Dividends lurch on | Out with the old, in with the new |


Hi Alex, here's what you need to know for August 26th in 3:03 minutes.

☕️ Finimized over an espresso at Kaffekoppen in Stockholm, Sweden (20°C/68°F ⛅)

Today's big stories

  1. The Dow Jones Industrial Average is set to lose a few existing companies and add a few new ones
  2. There are a couple of unusual investments getting a lot of love this year – Read Now
  3. US stocks have hit new highs, but lower dividends could make them a riskier proposition than ever

Card Tricks

Card Tricks

What’s Going On Here?

The Dow Jones Industrial Average (a.k.a. the Dow) is set for a “reshuffle” next week that’ll switch three old companies out for three new ones before your very eyes.

What Does This Mean?

The Dow’s a key US stock market index that tracks the value of thirty companies. They aren’t necessarily the country’s biggest, but they do offer a cross-section of American industry – making them pretty representative of its economy.

Just like other major indexes, the Dow’s regularly rebalanced to make sure it’s accurate. But unlike a lot of other indexes, the Dow’s price is determined by companies’ share prices rather than their overall values. In other words, higher-priced stocks have more of an influence. And when Apple’s share price – the highest in the Dow – falls after the company's upcoming stock split, the tech sector’s contribution to the index will too. Hence, a rebalancing's needed.

Why Should I Care?

The bigger picture: Split personalities.
Apple’s stock split will have a couple of effects on the Dow. For one, the other companies in the index will gain more influence to compensate for Apple’s sudden downsizing (tweet this). For another, the gap between the Dow and the S&P 500 – the other key US stock market index – will widen: Apple and the other big tech firms still represent over a quarter of the S&P 500, even as the company’s sway over the Dow shrinks.

For markets: Wracked with Dowt.
In the reshuffle, healthcare giant Pfizer, defense contractor Raytheon, and oil major Exxon – once the world’s most valuable company – are being replaced by software titan Salesforce, biotech Amgen, and industrial conglomerate Honeywell. That means investment funds tracking the Dow will be forced to sell their stakes in the outgoing companies and buy into the newcomers, bruising the former’s stocks and lifting the latter’s.

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Bitcoin’s Back, Baby

What’s Going On Here?

Bitcoin prices are sitting near their highest level since the great cryptocurrency boom of winter 2017, and it’s not the only unusual investment getting a lot of attention this year.

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The Divid-End Times

The Divid-End Times

What’s Going On Here?

Dividends – shambling through this weird apocalypse we call 2020 as clumsily as the rest of us – fell by the largest amount since records began last quarter. Gaaaaaaains.

What Does This Mean?

While second-quarter dividends still added up to almost $400 billion, that quarterly total was – according to investment manager Janus Henderson – the second-lowest since 2012. That’s thanks to a 19% quarterly decline versus the year before. And that's thanks to the 27% of companies that cut their dividends, half of which suspended them altogether…

As the home of the world’s biggest stock market, the US was investors’ focus. But the UK and Europe had their fair share of trouble too: their payouts fell by around 40%, while France – the eurozone’s biggest source of dividends – saw its total fall to its lowest level in ten years. Switzerland and Japan made it through in one piece, mind you: both countries' dividends barely changed.

Why Should I Care?

For you personally: Risk and Morty.
When you buy a stock, you take on the risk it’ll fall in value. Things like dividends and share buybacks, then, are ways companies reward you for taking a chance on them rather than almost-risk-free investments like government bonds. But with dividends dwindling and last quarter’s US share buybacks nearly halving, you mightn’t just want to rely on a company’s share price rise to make a profit – especially while stocks are at record highs.

The bigger picture: Regrets, he’s had a few.
One of US stocks’ biggest critics in the investment world had a change of heart this week: he no longer reckons they’re worth ditching right now, partly because unlimited central bank support is keeping valuations propped up. But it’s not like investors were paying much attention to his concerns or dividends’ turmoil anyway: they’ve been buying up stocks in their droves.

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💬 Quote of the day

“The world cannot be understood without numbers. But the world cannot be understood with numbers alone.”

– Hans Rosling (a Swedish physician, academic, and public speaker)
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💪 Feel the earn

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🇨🇦 Canada: Navigating Post Pandemic Markets – 11am Pacific Time, August 26th
🇬🇧 UK: Create Your Financial Fitness Plan – 2.30pm UK Time, August 26th
🇩🇪 Germany: The Rise of Sustainable Investment – 11am Berlin Time, August 27th
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🇺🇸 USA: Improve Your Financial Literacy – 12.30pm Miami Time, September 1st
🇦🇷 Argentina: The Future of Fintech in Latam – 11am Argentina Time, September 2nd

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