By Zach Scheidt
This post Zach Scheidt: Here’s My Favorite FAANG Stock… appeared first on Daily Reckoning.
To Buy or Not to Buy? That Is the Question…
Every week, I get plethora of emails asking the same questions…
“When are we going to invest in Facebook?!”
“Why don’t you recommend investing in Amazon?”
“Which FANG stocks are your favorite?”
With so many questions, I’d like to address the elephant in the room… FANG stocks — the $1.648 trillion behemoth…
If you’ve watched Jim Cramer, you know FANG is an acronym for NASDAQ tech heavyweights that seem to keep going up no matter what the market wants to do.
I am talking about Facebook, Amazon, Netflix and Google.
Four companies. Close to $2 trillion in combined market cap.
Always going up… Always in the news.
While FANG stocks seem to always be lumped as a single entity, these companies look completely different in terms of business model and financial health.
Some components of FANG are better than others… but the bottom line is I haven’t recommended a single position in these highflying tech companies because they don’t meet my investing criteria.
For those of you who aren’t Lifetime Income Report subscribers, the pillars are:
›› Buy stocks that protect your capital
›› Buy stocks that grow your income
›› Buy stocks that pay an attractive yield.
If a company doesn’t pay a dividend (which FANG companies don’t!), it automatically breaks the three pillars for a variety of reasons.
Dividends are a portion of a company’s earnings paid out to investors. And if a company doesn’t pay out a yield, clearly it cannot grow your income. That fact alone takes care of pillars two and three.
But what about the safety and protection of your capital?
Companies that don’t pay out a dividend actually have much more risk than companies that do.
Here’s why…
When the stock price drops for a dividend-paying stock, the yield increases. When the yield increases, investors are attracted to the higher yield.
Therefore, the dividend provides a support base for the stock price.
And if you are in a DRIP plan, a drop in the stock price allows you to accumulate more shares at regular intervals, therefore increasing your dividend payments and compounding your returns.
But with FANG stocks and other non-dividend-paying companies, if investors get spooked, there is no benefit to sticking around. Investors will run and the price will plummet.
However, a dividend does not necessarily mean a company is safe. There are plenty of companies that pay dividends and are still risky investments. That’s why it’s necessary to do a thorough analysis.
But the question is… if FANG stocks did pay dividends, would we buy?
And either way, how do we play the NASDAQ hot streak if we aren’t investing in FANG companies?
Here are the answers…
[For the analysis below, let’s assume each FANG company pays a 3.0% annual dividend. And at the end, I will recommend the best way to play the NASDAQ hot streak!]
As the world’s largest social media platform, Facebook has made a tremendous run these past three years, growing revenue by 52% a year and net income by …read more
Source:: Daily Reckoning feed
The post Zach Scheidt: Here’s My Favorite FAANG Stock… appeared first on Junior Mining Analyst.