"Sell in May and go away" became an adage some people love to say in our business, and I really…
Dividend Cafe provides market perspective rooted in first principles, not the fads of the day. Authored by our Managing Partner, David Bahnsen, it covers a wide array of topics, it doesn’t try to do what it cannot do, and it strives to offer needed perspective not readily available in most financial commentary.
The MONDAY Dividend Cafe covers all going on in the present tense in public policy, housing, energy, markets, the Fed, and more.
The DAILY RECAP is rather self-explanatory.
And ASK TBG gives you a chance for daily interaction with our people on any issue important to you.
"Sell in May and go away" became an adage some people love to say in our business, and I really…
Question:
“Is a crisis brewing in regional banks?”
~ Walter C.
Answer:
As for regional banks, if I could see it, then it wouldn’t be a crisis. Crises aren’t seen or seeable until they come. What I do believe is that two things are true at once:
David L. Bahnsen – May 2, 2024
Question:
Would you advocate dividend growth as a good starting point for an international investment allocation? US versus international valuation trends would seem to indicate that a prudent investor should have at least some allocation internationally, but the universe is so broad it is hard to know where to start.
-Thomas W.
Answer:
Yes, there is an opportunity for dividend growth equity investment to be attractive internationally, and we will occasionally find value overseas worthy of including in our dividend portfolio. However, when looking across the developed world landscape globally through the bottom-up fundamental lenses we use, more often than not, we just find more of what we are looking for in the US in a side-by-side comparison. That said, the opportunity to invest in equities internationally is certainly something we believe in, and while we do so with those same bottom-up principles, we focus on the Emerging Markets space where valuations and underlying growth opportunities outpace much of the developed world. As far as where to start, I happen to know of a resource to help you. =)
Brian T. Szytel – May 2, 2024
Question:
“Why do some mergers and acquisitions need approval from the FTC in the first place, and what criteria are they looking for? What makes M&A anti-competitive and bad for consumers?”
~ Josiah P.
Answer:
The FTC has broad and unfortunate jurisdiction over any matters involving trade and commerce, and so deals like grocery store mergers can fall under their purview if they deem it in their purview. The vast discretionary authority these regulatory bodies have is a source of much controversy, as many feel (yours truly being one of them) that it builds an unaccountable regulatory state over time, with minimal (if any) oversight from elected representation (i.e., Congress, who is supposed to make laws according to the Constitution). The current FTC ideology is that M&A can be bad even apart from the “harm to consumer” rule first codified by legal giants like Robert Bork, just on the basis of “size alone.” They have had a very poor track record prevailing in these adjudications. M&A in competitive industries can create more scaled players with more financial resources better able to serve their customers and avoid the bankruptcies that have happened so frequently in low-margin, highly competitive industries.
David L. Bahnsen – May 1, 2024
Question:
“In doing my taxes, I realized that some of my Alternative Investments that produce income are classified as Return of Capital versus actual dividends and earnings. Isn’t this just giving me my own money back? I am interested in return ON capital. Can you explain to me how this works, please?”
-R.V.
Answer:
Yes, there are many classifications for taxation from distributions that come from alternative investments. Capital gains, dividends, ordinary income, non-dividend distributions (or return of capital) and so on. If you own something like a private real estate fund or partnership, you’re getting either a 1099 or K1 statement that breaks everything down, but don’t forget that having income being generated by different sources like real estate versus equity versus debt etc., will all come delineated. Is one better than the other? Well, yes. To your questions specifically, a private real estate investment trust will typically generate its income as a non-dividend distribution. This income is nontaxable to you as a unit holder at the time of receipt, which is nice, but it lowers your cost basis of the investment as those distributions are received. This is due to the depreciation of real estate taken within the portfolio.
You may also receive section 199A distributions, which are tax-advantaged from real estate alternative investments as well. To your question specifically, in the case of non-dividend distributions or return of capital, it is a portion of shareholder equity being returned rather than dividends, which are paid from company earnings. If the equity value of a private real estate fund is appreciating, and there are consistent cash flows coming to unit holders as income where a portion is nontaxable, it is paid but reduces the cost basis of the units, is this a bad thing necessarily? No, as it’s just effectively moving the taxation to capital gain treatment when the units are sold later.
Brian T. Szytel – May 1, 2024
In September of 2008 the world’s financial markets were brought to their knees by a debt bubble, the likes of which we had never previously seen. The turmoil in financial markets was severe and Wall Street banks were falling by the wayside daily. In this time period, David Bahnsen was working as a Managing Director at Morgan Stanley, responsible for the well-being of his clients. As their anxiety of clients intensified, David began writing a periodic bulletin to them. One bulletin became another, and then another, and all of a sudden, a weekly bulletin was organically born! Well after markets pulled out of the abyss of 2008, the weekly edition continued, evolving into something far more positive than its September of 2008 origins. This commentary distributed by simple email with an ever-growing following morphed into the Dividend Cafe when David and his team launched their own practice in early 2015.
Today, Dividend Cafe is still attempting to do what it was doing in the fall of 2008 – offering truthful perspective that may not be easily found elsewhere. The topics will vary from our dividend growth philosophy, to bedrock investing principles, to the challenges of interventionist monetary policy, to anything else that inspires David in a given week. The underlying objective is the same now as it was when we began – to build trust by telling the truth, not what people want to hear.
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