Category Archives: stock market

Will FedEx’ Dividend Crash?

From time to time, Political Calculations will follow a single stock. To qualify as a stock we follow, we look for one major characteristic: the stock must be on the verge of a major potential change involving its dividend, when the question of whether the company will change its dividend is still up in the air.

Stock Market Chaos!

In 2018, that stock belonged to General Electric (NYSE: GE), which followed through on our prediction that it would cut its dividend by a large amount. In 2020, we identified Iron Mountain (NYSE: IRM) as a promising investment based on the hypothesis it would not cut its dividend despite its depressed stock price.

Last Thursday, 15 September 2022, FedEx (NYSE: FDX) came roaring onto our radar screen when, after the market had closed, the firm tossed out the earnings guidance it presented to investors just three months earlier, because of the deterioration of the U.S. and global economy's outlook over the summer.

The company's stock price was hammered in the next day's trading, falling over 21% from the previous day's close, its "biggest plunge ever". But although the firm withdrew its previous earnings guidance and announced plans to shutter retail stores, park its cargo transport aircraft, freeze its hiring and cut back labor hours of its staff, it left one big cash-preserving option unaddressed. FedEx' leaders haven't announced what they might do about the company's quarterly dividend.

The following chart illustrates how we see FedEx' options potentially playing out:

Fedex (NYSE: FDX) Adjusted Closing Stock Price per Share vs Trailing Year Dividends per Share at Dividend Declaration Dates from March 2002 through August 2022

Superficially, FedEx' current situation is similar to what we found for Iron Mountain back in 2020. The company's current stock price is well depressed, where a handsome reward awaits if its outlook improves and no dividend cut is needed, or a major dividend cut needs to be on the table because its outlook remains grim.

The chart shows FDX lived through a very similar experience back in June 2020 as faces the company today. Then, the company's executives were presented with similar options. If the company's prospects improved, leaving the dividend alone would see its stock price soar back to the level the long term relationship between it and the company's trailing year dividends per share would place it. If they didn't, a dividend cut of 61% would make sense given the level of its stock price.

Ultimately, the prospects for the global economy and FedEx rapidly improved in the following months, and investors who might have bought into the company at that time were well rewarded. But what would happen today?

If the "outlook gets better" scenario holds, given where its stock closed on Friday, 16 September 2022, our simple analysis suggest FDX could double in value. But if the "things stay grim" scenario is the right one, FedEx' board of directors could cut the dividend by as much as 64%.

We have one more bit of information to consider that may tell us which way FedEx' board will go. In June 2022, they boosted FedEx' quarterly dividend from $0.75 to $1.15 per share, a 53.3% increase. When they implemented that dividend, it was based on the company's earnings outlook from that time. The one they just trashed. Since they've thrown out that forecast, we think FDX' dividend is now also on the cutting board, with at least a 50% reduction up for consideration. That's despite the company's history in avoiding cuts to its dividends for its shareholding owners.

The only question is now is how long it will be before the board acts. In ordinary circumstances, the company could wait to announce a cut when it will next declare dividends in early November. In an economy with deteriorating prospects, it would be to their advantage to act much sooner than that.

References

NASDAQ. FDX Dividend History. [Online Database]. Accessed 17 September 2022.

Yahoo! Finance. FedEx Corporation (FDX) Historical Data. [Online Database]. Accessed 17 September 2022.

Visualizing Foreign and U.S. Ownership of U.S. Corporate Equities

How much of the total U.S. stock market owned by Americans and how much is owned by foreign interests?

We found 70 years worth of Federal Reserve data on the U.S. and foreign ownership of corporate equities answering that question, spanning the entire modern era for the U.S. stock market. Our first chart shows the value of those investments on a linear scale from 1 January 1952 through 1 January 2022.

Foreign and U.S. Ownership of U.S. Corporate Equities by Value, 1 January 1952 - 1 January 2022

Meanwhile, if you're a fan of logarithmic scale data, follow this link....

One thing that log-scale data cannot do well is visually communicate the relative share of foreign versus U.S. ownership. Our next chart focuses just on the share of ownership to reveal the share of the U.S. stock market owned by foreigners has increased from 1.7% in 1952 to 16.5% in 2022.

Foreign and U.S. Ownership of U.S. Corporate Equities by Share of Total, 1 January 1952 - 1 January 2022

The foreign-owned share of U.S. corporate equities peaked at 16.6% on 1 October 2021.

References

Board of Governors of the Federal Reserve System. Rest of the World; U.S. Corporate Equities; Asset, Level. [Online Database]. Last Updated 9 June 2022.

Board of Governors of the Federal Reserve System. All Sectors; U.S. Corporate Equities; Asset, Market Value Levels. [Online Database]. Last Updated 9 June 2022.

2020s Becoming Most Volatile Period in Modern Stock Market History

It's not your imagination. The 2020s are shaping up to become the most volatile period in modern stock market history.

For proof, here's a visual comparison of the standard deviation of the day-to-day percentage change in the S&P 500 by decade.

S&P 500 Daily Volatility by Decade (through 30 June 2022)

Believe it or not, stock price volatility has settled down somewhat since last year!

References

Yahoo! Finance. S&P 500 Historical Data. [Online Database]. Accessed 22 July 2022.

Previously on Political Calculations

Dividends by the Numbers in June 2022 and 2022-Q2

After a strong first quarter, a more mixed situation for the U.S. stock market's dividend-paying companies turning has developed during the second quarter. The following chart visualizes the count of U.S. firms either increasing or decreasing their dividends in each quarter from the first quarter of 2021 (2021-Q2) through the just completed second quarter of 2022 (2022-Q2).

Number of Public U.S. Firms Increasing or Decreasing Their Dividends by Quarter, 2021-Q2 through 2022-Q2

For the good news. At 51 dividend cuts, the U.S. stock market saw twenty fewer dividend reductions announced during 2022-Q2 than it did during 2022-Q1. While that figure is elevated over the year-ago total of 28, it is a sign of improvement in what had been a downward trend.

Now the bad news. 346 firms announced dividend rises during 2022-Q2, less than each of the preceding four quarters. That's also the fourth lowest total seen for all second quarters going back to 2004, which covers the available data. Only the second quarters of the Great Recession era's 2009 and 2010 and the Coronavirus Recession's 2020 have seen fewer dividend increases.

The next chart breaks down the number of dividend increases and decreases for each month from January 2004 through June 2022.

Number of Public U.S. Firms Increasing or Decreasing Their Dividends Each Month, January 2004 through June 2022

Here's the summary of June 2022's dividend metadata:

  • A total of 4,698 U.S. firms declared dividends in June 2022, an increase of 657 from May 2022's recorded value and 1,975 more than did a year earlier in June 2021.
  • Some 46 firms announced they would pay a special (or extra) dividend to their shareholders in June 2022, 39 less than did in May 2022 and 13 less than did in June 2021.
  • Just 63 firms declared they would increase their dividends in June 2022. That's 93 fewer than did in May 2022 and 18 fewer than did in June 2021. Only fifteen months have seen a lower number of dividend rises announced, seven of which occurred during official periods of recession for the U.S. economy.
  • There were 16 dividend reductions announced during June 2022, seven more than in May 2022 and ten more than did in June 2021.
  • In June 2022, zero U.S. firms omitted paying their dividends, continuing the trend established since June 2021, when the last U.S. firm that suspended paying dividends to its shareholding owners did so.

The lack of dividend increases appears due to rising costs for businesses related to President Biden's inflation. The exit question: Is this situation a precursor to recessionary-level dividend cuts being announced in upcoming months?

References

Standard and Poor. S&P Market Attributes Web File. [Excel Spreadsheet]. Accessed 1 July 2022.

Standard and Poor. S&P Indicated Rate Change. [Excel Spreadsheet]. Accessed 1 July 2022.

What Does Bitcoin Look, Walk, and Quack Like?

Duck, by Ross Sokolovski via Unsplash - https://unsplash.com/photos/kCZSzqvIei4

What is the best way to think about what Bitcoin (BTC-USD) is as an investment?

We've already demonstrated what it isn't. Bitcoin isn't "Gold 2.0". We know that's true because Bitcoin doesn't act like gold (KITCO: Live Gold Price), which rises in value whenever inflation forces real interest rates to fall. If anything, we found changes in the value of Bitcoin is almost completely independent of inflation-adjusted interest rates. If gold were a duck, Bitcoin wouldn't look, walk or quack anything like it.

Which then raises the question: what does Bitcoin look, walk and quack like?

We think Bitcoin looks, walks, and quacks like a non-dividend paying stock.

The thing that put us onto that line of thought was a recent headline: Bitcoin’s correlation with the Nasdaq 100 index reaches a new all-time high.

To be highly correlated with something is akin to looking, walking and quacking like it. So we put that proposition to the test, tracking the relationship between Bitcoin and the Nasdaq Composite Index (NASDAQ: COMP.IND), which is a broader measure of the stocks that trade on the NASDAQ stock exchange. The following chart shows what we found after we mapped the available data we have for the historic value of Bitcoin against the value of the Nasdaq Composite Index over the same period of time, from 17 September 2014 through 20 May 2022.

Bitcoin Value vs NASDAQ Composite Index, 17 September 2014 - 20 May 2022

In the chart, we see that Bitcoin's value has two distinct phases. One before the NASDAQ Composite index exceeded $10,000 in value, which was generally linear outside of a bubble-like period from October 2017 through November 2018. One after the NASDAQ exceeded $10,000 in value, coinciding with when Bitcoin began gaining institutional backing and its value with respect to the index took on power law characteristics. In both cases though, outside short periods where changes in its valuation decoupled from changes in the value of the stock index, Bitcoin has a generally tracked along with the NASDAQ, rising and falling with it in a positive relationship.

That makes it very much like a non-dividend paying stock, especially during the period after it began gaining significant institutional backing. We know that from the exponent of the power law relationship that exists between Bitcoin and the Nasdaq Composite Index during this period, which represents the ratio of the exponential growth rates of Bitcoin and that of the Nasdaq index, which includes dividend-paying stocks.

In doing that, Bitcoin is very much looking, walking, and quacking like a volatile non-dividend paying stock, which shares those characteristics. Unless and until it starts acting differently, that's perhaps the best way for investors to think about Bitcoin's qualities as an investment.

Update 26 May 2022

We're not the only ones looking at a cryptocurrency and wondering what it looks, walks, and quacks like! Elsewhere on the interwebs, Mitchell Zuckoff argues many cryptocurrencies are passing the Ponzi duck test.

References

Federal Reserve Economic Data. NASDAQ Composite Index. [Online Database (Text File)]. Accessed 20 May 2022.

Yahoo! Finance. Bitcoin USD (BTC-USD), 14 September 2014 through 21 April 2022. [Online Database]. Accessed 20 May 2022.

Previously on Political Calculations

Image credit: Photo by Ross Sokolovski on Unsplash.