My Plan To Get Paid From This Beaten-Down Stock…
The Federal Reserve announced that interest rates will remain at low levels for some time. After their meeting ended, Fed officials released new projections showing most of them expected interest rates would remain near zero at least through 2023.
The statement also noted, “The central bank will continue to increase its asset holdings at the current pace ‘until substantial further progress has been made toward’ its employment and inflation goals.”
Previously, the Fed had committed to buying bonds “for the coming months.” The change seems small, but it means quantitative easing programs will also continue for some time.
Journalists seem unimpressed with the news. It was placed fairly low on the home page of The Wall Street Journal.
Traders also seem unimpressed. SPDR Dow Jones Industrial Average ETF Trust (NYSE: DIA) traded within 0.6% of the previous close all day. Volatility on Fed days is often more than 2%.
This confirms Fed statements that there is little more that monetary policy can do for the economy. Fed officials have said several times that Congress needs to provide fiscal stimulus, and traders seem to be waiting for news from Capitol Hill. I believe that will be the factor that snaps the market out of the relatively narrow trading range that has defined the past few weeks.
How I’m Trading This News
While waiting for the next trend to unfold, I am remaining conservative and buying a beaten-down stock that has long been a favorite for income investors and traders alike.
Fortunately, I recently recommended entering a position at a much lower price than long-term shareholders have paid.
The stock in question is Exxon Mobil Corporation (NYSE: XOM). As you can see in the chart below, shares are trading at a 16-year low.
The stock was upgraded by analysts at Wells Fargo and Goldman Sachs in the past week. Goldman noted the stock is well-positioned to benefit from a potential rally in oil.
Analysts expect oil to rally 25% next year as the economy recovers. I’m also bullish on oil, which should rise as demand increases when travel picks up again. Higher oil prices will increase XOM’s cash flow and earnings.
While optimistic about the company’s future, I understand the steep decline in the price. Traders are worried about a dividend cut, and that is likely. But the stock still offers value.
Action To Take
As of now, the stock yields about 8%. That’s pretty enticing in this low-rate environment. But let’s say the dividend is cut by 75%. At the current price XOM would still pay a 2% yield. That’s still a decent dividend yield in the worst-case scenario.
The company has hinted at a cut, recently announcing that its latest strategies to cut costs will allow it to “maintain a reliable dividend.” If there wasn’t a cut in the forecast, I believe management would have said so.
At current prices, the cut seems to be priced into the stock. It’s likely that the announcement will be the catalyst for a rally because management will eliminate the uncertainty that is hanging over the stock now.
But regardless of what happens, I have a plan to ensure that we get paid either way.
You can think of it as an “insurance” plan — because it allows us to get paid instantly, rather than sit around and wait for the dividend.
My subscribers and I have been trading this way for years, allowing us to pocket hundreds (or even thousands) of dollars with very little effort.
I think every investor who’s looking for income owes it to themselves to learn more about how this works.
That’s why I just released a brand new report that gives you all the details. You can access it right here.