Daniel Cullinane CPA
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The IRS said Friday that because of changes and confusion caused by the new Tax Cuts and Jobs Act, it will penalize fewer taxpayers who didn't withhold enough federal taxes in 2018.
Before the ruling, taxpayers who had arranged to have their employers withhold just 85 percent of what they really owed would have been subject to an underpayment penalty. Now the threshold drops to 80 percent, the IRS says. In more typical tax years, most taxpayers must pay at least 90 percent of their federal taxes for a given year, or 100 percent of what they owed the year before, in order to avoid an underpayment penalty.
The change comes in response to public outcry. As the tax season progressed this year, reports of taxpayer outrage at lower refunds and higher-than-expected tax bills suggested far more people than expected were caught unawares.
In its announcement today, IRS Commissioner Chuck Rettig acknowledged that development, saying, “The expanded penalty waiver will help many taxpayers who didn’t have enough tax withheld. We continue to urge people to check their withholding again this year to make sure they are having the right amount of tax withheld for 2019.”
The new, lower threshold also applies to those who paid estimated taxes for 2018, including self-employed people and retirees.
People who filed their taxes already and paid the underwithholding penalty may now be eligible to request a portion or all of that penalty refunded.
Those who prepare their own taxes electronically and haven't yet filed won't have to take any extra steps. They should wait a few days to file, however, to ensure that their tax-prep program reflects the change.
Responding to Public Outcry
“We heard the concerns from taxpayers and others in the tax community, and we made this adjustment in an effort to be responsive to a unique scenario this year,” Rettig said. The commissioner then urged taxpayers to check their withholding for 2019 to make sure they are having the right amount of tax withheld for this year.
"We’ve been on record calling for the IRS to do this," says Andrew Moylan, executive vice-president of the Washington, D.C.-based National Taxpayers Union Foundation, a conservative tax policy organization. "We’re very happy to see the news."
Mark Steber, chief tax officer at Jackson Hewitt Tax Service, says few clients of the company's storefront tax-prep offices have had to pay the underwithholding penalties. "Year-to-date, the majority of our clients were due a refund," he says. "For the small portion of clients who had a significant balance due, Jackson Hewitt helped them on a case by case basis."
A spokesperson for H&R Block said, "We are working to identify which clients may need to claim a refund for overpayment penalty given today’s IRS announcement."
What You Can Do
Here's what to do if you think you're liable for an underwithholding penalty:
• If you haven't done your taxes already, you don't need to do anything. The IRS says that its change will be incorporated into commercially available tax-prep programs for consumers and professionals. If you were about to file, however, wait a few days for your tax software to reflect the change. Intuit, the maker of TurboTax, for instance, said the changes would be reflected in its do-it-yourself products by the middle of next week.
• If you prepared your taxes on paper and already sent in your return, check the updated instructions of Form 2210, Underpayment of Estimated Tax by Individuals, Estates, and Trusts [PDF] for details on how to proceed.
• If you prepared your taxes yourself and filed electronically, download and print out IRS Form 843, Claim for Refund and Request for Abatement. Fill it out by hand and include the statement, “80% waiver of estimated tax penalty” on Line 7. Then, send it to the IRS via postal mail. Find the address that applies to your area at the end of the instructions for Form 1040.
• If you paid a tax preparer, ask how much he or she would charge to revisit your return in order to get the refund, recommends Mike Savage, CPA and chief executive of 1-800Accountant, a virtual accounting firm. You'll have to decide, then, if it's worth the fee. "Is it worth it to pay $ 100 for a $ 350 refund claim?" Savage asks.
It became pretty clear last week that interest rates are going nowhere this year, and they may not go anywhere in 2020. The Federal Reserve is worried about slowing growth, and with inflation seemingly contained, the all-new dovish Fed Chair Jay Powell has slowed not only rate hikes but the balance sheet clean-up as well. Worried investors piled into Treasury bonds last week, driving some yields down to 52-week lows.
So what should investors do now? Look for safe stocks that pay large and dependable dividends, and that is exactly what makes up the Merrill Lynch Income Portfolio. Every sector is represented, and it is a good blueprint for total return accounts.
24/7 Wall St. screened the portfolio looking for the highest yielding Buy rated companies and found five from different sectors that are solid plays now. We listed them by the highest yield.
This stock has been absolutely hammered and is back on the Merrill Lynch US 1 list. AT&T Inc. (NYSE: T) is the world’s largest provider of pay TV, with TV customers in the United States and 11 Latin American countries. In the United States, the AT&T wireless network has the nation’s self-described strongest 4G LTE signal and most reliable 4G LTE.
This telecom giant also helps businesses worldwide serve their customers better with mobility and highly secure cloud solutions. Trading at a very cheap 9.4 times estimated 2019 earnings, the company continues to expand its user base, and strong product introductions from smartphone vendors have not only driven traffic but increased device financing plans.
The company’s fourth-quarter revenue of $47.99 billion fell short of analyst estimates. AT&T also reported net additions of 134,000 phone subscribers, well below analyst estimates of 308,000. The company also lost 403,000 satellite TV subscribers and 14% of its DirecTV Now streaming subscribers in the quarter.
AT&T shareholders are paid a rich 6.57% dividend. Merrill Lynch has a $37 price target on the shares, while the Wall Street consensus target was last seen at $35.36. The stock closed trading on Friday at $31.07 a share.
Royal Dutch Shell
This is a top international play for investors looking to add energy exposure, and it posted solid fourth-quarter results. Royal Dutch Shell PLC (NYSE: RDS-A) operates as an independent oil and gas company worldwide through its Upstream and Downstream segments. The company explores for and extracts crude oil, natural gas and natural gas liquids.
Royal Dutch Shell also converts natural gas to liquids to provide fuels and other products; markets and trades crude oil and natural gas; transports oil; liquefies and transports gas; extracts bitumen from mined oil sands and converts it to synthetic crude oil; and generates electricity from wind energy.
In addition, the company engages in the conversion of crude oil into a range of refined products, including gasoline, diesel, heating oil, aviation fuel, marine fuel, liquefied natural gas (LNG) for transport, lubricants, bitumen and sulphur; production and sale of petrochemicals for industrial customers; refining; trading and supply; pipelines and marketing; and alternative energy businesses.
Merrill Lynch remains bullish on the shares and noted this when earnings were released:
Fourth quarter 2018 saw solid earnings (8% beat vs. consensus) and $12.2 billion organic operating cash flow ahead of our already above-consensus estimate. $27 billion organic free cash flow in fiscal year 2018 significantly de-risks the company’s outlook for $25-30 billion in 2020 – funding $25 billion buybacks. Ongoing buybacks also underline continued capex discipline.
Investors are paid a huge 5.01% dividend. The Merrill Lynch price objective is $70, but the posted consensus figure is $78.92. The shares closed at $62.88 on Friday.
Simon Property Group Inc. (NYSE: SPG) invests in the real estate markets across the globe. It engages in investment, ownership, management and development of properties. The company primarily invests in regional malls, premium outlets, mills and community/lifestyle centers to create its portfolio.
Through its subsidiary partnership, it owns or has an interest in about 230 properties in the United States and Asia. The company also has a 28.9% interest in Klepierre, a European real estate investment trust (REIT) with over 260 shopping centers in 13 countries.
One key driver of growth will include the more than $1.0 billion of development/redevelopment planned over the next few years. Merrill Lynch also feels that the company’s high-quality portfolio has weathered the retail storm much better than most.
Shareholders are paid a 4.60% distribution. The $215 Merrill Lynch price target is well above the $189.47 consensus target. The shares ended last week at $177.60 apiece.
Royal Bank of Canada
The financials have had a rough go of it, but this play is a solid way to be involved. Royal Bank of Canada (NYSE: RY) is the largest Canadian bank by market capitalization. It has 1,200 branches across Canada and is first or second across virtually all product lines in term of market share on the retail front.
Management has built out a sizable global wholesale operation and, as a result, is deriving a larger proportion of its earnings from wholesale businesses than has been typical. Royal Bank of Canada has been fairly inactive on the acquisition front over the past several years.
Investors are paid a 4.03% dividend. The Merrill Lynch price target was unavailable. The consensus target is $88.84, and shares closed way below that level on Friday at $76.03.
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This top pharmaceutical stock made a gigantic splash last year with a $5.5 billion purchase of Anacor Pharmaceuticals. Pfizer Inc. (NYSE: PFE) is a global biopharmaceutical company with a diversified portfolio of products and pipeline candidates, and it is one of the largest pharmaceutical companies in the world as measured by market capitalization and revenue. It also is a component of the Dow Jones industrial average.
The company’s commercial operations are bifurcated into two business segments: Innovative Health, which focuses on the development and commercialization of medicines and vaccines, as well as consumer health care products, in various therapeutic areas, and Essential Health, which offers branded generic products, biosimilars, anti-infectives and other products without marketing patent protection.
Investors in Pfizer receive a very solid 3.43% dividend. Merrill Lynch has set its price objective at $45. The consensus price objective is $44.14, and the shares closed most recently at $41.85.I'm interested in the Newsletter
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These five top stocks, all rated Buy at Merrill Lynch, come with outstanding dividends and have good growth prospects. With the market very pricey, and volatile, they make sense for investors looking to shift to lower beta profile stocks
While most of Wall Street focuses on large and mega cap stocks, as they provide a degree of safety and liquidity, many investors are limited in the number of shares they can buy. Many of the biggest public companies, especially the technology giants, trade in the low-to-mid hundreds, all the way up to over $1,000 per share. At those steep prices, it’s pretty hard to get any decent share count leverage.
Many investors, especially more aggressive traders, look at lower-priced stocks as a way to not only make some good money but to get a higher share count. That can really help the decision-making process, especially when you are on to a winner, as you can always sell half and keep half.
We screened our 24/7 Wall St. research database and found five stocks trading under the $5 level that could provide investors with some incredible upside potential. While definitely suited for very aggressive accounts, they could prove exciting additions to portfolios looking for solid alpha potential.
This tiny micro-cap could very well be a solid takeover candidate. Axovant Sciences Ltd. (NASDAQ: AXGT) is a clinical-stage biopharmaceutical company that engages in the acquisition, development and commercialization of novel therapeutics in the fields of neurology and psychiatry. Its therapeutic focuses are Parkinson’s Disease and Lewy body dementia. It operates through the following geographical segments: United States, Switzerland, Bermuda and Other.
The company’s current pipeline of gene therapy candidates targets GM1 gangliosidosis, GM2 gangliosidosis (including Tay-Sachs disease and Sandhoff disease), Parkinson’s disease, oculopharyngeal muscular dystrophy, amyotrophic lateral sclerosis (ALS) and frontotemporal dementia.
Axovant is focused on accelerating product candidates into and through clinical trials with a team of experts in gene therapy development and through external partnerships with leading gene therapy organizations.
Jefferies has a Buy rating and a $3 price target, but the Wall Street consensus target is much higher at $5.17. The shares were trading on Friday’s close at $1.39 apiece.
This stock got hit back in February and could be offering a solid entry point. Inovio Pharmaceuticals Inc. (NASDAQ: INO) is a late-stage biotechnology company that engages in the discovery, development and commercialization of DNA-based immunotherapies and vaccines.
The company focuses on the development of SynCon immunotherapy, which helps break the immune system’s tolerance of cancerous cells, and Cellectra, which facilitates optimized cellular uptake of the SynCon immunotherapies.
Inovio announced last week that its investigational Ebola vaccine was able to elicit a strong antibody response in the majority of subjects in a Phase 1 trial. The vaccine, dubbed INO-4201, was given to 70 subjects either through a skin injection or an injection into the muscle.
Stifel’s Buy rating comes with a $7 price target, which compares with a consensus price target of $10.57. The shares closed at $3.62 on Friday.
The two most common methods of returning capital to shareholders are via dividends and share buybacks. Dividends have a straightforward benefit because they are sending income back to their investors, and it is often said that dividends can account for a significant portion, maybe as much as half, of investors’ total returns over time. Stock buybacks have come under more scrutiny by the public and politicians in recent years, but companies still aggressively are buying back shares of their own stock.
According to S&P Dow Jones Indices, the fourth quarter of 2018 set a quarterly record of $223.0 billion in buybacks, the fourth consecutive quarterly record. This beat the prior record of $203.8 billion set in the third quarter of 2018, and it was up some 62.8% from the $137.0 billion used for buybacks in the fourth quarter of 2018.
The year 2018 as a whole saw a record $806.4 billion used for buybacks. That’s up 55.3% from the prior year’s $519.4 billion and up 36.9% from the prior annual record set in 2007 of $589.1 billion.
A company will buy back its own shares for many reasons. It can offset employee stock options and can shrink a company’s free float, and it can also be used to artificially increase earnings per share even if net earnings are not growing. It is also a strategy that companies can employ when they think their shares have fallen too much, and in many instances the largest acquirer of a company’s stock at any given time is the company itself. What makes the record buybacks in the fourth quarter of 2018 stand out so much is that the average share prices were in serious decline. S&P put that average share price drop at 5.3%, and this in turn allowed for companies to buy more shares than if share prices had risen.
It turns out that a handful of companies are driving the bulk of the buyback trends. We tracked the largest repurchasers from 2018, and ordered them by companies spending the most on buybacks in the calendar fourth quarter. Additional timelines and dollars spent information have been included on each.
Apple Inc. (NASDAQ: AAPL) has the most cash of any public company, and it has been the largest repurchaser of its own shares. The company spent $10.1 billion on buybacks in the fourth quarter alone, lower than the $19.4 billion spent in the third quarter. Apple spent $74.2 billion on buybacks in all of 2018, up from $34.4 billion spent in calendar year 2017. In the past five years, Apple spent $229.0 billion buying back its own shares.
Oracle Corp. (NYSE: ORCL) continues to overly spend on buying its own shares. It spent $10.0 billion in the final quarter of 2018, down from $10.3 billion in the third quarter. The software giant spent $29.3 billion in all of 2018 on buybacks, a gain of $4.0 billion from 2017.
Wells Fargo & Co. (NYSE: WFC) has been placed on a do-not-grow-assets list by regulators, but the bank has used its cash and weaker share price to keep buying back stock. It spent $7.3 billion on buybacks in the fourth quarter and $7.4 billion in the third quarter. For all of 2018, Wells Fargo’s $21.0 billion spend was more than double the $10.3 billion spent on buybacks in 2017.
Microsoft Corp. (NASDAQ: MSFT) spent $6.4 billion buying its own shares in the fourth quarter of 2018, up from $3.7 billion in the third quarter. Its total spend of $16.3 billion in calendar 2018 was up from the $8.4 billion spent in 2017, according to S&P.
Merck & Co. Inc. (NYSE: MRK) was the top-performing Dow stock of 2018, with a 35.8% total return, but that didn’t keep Merck from spending billions to buy back its own shares. Merck spent $5.9 billion in the fourth quarter of 2018 after spending just $1.0 billion in the prior quarter. For all of 2018, its spend rose to $9.1 billion for buybacks from $4.0 billion in 2017.
S&P also showed the remainder of the top companies spending the most on stock buybacks. We have included the figures on buybacks for the fourth quarter (Q4), the year 2018 (2018) and for the past five years (5YR). These are ranked in order of the largest stock buybacks by dollars spent in the fourth quarter of 2018 rather than just the year as a whole in an effort to reflect more current spending trends:
JPMorgan Chase & Co. (NYSE: JPM) was a tad more aggressive in the fourth quarter of 2018 than its pace for the prior three quarters.
Q4: $5.928 billion
2018: $19.983 billion
5YR: $54.851 billion
Bank of America Corp. (NYSE: BAC) kept a steady pace in the fourth quarter compared with all of 2018, but the pullback meant it was able to buy slightly more shares.
Q4: $5.231 billion
2018: $20.094 billion
5YR: $42.069 billion
Cisco Systems Inc. (NASDAQ: CSCO) has been impressive with $81.8 billion over the past decade spent on buybacks, more than one-third of its current $232 billion market cap.
Q4: $5.182 billion
2018: $22.936 billion
5YR: $46.276 billion
Starbucks Corp. (NASDAQ: SBUX) has been more aggressive lately than when it was still growing its store counts faster. More than half of its buybacks in the past five-year and 10-year periods were made in 2018, and it recently committed even more for buybacks ahead.
Q4: $5.170 billion
2018: $10.709 billion
5YR: $18.828 billion
Pfizer Inc. (NYSE: PFE) has remained a steady acquirer of its own shares over time and actually has outpaced Merck’s buybacks over the past five-year period and 10-year periods.
Q4: $5.030 billion
2018: $12.198 billion
5YR: $32.035 billion24/7 Wall St.
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S&P further pointed out that buybacks were yet again favored over dividends in both the rate of growth and aggregate dollars spent. Howard Silverblatt, senior index analyst at S&P Dow Jones Indices, said:
Companies continued to spend more of their tax savings on these share repurchases as they boosted earnings through significantly reduced share counts. Adding to the share reduction, and therefore the EPS impact, was Q4’s stock price decline, which permitted companies to buy even more shares for their dollars and reduce share count more efficiently.
Buybacks broadened out in Q4, as the top 20 issues accounted for 44.4% of all S&P 500 buybacks, near the recent historical average of 43.7%, down from Q3’s 54.3%, Q2’s 49.7% and Q1’s 49.5%. For the year, however, the top 20 accounted for 42.2% of the buybacks, substantially up from 2017’s 32.3%.
STOCK BUY B ACKS
Apple Inc. (NASDAQ: AAPL) will launch a streaming video service today. The company believes that its brand and installed base of over a billion devices will allow it to successfully step into one of the most crowded segments of the media market. Apple will find eight big competitors already there. Most of these services charge between $9.99 a month and $12.99 a month.
1. The toughest competitor is Netflix because of its size, its relationships with Hollywood and an original programming business that has produced some of the most popular and critically acclaimed shows of the past decade. Netflix has 139 million subscribers worldwide. It carries content from large cable programmers, including HBO. Original shows already number in the hundreds, and Netflix plans to spend billions to expand this.
2. Amazon Prime has over 100 members worldwide. Its streaming video offering is part of a suite of products and services. These also include free shipping, free storage of photos and a deal on a number of products sold by Amazon.
3. Hulu is owned by Walt Disney, AT&T and Comcast, three of the largest entertainment companies in the world. Its streaming media business has been in the market since 2007. Hulu carries content from the CW, CBS, Showtime and the BBC, among others. It will soon have a live streaming business that includes CBS News. Like Amazon and Netflix, is also produces original content.
4. HBO Go is the streaming version of HBO, which allows subscribers to use all their devices to watch HBO programs. This includes smartphones, game consoles and digital media players. Its parent, Warner Media, has dumped its part of its TV Everywhere products.
5. Movie service Starz has a product that has the same features as HBO Go. It is part of the industry’s efforts to capture “cord cutters,” which are people who have canceled their cable subscriptions and watch video via their broadband connections.
6. Showtime has a service that competes directly with HBO and Starz. It markets its service through the Optimum broadband services, which give it a potential pool of millions of customers. It is also marketing via CBS’s streaming video service.
7. DirecTV Now offers subscribers the country’s largest satellite television service, with almost all the programs available on its regular service, which has been built up over a decade. It untethers programming from the need to have a DirecTV traditional subscription. However, it leverages the DirecTV subscriber base of 21 million as its primary sales conduit.
8. Disney+ will launch later this year. It will carry most of the movies Disney has produced. This includes all of its Star Wars and Marvel movies. New Disney movies will not run on Netflix as they have for years. Disney considers Netflix the primary competition for Disney+.24/7 Wall St.
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Apple will compete against some of the most famous brands in streaming media, and the broader media world in general. Companies that include Netflix and Amazon have their own studios and plan to spend billions of dollars on their own content. Apple has its brand, and the chance to market its service to a huge, global installed base of iPhones and Macs. That may not be nearly enough.I'm interested in th
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