Welcome to Bautis Financial’s Advisor Commentary! This is the first installment in an ongoing series where Marc Bautis, Wealth Manager and Founder of Bautis Financial, comments on hot topics in the financial industry. Read on to learn more about AT&T’s recent merger with Discovery (and its effect on the dividend), the most recent cryptocurrency chat and some follow-up on 2020’s record-breaking IPOs.
As part of its announced merger with Discovery, AT&T also announced plans to cut its dividend in half. AT&T had a history of raising their dividend every year for the past 36, making it a member of the elite dividend aristocrat club. The announcement threw dividend investors into a conundrum; do they sell all of their AT&T shares, reduce the amount they hold or hold steady?
We are big fans of dividend investing, but basing your decision to sell solely on what they do with their dividend is probably not the right approach. We’re proponents of looking at the Total Return of a stock, which includes both the dividend and the gain or loss in the stock price over a period of time. AT&T is a perfect example of this: the stock has kicked off a really appetizing 7% dividend, but that yield is so high because the stock price has dropped 26% since January 1st, 2020 based on the large amount of debt they incurred with their purchases of DirectTV and Time Warner.
Very few asset classes have garnished as much attention over the past few months as cryptocurrency. However, crypto has been linked to reports of money laundering, hacking and tax evasion. Now in the forefront is climate change. Just how much power is needed to mine them?
Every couple of days Elon Musk does an about face with tweets that throw accelerant on the Bitcoin volatility fire. First, he said Tesla would not accept Bitcoin because of concerns about the power needed to mine for them — news of which caused the cryptocurrency price to crash. This week, his tweet about the sustainability of Bitcoin caused the price to jump.
We think the most troublesome story about Bitcoin is how it failed as an inflation hedge. Last month, we saw the highest consumer price increase since 2008 at 4.2%. That number sparked inflation worries and caused a market drop. It was Bitcoin’s chance to shine! After all, Bitcoin is thought — much like gold — to be a hedge against inflation. But how did Bitcoin do on the heels of the inflation worries? It failed. It’s price is down over 30% since the inflation numbers came out.
While there have been other news items impacting Bitcoin, it’s the volatility that has investors concerned about allowing the currency to go mainstream.
Too Big to Fail?
It’s hard to imagine something happening that would cause United States technology companies like Apple, Microsoft, Amazon and Google to lose their rank as the largest companies in the world. But an interesting comparison (see below) shows that zero of the 20 largest companies by market cap in 1989 made it onto the 2021 list. An investing lesson to learn from this is to never get too emotionally attached to a stock in your portfolio.
Nothing was hotter than investing in IPO’s (initial public offerings) last year — well, maybe with the exception of the short period of time where meme stocks were all the rage. John Williams, one of our advisors, and I even recorded a podcast episode on the pros and cons of investing in them.
Some of the well-known IPOs popped 25, 50, or even 100% at the open of last year. If we take a look back at some of the more popular ones in 2020, we’ll see that a lot of them have had trouble maintaining their momentum:
- Airbnb, even with the expected travel boom post-COVID-19 pandemic, is still sitting below it’s IPO price.
- Coinbase, which went public to take advantage of the momentum in cryptocurrency, is trading well below its opening price as well.
It goes to show that IPOs are no sure bet. A lot of the future projected growth is already priced into the stock. Even with some companies struggling post IPO, it doesn’t seem to be slowing down the IPO steam engine in 2021. Here is a list of the most anticipated IPOs going live this year.