1 Dividend to Buy, 1 Dividend to Sell

The following video is part of our "Motley Fool Conversations" series in which industrials editor/analyst Isaac Pino and industrials editor/analyst Brendan Byrnes discuss topics across the investing world.

In today's edition, Isaac and Brendan continue their series "1 Dividend to Buy, 1 Dividend to Sell." From Isaac's perspective, RadioShack's dividend could tempt investors with its 9.3% yield; but, as they say, "Buyer, beware." This retailer has seen better days, and the outlook is dreary. A reliance on foot traffic and sales related to mobile devices seemed to hold promise until Apple set its foot down. Apple commands the mobile market, pushes subsidies higher, and crushes commissions for retailers like RadioShack. Look for continuing declines in comparable-store sales from the Shack due to a fledgling business model. On the other hand, Boeing operates in a duopoly with Europe's Airbus in the aerospace market. Boeing's backlog continues to grow and the company is doing a better job fulfilling those orders in a timely manner. The company has figured out how to boost production of the Dreamliner to three-and-a-half planes per month, and is poised to surpass Airbus in plane deliveries for the first time in a decade. Airline orders tend to grow at 1.5 times GDP over time, so fast-growing economies will spur growth in this sector going forward.

Boeing's dividend, overall, appears more attractive thanks to its position in the aerospace market and sound business model. Investors looking for strong dividends backed by great companies should look no further than our recent Motley Fool report entitled "Secure Your Future With 9 Rock-Solid Dividend Stocks." You can access your complimentary copy today at no cost! Just click here to discover the winners we've picked.

Brendan Byrnes owns shares of Apple and United Technologies. Isaac Pino has no positions in the stocks mentioned above. The Motley Fool owns shares of Apple and RadioShack. Motley Fool newsletter services recommend Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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  • Report this Comment On May 24, 2012, at 12:08 AM, MHedgeFundTrader wrote:

    This trade was an unmitigated disaster, and hopefully it will be the worst of the year. I’m glad we had one of these because it provides a wonderful opportunity to illustrate everything that can go on with a trade. Every loss is a learning opportunity, and a loss not learned from is an opportunity wasted, and dooms one to repetition. Let me count the ways:

    1) I was too aggressive on the strike. I should have matched my long August $70 strike with a short May $70 strike instead of reaching for the extra income by selling the $72.50’s. I got away with this on the (PHM) trade. Not so on (BA).

    2) I shouldn’t have leveraged up with a 1:2 ratio. Those who did straight 1:1 spreads did much better and slept well at night. They saw only a slight opportunity cost as some losses were offset by profits in the August $70 puts as intended.

    3) I was not aware that individual investors were so harshly treated by margin clerks. Hedge funds only get charged margin on the delta plus some small maintenance, which they then continuously rehedge. Most retail investors were prevented from doing this trade by broker policies banning naked put selling.

    4) The at Morgan Stanley guy who decided to price the Facebook (FB) issue on an options expiration day has to have a whole in their head. That only succeeded in increasing market volatility. I’m sure that when they made the call, they thought this would make (FB) go up faster. Instead, the reverse happened. On Friday, everyone’s portfolio effectively turned into a long Facebook position, tracking (FB) tick for tick. This did not end well.

    5) This was a really unlucky trade. Although the global macro situation is pretty much unfolding as I expected, I didn’t think the rot would spread so fast once it set in. Even a one-day short covering rally on Friday would have turned this trade profitable. Thank Greece for that. Facebook too. It took one of the longest continuous market moves down, 12 out of 13 days, for this trade to lose money.

    6) The only consolation is that those who had puts exercised against them and saw stock delivered into their accounts Monday morning at a cost of $72.50 were granted a huge short covering rally to sell into, with (BA) rising $2.85 back up to $72. This enabled shareholders to recover 85% of their losses on the position.

    The Mad Hedge Fund Trader

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