Could We Have Bulls Attack on EUR/USD?

EUR/USD is fighting hard to gain momentum and to stabilize above the resistance area. We may see a further increase if the price closes the gap down and if the USDX drops deeper in the short term. The pair has jumped higher in the previous week, but th…

AUD/USD coming back up to test key resistance!

Trading RecommendationEntry: 0.66389Reason for Entry: Graphical swing highTake Profit : 0.65860Reason for Take Profit: Horizontal swing lowStop Loss: 0.66517Reason for Stop loss: 38.20% Fibonacci retracementThe material has been provided by InstaForex …

EUR/GBP approaching support, potential bounce!

Trading Recommendation
Entry: 0.83475Reason for Entry: Horizontal overlap support.100% Fibo extension
Take Profit : 0.8376Reason for Take Profit: Horizontal swing high resistance
Stop Loss: 0.8327Reason for Stop loss: Horizontal pullback supportThe mat…

GBP/USD approaching support, potential bounce!

Trading RecommendationEntry: 1.28863Reason for Entry: 100 % Fibonacci extension, 38.2% fibonacci retracement, Horizontal swing low supportTake Profit : 1.32030Reason for Take Profit: 78.6% Fibonacci retracement, Horizontal swing high resistanceStop Los…

Understanding Dividend Earning Stocks

When traders and investors look to profit in the markets, they often look to stocks that they believe will grow rapidly in price. However, there is another group of stocks that can not only offer growth potential, but a steady stream of income in almost any market condition. This group is dividend paying stocks. Let’s examine what a dividend is, how it can benefit you financially, and how to choose the correct securities for your portfolio. Additionally, we can explore methods for protecting these investments in market turndowns.

What are Dividend Stocks?

A dividend is nothing more than a share of the profits of a company. When you purchase shares of stock, you are buying a piece of ownership in that company. Through the company’s normal operations, it may make a profit. Sometimes, instead of reinvesting all the profit back into the company, the company shares the money with its owners. As a shareholder, you are an owner and entitled to your portion, called a dividend, if you meet certain criteria. So, a dividend stock is a stock that pays owners a dividend, or a share of the company’s profits on a regular basis, usually quarterly although this can vary.

Companies that offer dividend stock are usually larger, well established companies with predictable profits. Other securities that trade like stocks such as Exchange Traded Funds (ETF’s), Real Estate Investment Trusts, (REIT’s), and Master Limited Partnerships, (MLP’s) may also pay shareholders dividends.

A chart with a tipped over jar of change depicting dividend stocks

How Dividends Work

There are rules that dictate how dividends are paid and to whom. Those who own dividend stocks or wish to, need to be aware of what these rules are and the corresponding dates in order to properly invest in dividend stocks.

Important Dates for Dividend Earning Stocks:

  • Announcement Date:

    This is the date when the company’s management announces that there will be a dividend and the amount of said dividend. There are no monies paid on this date. All the other dates regarding the dividend will be made public at this time.

  • Ex-Dividend Date:

    Also known as the Ex-Div Date. This is the last day of eligibility for receiving the dividend. To receive the dividend as a shareholder, you must own the stock BEFORE this day. If you buy the stock on or after the ex-div date, you will not receive the dividend as it is said to now be trading ex-div (excluding the dividend).

  • Record Date:

    This is when the company officially records who will receive the dividend.

  • Payment Date:

    This is the time when the company issues the payments of the dividends and monies are credited to the shareholders’ accounts.

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Why Buy Dividend Stocks

There are numerous advantages to buying dividend stocks. The most obvious one is that in addition to price appreciation, the investor is offered an additional source of income from the dividend. In addition, depending on tax status and location, investors may have a lower tax rate on dividend income. Consult a tax professional for more information.

Another advantage is that since dividend stocks are mainly offered by larger, more established companies, their share price is more stable. They are less likely to crash, although they still can. And their profitability is likely to continue. Lastly, by combining the use of simple options strategies on these dividend stocks, it may be possible to maximize returns and protect a portfolio against market turns.

How to Buy Dividend Stocks

Buying a dividend stock is no different than purchasing any other type of stock. If you purchase the shares before the Ex-div date in your brokerage account, you should receive the dividend when paid. Be aware that when the stock goes ex-div, it is likely to gap down in price by the amount of the dividend to be paid. This is normal since whomever purchases the stock ex-div is not receiving the dividend and the value of the stock should decrease by that amount. The price will usually recover before the next dividend is paid. Prior to purchasing a dividend stock, investors should check to ensure that the dividend is stable.

Make a Profit Assessment

Remember, the dividend is a portion of the company’s profits from operation. This means that the company needs to have stable profits on an ongoing basis. Earnings disappointments are no good as it could affect the dividend being paid. Investors might want to look for companies that have long term (5-7 years) earnings growth expectations of 5 to 15%. It may be enticing to look for more growth, but those expectations could be unrealistic.

Check the Company’s Cash Flow

Investors are receiving cash from the company; therefore, the company should have good cash flow to pay for those dividends. Additionally, the company should not be shouldered with high debt. A suggested debt to equity ratio would ideally be 1.0 or less. The more cash a company has, the more likely it is to share it!

What is the Payout Ratio?

The payout ratio is also a factor to examine. How much of the profits is the company paying to its shareholders in the form of dividends? If the company earns $2.00 and pays a dividend of $1.00, it has a payout ratio of 50%. Too high of a payout ratio means that the company is trying to make shareholders happy and may be sacrificing growth. Worse yet, if the ratio is over 100%, the company may be borrowing to pay the dividend. Either way, that is not a sustainable model and could mean the dividend gets lowered or removed altogether in the future.

To avoid this, one might look for companies with a payout ratio of around 40%. This is considered by many to be a sustainable, yet fair level. This ratio alone should not be a deciding factor. Compare the company’s payout ratio to others in its industry to see if it is too high or too low.

Dividend Aristocrats

There is a group of stocks called the Dividend Aristocrats. These companies make the list because they are members of the S&P 500 and have increased their dividends every year for the past 25 years. While this is no indication that they will continue, this historical track record makes them very attractive to investors looking to profit from dividends. As of February 4th, 2020, there were 64 stocks to make this list.

If a company has a history of paying out dividends but suddenly announces a cut in the amount of that dividend, it is usually a sign that the company is in trouble.

Previously mentioned were the dividends from REITs, MLPs, and ETFs. Dividends for these products are not calculated in the same way as dividends for stocks. Stock dividends come from company profits. Fund dividends may come from dividends received in stocks being held by the fund, bond coupons held in the fund or from the fund’s Net Asset Value (NAV).

There are obviously many things to be aware of in order to invest or trade dividend stocks properly. Be sure to educate yourself fully before diving into them.

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Preferred Stocks Q & A

I’ve received some questions from readers of previous articles covering investing in preferred stocks. I’ll address those questions today.

What Are Preferred Stocks?

In case you’re not familiar with them, preferred stocks are a sort of hybrid between stocks and bonds. Investors use them as a cash-flow-generating investment since they pay a regular, fixed dividend. In that way they are similar to bonds, which pay a regular, fixed interest payment.

Someone looking at preferred stocks

Also like bonds, preferred stocks have a face amount or par value. When and if the issuing entity wants to retire the preferred stocks, they do so by paying the holders of the preferred stocks the face amount.

Unlike bonds, preferred stocks do not have a fixed maturity date. The issuing company may just continue to pay the dividends on the preferred stock for decades. At the option of the issuing company, they may pay off, or call the preferred stock shares at any time after a specified earliest call date, but they are not obligated to do so.

In some ways preferred stocks are like what we normally think of as stocks, which are properly called common stocks. Like common stocks, preferred stocks trade on the major stock exchanges and investors buy and sell them through their regular stockbrokers. Also like common stocks, preferred stocks represent equity in the issuing company, not debt. But unlike common stocks, each share of a preferred stock entitles the investor to a fixed number of dollars of equity, not to a fixed percentage of the company’s total equity. For this reason, preferred shares are not expected to rise in value along with the common shares. Preferred stocks’ market prices do fluctuate, but in a much narrower range than common stocks. Preferred stocks are not investments for growth – they are investments for steady cash flow.

With this background, here are the answers to several recent questions I’ve received on preferred stocks:

Q: Where can I get information on what preferred stocks are available?

A: Several web sites have good information on preferred stocks. At the time of this writing these include the free sites dividendinvestor.com, preferredstockchannel.com, and quantumonline.com. These are not recommendations, just examples, and there are others, so do your research and choose the one that fits your needs best. Neither I nor Online Trading Academy have any affiliation with any of these web sites.

Q: What criteria should I use in considering a preferred stock investment?

A: In my opinion, the reason for considering preferred stocks is as a cash flow generator that is as safe and reliable as possible. If that is not your aim, then consider other investment vehicles. What preferred stocks are not is a day-trading vehicle. This is because, due to thin trading the bid-ask spreads of preferreds can be a relatively large percentage of their value compared to most common stocks. For U.S investors who are looking for safe, reliable cash flow, here are some guidelines for selecting preferred stocks:

  • Invest in U.S. preferred stocks. Other countries’ preferred shares have different characteristics.
  • They should be traded on one of the major U.S. stock exchanges (NYSE, AMEX or NASDAQ). Those that trade on the pink sheets or OTC tend to have very thin liquidity.
  • Invest in traditional preferred stocks as opposed to one of the many other flavors, such as Trust Preferreds, Third Party Trust Preferreds or Convertible Preferreds, which have varying features making them harder to compare.

The above three criteria cut down the total universe of preferred and preferred-like securities from about 1,000 to a little over 400. To narrow those choices further, preferred stocks should have:

  • A credit rating that is investment grade. This means that at least one of the three U.S. rating agencies has rated the preferred issue as investment grade, meaning possessing moderate credit risk or better. This criterion narrows the field to about 143 choices
  • Dividends that are cumulative. This means that if the issuer does ever suspend payment of the dividends for any reason, they are legally obligated to make them up. This cuts the field down to fewer than 60 candidates.

These criteria are among those that can be specified in quantumonline’s Income Securities Screening Form.

Q: Should I be concerned about day-to-day fluctuations in the prices of preferred stocks?

A: If you see the preferred stock investment as a cash-flow generator, then price fluctuations should not be your primary concern. If the price change is extreme, say a change of 10% or more, you should double-check to see if anything has happened to the issuing company that might indicate financial distress serious enough for them to be unable to continue the preferred dividends.

Q: I have heard that the dividends on some preferred stocks have special tax treatment. Which ones, and how is it different?

A: Dividends on the majority of preferred stocks are qualified dividends, meaning that the dividend income is taxed to you not at your ordinary income tax rate, as interest income would be, but at your long-term capital gains tax rate. Your personal long-term capital gains tax rate is either 0%, 15% or 20%, depending on your income. The exceptions to this special tax treatment are mainly preferred stocks issued by Real Estate Investment Trusts. Their dividends are taxed in the same way as interest income. You should check any individual preferred stock that you are considering to see if it has this special tax treatment. Both quantumonline.com and divideninvestor.com have this information on each preferred stock.

Q: How can I look up preferred stocks on my broker’s trading platform? They don’t seem to match the symbols shown on the web sites.

A: Almost every preferred stock symbol contains a root symbol identifying the issuing company and a series suffix indicating the specific preferred stock series. A single company may issue many different preferred stock series over the years. For example, Public Storage Corp., whose root symbol is PSA, has issued many different series of preferred stock.

The symbology used by various data vendors for preferred stocks varies in the way they present the series suffix. Using as an example PSA’s Series S preferred stock, the symbol for the same preferred stock may variously be shown as:

PSA-SMost common convention, used by quantumonline.com and others
PSA-PS
PSA-PRS
PSA.PSTradestation’s convention
PSA.PRSPreferredstockchannel.com convention
PSAprS
PSApSThinkorSwim’s convention

One of these variations or another will probably match for your broker.

I hope that this information was educational and made preferred stocks more understandable as an investment opportunity.

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Trading USD/CHF Gap

USD/CHF registered an amazing drop on Friday and it invalidated a further increase at this moment. The price was rejected by a major dynamic resistance, but the outlook is somehow bullish as long as the price is traded above 0.9761 level.The US dollar …

EUR/USD. February 24. New COT report: major players continue to increase short positions

EUR/USD – 1H.

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Hello, traders! According to the hourly chart, the EUR/USD pair performed a consolidation over two downward trend corridors. I also note a few rebounds from the low level of 1.0786, which did not let the quotes below itself. Thus, the euro/dollar pair performed a reversal in favor of the euro and began the growth process. At the same time, the pair’s quotes are falling again today. At the very end of Friday, a reversal was made in favor of the US dollar and the process of falling was resumed. Thus, the pair’s upward prospects are now ambiguous. I consider the level of 1.0786 to be the key one now. Above it, the “bullish” mood of traders remains. Below it, the mood will become “bearish” again.

EUR/USD – 4H.

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According to the 4-hour chart, after the formation of several bullish divergences and falling far below the downward trend corridor, the quotes of the EUR/USD pair still performed a reversal in favor of the euro and began the process of growth in the direction of the corridor. At the same time, the situation is the same as on the hourly chart. Already, we can see a reversal in favor of the US currency and the beginning of a fall, which may result in the resumption of the process of falling quotes. Thus, on the 4-hour chart, I consider the low of the last bullish divergence to be the reference level. Closing quotes below will work in favor of resuming the fall.

EUR/USD – Daily.

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As seen on the daily chart, the euro/dollar pair fell almost to the lower line of the descending trend corridor, however, it still did not work out. Thus, this chart allows traders to assume that the price drop will resume for a more confident and clear working out of the lower line of the corridor. This period leaves opportunities for the euro to continue falling.

EUR/USD – Weekly.

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The weekly chart shows that the pair is in a strategically important area – near the lower border of the narrowing triangle. So I’m still waiting for either a rebound from this line (approximately 1.0767 level) or a close below it. This line will determine the future of the pair.

News overview:

On February 21, there were several interesting economic reports in Germany, the European Union, and America. If the European and German business activity indices did not attract the attention of traders, and inflation in the European Union was at the level of December, the business activity indices in America in the manufacturing and services sectors unexpectedly fell, especially manufacturing, which forced traders to buy the euro or rather sell the dollar on Friday.

News calendar for the United States and the European Union:

The news calendar for the US and EU countries is empty on February 24.

COT report (Commitments of traders):

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For the week of February 18, short positions of large speculators increased to 270,555, while long positions did not change. Among the “commercial” group, both short and long positions have increased and the total number (“total”) remains in favor of short. Thus, the first conclusion: the global mood of traders remains “bearish”. This mood is provided mainly by speculators because companies prefer long positions to hedge risks when the euro falls. In the “changes” section, we again see a strong increase in short positions for “non-commercial” and a minimal increase in long positions. And the “commercial” group’s long positions are growing, however, the number of short positions is also increasing. Thus, it is possible that the “bearish” mood has not yet dried up. Large market participants have not yet started to get rid of short and build up long positions.

Forecast for EUR/USD and recommendations for traders:

According to the latest COT report, purchases of the euro no longer look so attractive. There are buy signals on the hourly and 4-hour charts, however, they are counter-trend and clearly corrective. I would recommend that you do not rush to buy the pair yet and sell – not before closing at 1.0786.

Terms:

“Non-commercial” – major market players: banks, hedge funds, investment funds, private, and large investors.

“Commercial” – means commercial enterprises, firms, banks, corporations, and companies that buy currency for current operations or export-import operations.

“Non-reportable positions” – small traders who do not have a significant impact on the price.

The material has been provided by InstaForex Company – www.instaforex.com

GBP/USD. February 24. COT Report: equality between bulls and bears keeps the pair from a new fall

GBP/USD – 1H.

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Hello, traders! According to the hourly chart, the GBP/USD pair rose to the area between the 50.0% and 61.8% Fibonacci corrective levels from the last fall of the pair. A reversal in favor of the US currency has already been made, so there are indirect reasons to assume a resumption of the fall in the exchange rate. Closing the pair’s quotes below the Fibo level of 38.2% (1.2933) will increase the probability of continuing the fall. Rebound – will work in favor of some growth in quotes.

GBP/USD – 4H.

analytics5e5387650639a.png

As seen on the 4-hour chart, the GBP/USD pair made another return to the upper line of the descending trend corridor and another rebound from this line. Thus, on February 24, a reversal was made in favor of the US dollar and the fall of quotes in the direction of the second target level of 1.2789 can be resumed. Based on the COT report, this behavior of traders and the pair itself is expected, however, we will return to this report later. So far, I can conclude that bull traders are not able to close over the trend area, so the “bearish” mood persists; bear traders are very reluctant to increase sales of the British. Closing the rate of the pound/dollar pair over the trend area will work in favor of the pound and cancel all trading signals for sale.

GBP/USD – Daily.

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The daily chart shows a narrowing triangle, which is more like just two trend lines. I do not expect growth to the upper line of this triangle at this time since the pair rebounded from the upper line of the descending corridor on the 4-hour chart. Thus, we can conclude that the pair is currently being held from further falling by the descending trend line on the daily chart. Closing quotes below will increase the chances of continuing the fall of the British dollar.

News overview:

On Friday, February 21, business activity indices in the services and manufacturing sectors were released in the UK. The first index declined slightly, however, the second rose immediately to 51.9. After lunch, the indices of business activity in America were released, which were worse than traders’ expectations. Thus, the British and American statistics caused an increase in demand for the pound.

The economic calendar for the US and the UK:

The news calendar for the countries of the USA and Great Britain is empty on February 24.

COT Report (Commitments of traders):

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The first thing you should immediately pay attention to is the almost complete equality between general requests for long and short positions (“commitments”). The second is almost complete equality between the general changes for the week before February 18 in the short and long positions. Since both traders and major market players buy and sell the pound, the pair’s exchange rate changes very reluctantly. That is, these events are expressed in the form of frequent corrections on the charts. On a 4-hour chart, this is the most visible picture. The goal of 1.2789 cannot be worked out for more than a week, although the trading idea for sales does not find grounds for its cancellation. According to the latest COT report, large speculators are increasing their long positions, while hedgers are increasing their short positions. The advantage is still on the side of the hedgers, but in general, there is equality.

Forecast for GBP/USD and recommendations for traders:

The trading idea is to sell the pound with a target of 1.2789, as the pair again performed a rebound from the upper line of the corridor on the 4-hour chart. However, the COT report speaks in favor of equality of positions between bull and bear traders. Thus, the fall may continue to the level of 1.2789 for another week, since the mood is now more “neutral” than “bearish”.

Terms:

“Non-commercial” – major market players: banks, hedge funds, investment funds, private, and large investors.

“Commercial” – means commercial enterprises, firms, banks, corporations, and companies that buy currency for current operations or export-import operations.

“Non-reportable positions” – small traders who do not have a significant impact on the price.

The material has been provided by InstaForex Company – www.instaforex.com

Analysis and forecast for EUR/USD on February 24, 2020

Hello, colleagues!
Recently, weekly trading for major currency pairs ends in different ways and the past week was no exception. In addition to the Swiss franc and the euro, other major currencies declined against the US dollar.
The following macroecono…

Trading idea for gold

Good day, dear traders! I present to your attention, a trading idea for gold.

Today, at the opening of the markets, the rate of gold, for the first 15 minutes of trading, added almost 4000p at 5 Zn. As part of the overall upward trend since the b…