Latest news with #NewConstructs
Miami Herald
25-06-2025
- Business
- Miami Herald
Top analysts say investors are suckers for bad dividend stocks
Every investor loves a good dividend stock, especially when markets get a little crazy. Get paid-and generate income during rocky times-is a compelling sales pitch. So are steadiness and predictability, common traits in companies with the wherewithal to share profits with the public. Rising dividends provide a hedge against inflation and the power of compounding reinvested dividends over time. Don't miss the move: Subscribe to TheStreet's free daily newsletter And who doesn't love reduced volatility, another hallmark of dividend investing? But investors get so enamored of those pluses that they often let yield obscure stock-specific risk, and a leading stock market research firm says that a stunningly small number of dividend-paying stocks truly represent great investments. Worse, according to research from New Constructs, a much larger number of the companies making distributions fall into one of three dangerous categories: "fake dividends, false dividends or dividend traps." A dividend is a payment from a company to its shareholders out of its profits or reserves. From the 1960s until the mid-1990s, the dividend yield of the Standard & Poor's 500 Index ranged from 3% to just over 6%, and those payouts represented a huge portion of the growth that the stock market was able to deliver. In the 1960s, dividends contributed about 45% of the gains experienced by the S&P 500, according to data from Morningstar and the Hartford Funds. Related: Veteran strategist unveils updated gold price forecast In the 1970s, dividends generated 73% of the total return for the index. In the '80s, they accounted for nearly 30 percent of what a buy-and-hold index investor earned. During the 1990s, as the Internet Bubble was inflating, dividends were de-emphasized. Corporate executives at the time felt that they were better able to deploy their capital by reinvesting it in their businesses rather than returning it to shareholders. Significant capital appreciation year in and year out caused investors to shift their attention away from dividends. Until the Dot-com bubble burst. Coupled with the Great Financial Crisis (GFC) of 2008, the market had a lost decade; the index itself was negative from 2000 through 2009, but its total return was positive-even if it was a paltry average annualized gain of 1.2%-thanks to the earnings provided by dividends. With those market downturns, investors again focused on fundamentals like price/earnings ratios and dividend yields, and dividend-paying stocks made a comeback. Declining stock prices pumped up yields, and in the middle of the GFC, the average dividend yield for the S&P 500 got back above 3%. The long-term average dividend yield on the S&P 500 is roughly 1.8%; according to data provided by Standard & Poor's, though, the current average stands closer to 1.3%, a level it has hovered around for several years. With those kind of numbers, it's easy to see why above-average dividend payers draw investors like coworkers to free donuts. Enter New Constructs, which over a three-week period, focused on different aspects of dangerous dividend games, putting "fake dividends, false dividends and dividend traps" into the "Danger Zone" feature it does on "Money Life with Chuck Jaffe." New Constructs brings together discounted cash-flow analysis and forensic accounting to evaluate securities on a scale of "most attractive" to "most dangerous." Related: Veteran analyst reveals stocks, gold price forecast The firm's stock-picking routinely has been rated by SumZero at or near the top of multiple investment categories, most notably leading consistently in consumer discretionary stocks; SumZero is a buy-side community in which more than 15,000 professional portfolio managers compete for rankings. "We've been hearing a lot in the crazy volatile markets about safer investing, smarter investing, and a lot of people immediately just jump to dividend investing," said David Trainer, founder and president of New Constructs, in an interview that aired on Money Life on June 2. "They oversimplify it. They think it's as simple as finding stocks to just pay good dividends. … Not all dividend stocks are made the same." That's borne out by the firm's research in multiple ways. New Constructs tracks 3,310 stocks, of which 1,421 pay dividends, and just 45 of those companies – 3% of the dividend-paying universe – get an "attractive" or "very attractive" rating from the firm. The firm has labeled 12 times that many stocks as fake dividends, false dividends, and dividend traps. Trainer defined each term and how each situation leads investors astray. New Constructs research included specific examples. Fake dividends occur when a company is paying a dividend, but its stock is poised for a loss that is "more likely to go down 2, 10, 5 or 20 times what the dividend yield is, which means whatever you think about that dividend yield, you're going to losing money overall." As an example, Trainer cited Digital Realty Trust ( (DLR) ; 2.75% dividend), which has a dividend yield of roughly 2.8% but gets a "very unattractive" rating from New Constructs due to "negative cash flows, negative economic earnings {and an] economic book value around negative 30, 40 bucks a share. "So we see a lot of downside here in this super-hot stock that people might think is a dividend stock as well. … But this is not a safe dividend stock … {because] the downside risk in the stock dwarfs the dividend." Trainer said he has a hard time coming up with a fair value on DLR due to the negative economic book value, but he said the downside risk on the stock is roughly $85 per share, which would be a 50% haircut from current levels. New Constructs says DLR is one of 37 stocks currently categorized as having a fake dividend. False dividends occur when a company shows a nice dividend yield, but its cash flows are either negative or insufficient to support the dividend. Investment analyst Kyle Guske said there are 344 stocks that New Constructs has labeled as having false dividends. He noted that companies-stuck with higher interest rates for several years now-are struggling to "fake it til they make it" by borrowing, which is why he expects firms with poor fundamentals, high debt, and little return on capital to be cutting payouts soon. As examples, Guske cited AES Corp. (AES; 6.9% dividend), CTO Realty Growth ( (CTO) ; 8.3% dividend) and Edison International ( (EIX) ; 5.9% dividend), making the case that their numbers suggest dividend cuts are inevitable. "As soon as that dividend gets cut," Guske said in a June 9 interview on Money Life, "people flee looking for other yield. It could create some sort of spiral there, with [false dividend] stocks dropping while people look for higher yields. … Once that dividend gets cut or if they are unable to maintain it, it could create a cascading effect." Dividend-trap stocks look good on the outside; they can make their payouts without any shenanigans, and a dividend cut isn't remotely on the horizon. The problem is that their stock prices are over the moon; with the stock price so high, the yield is low, and that creates the rub. New Constructs has identified 181 dividend traps, meaning that more than one of every 12 dividend-paying stocks is a trap. "We think people often get misled when it comes to dividend stocks in general," Trainer said in an interview on the June 16 episode of Money Life. With a dividend trap, he continued, "if the stock goes down, you are going to lose more money than you make in dividends. That's the problem in chasing yields." He used WD-40 Co. (WDFC) as an example, noting the stock trades near $240 with a dividend near 1.6%, and great cash-flow. "But the stock price is really expensive," Trainer said, noting that the 3:1 ratio of price to economic book value means the market is already expecting the company's profits to improve 300%. New Constructs gives the stock an "unattractive" rating, noting that the "no-growth value" of the stock is $80 per share, a two-thirds haircut. Where dividend investors like "getting paid to wait" for a stock to come around, Trainer said that it would take decades for the 1.5% yield to make up for the losses he sees looming for the stock. "Investors deserve both a good dividend and a good stock," Trainer said. "They shouldn't be forced to choose between the two. The challenge is that it's hard to find both; there's not many [great dividend stocks] out there." Related: Veteran analyst sets surprising S&P 500 target The Arena Media Brands, LLC THESTREET is a registered trademark of TheStreet, Inc.
CNBC
09-06-2025
- Business
- CNBC
Three Stock Lunch: Tesla, Apple and Broadcom
David Trainer, New Constructs CEO, joins 'Power Lunch' to discuss Trainer's investing outlook on three stocks: Tesla, Apple and Broadcom.
Miami Herald
08-06-2025
- Business
- Miami Herald
Analyst says popular pet-food company's stock is spoiled
Stock market analysts have long maintained that no one goes broke by underestimating how much money Americans will spend to pamper their pets. For proof, there is the $125 billion that Americans are expected to spend this year on pet food and treats. Don't miss the move: Subscribe to TheStreet's free daily newsletter There's also Chewy (CHWY) , the pet-supply retailing giant that opened in 2011, went public in 2019, and which today boasts a market capitalization of roughly $20 billion. Yet in the dog-eat-dog world of pet-food companies, the giant players dominate, and at least one industry watcher believes one well-known brand name is struggling amid the industry's big dogs. Image source: Goodney/Bloomberg via Getty Images Freshpet Inc. (FRPT) is a leader in the "fresh pet food" category, which typically features high-end food for dogs and cats made with natural ingredients and without additives and preservatives, cooked in small batches at lower temperatures to retain nutrients. In May, the company said it was cutting its outlook for the year as if first-quarter conditions would continue for the whole year. Related: Veteran analyst reveals stocks, gold price forecast Freshpet now expects sales for 2025 to come in between $1.12 billion and $1.15 billion, down from a prior range of $1.18 billion and $1.21 billion. Veteran stock analyst and New Constructs research firm President David Trainer says the company's stock is a barking dog with fleas. It's "losing a lot of money [at a] stock price that implies they're going to make a lot of money and take huge amounts of market share away from the firms that provide the much higher volume sales of food," he explains. New Constructs combines discounted cash-flow analysis and forensic accounting to evaluate securities on a scale of "most attractive" to "most dangerous." SumZero routinely rates the firm's stock-picking at or near the top of multiple investment categories, most notably consistently leading in consumer discretionary stocks. SumZero is a buy-side community in which more than 15,000 professional portfolio managers compete for rankings. Trainer featured Freshpet in "The Danger Zone" on the May 12 edition of Money Life, but he first singled the stock out in the fall of 2022. He is focusing on it again now because he believes the shares – trading around $80 – are worth "less than a dollar." Trainer says he loves the idea of gourmet dog food (full disclosure: the author of this piece feeds Freshpet regularly to a 10-year-old, six-pound Yorkie) and believes there's a market for the products. Related: Veteran strategist unveils updated gold price forecast Yet Trainer says he dislikes that Freshpet has persistently high operating costs, is burning hard through its cash, has a lagging market share, faces more profitable competition, and has "a stock valuation that implies Freshpet will grow its market share by seven times while also growing profit levels that the company has never seen before." "They've got the lowest amount of market share [among pet-food producers], and yet the stock price implies they're going to move up to third place, also dramatically improving profits," Trainer notes. He explains how growing the bottom line while improving market share is a tough task for all companies, because those actions require different things. Companies often take market share by reducing prices, thereby cutting profitability. Freshpet is looking up at virtually the entire pet-food business when it comes to market share, according to Research and Markets, which pegged the company's global market share at 1% in 2023. The big dogs were Nestle Purina with a 32% market share, followed by Mars at 29%. More on retail: Surprising China trade deal news sends retail stocks surgingJim Cramer calls this popular retailer's stock 'the real winner'Morgan Stanley makes bold call on Kraft Heinz, Conagra "I think Freshpet has been employing this 'Let's lose money to get market share' strategy for a long time," Trainer says. "And they are growing sales. But the stock price and implies that they're going to be able to dramatically 700% improve market share while also dramatically improving profits. We just don't see how that's possible." Trainer notes that if Freshpet's margin improves slightly, but they just reach consensus levels of growth, the stock would be worth $26 per share, but he puts the company's economic book value – its "no-growth value" – at zero. Trainer adds that he doesn't expect the outcome to be quite that dire – and suggests that Freshpet could be a takeover target for a bigger food company that wants its footprint in grocery stores before it reaches catastrophe. But he says you can't have a small player "whose stock price implies it is as big as the whole market." Related: Veteran fund manager revamps stock market forecast The Arena Media Brands, LLC THESTREET is a registered trademark of TheStreet, Inc.
Forbes
05-06-2025
- Business
- Forbes
How To Avoid The Worst Style Mutual Funds In Q2 Of 2025
Torn Mutual Funds newspaper heading, shallow dof. getty Question: Why are there so many mutual funds? Answer: Mutual fund management is profitable, so Wall Street creates more products to sell. The large number of mutual funds has little to do with serving your best interests as an investor. I leverage this data to identify two red flags you can use to avoid the worst mutual funds: Mutual funds should be cheap, but not all of them are. The first step is to benchmark what cheap means. To ensure you are paying at or below average fees, invest only in mutual funds with total annual costs below 1.60% – the average total annual cost of the 5,732 U.S. equity Style mutual funds my firm covers. The weighted average is lower at 0.85%, which highlights how investors tend to put their money in mutual funds with low fees. Figure 1 shows Northern Lights Issachar Fund (LIONX) is the most expensive style mutual fund and Vanguard 500 Index Fund (VFFSX) is the least expensive. Northern Lights provides two of the most expensive mutual funds while Vanguard and Fidelity mutual funds are among the cheapest. Figure 1: 5 Most and Least Expensive Style Mutual Funds Most & Least Expensive Style Mutual Funds 2Q25 New Constructs, LLC Investors need not pay high fees for quality holdings. Schwab S&P 500 Index Fund (SWPPX) is the best ranked style mutual fund in Figure 1. SWPPX's neutral Portfolio Management rating and 0.03% total annual cost earns it an Attractive rating. U.S. Opportunistic Value Fund (UUOAX) is the best ranked style mutual fund overall. UUOAX's attractive Portfolio Management rating and 0.57% total annual cost also earns it a very attractive rating. On the other hand, Fidelity Small Cap Index (VMCTX) holds poor stocks and earns an unattractive rating yet has low total annual costs of 0.07%. No matter how cheap a mutual fund, if it holds bad stocks, its performance will be bad. The quality of a mutual fund's holdings matters more than its price. Avoiding poor holdings is by far the hardest part of avoiding bad mutual funds, but it is also the most important because a mutual fund's performance is determined more by its holdings than its costs. Figure 2 shows the mutual funds within each style with the worst holdings or portfolio management ratings. Figure 2: Style Mutual Funds with the Worst Holdings Worst Style Mutual Funds in 2Q25 New Constructs, LLC No one provider appears more often than any other providers in Figure 2. Alger Weatherbie Specialized Growth Fund (ASYMX) is the worst rated mutual fund in Figure 2 based on my predictive overall rating. Transamerica Capital Growth (TCPWX), Nuveen Small Mid Cap Growth Opportunity Fund (FMEFX), BNY Mellon Small Cap Multi Strategy Fund (MPSSX), Reaves Infrastructure Fund (RSRFX), CRM Mid Cap Value Fund (CRIMX), and Bertolet Pinnacle Value Fund (PVFIX) also earn a Very Unattractive predictive overall rating, which means not only do they hold poor stocks, they charge high total annual costs. Buying a mutual fund without analyzing its holdings is like buying a stock without analyzing its business model and finances. Put another way, research on mutual fund holdings is necessary due diligence because a mutual fund's performance is only as good as its holdings. PERFORMANCE OF MUTUAL FUND's HOLDINGs – FEES = PERFORMANCE OF MUTUAL FUND
Forbes
29-05-2025
- Business
- Forbes
How To Avoid The Worst Sector Mutual Funds In Q2 Of 2025
Question: Why are there so many mutual funds? Answer: Mutual fund management is profitable, so Wall Street creates more products to sell. The large number of mutual funds has little to do with serving your best interests as an investor. I leverage this data to identify two red flags you can use to avoid the worst mutual funds: Mutual funds should be cheap, but not all of them are. The first step is to benchmark what cheap means. To ensure you are paying at or below average fees, invest only in mutual funds with total annual costs below 1.84%, – the average total annual costs of the 622 U.S. equity Sector mutual funds my firm covers. The weighted average is lower at 1.15%, which highlights how investors tend to put their money in mutual funds with low fees. Figure 1 shows Saratoga Financial Services Portfolio (SFPAX) is the most expensive sector mutual fund and Fidelity Real Estate Index Fund (FSRNX) is the least expensive. Saratoga provides five of the most expensive mutual funds while Vanguard mutual funds are among the cheapest. Figure 1: 5 Most and Least Expensive Sector Mutual Funds Worst Sector Mutual Funds in 2Q25 New Constructs, LLC Investors need not pay high fees for quality holdings. Fidelity Advisor Energy Fund (FIKAX) is one of the best ranked sector mutual fund overall. FIKAX's neutral Portfolio Management rating and 0.71% total annual cost earns it a very attractive rating. On the other hand, Vanguard Real Estate II Index Fund (VRTPX) holds poor stocks and receives an unattractive rating, yet has low total annual costs of 0.10%. No matter how cheap a mutual fund, if it holds bad stocks, its performance will be bad. The quality of a mutual fund's holdings matters more than its price. Avoiding poor holdings is by far the hardest part of avoiding bad mutual funds, but it is also the most important because a mutual fund's performance is determined more by its holdings than its costs. Figure 2 shows the mutual funds within each sector with the worst holdings or portfolio management ratings. Figure 2: Sector Mutual Funds with the Worst Holdings Most Expensive Sector Mutual Funds in 2Q25 New Constructs, LLC Vanguard, T. Rowe Price, and Fidelity appear more often than any other providers in Figure 2, which means that they offer the most mutual funds with the worst holdings. Jacob Internet Fund (JAMFX) is the worst rated mutual fund in Figure 2 based on my predictive overall rating. BNY Mellon Natural Resources Fund (DLDYX), Vanguard Utilities Index Fund (VUIAX), LDR Real Estate Value Opportunity Fund (HLRRX), and Fidelity Select Defense and Aerospace Portfolio (FSDAX) also earn a Very Unattractive predictive overall rating, which means not only do they hold poor stocks, they charge high total annual costs. Buying a mutual fund without analyzing its holdings is like buying a stock without analyzing its business and finances. Put another way, research on mutual fund holdings is necessary due diligence because a mutual fund's performance is only as good as its holdings. PERFORMANCE OF MUTUAL FUND's HOLDINGs – FEES = PERFORMANCE OF MUTUAL FUND
