Some companies are doing great right now (Coke, Disney, Apple, Toyota, Magna International, etc) while others have disappointed investors in this recent earning season. The Greek saga is probably the best show you can see on TV right now (unless you are watching the Quebec university boycott saga!). Obama wants to kill dividends, the Fed keeps promoting a bullish feeling on Wall Street by keeping interest rates low until 2014 (will they ever have the guts to raise it one day?) and the Canadian Housing Market worries more than one economist. Fortunately, we do have the Facebook IPO coming in May, this could excite even the most bearish among us. This is definitely a great time of uncertainty!

Are You Bullish?

If you are like me, you probably look at the companies’ fundamentals and see a lot of profits, liquidity even more R&D and mergers & acquisitions on the horizon. You probably see dividend increases while keeping dividend payouts low. With bonds and CDs offering less than what you give your kids for allowance, many investors are turning towards dividend stocks and help maintain their assets. In the best of worlds, we will all realize that while Governments can’t handle their budgets better than a man in a car showroom or a woman during a Guess sale, companies have cut their expenses, become more profitable and are ready to explode. I’m not inventing this, it has been the story of the stock market for the past 100 years;

First comes growth,

Then exaggeration,

Then the feeling of infinite richness,

Then the doubt,

Then the panic,

Then it tumbles,

Then companies go back to the drawing board and cut everywhere,

Then they become more effective and profitable,

Then comes growth,

Then comes exaggeration… you get the picture, right?

So, we are right now in the phase of “then they become more effective and profitable” as growth is not yet confirmed. The “great” market we had since 2009 is more due to the fact that we were recovering from a 35% drop in 2008. We didn’t gain much so far if we compare to 2007. As of May 8^Th 2012 (compared to May 11, 2007), here are the performances of the major indexes:

S&P 500: -9.42%

Nasdaq: +14.55% (mind you, most of the gain has be made since Jan 2012)

Dow Jones: -2.96%

S&P TSX: -15%

So, over the past 5 years, there wasn’t much money to be made if you simply followed the indexes. This is why I think that the market will eventually explode due to solid profits and not just simply recover what was lost.

Are You Bearish?

We discussed this a while ago on the blog in the 5 reasons to be bearish. The interesting point is that all the reasons stated in that article (back in March 2011!) are still around this year (besides commodities are dropping recently on fears about Europe). The truth is that you will always find very good and solid reasons to panic and not invest in the market.

For example, imagine if the Bank of Canada was to increase its rate and make the housing market tumble. Banks would suffer losses and restrict access to credit. Then, the economy would automatically slowdown and we wouldn’t count on China’s booming economy to buy all our resources. The Canadian stock market would be in a slump for at least another year… or more!

You can also imagine that the US Government can’t even keep up with its current budget nor raise taxes. It would automatically slowdown the economy and the stock market would be affected by such bad news. We already wonder if the economy is strong enough to support internal growth at the moment…

Bullish – Bearish… Does it Really Matter?

We can debate pretty much all day on this blog to know if we should be bullish or bearish but if you are a serious investor, does it really matter?

I’m asking because I never believe in staying on the sidelines keeping my money in money markets for years hoping to jump in at the right time. Are you able to do this? How can you know when is the perfect time to jump in and out? Where did you buy your Crystal ball?

I’m not quite sure how people do it and how they can be successful with this technique. This is why I don’t really mind if we are in a bull market or a bearish one. For me, the important part is to buy solid companies that will pay me to wait with their dividends. If I’m getting paid 3-4% in dividends and the company is solid, I’ll eventually make money with the stock and rack-up the dividends in the meantime. So I invest when I can and don’t mind if the markets go up or down .

Right now, do you think it’s the time to jump in or out? Can you answer this question?

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Last week, I asked you what you would do with an extra $10,000. Most of you answered that you would invest in the stock market, precisely into dividend stocks. I wasn’t too surprised by this answer. While I discussed several options, I didn’t really tell you what I would do with an extra 10K. So here we go…

Pay Off an “Expensive Debt”

I recently bought a pool based on an expected tax return. This was a really dumb move! Last year, we were able to use my wife’s tax credit to decrease my taxes. This year, I doubled my RRSP contribution (I was allowed to put in 10K) so I was expecting an additional return of $3K on top of what I received in 2011. Well, my wife made more money and the accountant used the tax credit to help her save taxes. In the end, it comes down to the same pockets, but I was truly expecting a bigger tax return! So, this is how I’m now stuck with a 5K loan at 6.75%. It’s not that expensive but I would definitely use the first 5K to pay off this loan and “make” a 6.75% return on my money. Considering that it’s after tax money, it’s more like a 10% yield .

Pick Another Stock… MCD?

After my MCD stock analysis, I’m convinced that MCD would be a great fit in my portfolio. This stock will most likely provide more stability to my portfolio (as compared to VNP!) and I can count on a solid dividend as well. The company is on a short slump right now after showing mild results. MCD is currently paying a little bit more than 3%.

Another stock on my watch list is Seagate Technology (STX). It was part of my Best Dividend Stocks for 2012 eBook. It shows strong long term fundamentals and pays a great dividend. The only problem I can see with this stock is that the “party might be over” as the stock surged by more than 80% since the beginning of the year. Would you really think that STX can pay more to its shareholders? Well, you can always count on a solid dividend yield (over 3%) along with a low P/E ratio (7!).

I would also be tempted to increase my position in INTC or Telus (T). I think that INTC still has steam under its hood and will eventually crack the $30 mark. Since that’s another 10% more or less, I would be willing to increase my position in this stock. As for Telus, the high dividend yield attracts me while I’m convinced it’s going to do better than BCE in the upcoming year.

By using 5K to pay off my debt, I would probably use 3K to buy a new stock and 2K to increase my position in one stock (or twice 1K to buy 2 stocks ).

Facebook Anyone?

Another internet money making machine is about to go public in May; Facebook! I’m not a big fan of their site to be honest (I find Facebook highly time consuming so I don’t really use it) but I’m a big fan of its growth and cash generation! The company is going public soon but I doubt they will pay a dividend up front. This doesn’t really make sense anyways.

Is there any money to be made from the Facebook IPO? I can’t really tell. If I had my 10K ready to invest at the moment, I would be tempted to give it a try though… but it’s more gambling than investing. You can’t really tell if the market will value Facebook correctly or if it will go nuts and make the stock surge on the very first day. It reminds me of Google when we thought that $100/share was too expensive… silly me!

Are you interested in the Facebook IPO? Will you give it a try?

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Did you guys get your Mother’s Day gifts yet? I’m sort of torn this year because I’ve exhausted every good gift idea so far (trip to Bahamas, spa days, and surprise parties). I’m also under the impression that my mom still hasn’t cashed in a few gifts yet. Do you have any ideas?

Let’s look at the top dividend articles if you have some spare time this weekend:

1. An Example of Why I am Not Sure I believe in The Efficient Market Hypothesis @ MJTM.

2. Will Investing And Spending On Credit Lead You To Hell? @ IS.

3. April 2012 Cash Flow @ Retire by 40.

4. InfoSonics: More Net-Net Asymmetry @ Barel Karsan.

5. My Challenge For us to Make Money From Freelancing @ Studenomics.

6. IGM Financial Versus CIX and AGF @ The Dividend Ninja.

7. Dividend Stocks that Are as Reliable as Death and Taxes @ D4L.

8. Meredith Corp. (MDP) Dividend Stock Analysis @ DGS.

9. Is Trip Advisor’s Growth Story Just Beginning? @ Sigma Swan.

10. Carnival of Personal Finance: The Color Wheel Edition @ Money Talks Coach.

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After the analysis of MCD last week, there was another stock on my radar that I wanted to check out. To be truly honest, I didn’t know much about this Dividend Aristocrat; Aflac Incorporated. I’ve been trading for several years but I’ve been looking into dividend stocks only since 2008. The fact that Aflac is an insurance company (AFLAC stands for American Family Life Assurance Company) was enough for me to check elsewhere to build my “stock on the radar list”.

But the fact that AFLwas part of our Dividend Growth Index caught my attention. I thought that if a dividend investor such as Passive Income Earner pickedAFL, I should take a look at it. So here’s myAFL analysis.

The Company Stock Description:

Aflac is mainly active in the life and health insurance industry. They operate 2 main businesses: AflacUS(which operation in theUnited States) and AflacJapan(which provide insurance products inJapan). They cover most supplemental insurance products from cancer or care plans to annuities. They do not offer home insurance in Japan so they weren’t affected by the Tsunami. The rise of cancer in today’s society is definitely a great market for them. Most people have general insurance provided by their employer but will look for more protection by dealing with companies such as Aflac.

Stock Graph

The Company Ratios and Financial Info:

I was mostly impressed by 2 things when I looked at theAFLmetrics. The first one is the fact that they kept increasing their dividend in 2008. WhileAIGwas going bust andAFLhad lost 30% on the stock market, they sent a strong message by keeping their Aristocrat habit of raising their dividend. With a payout ratio of 29%, we can understand that even the worst economic crisis of the century was not enough to slowAFL’s dividend growth.

The second metric that impresses me is its sales growth in a relatively mature market. Since insurance products have been around for so many years, you wouldn’t expect a double digit growth during a tough economy. Both sales and earnings grew significantly. This also explains why the dividend growth is in the double digits as well.

Stock Technical Analysis

AFL is trading on a down trend. Click Here to get a free AFL technical analysis report.

Upcoming opportunities and dangers:

Back in 2009, 73% of Aflac’s revenue came fromJapan. While it provides a great geographical diversification, three quarters seems a little bit too concentrated. It’s more like having a Japanese company operating in theUS;-). The currency risk is not too important for Aflac as they rarely convert their assets. Therefore, they use their Yen to invest in Yen and their US dollars to do the same on this side of the planet.

Aflac’s presence inJapanis also an advantage when compared to their main competitors (AIGand MetLife (MET)). While they are both a lot bigger than Aflac, theJapanniche is well guarded.

After missing Q4 estimates in January,AFLrecently increased its expectation for itsJapandivision for 2012. Overall EPS should be between $6.46 and $6.65 vs an estimate of $6.47. With a very low P/E ratio, I guess you can’t really go wrong withAFL.

Final Thoughts

Looking atAFL, I’m still a bit reluctant to go forward and add it to my watch list since it’s an insurance company (never invest in something you don’t understand, right?). I do understand how insurance works but what I don’t know is how they manage their asset portfolio to make sure they are able to cover all claims. The success lies in how they assess their cash flow needs along with how they manage their assets in the meantime.

AFLobviously does a great job in both cases if you look at their continuously growing numbers. The fact that their payout and P/E ratios are both very low leads me to guess that the both the dividend and stock price will rise in the future. For that reason,AFLwill be added to my “stocks on the radar” list.

Disclaimer: I do not holdAFLposition at the time of writing this post.

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I was talking with a friend the other day and he asked me a very interesting question: what is the best investment that I can make TODAY? I’m not going to explain the whole context around this discussion but I wanted to mention these thoughts on this blog. Let’s say you have a specific amount (for this article, let’s put it at $10,000) that you can use to make more money. You don’t need this money for a while and are looking for the best investment possible. What would you do?

What is the “Best” investment?

In today’s economy, the “best” investment is relative to your global financial situation. It is also conditional to a specific risk tolerance as well. So the “best” investment will not be the same for everybody. However, we can see some similar patterns when you look at the options. Bond rates suck regardless if you are a young entrepreneur or a retiree generating income from his portfolio. So I’m offering a few options to invest your fictional $10,000:

Do Nothing

Sad but true, when confronted by many options but not clear direction, most individual will decide to let the money sleep in a “high yield” (whooot! 1.50%!!!!) savings account and wait “for good timing”. I’m sure you have heard this several times; it’s not the right time; I’ll jump in when I’ll be sure to make money. This is a very risky decision as you are guaranteed to lose money (since the interest rate is not enough to cover inflation) and you may make bad investment decisions once you are “tired” of letting the money sleep.

Bonds & CDs

The second worst thing to do with your money (in my humble opinion) is to buy bonds and CDs at the moment. We all know that we have reached the lowest yield environment possible and can only face rising interest rates again in a few years. So what’s the point of buying something that has a very low yield and that will lose (or keep a minimal) value in the near future? No stress when you look at your statement, but that’s all you get.

Diplomas

How about using this money to go back to school? Depending on your field and competencies, additional diplomas or specific training could worth a lot more than $10,000 in the future. You obviously have to consider the tuitions fees vs the potential return in terms of pay check raise and a promotion. But in my case, getting my CFP and MBA was definitely worth the investment (mind you, it had cost more than $10K!). If you are aware of a hole in your resume, you might want to use this money to add some interest. Sometimes, investing in yourself is the best thing you can ever do!

Pay Your Debts!

Another interesting way to invest money is done by not investing it! Sometimes, it’s the best way to invest your money. By paying down a debt at a 5% interest rate, you are not only paying down your debt and saving on interest; you are also generating a “before tax” return of 6.67%  at a 25% tax rate. Since you are paying your debt with “after tax” money, the return of 5% is “net of taxes”. This is a huge improvement in your yield without any risk!

Dividend Stocks

You can bet that I’ll tell you that dividend stocks are a very interesting place to put your money in. In all honesty, I think that dividend stocks could be one of your best investments at the moment. The current stock market is trading under its historic P/E ratio average and dividend stocks are sought after by bonds and CD investors. Since the interest rates are very poor, these investors are ready to accept more risk in exchange for a bigger yield. Since there is an obvious interest toward dividends, I think you can’t really go wrong with this choice. For the record, I do have a preference for Canadian Dividend Stocks at the moment (since US stocks have been surging for the past 4 years).

Real Estate

I’ve heard a lot that people wanted to secure their money by investing in Real Estate. The only thing you are securing by investing in Real Estate is the fact that you don’t receive a quarterly statement and don’t get access to a daily updated value of your property via internet. Real Estate in Canada seems overpriced right now. I’m not a fan of the Canadian housing bubble burst theory, but I definitely don’t think that there will be rapid growth coming in the next 10 years! Some areas in the US seem promising but I don’t know the market well enough to take a position on that. If I had to invest in Real Estate, I would do it through REITs. They are professionally managed and I certainly don’t want to get called for a leaking sink!

Stocks

Along with dividend stocks, I think that the overall stock market is probably the best place to invest your money at the moment. There is no question that once the uncertainty aroundEuropeand theUSdeficit is gone, the market is going to explode. The only trick is to know when . So if you can wait and are not nervous, check out what’s interesting in your brokerage account and start trading… unless…

Side Business

Unless you have a side business in mind! While the risk of any startup is way higher than investing in the stock market (only 5% of startups survive the first 5 years), this is always where you can get the highest return on your investment. For example, since I’ve started my online company, I’m making at least 33% of growth over the past 4 years. When you invest in your own business, it is “normal” to expect a double digit return. It’s normal, since the risk is a lot greater!

Where is your best investment?

If I had extra money right now, I would do 2 things: invest in my company and invest in dividend stocks. I would rather diversify my $10,000 investment in 2 sectors instead of concentrating everything in the same place. I see interesting growth on both sides and dividend stocks have the advantage of working for me while I sleep. I still have to work on my company to make it run .

What about you? Where is your best investment right now? What will be your next investment move?

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