Day: September 7, 2024

Is there a point at which I should stop reinvesting stock dividends and invest the money or save the cash?

-Anonymous

Many financial experts recommend that you reinvest dividends most of the time – and I’m inclined to agree. The process is typically automated, doesn’t incur any fees and gives your holdings a little (or a lot) of extra oomph.

For example, if you had invested in Microsoft stock 10 years ago and consistently reinvested your dividends since then, your holdings would be worth 63% more today than if you hadn’t reinvested. That’s a lot of oomph.

Still, there is hardly ever a one-size-fits-all answer to any investment question. Accordingly, it may be wiser in some situations to just take the money rather than reinvest it.

Here’s what investors should know about when it makes sense not to reinvest dividends.

A financial advisor can help you finetune your investment strategy. Find a fiduciary advisor today.

3 Good Reasons to Not Reinvest Dividends

While reinvesting dividends will almost always give your stock holdings a shot in the arm, sometimes your big-picture needs as an investor will trump those potential benefits.

Here are three common examples of situations in which it makes sense to not reinvest dividends:

1. Balancing your portfolio. Reinvesting dividends will increase your position in the company paying them. If that company already represents, say, 5% or more of your portfolio, it may be wise to avoid getting too concentrated and not reinvest your dividends.

2. Phasing out risk. In many cases, it’s a good idea to make your investments less aggressive over the years. If you’ve been reinvesting dividends, diverting that cash toward less aggressive assets (like bonds) can be a good way to “risk-off” smoothly.

3. Income. Remember: Money is ultimately for spending, and sometimes you just need the cash. There’s nothing wrong with that, especially if you’re in or approaching retirement when short-term income becomes a bigger priority than long-term growth.

1 Bad Reason to Not Reinvest Dividends

Some people will say that you shouldn’t reinvest dividends if the underlying stock isn’t performing well. Here, however, I completely disagree.

Remember, one of the main benefits of dividends is that they pay out regardless of the stock’s recent price movement. This indicates that the company paying them has an established track record of earning profits – a clear sign that the company is fundamentally worth investing in.

In other words, even if the share price is in a slump, odds are it will recover eventually. So if you’re going to hold onto the stock anyway, and therefore keep receiving dividends, why not keep getting the extra boost from reinvesting them?

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As I like to remind my clients, we invest in companies, not stocks. The share price is only one indication of a company’s value, and sometimes a very unreliable one. That truth is often forgotten and always important. Consider consulting a financial advisor for more personalized advice on your portfolio.

What to Do Next

If you’re receiving dividends and are unsure of what to do with them, remember the fundamentals.

Deciding what to do with your dividends boils down to answering three questions:

1. Am I confident in the company’s underlying health?

2. Can I afford to reinvest the dividend income right now?

3. Is increasing my position in this company consistent with my overall portfolio strategy?

If the answer to any of these questions is “no” or “I’m not sure” then you may want to spend that dividend cash elsewhere.

If you can answer all of them with “yes,” however, then let the reinvestment machine keep doing its thing.

Investing and Retirement Planning Tips

• If you have questions specific to your investing and retirement situation, a financial advisor can help. Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.

• For more about dividend investing check out this article on the subject.

• As you plan for income in retirement, keep an eye on Social Security. Use SmartAsset’s Social Security calculator to get an idea of what your benefits could look like in retirement.

• Keep an emergency fund on hand in case you run into unexpected expenses. An emergency fund should be liquid — in an account that isn’t at risk of significant fluctuation like the stock market. The tradeoff is that the value of liquid cash can be eroded by inflation. But a high-interest account allows you to earn compound interest. Compare savings accounts from these banks.

• Are you a financial advisor looking to grow your business? SmartAsset AMP helps advisors connect with leads and offers marketing automation solutions so you can spend more time making conversions. Learn more about SmartAsset AMP.

Graham Miller, CFP® is a SmartAsset financial planning columnist and answers reader questions on personal finance topics. Got a question you’d like answered? Email AskAnAdvisor@smartasset.com and your question may be answered in a future column.

Please note that Graham is not a participant in the SmartAsset AMP platform, nor is he an employee of SmartAsset. He was compensated for this article.

Photo credit: ©iStock.com/visualspace, ©iStock.com/gorodenkoff

The post Ask an Advisor: Should I Stop Reinvesting Dividends? appeared first on SmartAsset Blog.

Super Micro Computer (NASDAQ: SMCI) stock was battered again in Friday’s trading. The server company’s share price ended the session down 6.8%, according to data from S&P Global Market Intelligence.

Supermicro’s latest slide followed news that JPMorgan‘s analysts had lowered their rating on the stock from overweight to neutral and cut their price target on it from $950 per share to $500 per share. Additionally, the Labor Department’s jobs report Friday showed that only 142,000 jobs were added to the U.S. economy in August, falling short of Wall Street’s expectation that 160,000 jobs would be added.

Supermicro’s share price is now down 67.5% from the high it reached earlier this year. Should investors consider buying the stock in the lead-up to the company’s stock split on Oct. 1?

Supermicro stock is a buy for risk-tolerant investors

Super Micro Computer has been hit with a series of bearish news events recently. The company’s fiscal fourth-quarter report arrived in early August with margins that spooked the market and pointed to some rising competitive pressures. Then in late August, Hindenburg Research published a scathing short report on the stock. Supermicro also announced that it was delaying the filing of its 10-K report for its fiscal 2024, which ended June 30.

Now, JPMorgan has downgraded the stock and dramatically reduced its price target.

The bearish indicators seem to be piling up, but I think the significance of some of them is being overblown. For starters, investors should keep in mind that Hindenburg Research is a short-seller that profits when a stock it has bet against goes down. Additionally, Supermicro has reiterated that it does not expect to make any material changes to the results it has already reported for fiscal 2024.

And Friday’s note from JPMorgan? While the company lowered its price target, its new 12-month forecast for a $500 per share price still suggests upside of roughly 29% compared to Friday’s closing price.

Supermicro isn’t a low-risk stock, but the shares, trading at roughly 11 times this year’s expected earnings, look cheaply valued. For investors with a higher tolerance for risk and volatility, buying the stock at these levels could have a big payoff down the road.

Should you invest $1,000 in Super Micro Computer right now?

Before you buy stock in Super Micro Computer, consider this:

The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Super Micro Computer wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Story continues

Consider when Nvidia made this list on April 15, 2005… if you invested $1,000 at the time of our recommendation, you’d have $656,938!*

Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than quadrupled the return of S&P 500 since 2002*.

See the 10 stocks »

*Stock Advisor returns as of September 3, 2024

JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Keith Noonan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends JPMorgan Chase. The Motley Fool has a disclosure policy.

Super Micro Computer Stock Fell Today and Is Now Down 67.5% From Its High — Time to Buy Before Its Stock Split? was originally published by The Motley Fool

Shares of semiconductor leaders Taiwan Semiconductor Manufacturing (NYSE: TSM), Micron Technology (NASDAQ: MU), and ASML Holdings (NASDAQ: ASML) were all down again today, falling 4.2%, 4.1%, and 5.2%, respectively, as of 12:38 p.m. ET.

It was a terrible week for stocks generally and the artificial intelligence (AI) trade specifically, mostly due to macroeconomic concerns. Of note, the semiconductor industry has long been regarded as highly cyclical. While the sector has actually been the best-performing over the last decade due to its outsize long-term growth, the prospect of a slowdown or recession is causing investors to flee these industry leaders at the moment. This is especially true after artificial intelligence enthusiasm has lifted shares of these stocks by a large amount since November 2022 through July 2024.

It appears that a combination of today’s weaker-than-expected jobs report, along with AI tech peer Broadcom‘s mildly disappointing earnings report last night, are causing shares of all closely related AI-focused stocks to fall again today.

Weak jobs report fuels slowdown fears

This morning, the Labor Department reported the jobs figure for August. This was a big deal to many investors, as July’s much weaker-than-expected jobs report had fueled fears that the Federal Reserve was behind the curve in cutting interest rates.

While today’s jobs report showed an increase in August relative to July, and the unemployment rate fell slightly, it was still a bit below expectations. August saw 142,000 new job additions, up from the downwardly revised 89,000 added in July, but below the 161,000 that was expected. The unemployment rate ticked down to 4.2% from 4.3%.

It’s a bit hard to figure out why investors took this report that poorly, as it seems assured the Federal Reserve will cut interest rates at its meeting on Sept. 17 and 18. However, the “miss” as well as downward revisions of both the June and July job growth numbers fed uncertainty that the Federal Reserve is late in cutting rates, or won’t do enough cutting when its committee meets, which could potentially tip the economy into recession.

In any case, the market is in a very emotional mood this week, especially after the weak manufacturing data that came out to start the week on Tuesday morning.

Not helping matters was last night’s earnings report from Broadcom. While the chip and software giant beat analyst estimates for its fiscal third quarter, its semiconductor revenue may have disappointed, while management’s guidance for the fourth quarter also came in a bit lighter than analyst expectations.

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As its name indicates, Broadcom’s portfolio spans many areas, including the iPhone, enterprise networking and storage, as well as custom artificial intelligence accelerators it makes for the in-house designs of several big tech giants.

Broadcom makes its chips largely at TSMC, likely using ASML’s EUV equipment, and Micron’s memory permeates all tech applications. So it’s not surprising all three reacted to Broadcom’s results.

Of note, Broadcom CEO Hock Tan said on the conference call with analysts that the AI business was very strong, with custom AI accelerators up 3.5 times year over year, Ethernet switching for AI data centers up 4 times year over year, and optical lasers up threefold. So, it’s hard to tell if the slightly weaker-than-expected forecast was conservative, if demand for AI products is decelerating faster than investors thought, or if Broadcom’s other non-AI products, whether iPhone chips, telco connectivity, or non-AI networking, continue to be weaker than anticipated. Of note, those non-AI products have already been in a big downturn, but are expected to recover.

Regardless, the overall lighter-than-expected chip revenue, even if AI remains strong, would affect TSMC, Micron, and ASML. While these companies are also benefiting handily from AI growth, each is also exposed to the entire broader semiconductor industry. ASML caught an unfortunate analyst downgrade on Wednesday, with the analyst pointing out that ASML’s AI exposure may not be as large as some have thought relative to the broader industry, perhaps adding to the downside in its shares.

This could be an opportunity

Semiconductor investors should know that the stocks within the sector are incredibly volatile, even if the sector has proven to be a long-term winner. So, benefiting from these names entails holding through big downturns such as these, or buying amid what seems like awful news in big downturns.

While the economy may be slowing, all three of these names are at the forefront of innovation and the AI growth opportunity. Despite the market’s reaction, the vast majority of tech executives this earnings season have said AI growth remains strong and should continue into next year, and likely beyond. With these stocks now well off their July highs, it may be time to think about adding to these leaders over the next rocky couple of months.

Should you invest $1,000 in Taiwan Semiconductor Manufacturing right now?

Before you buy stock in Taiwan Semiconductor Manufacturing, consider this:

The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Taiwan Semiconductor Manufacturing wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Consider when Nvidia made this list on April 15, 2005… if you invested $1,000 at the time of our recommendation, you’d have $656,938!*

Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than quadrupled the return of S&P 500 since 2002*.

See the 10 stocks »

*Stock Advisor returns as of September 3, 2024

Billy Duberstein and/or his clients have positions in ASML, Broadcom, Micron Technology, and Taiwan Semiconductor Manufacturing. The Motley Fool has positions in and recommends ASML and Taiwan Semiconductor Manufacturing. The Motley Fool recommends Broadcom. The Motley Fool has a disclosure policy.

Why Taiwan Semiconductor Manufacturing, Micron, and ASML Holdings Fell Again Today was originally published by The Motley Fool

• The value of Donald Trump’s Truth Social stake has tanked by about $4 billion since May.

• The ex-president may face further declines when stock-selling restrictions ease later this month.

• Trump’s social-media platform has been hit by Kamala Harris’ momentum and his use of its rival X.

Donald Trump has seen about $4 billion wiped off the value of his Truth Social stake since May — and could suffer further losses once selling restrictions on the stock are lifted later this month.

The former president owns about 115 million shares of Trump Media & Technology Group, Truth Social’s parent company. It went public in March after merging with a special-purpose acquisition vehicle.

TMTG shares hit an intraday high of $79 on their market debut and traded at about $54 on May 9, but they’ve crashed 68% since then, hovering around a record low of about $17.

The heavy sell-off has cut the right-wing social-media company’s market value from about $10 billion in May to below $3.5 billion. It has slashed the value of Trump’s roughly 60% holding from about $6 billion to $2 billion over the same period.

The downturn reflects a shake-up in the presidential race, with Vice President Kamala Harris replacing President Joe Biden as the Democratic nominee. Harris is widely seen as a greater threat to Trump’s reelection chances — the pair are virtually tied in recent polls, while Trump held a steady lead over Biden.

And after a yearslong hiatus, Trump has resumed posting on Elon Musk’s X, which is perhaps the biggest rival to Truth Social. The ex-president’s use of his own social-media site instead of the platform formerly known as Twitter was seen as one of its biggest strengths — especially if he regained office.

Fast fall

Trump’s TMTG stake briefly catapulted him into the top 300 of the world’s 500 wealthiest people as measured by the Bloomberg Billionaires Index. The rich list estimated his net worth above $7 billion in late March, ranking him above the likes of George Soros, Mark Cuban, Giorgio Armani, Reed Hastings, and Bernie Marcus.

But the Republican presidential candidate quickly fell off the index once TMTG shares sank. Forbes pegs his current net worth below $4 billion — and Trump is not rich enough to still make the Bloomberg list.

Trump’s fortune could shrink further as the lock-up period on TMTG insiders selling shares expires later this month.

The real-estate mogul might cash out some of his shares, but Trump faces constraints on how fast he can sell and will have to make public regulatory filings when he reaches certain thresholds.

Read the original article on Business Insider