Market Volatility and Dividend Strategies
This year has undoubtedly brought excitement for dividend investors as stock prices have soared. However, as October approaches, market volatility is rising, influenced by global conflicts and domestic political uncertainties.
Now could be the opportune moment to reassess your portfolio, particularly concerning underperforming dividend stocks. Today, we’ll identify one such stock to consider selling, along with another promising option that has shown incredible dividend growth.
Why You Should Consider Selling Nordstrom
Nordstrom (NYSE:JWN) offers a yield of 3.5%, which may seem appealing compared to the S&P 500’s average yield of 1.2%. However, the company’s traditional retail model may struggle in an increasingly online marketplace.
Another significant concern for Nordstrom is its substantial debt load, amounting to $2.6 billion in long-term debt, which represents 72% of its market cap. This high debt burden makes it challenging for the company to navigate competition from digital retailers and larger specialized retail chains.
The Impact of COVID on Nordstrom’s Dividend
Nordstrom's dividends have faced significant pressure, as evidenced by the fact that 91% of its free cash flow was allocated to dividends over the past year. Such a reliance is unsustainable and raises red flags for investors.
Despite these challenges, Nordstrom is pursuing expansion plans, with intentions to open 32 new stores by late 2025. Historically, the company has not excelled in its expansion efforts, as demonstrated by its previous withdrawal from the Canadian market.
Year-to-date, Nordstrom shares have climbed 18.5% to around $22. While this uptick may provide a temporary relief, now is a strategic time to divest from this stock.
Consider Investing in FedEx for a Stronger Dividend
In contrast to Nordstrom, FedEx Corp. (NYSE:FDX) represents a far stronger investment. FedEx not only supports e-commerce growth, but it is also benefiting from broader economic trends.
According to recent reports, global e-commerce sales are projected to exceed $6 trillion this year, rising to $7.96 trillion by 2027. FedEx is positioned to profit significantly from this upward trend.
Capitalizing on Economic Stimuli
Both the U.S. and China are implementing stimulus measures that favor the transportation and logistics sector. The Federal Reserve has shifted to a more accommodating stance regarding interest rates while the Chinese central bank has announced new policies aimed at bolstering market confidence.
Recently, FedEx shares experienced a drop attributed to disappointing Q1 earnings, creating an attractive entry point for investors. Currently, FedEx has considerable upside potential, suggesting great opportunities for those ready to invest.
Why Now is the Right Time to Buy FDX
While FedEx currently offers a 2% dividend yield, it has increased its dividend by an impressive 590% over the past decade. The company maintains a more sustainable dividend model as its payout only accounts for 49% of its free cash flow, which underscores its resilience against economic fluctuations.
Recommendations for Volatile Market Conditions
Historically, October has proven to be a particularly volatile time for stock markets, making it a critical moment for investors to evaluate their portfolios. By opting to sell underperforming stocks like Nordstrom and redirecting those funds toward reliable firms like FedEx, investors can enhance potential returns.
Moreover, additional opportunities exist in the realm of rapid-growing dividends. A focus on cash-rich and consistent dividend stocks is essential for ensuring stability and continued income, even amidst the volatility of the market.
Frequently Asked Questions
What happened with Nordstrom's dividends during COVID?
COVID significantly impacted Nordstrom's financial framework, leading to a suspension of its dividends in 2020, which were only partially reinstated later.
How should investors respond to October market volatility?
Investors are encouraged to sell underperforming stocks and reinvest in those with strong growth potential, particularly with reliable dividends.
Why is FedEx a suitable investment choice now?
FedEx presents an attractive investment opportunity due to its significant growth in e-commerce, robust pricing power, and sound dividend strategy.
How does the debt of Nordstrom affect its stock performance?
Nordstrom's high debt level negatively impacts its competitive edge and growth capacity, making it a less attractive investment.
What other stocks should investors consider during volatile times?
Investors should look for cash-rich and recession-proof stocks that can withstand market fluctuations while providing consistent returns.
