quarter of declining real GDP. Real GDP is a more useful measure than GDP because it factors in inflation. A declining real GDP number indicates that inflation is outpacing the economy’s ability to grow. Similarly, real GDP declined in the first half of 2020 due to the COVID-19 pandemic-induced recession.
If you have mounting recession fears or are concerned about rising interest rates, you aren’t alone. However, selling everything isn’t a wise long-term option. Instead, it could be a good idea to turn your attention toward top companies that have endured past economic downturns. Procter & Gamble (PG), Essential Utilities (WTRG), and Baker Hughes (BKR) are three (3) dividend stocks that can outlast a prolonged recession. Here’s why each is a great buy now...

A low-risk, low-reward investment opportunity
Procter & Gamble (PG): In response to its Q4 fiscal 2022 results, Procter & Gamble stock fell 6.2%. The consumer staples giant posted lower volumes across its beauty, grooming, and fabric and home segment, and flat volume growth in healthcare as well as baby, feminine, and family care. Its results were also impacted by adverse foreign exchange effects.
However, P&G was able to grow its fiscal 2022 sales by 5% and diluted earnings per share by 6% compared to fiscal 2021. It also returned $8.8 billion to investors through its dividend and $10 billion through share repurchases. P&G also kept its Dividend King streak alive — it has paid and raised its dividend for 66 consecutive years. P&G has a dividend yield of 2.6%. Utilize our ATWWI 'DIVIDEND OPTION TRIFECTA STRATEGY" to strategically "ACTUALIZE/MONETIZE" P&G.
P&G’s product mix is largely focused on "ESSENTIALS" across different price points — which allows customers to cut spending while staying within the P&G umbrella of name brand products.
P&G’s consistency and ability to support its massive share buyback and dividend program with cash, not debt, make it one of the premier passive income stocks on the market. P&G isn’t going to wow investors with outsized growth. However, it isn’t a particularly innovative company. But it is a reliable business that comes through during good times and bad.

Dive into this recession-ready dividend stock
Essential Utilities (WTRG): Cancelling a streaming service. Eating at home more frequently. These choices will figure prominently in consumers’ thoughts during a recession. Drinking less water, though??? NOT A CHANCE!!! Cutting water consumption is hardly a consideration to stretch the family dollar. Consequently, water utility stocks like Essential Utilities — and its 2.1% forward dividend yield — provide a solid defensive investment.
It’s common for investors to turn to conservative investments like utilities during times of economic uncertainty. Over the past six months, shares of Essential Utilities are up 8.5% while the S&P 500 has sunk 7.4%, but that doesn’t mean that the stock is too pricey to pick up right now. In fact, it’s trading at 30 times trailing earnings — a discount to its five-year average P/E of 35.
Companies are currently wrangling with supply chain and energy cost headwinds, but Essential Utilities is much less sensitive to these issues plaguing its top and bottom lines. This, as well as the fact that Essential Utilities has an investment-grade balance sheet, should pique the interest of risk-averse investors. The company’s average payout ratio of 66% over the past decade is icing on the cake.
Unlike regional water utilities that may be affected by adverse local weather conditions, Essential Utilities mitigates risk by providing water and wastewater service to millions of customers in various states across the U.S., including (but not limited to) Texas, North Carolina, Pennsylvania, and Illinois. In addition, the company diversifies its revenue stream by providing gas service to customers in West Virginia, Kentucky, and Pennsylvania. For ATWWI FAMILY members looking to grow some passive income while waiting for the recession to recede, Essential Utilities deserves a place on their radars. Utilize our ATWWI 'DIVIDEND OPTION TRIFECTA STRATEGY" to strategically "ACTUALIZE/MONETIZE" WTRG.

Baker Hughes has upside potential in a moderate slowdown scenario
Baker Hughes (BKR): This might seem controversial, but I will write it anyway. An oil services stock like Baker Hughes (currently yielding 3%) may be an excellent way to monetize a recessionary scenario. Normally, anyone talking about recession would run an oil pipeline length before buying into the oil services sector. After all, oil demand correlates with the economy, and traditionally, oil exploration companies have ramped up supply when times are good, only to create a glut when demand tails off.
However, things may be different this time. For example, the equity market has been focused on a recessionary outlook, selling off aggressively this year (2022), while the bond market is also pricing in recessionary scenarios. However, the price of oil is still around the $100 a barrel mark.
That’s usually seen as a price conducive to investment, and in any case, Baker Hughes has a long-term growth opportunity from burgeoning liquefied natural gas investment too. In addition, management talked of potential profitability increases via restructuring the company. Meanwhile, there’s still a need for investment in the industry due to the multi-year slump in capital spending by oil majors.
The reality is the world will need oil for years to come, and definitely until after the next recession is over. Given a mild recession and some limited demand destruction, the supply outlook is favorable to support a relatively high price of oil, and that’s good news for Baker Hughes. Utilize our ATWWI 'DIVIDEND OPTION TRIFECTA STRATEGY" to strategically "ACTUALIZE/MONETIZE" BKR.

Kenneth Reaves, Ph.D.

Monetize The Current "GOLDEN" Age

Monday, August 8th, 2022
Monetize The Current "GOLDEN" Age

There are periods in HIStory when certain parts of the world emerged as global centers of thought and innovation.

HIStorians call these “GOLDEN" Ages – times when not just one but many world-changing geniuses work at the same time in the same place.

Ancient Athens and 21st-century Silicon Valley are thousands of years and thousands of miles apart.

Yet according to Eric Weiner’s book The Geography of Genius: A Search for the World’s Most Creative Places, from Ancient Athens to Silicon Valley, these two places have far more in common than their temperate weather.

Both Athens and Silicon Valley bear legacies of INNOVATION, CREATIVITY and, GENIUS that have impacted the world far beyond their narrow borders.

So what made these places such fertile soil for INNOVATION?

It’s easy to attribute their lasting success to the individual genius of Plato in the case of ancient Greece or Steve Jobs in the case of Silicon Valley.

But Weiner argues that it’s not individual "GENIUS" that matters…

After all, individual"GENIUSES" live and die in obscurity every day.

Instead, the kind of human "GENIUS" that leads to a golden age is the product of a unique relationship between people and places.

The "GOLDEN" Age of Athens
During a single remarkable century between 480 and 404 B.C., Athens became the source of much of the Western world’s philosophy, geometry, science and culture.
Athens was the birthplace of great philosophers like Socrates, Plato and Aristotle. The playwrights Aeschylus, Sophocles and Euripides all lived and worked in fifth-century Athens. So did the historians Herodotus and Thucydides as well as the physician Hippocrates.
So what explains the success of Athens during its golden age… and how did it come to embody the foundations of Western culture?
Athenians loved their city. They spent their lives debating public affairs, meeting in places like the ancient marketplace called the Agora.
The Greeks adopted Babylonian mathematics, derived their alphabet from the Phoenicians and imitated the architecture of Egypt.
In short, they were open to new ideas and change...

The same can be said for other "GOLDEN" ages throughout history. Here are three (3) others…

No. 1: Hangzhou, China
Hangzhou was the Song Dynasty’s most important city, flourishing between A.D. 969 and 1276.
Even as Europe was stuck in the Dark Ages, Marco Polo famously marveled at Hangzhou’s level of development in his diaries.
The Chinese produced the most exquisite textiles and porcelain in the world. They were the first to introduce paper money.
The secret of their success???
Hangzhou was the meeting point for Buddhist and Confucian cultures – a unique blend of innovative ideas and traditional values.
Buddhist monasteries perfected woodblock printing. Originally designed to replicate ancient texts, this same technology led to the production of the first nautical astronomical maps.
Again, progress was made by blending the "OLD" with the "NEW".

No. 2: Florence, Italy
Renaissance Florence in the 15th century symbolized the rebirth of human achievement after Europe’s Dark Ages.
Florence was neither the largest nor the best-defended city in Italy. So what explains this remarkable flourishing of the human spirit at this particular time and place?
Florence’s creativity was fostered by entrepreneurs like the Medicis, who financed the arts, and the powerful and wealthy Catholic Church. This helped produce geniuses like Leonardo da Vinci, Michelangelo, Donatello and Botticelli. The Catholic Church’s sale of indulgences financed Florence’s most famous cathedral, the Duomo.
Florentine merchants were also exposed to diverse ideas as they traveled all over the world.
A Tuscan named Leonardo Fibonacci introduced Arabic numerals in Florence. He is the reason we use Arabic numerals – and not cumbersome Roman numerals – today.

No. 3: Edinburgh, Scotland
At the turn of the 18th century, Edinburgh was the source of a series of remarkable developments in economics, politics, science and engineering.
Historians dubbed the period the “Scottish Enlightenment.”
Like the Athenians, the Scots assembled in public places to debate contemporary issues and promote new ideas. This culture of debate and exchange of ideas became essential to Scottish universities.
The Scottish Enlightenment also produced the single most influential text on economics, Adam Smith’s The Wealth of Nations.
The ideas expressed in Smith’s book were the result of his debates with his fellow philosopher, economist and friend David Hume.

Today’s "GOLDEN" Age
Today, Weiner argues, Silicon Valley stands at the forefront of global innovation.
A mere hundred years ago, the area south of San Francisco was little more than a fruit orchard. Its transformation started with Stanford Dean of Engineering Frederick Terman in the 1940s.
Terman helped launch Silicon Valley by encouraging Bill Hewlett and David Packard – his former students – to launch their computer company.
Today, Silicon Valley-based companies like Alphabet (GOOGL), Apple (AAPL), Meta Platforms (META) and Twitter (TWTR) all exert unprecedented global influence on cultural and political values.
As with other "GOLDEN" ages, the key to Silicon Valley’s success is its "CULTURE".
Failure in Silicon Valley means failing until something works. Instead of giving up, you learn from your mistakes and try another way.
No wonder every decade the ranking of the top 10 firms in Silicon Valley changes drastically.

The Lesson For YOU, ME, WE, the ATWWI FAMILY
HIStory’s "GOLDEN" ages are not the consequence of the individual genius of a Plato in Athens or a Leonardo da Vinci in Florence.
Instead, they are the product of particular times and places. Invariably, debates are held in these places that combine new, disparate ideas to generate progress.
Overstanding/Understanding the HIStory of various golden ages helps you identify when and where the next ones are likely to occur.
Today, Silicon Valley is in its "GOLDEN" age.
Tomorrow, it may be China.
BUT, here’s the critical insight for YOU, ME, WE, the ATWWI FAMILY...Overstand/Understand that it is during these "GOLDEN" ages that generational fortunes are made.
Make SURE you are creating/generating "WEALTH" that CAN and WILL be past on to your future "GENERATIONS"!!!

Kenneth Reaves, Ph.D.

The Ask The Wiz Wealth Institute is not an investment advisor. We strive to be educational and informative community servants.

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