Prudential actions appeal to income seekers


The motley madman takes

Prudential Financial cares so much about having a solid foundation that it uses the Rock of Gibraltar as its corporate logo. That foundation is provided by a balance sheet with over $ 400 billion in bonds and $ 21 billion in cash and cash equivalents, and a net equity position of over $ 65 billion. In terms of insurance, this means that a lot can go wrong beyond what it expects, and the business would always end up doing well.

Like most insurers, Prudential benefits from pricing risk. Ideally, premium inflows should at least equal outflows from policy claims. Otherwise, the equity in its balance sheet may cover unforeseen costs. The COVID-19 pandemic has increased uncertainty, but Prudential’s track record should allow it to survive long enough to understand the new risks and assess future policies accordingly.

In the meantime, Prudential’s shares have fallen significantly this year due to the short-term risks it faces. This drop in the stock price recently pushed the dividend yield up to 6.8%. Before the pandemic, dividend payments were only about 60% of company profits, leaving room for future dividend growth.

In August, management said, “We remain on track to meet our cost savings target of $ 140 million for the year and are making progress in transitioning our international profit base to stronger markets. growth.” Prudential deserves a closer look from income-seeking investors.

Ask the fool

From BS to Norwalk, Connecticut: Can I move my money into my IRA, switching between different stocks and mutual funds?

The madman replies: If your IRA is held at a brokerage house, you should be able to buy and sell stocks within it, and also invest in mutual funds offered by that brokerage. You may be charged regular trading commissions for such trades, but you will not be taxed on any winnings while the money is in the account.

If your IRA is with a mutual fund company, you should be able to switch between its funds, but you probably can’t invest in individual stocks.

From EN to Watertown, SD: What is an ITU?

The madman replies: It is a unitary investment trust – a sort of investment company similar to a closed-end mutual fund (which sells a fixed number of shares in its early stages).

An ITU raises funds from investors based on its investment strategy, usually through a single public offering of “shares” (which are like stocks). This money is invested in a portfolio of stocks, bonds and / or other securities that are not expected to change its composition over time – in other words, ITU is committed to of these titles.

This is an advantage for investors who wish to own these securities, but a disadvantage for those who prefer fund managers to buy and sell over time based on company performance, changing trends and the economy. Some ITU units can be exchanged at the company, but others must be held until the investment is dissolved, on a predetermined date, when the proceeds are distributed among the unitholders.

Madman’s school

Mutual funds can be great investments, saving you the hassle of researching many investments and deciding when to buy or sell them. Avoid funds with excessive fees, however, in order to allow your investment to grow as much as possible. Here are some key fund fees to know:

When you buy shares of a mutual fund, you may be charged a charge, which is a sales charge – essentially a commission paid (on your money) to the person who sold you shares in the fund. Charges are often billed when you buy, but are sometimes billed when you sell or on an annual basis. They can be as high as 8.5% which would take a huge chunk of your money. Most mutual funds these days are free of charge, so it’s not hard to avoid paying them. Some fund companies also charge a fee if your account drops below a certain level, if you want to transfer money from one fund to another, or if you want to sell your shares.

Mutual funds also charge you ongoing fees for as long as you own your stocks. These include a 12b-1 fee and a management fee. The 12b-1 fee, often 0.25%, covers the cost of marketing and advertising, which could actually hurt you. If this results in too much money, it can be difficult for its managers to find enough good investments that match their investing style.

Management fees are there to compensate fund managers, regardless of their performance or poor performance. These two charges are combined in the fund’s “expense ratio”, which is an aggregate annual commission to cover operating expenses. In 2019, the asset-weighted average expense ratio paid by investors for equity mutual funds was 0.52%, up from 0.99% in 2000. This is only an average, however. – many funds charge a lot more, and it is usually best to avoid these funds. .

To keep fees low, consider sticking with low-cost index funds, some of which charge less than 0.10% per annum.

My dumbest investment

From TCB, online: My dumbest investment was putting 40% of my portfolio in the IPO of Snap, known for its hugely popular Snapchat app. I thought my reasoning was sound, but things didn’t go as I expected or hoped. Experience has taught me the importance of diversification. Fortunately, my portfolio was small at the time and the lesson turned out to be very useful.

The madman replies: It’s not a bad idea to avoid all initial public offerings of newly opened companies, giving their stocks a few months or a year to settle – and wait for companies to release financial statements for several quarters. . Often, it’s the insiders and connected people who buy stocks at the IPO price, while others end up buying after an initial surge.

Snap shares jumped on day one of trading, closing at $ 24.48, 44% above their IPO price of $ 17. But only a few were able to buy at $ 17. Due to pent-up demand, stocks started trading at $ 24, leaving many early investors with gains closer to 2%. A little over a year later, the shares fell below $ 11. (New stocks are often volatile: Facebook stocks have gained less than 1% on the day they go public, while Twitter stocks have climbed more than 72%.) Today, bullish investors love the Snap’s continued popularity with young people and its growing income and use, while skeptics worry. on its non-profitability and its competition.

Who am I?

I trace my roots back to 1954 when two guys from Miami decided to build houses. I went public in 1971. I acquired US Home in 2000, doubling my size and bought various regional builders afterwards. After my 2018 merger with CalAtlantic Group, I became America’s largest homebuilder (in terms of revenue). I built over 51,000 new homes in 2019 and raised over $ 22 billion. Eagle Home Mortgage is also under my roof. I employ around 10,000 people and have helped over 850,000 families find new housing. My market cap was recently around $ 22 billion. Who am I?

Can’t remember the question from last week? Find it here.

Response from trivia from last week: ADM

The fall in AT&T's share price has pushed up its dividend yield, which was recently 7%.


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