#delta stock dividend yield

[billehrman]

The Age of Digital Transformation

The Age of Digital Transformation

Corporations' operating profits, margins, cash flow, and ROIC are moving to new highs as the economy recovers from the pandemic, and managements have learned to do more with less spending heavily on technology while maintaining fiscal discipline in the boardroom.

While technology stocks are near-term beneficiaries of record spending as we move digital, the long-term winners will be technology buyers as the benefits accrue over time.  Even we are surprised about how quickly operating margins and returns are improving from the depths of the pandemic. The surge in tech spending will boost productivity, improve profitability, lead to higher returns on invested capital and keep a lid on inflationary pressures.

We now believe that operating margins can get close to 14% by the end of 2023, up from 10.3% in 2020 and 11.5% in 2019, which would translate into S&P 500 operating earnings over $245/share in 2023, up from forecasted earnings of $215/share this year. The real surprise will be the profitability and returns on invested capital of economically sensitive value companies over the next few years, which will lead to outperformance over time. It is not that we don't like tech stocks. We do. But expectations are high, and there is little room for disappointment, unlike other areas.

Economic growth is being held back by the surge in coronavirus cases/deaths, shortages, and supply line issues, but this will lessen as we move into 2022, boosting global growth. In addition, we expect to see continued monetary accommodation to go along with additional fiscal support,

The stock market remains the only game in town, with 10-year treasuries yielding 1.34% and the earnings yield on the market at 4.7% based on 2022 earnings and 5.4% on projected 2023 earnings. Even if rates go up, it will have to move a long way, which we do not expect, to make the stock market unattractive. We expect record buybacks next year, along with significant increases in dividends.

The key to the global economy remains to vaccinate the unvaccinated so that we can move forward. It was vital that the FDA formally approved Pfizer's vaccine last week as it removed a legal impediment to vaccinate all. More than 5.11 billion doses have been administered across 183 countries at a rate now of 38.4 million doses per day, a record. In the U.S., 366 million doses have been given so far at an average daily rate close to 880,000, a substantial increase from a few weeks ago. The Pfizer formal approval will lead to an acceleration in vaccinations, including booster shots for those vaccinated eight months ago. We continue to believe that we will get an annual covid booster shot like for the flu. We are pleased to see companies, schools, and government agencies make getting vaccinated a requirement. It appears that Dr. Gottlieb was correct, and the Delta outbreak is near its peak, which will lead to a re-acceleration in economic activity as we move into the fall.

The financial markets are transfixed on tapering as if that meant tightening. It is not! The U.S economy is in good shape and no longer needs extraordinary support from the Fed. Several members of the Fed, including Esther George, James Bullard, and Robert Kaplan, want to begin tapering this fall and end It by the summer of 2022. We cannot disagree, but the key will be forthcoming economic data points, especially employment, as tapering will not impact inflationary pressures, mainly caused by shortages and supply line issues. Powell at Jackson Hole emphasized that tapering is not tightening; he gave no hint when it will begin, and raising rates is a different decision. He sees continued progress to the goal of tapering, but future data points will tell when. It has become clear that if the virus peaks soon, tapering may begin before the end of the year and conclude by the third quarter of 2022. Rate hikes are still expected sometime in 2023. Again, tapering is not tightening, and the Fed will be maintaining an accommodative stance for at least two more years.

Biden's and the Dem's economic agenda moved forward last week as Nancy Pelosi made a deal with the moderate Democrats to get a hard vote on the traditional infrastructure bill by September 27th while moving forward on the reconciliation bill, which will include the blueprint for the $3.5 trillion social infrastructure bill. We continue to see the passage of the $1.2 traditional infrastructure bill this fall. Still, we expect the moderate Dems in the Senate and House to significantly alter the larger bill lowering its size significantly and the tax rates from what was initially discussed.  We were pleased to hear that Biden's advisors, including Treasury Secretary Yellen, support Powell's renomination to continue as Fed Chairman with Lael Brainard as Vice Chairman.

Economic data points continue to big a mixed bag but generally support an improving economy, especially as we get our arms around the Delta variant. Remember that most of this data was accumulated before the severe outbreak of the Delta variant so take it with a grain of salt: U.S. PMI Composite Flash was 55.4 vs. 59.9 prior; Manufacturing PMI was 61.2 vs. 63.4; Service PMI was 55.2 vs. 59.8; July existing home sales rose 2%; July durable goods orders fell 0.1%; July consumer spending increased 0.3% while income rose 1.1% resulting in a 9.6% savings rate up from 8.8% in June; the July PCE excluding food and energy rose 0.3% sequentially down from 0.5%; the July trade deficit fell to $86.4 billion as exports rose while imports fell; second quarter GNP growth stays at 6.6% as there were upward revisions to nonresidential fixed investment and exports offset by downward revisions to inventory investment and state and local government spending, and finally consumer confidence fell to 70.3 in August down from 81.2 in July. The domestic economy has slowed somewhat as Delta variant cases/deaths rose over the last month. Hopefully, vaccinations continue to pick up meaningfully, which we expect such that growth reaccelerates into 2022.

The spread of the Delta variant has impacted economic growth overseas too: Japan's PMI fell to 45.9 in August from 48.8; Germany's Flash Manufacturing PMI fell to 62.7 from 65.9; France's PMI fell 55.9 from 56.6, and growth in China has slowed too. President Xi commented that his government would strive to reach its economic and social targets this year, even if it includes more monetary and fiscal stimulus. Foolishly, China continues to reduce its stock of industrial commodities, just as global growth is about to accelerate in 2022. We continue to see an acceleration in global growth in 2022 as all the unvaccinated get vaccinated.

Investment Conclusions

While the spread of the delta variant has dented near-term growth, better days are ahead as we all get vaccinated. We are enthused by the long-term opportunity to significantly improve S&P operating margins, earnings, cash flow, and returns on invested capital as corporations’ benefit from the surge in their technology spending on all aspects of their business and finances. We know that it is hard to be a long-term investor due to the daily news sound bites and volatility, but that is just what you should do, a la Warren Buffett, the most significant investor of our time. While we continue to be overweighted in technology, the best long-term opportunities will be the value/economically sensitive companies that will benefit from all their tech spending over time.

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[billehrman]

Stay Long and Diversified

Stay Long and Diversified

The financial markets will remain in a holding pattern at elevated levels until they gain more clarity on the impact on global growth from the coronavirus delta variant and the future direction of monetary and fiscal policies.

The simple truth is that equities are the only game in town with interest rates so low and liquidity so high. Remember the axiom "Don't fight the Fed?" The Fed not only has our backs but also wants the economy to run hot. The stock market has rarely been so undervalued using Buffett's time-tested tool comparing 10-year bond yields, currently 1.31%, to the inverse of earnings yield, now 4.7%. We continue to emphasize investments in economically sensitive companies. We see above-average growth and returns for many years to come bolstered by a global recovery; the need to build additional capacity closer to home; the move to EV, going green and new technologies; and several government-sponsored infrastructure programs. In addition, we also own some of the great technology companies selling at reasonable valuations as we have indeed entered a new tech revolution in which all companies must spend to remain competitive. Earnings season has begun with a bang, with over 90% of the companies beating forecasts and raising future numbers. We are also paying close attention to balance sheets which have never been stronger. We expect to see significant increases in dividends and buybacks over the next year, which will support higher stock prices.

Getting vaccinated is the best protection against getting the coronavirus delta variant. More than 3.54 billion doses have been administered across 180 countries at a current run rate of approximately 31 million doses per day. In the U.S, 336 million doses have been given so far at a current rate of about 530,000 doses per day. Both the Moderna and Pfizer vaccines are effective against the variant, which is excellent news. Still, production must be ramped up even faster than current targets. The FDA must change the label from experimental to fully approved, which will alleviate some safety concerns. While the need for a booster shot has not been settled, we see billions of doses available next year to handle all needs such that we still see a global recovery beginning before next spring and lasting for several years.

Fed Chairman Powell was on the Hill last week giving his semiannual testimony to the Senate and House. He reiterated his view that the U.S economy has not improved enough to begin scaling back the central bank's monthly asset purchases while adding that inflation is likely to run high in the coming months before moderating.  He commented on production bottlenecks and other supply constraints as the principal cause of rapid price increases for some goods and services. He also downplayed any risks to the economy from higher asset prices. He continues to expect inflation to moderate over time and return to the Fed range around 2%. We agree as  most CPI increase was due to new and used autos, car rentals, hotels, and airfare. Used car prices have begun to cool. The CPI, excluding these areas, was up only around 2%.

The Fed Beige Book was released last week too and confirmed "moderate to robust growth," supply-side disruptions, increased bank lending, slight to moderate job gains, wage hikes at a moderate pace, labor shortages, and pricing pressures. We continue to expect the Fed to announce that they will begin tapering early in 2022, starting with reduced mortgage bond-buying, complete tapering by the end of 2022, and hike the federal funds rate by 0.25% in the first half of 2023. The bottom line is that the Fed will remain overly accommodative for several more years keeping real rates negative.

The Senate Democrats agreed to a $3.5 trillion top-line spending bill that includes most of Biden's social infrastructure agenda down from an initial level of $6 trillion pushed by the progressive Democrats. The agreement consists of Medicare expansion and excludes the bipartisan $579 trillion infrastructure bill. We need to see the spending and tax details before commenting but consider this bill overreaching from the progressives that will haunt them in next year's election, especially if inflation remains elevated. The market still has not embraced that a traditional infrastructure bill will be passed, which we consider a mistake. By the way, child tax credit checks have begun to go out this week. It will cost us about $100 billion and clearly will boost back-to-school sales this fall.

The domestic economy continues to roll along: industrial production increased 0.4% in June and capacity utilization rose to 75.4; jobless claims fell to a pandemic low of 360,000; import prices rose 1.0% while export prices increased 1.2%; July Empire State activity index rose to 43 while new orders hit 33.2 and shipments 43.8; inflation expectations hit a new high of 4.8%; consumer loans were substantial; the June CPI index increased 0.9% with the core up the same(read earlier comments about the CPI); the budget gap ballooned to $2.24 trillion for the first nine months down from 2020 pandemic levels; the PPI price index for final demand increased 1% in June; business inflation expectations fell 2.8% in July, and June retail sales jumped a surprisingly 0.6% with core retail sales up 1.3%. And all of this is before the child credit checks and additional fiscal stimulus.

China's second-quarter economic data was more robust than anticipated growing 7.9% from a year ago, led by strong retail sales and industrial production. The World Bank now thinks that China's economy will grow by over 8.5% In 2021. China's June imports and exports also came in well above expectations resulting in a trade surplus of $51.5 billion. And all of this has occurred before the Bank of China's easing policy last week  to  further stimulate growth.

We expect the ECB to change its policy guidance at its next meeting to accept inflation higher than its 2% goal, just like the Fed. Finally, Japan just lowered its growth forecast for the year due to high levels of coronavirus.

The U.S, Eurozone, and China will be engines of global growth in 2021, but we still expect the rest of the world to kick in next year as they get their arms around the coronavirus.

Investment Conclusions

We expect stock markets to move higher over the next year, driven by much higher earnings, dividends, and stock buybacks supported by accommodative fiscal and monetary policies. While we still favor the economically sensitive areas as we see many years of higher than historical growth rates supported by catch up capital spending, the need to shorten supply lines, and multi-year government-backed infrastructure spending bills, we have also added many technology companies as we have entered a multi-year technological revolution. Naturally, we have many special situations and own no bonds as we still expect the yield curve to steepen over time.

[billehrman]

The Other Side

The Other Side

The outbreak of the Delta variant has taken us by surprise. Still, it will not stop the global economy from expanding rapidly in 2022 thru 2023 as the number of vaccinations increase, and cases decline over the next year. Pfizer and Moderna will have over 5 billion doses of 90+% effective vaccines for the delta and other variants available in 2022 and more, if needed, in 2023. Other companies will have billions of doses of less effective vaccines available, but they still will be sufficient to reduce hospitalizations and deaths, which is good news. Remember that the annual flu vaccines we take usually are only 60% effective, giving you an idea of how successful our drug industry has been in getting a highly effective vaccine for the coronavirus.

We must applaud how governments and monetary authorities responded to the virus by providing financial assistance and flooding the system with trillions of liquidity to get us to the other side. There was much more liquidity provided than needed by the economy, such that investors were forced out on the risk curve, which led to much higher prices for stocks, commodities, and other assets. Today, we remain with a record level of individual savings, including $5.1 trillion in money market funds, and corporate balance sheets have never been stronger. Corporate buybacks have exceeded $683 billion to date this year, the second highest on record, while dividends have started to increase meaningfully too. Even though the S & P is up over 38% over the last year, the dividend yield on the market still exceeds the 10-year treasury rate. There is no reason the market multiple can’t sustain in the low 20s if rates stay below 2% and capital/liquidity ratios remain so high. In addition, we expect S & P earnings to increase from $140/share in 2020 to over $205/share in 2021 and further to $225+/share in 2022 as operating margins increase from 10% to nearly 13% over that time frame. While the market could correct at any time, we see higher prices ahead over the next eighteen months. It’s worth noting that Buffett’s key valuation metric, earnings yield versus treasury yield, continues to support the stock market valuation. It won’t hurt that we will have additional fiscal stimulus and continued easy monetary policies over this period.

The key to controlling the outbreak of the coronavirus, including all variants, is getting vaccinated. This has turned into a pandemic of the unvaccinated. The biggest vaccination campaign is underway, with more than 4.31 billion doses having been administered across 180 countries, with the latest rate at roughly 42.5 million doses per day. Three hundred forty-nine million doses have been administered so far in the U.S., and the daily rate has increased to near 700,000 doses per day. These global run rates mean that it will take less than six months to cover 75% of the world, enough for herd immunity. We expect the FDA to formally approve both vaccines by early September, which should go a long way to convince the unvaccinated to get vaccinated. We continue to believe that we will all get booster shots to enhance our immune systems, and this may become an annual affair, much like the flu vaccine. Fortunately, Moderna and Pfizer will have sufficient supply to handle all of this as we move forward to the other side, putting the coronavirus in the rearview mirror.

While the debate about Fed policy has gotten louder, we still believe that the Fed will hold the line providing an overly accommodative policy thru 2022 into 2023. The key to future Fed policy hinges on when employment returns to pre-pandemic levels and whether the increase in inflation, currently well above 2%, moderates in 2022 as shortages end and supply lines issues go away. While this level of inflation may be transitory, we still expect inflation to run well above 2% for all of 2022 before going down further in 2023. We continue to believe that the Fed and all global monetary bodies want their economy to run hot rather than taking the punchbowl away prematurely. The Fed is likely to openly debate tapering at Jackson Hole later in the month, comment further that tapering is on the way in the fall, begin tapering in $40 billion increments thru 2022, end tapering by early 2023 and begin hiking rates in small increments by the summer of 2023. All this hinges on the economy continuing to strengthen over the next 18 months, employment continuing to increase, and inflation moderating as we move through 2022.  We expect employment levels to disappoint and long-term inflation to stay contained as corporations have learned to do more with less accelerating technology spending that will increase productivity and hold down unit labor costs.

The Senate is likely to pass its $550 billion infrastructure bill this weekend. Still, its fate in the House is doubtful if Nancy Pelosi holds it hostage to the vast $3.5 trillion social infrastructure spending bill. We are totally for the traditional spending package as we need to upgrade our roads, bridges, electric grid, ports, rail system, water system, and broadband. While the CBO said that this package would add $256 billion to the deficit over ten years, we doubt that to be accurate as they did not use dynamic scoring nor full credit for some of the offsets. The proposed $3.5 trillion social infrastructure bill is another thing, and while some of it has its merits, including some tax increases, the sheer size and scope are far too large, and the pay for would damage our economy. We do not see the Senate passing a budget resolution and reconciliation bill before summer break so that it will carry over to the fall. Hopefully, Senator Manchin can hold his ground and force the Democrats to moderate their social spending plan. If not, and it passes by the end of the year, we believe that the Dems will lose control of the House in 2022.

Economic data has continued to be strong in July, although most of the data were collected before the severe outbreak of the Delta variant. An essential report was Friday’s employment report which showed that jobs increased by 943,000 after an upward revision to June to 938,000. The labor participation rate was 61.7, average hourly earnings rose 0.4%, and the workweek was unchanged at 34.8. It is important to note that the 10-year treasury rose from around 1.20% to near 1.30% by the end of the week. This is good news. Other data points reported were initial unemployment claims fell to 385,000; the trade deficit rose to $78.7 billion as imports increased by $6 billion due to the strength of the domestic economy; there are over 9.2 job opening while only 8.7 million are unemployed; the July PMI hit a high of 63.4; construction spending rose 1.2%; the Manufacturing PMI was 59.5 as backlogs rose significantly; new orders for manufactured goods increased 1.5% while unfilled orders increased over 1%; and the Services PMI  was a strong 64.1, the highest reading ever. Again, most of this data was collected before the acceleration in the pandemic outbreak, but it certainly shows an improving economy.

Economic data points have improved abroad too, but that is before the acceleration in coronavirus cases. Specifically, the July Eurozone Manufacturing PMI was at 62.8 while new orders and hiring accelerated too; Eurozone composite output index was 60.6 while services was 59.8; Japan’s July Manufacturing PMI rose to 53.0; India’s output, new orders, and exports all returned to expansion in July after contracting over the last several months; and China’s business activity index rebounded to 54.9 in July from June’s 50.3. All of this is excellent news as we are just starting to come out of the pandemic abroad, except China which began its recovery last year.

Investment Conclusion

The key to future growth hinges on vaccinating all the unvaccinated. We are confident that there will be enough doses available to vaccinate the world over the nine months. The global economy can then commence a synchronous expansion like we have not seen in a decade, as it will be supported by continued easy monetary policies with additional fiscal stimulus. Don’t forget that we are beginning this expansion with trillions of excess liquidity throughout the global financial system. We continue to favor the economically sensitive areas of the market and technology as both have entered long term cycles with above-average growth, earnings and cash flow potential.

[trustworthy-powerful-man]

https://www.macrotrends.net/stocks/charts/DAL/delta-air-lines/dividend-yield-history

Delta Air lines balance sheet.

Where did their money go ..

Some money went to shareholders' bank accounts. most money.. you have to ask their CEO.

[estimize]

Will Delta Continue Flying High?

Delta Airlines (DAL) is set to release Q2 results on Thursday, July 13. Estimize and The Street have been very much in line with each other when it comes to their estimates for Delta’s EPS. According to Estimize, EPS is set to increase roughly 114%, from $0.77 in FQ1’17, up to $1.65 in FQ2’17. Likewise, Wall Street is looking for an identical spike. Furthermore, it looks as though the consensus among Estimize and Wall Street remains fairly similar regarding revenue. In FQ1’17, Estimize estimated  revenue of $9.175M and Wall Street came in at $9.140M; the actual number lying at $9.140M. This quarter, both Estimize and the Street are looking for revenue to increase nearly 18%. It seems like we have been holding pretty consistent with The Street on this one and Delta is on the uptrend.

Despite airline stocks not having much popularity among investors, Delta appears to still be showing strength in an unattractive market. With a high dividend yield of about 1.5%, Delta is proving to be something to keep your eyes on. With a number of new developments, such as its recent deal with Korean Air and its current testing of using biometrics rather than boarding passes, there is going to be lots of eyes of Delta in the coming future. Despite the fact that using fingerprints and eye measurements rather than boarding passes could potentially pose privacy issues and controversy, we definitely recommend taking a closer look at this company prior to earnings announcements.

Place your estimates here!

Photo Credit: Bernal Saborio