Equities: Focusing on Earnings and Inflation
Good morning, my name is Darnell Azeez, the head of value equities at Lord Abbett and lead portfolio manager for our dividend focused strategies.
Interstitial: Earnings Season Heats Up
So the key area of focus for myself and for my team this week will be Q2 earnings reports, it will be a very busy week for earnings with about 180 companies in the S&P 500 are scheduled to report.
So far, it's been a very robust earnings season -- about 25% of companies have reported, and what we've seen is tremendous year-over-year growth of about 75% so we've had 75% year over year earnings that companies are reporting. Clearly that's benefiting from the extremes of the COVID-induced recession last year.
But what's interesting is about 88% of companies are in fact beating expectations so that's indicative that markets haven’t exactly caught up to this burst in earnings and some numbers are coming in better than even [Wall] Street expectations.
Interstitial: Three Focal Points
As we look at individual companies and go through their earnings releases, there are three things that we're looking at particularly closely. One, clearly is how are companies managing with this rising inflationary environment? How are they dealing with the input pressure cost increases that we've seen throughout the global economy?
Or if the companies seem to be able to sort of pass through these cost increases and are able to maintain margins in this environment, that tends to be indicative of stronger business prospects and business fundamentals in a strong position within their and markets so that's a clear area of focus.
Secondly—and this is somewhat new for many--but something that we pay equal attention to is sustainability, you see a number of companies starting to put out sustainability reports. We want to make sure that the companies that we’re invested in have a plan around ESG and sustainability, and that they communicating that with shareholders and that they're aligned with us from an investment standpoint.
And the last area of focus is something that's important to me as a dividend investor – [corporate] capital return plans. Now that the global economy is somewhat recovered--as I mentioned, earnings are strong--corporate balance sheets tend to be in good shape. Are companies starting to announce dividend repurchases, increases in share repurchases? You had a number of companies that actually cut or suspended their dividends in the throes of recession last year. Now you've seen a number of companies start to reverse and increase these dividend payouts. So those will be that will be another area of focus that the team is paying close attention to, as you go through the upcoming earnings season.
Thanks for watching and thank you for your continued interest in Lord Abbett.________________________________________
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