# 640 – 💰 Warren’s War Chest – The Average Joe
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    # 640 – 💰 Warren’s War Chest

    victorlei

    February 27, 2024

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    Good morning. Ever try to pay for a $3 Coke with a $100 bill? The cashier may roll their eyes as they struggle to make change. But in your defense, $100 bills are by far the most prevalent bill right now, doubling in volume from 2012 to 2022 — with enough in circulation for every American to have 55 $100s.

    One surprising benefit: $100 bills are such a pain to use that people are less likely to spend them — known as the denomination effect. So, if you want to rein in your spending, get some Benjamins.


    DIVIDEND STOCKS

    Big Tech Killed Dividends. Now, It’s Bringing Them Back To Return Trillions In Cash To Shareholders.

    People are ditching the BS and loving the DS (dividend stocks). Dividends are a crucial part of the S&P 500, making up nearly one-third of its total return since 1926. But investors have fallen in love with fast-growing tech stocks (which generally don’t pay dividends) — leaving dividends as an afterthought… until now.

    Tried and true: With interest rates still high, investors are again revisiting old-fashioned dividend compounders — companies known for steadily increasing payouts. According to MarketWatch, Goldman Sachs (NYSE:GS) had the highest annual dividend growth rate among the S&P 500 companies over the past five years.

    • If you bought $GS five years ago, your quarterly dividends would have grown from $0.80 to $2.75 — a five-year compounded annual growth rate of 28%.

    • Additionally, they would have a 5.74% dividend yield on their initial investment, compared to the 2.8% today.

    Are big dividends the future of big tech?

    While Silicon Valley was largely responsible for the decline of dividends, its companies could lead a dividend comeback. Cash-flush tech giants like Microsoft (NASDAQ:MSFT) and Apple (NASDAQ:AAPL) have raised their dividends by over 200% since 2012 — and other big tech companies are taking after their lead, kickstarting a new generation of dividend compounders. Meta (NASDAQ:META) recently announced a 50¢ quarterly dividend. And considering they’ve doubled their free cash flow over the past five years, increasing their dividend wouldn’t be an issue.

    • Analysts at Goldman Sachs speculate that Amazon (NASDAQ:AMZN) and Alphabet (NASDAQ:GOOG) could start issuing their own dividends this year.

    • Others that have outperformed the S&P 500 with high dividend growth rates include Lowe’s (NYSE:LOW), Morgan Stanley (NYSE:MS), and Microchip Technology (NASDAQ:MCHP).

    Beware the Dividend TRAP… that’s Temporary Rewards, Appealing Promises. High dividend yields are often dangled as a carrot to unknowing investors, who might ignore possible company problems — and miss out on returns. Over the last two decades, 14 of the 20 highest dividend-yielding stocks in the US underperformed the S&P 500 — and the world’s 100 highest dividend-paying stocks offer an 11% dividend but have declined more than 60% over the past five years.


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    • Investors purchase a portfolio of bourbon barrels.

    • The bourbon barrels develop flavor with age, commanding a higher price.

    • Barrel status is tracked through an online investor portal.

    • Investments can be sold whenever the time is right.

    With the rising popularity, bourbon investment portfolios from CaskX are selling out faster than ever. For a limited time, our readers can skip the waitlist and score early access to the latest bourbon investment offerings.


    LARGECAP RECAP

    🤔 What will Warren Buffett do without Munger?

    We haven’t heard much from the Oracle of Omaha since the passing of his esteemed business partner and investing legend Charlie Munger, who he called the “architect” of holding giant Berkshire Hathaway (NYSE:BRK.A). But the company’s fourth-quarter results and famous annual shareholder letter, released over the weekend, would’ve made him proud.

    • Berkshire’s 2023 operating earnings were up 17% year-over-year to $37.4B, a record that briefly propelled the company’s stock to all-time highs before settling to an $886B valuation on Monday.

    • Buffett wrote that Berkshire’s businesses now represent a record 6% of the S&P 500’s total GAAP net worth, which measures businesses’ total assets and subsidiaries.

    What would you do with $168B? That’s how much cash Berkshire had at the end of the fourth quarter. In recent years, Berkshire loaded up on cash positions to take advantage of higher rates — but with rates expected to fall in 2024, investors are wondering what Buffett will buy next. He might answer these questions at the company’s annual meeting in May. Until then, get the best hits of all 59 of Buffett’s annual letters.

    🚬 Cigarette sales are going up in smoke

    Smokeless nicotine alternatives like ELFBAR and ZYN are gaining traction, propelled by social media influencers and nicotine’s newfound popularity as a productivity aid. This trend spells trouble for tobacco incumbents, who have seen these buzzy new products eat into traditional cigarette sales, which fell 8% last year — twice the usual rate of decrease.

    • British American Tobacco (NYSE:BTI), maker of Lucky Strike cigarettes, took a hit, devaluing its cigarette brands by $31.5B while ramping up pressure to pivot to smokeless options.

    • Other players, such as Philip Morris (NYSE:PM) are also doubling down on smokeless products — now accounting for 40% of its revenue, the highest among established brands.

    New #1 in nicotine: Cigarettes’ share of the nicotine industry could continue to tumble — falling from 80% to 60% since 2018. At this pace, they’re expected to make up less than half of the nicotine market in the next few years. In fact, the only thing that could stop it is FDA crackdowns on the new products.


    JOE’S MARKET PULSE

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    Markets & Economy

    UBS (NYSE:UBS) raises 2024 forecast over AI excitement: The firm lifted their S&P 500 forecast from 5,000 to 5,200 points — with an upside scenario of 5,500 if AI proves to be a game-changer “faster and sooner” than expected. They also predict three rate cuts starting in June. [Read]

    Landlords ease up on rent hikes: Demand is dipping, causing median rents in the largest 50 cities to drop $5 from last year and $46 from two years ago. Survey shows “only” 60% of landlords expect rent increases in the next year — down 5% from 2023Q1. [Read]

    Natural gas prices are in freefall: Thanks to the oddly warm winter and massive oversupply, prices are down 18% from last year — hitting their lowest in ~34 years. Now, major producers are rushing to cap output and push prices back up. [Read]

    Business & Wealth

    AT&T (NYSE:T) gives $5 credit to outage-affected customers: It’s not a huge paycheck, but it’s better than nothing after a telecom outage kept customers from making and receiving calls for hours. AT&T blamed the outage on a “technical error,” not a cyberattack. [Read]

    Take some investing advice from these teens: Custodial accounts are on the rise at major brokerages as nearly a quarter of teens have started investing with their parents’ help — and they’re moving beyond meme stocks toward more sophisticated allocations in big tech companies. [Read]

    All is well at Alibaba (NYSE:BABA), says founder: Leadership shuffling and growing competition have meant rocky times for the Chinese e-commerce giant, but a more secure management situation and a still-growing e-commerce market in China has Joe Tsai feeling good about Alibaba’s chances against Temu, Shein, and TikTok. [Read]

    *Thanks to our sponsors for keeping the newsletter free.


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    Collect $10K Or More In Free Silver

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    DIGIT OF THE DAY

    52% of College Grads Are Underemployed and Working In Jobs That Don’t Require Their Degrees

    Go to college, graduate, get a good job — that’s the three-step plan college students assume they’ll follow to financial success. Unfortunately, life (and the US economy) has different plans for them. Recent findings from the Burning Glass Institute and Strada Institute for the Future of Work reveal that more than half of college graduates end up in positions that don’t require their degrees within a year of completing their education.

    • 88% of “underemployed” graduates work in jobs requiring only a high school education or less, despite earning 25% more than high school graduates.

    • For comparison, bachelor’s degree recipients holding college-level jobs earn nearly 90% more than those with a high school diploma.

    Just a piece of paper? While many companies removed the degree requirements from job descriptions and shifted to skill-based hiring, degree-holders often get chosen over “degreeless” candidates, who say they aren’t getting any good job offers. Even with college degrees, rising tuition fees and student debt often leave students struggling financially — some barely exceeding the federal poverty line or earning just above $15 per hour. Until you get paid $100K to skip college, it might be best to stay in school.


    EXTRA JOE

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