Trust Your Greedy Doctor, Not Your Greedy Banker

One of the traditional chores of fatherhood, or so my wife has instructed me, is accompanying your wife on her first visit to the obstetrician after the birth of the baby, so that you, as the father, can tend to the baby in the waiting room during your wife's appointment. At one such event during the past few months, while strangers googaa-ed my new baby and cooed the traditional oh, she's beautiful and she's so alert, I overheard the administrative assistant of my wife's doctor scolding a patient on the phone for not having paid the many-thousand-dollar medical bill left over after her medical insurance company had paid their legal obligation toward the patient's recent labor and delivery. The administrative assistant was indignant that the patient, aka debtor, would even consider coming to her post-partum checkup without having paid the many-thousand-dollar-bill and passed on the irritation of the patient's doctor, as well. She told the debtor, "Well, the doctor expects you to pay at least half of the balance before she will see you." And then the administrative assistant paused for the debtor to say something and then tried to offer the very helpful "Don't you have a credit card you could put the bill on?"

Sure, I am a fan of making profits. Every article I write is about profiting from the markets, but I am troubled by the pardon given to doctors in the United States for being greedy for profits, a pardon that, during the past four years, has not been extended to bankers, a group of people who did not collectively take the Hippocratic Oath. Of course, I understand that the Hippocratic Oath really doesn't apply, despite their having sworn it, to American physicians because they all had their toes crossed while swearing it and because deep down we know that our greedy doctors deserve all that money. After all, they're smart, aren't they? They went through all that schooling, right? Haven't you seen all those TV dramas with doctors melodramatically saving lives? And they must pay for their kids' private school tuitions and BMWs, as well as the newest Mercedes sedan for themselves, right?

This week the rhetoric against the greedy bankers resurfaced, as Treasury Secretary Timothy Geithner wrote an op-ed piece for the Wall Street Journal entitled "Financial Crisis Amnesia", in which he argues that if we forget about how the greedy bankers forced all those blameless Americans to buy houses and then forced them to walk away from those mortgages and then had the indecency to try to foreclose even after those blameless Americans hadn't paid their mortgages for years---yes, if we forget how guilty those greedy bankers are, we are doomed (again). Still, what nobody seems to understand, as I have argued before, is that until we let the greedy bankers off the hook, these caretakers of the Treasury's printing presses will not lend the newly minted money that could encourage economic growth in our country. New, safe lending will spur economic development, which will encourage hiring, which will ultimately put more money in our pockets, which, in turn, we will spend, thus inspiring new confidence in the financial system, and the virtuous cycle will continue. We may even be able, once again, to pay our greedy doctors.

The good news is that, despite the anti-banker rhetoric, the bank stocks themselves have been performing well lately. Bank stock performance is one indicator I look at for overall market health, because without the banks' outperformance, any market move to the upside will be, sadly, unsustainable, inasmuch as the banks are the engine of the market. Also, I watch the banks because I am hopelessly long two of them in my (nearly) permanent portfolio, Bank of America (BAC) and the widow-maker Citigroup (C). Don't get me wrong: I think the market is overdue for a pause here at these lofty levels, and I have been holding a sack of cash in anticipation of a pull-back; yet, when we all expect a correction in the market, the market rarely gives it to us. I expect that we will drift unsubstantially higher during the next month or so and then have a fairly unpleasant April, May, or June. That's when I'll add to my (nearly) permanent portfolio.

What will I buy? I bought some shares of the New York Stock Exchange, or as it is officially called NYSE Euronext (NYX), after the company's deal to merge with the Deutsche Borse fell apart when the Germans realized that CEO Duncan Niederauer is indeed America, not European, despite his last name. The shares traded over $40 on the euphoria of the deal and then sank well below $30 after its collapse. I bought shares under $30 and will buy more, much more, when NYX drops again to $28 or below. NYX currently sports an annual dividend yield paid quarterly of more than 4%, which is solid and safe, as it represents only 50% of the company's annual profits. A 50% payout ratio, which is the official term, usually represents a very stable dividend; only when the payout ratio exceeds 70% or 80% should we really start to worry about the sustainability of a company's dividend. Niederauer claims that the company has returned to its pre-Deutsche Borse deal strategy of maintaining the dividend and building growth from within the company, which means one thing: after memories of the failed Deutsche deal fade, NYX will try to grow its derivatives business through mergers and acquisitions once again, and that may drive the stock price back up to $40. Of course, we get to collect 4% while we wait. With trading volume a mere trickle at the NYSE, Duncan Niederauer must eventually make a deal with someone.

It Was the Worst of Times, It was the Worst of Times

I thought the holiday season was a good time to pull out the Dickens and not just because the market will, it seems, finish the year flat or slightly negative. Another reason for the Dickensian title is that market pros and amateurs alike, as they have correctly called equities all year, expect nothing from the stock market for the next few years. Many, in fact, expect another Lehman-like near collapse of the financial system beginning in Europe and then a contagion spreading throughout the globe to bring even the mighty China to its knees. That, at least, is the bear case for next year. And everyone, even down to the last bull, fears what will happen in Europe.

At a recent local stage production of A Christmas Carol, which was, as far as I can tell, faithful to Dickens' original, there seemed to be an addition to the montage of memories from Scrooge's Christmases past, an addition that included a financial report on how Scrooge's year had been. Haunting phrases like You have nearly doubled your money, Scrooge; The stock will surely double next year; and Profits are up nearly 80 percent, Mr. Scrooge rang through the theater. Wait. Haunting? I suppose that the director's motive in adding this surely modern commentary to a staging of A Christmas Carol was to demonstrate that Scrooge's Christmases past had all been about profits and business and not about giving and family. Fair addition, I'd say; still, what I took home that evening was further proof of the anti-finance and anti-stock-market rhetoric that saturates nearly all U.S. media today. The fear and loathing of Wall Street and the stock market has hit a crescendo this year, so much so that local directors are rewriting Dickens to include their disdain for finance.  

Add the worries about Europe's finances to the contempt for all things financial here in the United States and you have a market that seems destined for losses in the new year and beyond. I, however, will be taking the other side of that argument and that trade, for, as I've written previously, the market works in a way that ensures that the majority of investors (and non-investors) get it wrong. How can almost everyone be right about the stock market? Could this be the first time in market history that retail investors, who want nothing to do with equities, have actually been correct? Probably not, I'd say. That is why buying the stocks of good companies that others sell in panic or apathy is the best way to make money in the stock market, as long as you are willing, if you must, to hold those shares (almost) forever.

What, then, should we do with our money? We should buy good companies with international exposure that will pay us a nice dividend while we wait for Europe and the United States to sort out their accounting problems. Dow Chemical (DOW) is just such a company. I traded DOW during the past few weeks with some success, buying at about $26 and selling at $28; since then the stock has run the cycle again down below $26 and currently trades at about $28. Dow Chemical is a diversified chemical company with a global presence and a $0.25 per share quarterly dividend, which amounts to 3.7% yield at its current price. This past June DOW raised its dividend from $0.15 to $0.25, which indicates that the company is confident in its future profitability, although, one could argue, that was before concerns about a European recession flared in August and have, of course, been seething ever since; yet, a u-turn in the dividend is unlikely, I think, unless Europe drags the United States into a recession.

Dow Chemical has very good support at $25. I'll buy on dips.

I wouldn't necessarily jump in at $28, but I certainly would buy DOW again below $26, when the dividend will be 4 percent or higher. January and February may prove dicey in Europe, inasmuch as Wall Street seems skeptical that European leaders have the mettle to devalue the Euro, which is what must be done to solve the liquidity and debt crisis looming over there. I, for one, will take advantage of any dislocation in the market to add to positions of companies like DOW whose shares, without a doubt, will be higher five years from now.

Using Z-Scores: Buying Closed-End Funds, Part 2

Since the time of my last writing, a little over a week ago, the market has switched its obsession from Greece to Italy. Wall Street is worried that with Italian bonds trading at extremely low prices, their yields are too high (7 percent) to make future borrowing from the market using bonds practical. Since the swoon Wednesday, Italian bond markets have recovered, probably because of the European Central Bank (ECB) purchasing them, even if indirectly through European banks, which will eventually make Wall Street traders even more nervous than they usually are (and by that I mean petrified), when Italy, like Greece, eventually must default and the European banks are forced to write down all of their losses and recapitalize. Sound familiar? That's exactly what the U.S. endured in the fall 2008 and 2009 unpleasantness, from which we as a country have never really recovered.


Wednesday I bought some MGM Resorts (MGM) at about $10.00, and during the past few weeks I have been buying the closed-end funds Wells Fargo Advantage Global Dividend Fund (EOD) and the PIMCO Corporate Opportunity Fund (PTY), the former boasting a 13 percent dividend yield and the latter sporting about a 7.5 percent yield. Closed-end funds (CEFs) can trade at a discount or a premium to net asset value (NAV), that is, the value of the assets underlying the shares. For example, EOD is currently trading at about a 7.5% discount to NAV, and with its high yield, I find it a promising addition of my (nearly) permanent portfolio.


Unlike EOD, PTY almost always trades at a premium to NAV. Currently, the fund's premium is 22.68%, and, therefore, you are paying 22.68% more to own the fund than it's worth. Now usually overpaying for an asset is not my style, especially overpaying for CEFs, even one like PTY with a nearly 8% dividend yield, because many CEFs routinely trade at a discount to NAV. Why not just pick a different, cheaper CEF? In the case of PTY the fund almost always trades at a premium to NAV. In fact, according to cefconnect.com, PTY's NAV has ranged between a discount of 2.17% and a premium of 29.49% during the past year; however, PTY only traded at a discount to NAV briefly. The question remains: How are we to judge whether a CEF that is trading at a premium already is overbought and too expensive? The answer: statistics.


Now we're going to get a bit technical, so hold on. PTY's one-year z-score is currently 0.94, according to morningstar.com. In this case, the one-year z-score = (current discount - average discount)/(standard deviation of the discount) computed with data from a year ago to today. Now if your statistics is a little rusty, let me sum it up for you with the following statement: under certain conditions, we expect PTY to trade at a premium of 22.68% or more only about 17 percent of the time. That's a little alarming; the percentages do seem to suggest, then, that the fund is too expensive, if we ignore the 7.5% annual yield that we are paid in the form of a monthly dividend.

Here's a one-year chart of PTY: on dips I'll buy some more.

Truth is that my average purchase price on shares of PTY is $17.12 compared to its current trading level of $17.85; in fact, I bought the my shares when PTY's premium was much lower and the one-year z-score was close to 0, which means that I bought by shares when the fund traded at about its average premium over the past year. I plan to hold on to my shares of PTY until the fund gets obscenely overvalued at around $20, which may happen sooner than you think with so many investors grasping so desperately for yield. I will buy more if PTY drops below $17, and especially $16, again, which may happen as the markets swoon anew if the Italians or the Greeks don't dance precisely the way Wall Street wants them to while they try to reduce what is perceived as profligate European spending.     

The Wages of Fear: Buying Closed-End Funds, Part 1

In the Clouzot's great French existentialist film The Wages of Fear, four down-on-their-luck workers agree to transport a truck of nitroglycerin across the Amazon to an oil well, a harrowing ordeal that only one man, Mario, survives. Because Mario is forced the whole journey to the oil well to drive slowly and with painstaking caution, so that the nitroglycerin would not explode, on the return journey he drives his empty truck with such gleeful abandon that he sails the truck right off a cliff. Thursday's more than 300-point rally in the DOW reminded me of that last scene (up to the falling-off-the-cliff part) of the film; equity traders for the last few months have been so stymied by fears of a double-dip recession here in the U.S. and concerns of a banking collapse in Europe, that they have been, since August, driving their trucks cautiously across what they considered perilous terrain.

Last week's announcement of a 50 percent haircut for Greek bondholders and more solidarity from the French and German leadership than the world is accustomed to caused a short-covering rally that surprised many of us. Equity traders gleefully jumped on board the rally and, like Clouzot's Mario, pressed the accelerator because they finally felt free to do so. My guess is that as soon as the Europeans utter some cautious remarks or look at each other funny, the Wall Street traders will run for cover again, and shares will erase much, if not all, of the roughly 1000-point Dow advance thus far accumulated in October. I'm afraid that the market is more than a little overbought here, and a pullback would be healthy and wouldn't be very deep, inasmuch as traders will remember the vehemence of the market's ascent last week. If the market goes much higher without a pause or pullback, we may live the last scene of The Wages of Fear: you know, the falling-off-the-cliff part.

As I watched most stocks last week rise almost indiscriminately, I felt a pang for all those stocks I could have bought at a lower price, like MGM International (MGM), a casino stock, which just weeks ago I traded when its price was toggling between $9.50 and $10.50 and which, Friday traded above $12.00. If you missed the big move last week in the market, you'll probably, if you did not chase the momentum money Friday, get a chance to buy, in the coming weeks, all those stocks whose dramatic move sent a tremor of jealously through your gut. This week's early market retreat seems to suggest that your chance to pick up your favorite shares at a more reasonable price may be even sooner than I am suggesting (yikes! I'd better type faster). This is the time to make a shopping list for stocks that you would like to have for the next short-covering rally.

Over the past few years, I have become increasingly interested in closed-end funds (CEFs), which are collections of shares that track an underlying collection of assets, like bonds or global dividend-paying stocks, and which rise and fall in price based largely on the value of the underlying assets, called the net asset value (NAV), and, specifically, whether or not the shares are trading at a discount or premium to NAV. That's really the greatest attribute of CEFs: their shares sometimes trade at a discount to NAV, so immediately, you can better ensure that you are not overpaying for shares, as opposed to shares of a company, whose true value is so difficult to quantify. Often a CEF's net asset value is updated daily, so you can track easily how its shares are trading relative to NAV.

Let's get specific. Currently, I own two CEFs, PIMCO Corporate Opportunity Fund (PTY) and Wells Fargo Advantage Global Dividend Fund (EOD), two very different funds that, owing to their differences, offer an excellent introduction to CEFs. Let's start with EOD, which I would consider by far the riskier CEF. The Wells Fargo closed-end fund, as of Halloween, traded at around $8.35 per share, but its NAV, according to Morningstar.com was around $9.00, which amounts to about a 7% discount.  EOD shares have traded during the past year between $7.45 and $10.73, and the fund's NAV has ranged between a -10.52% (a discount) and 5.26% (a premium) differential from its share price, according to the useful site cefconnect.com; therefore, while a 7% discount is nice, if we wait for a steeper discount, namely closer to its 52-week high discount of about 10%, then we might do better. The best part about EOD is its roughly 13 percent annual dividend, which amounts to a $0.28 quarterly payout. While that high dividend may be signaling that the EOD may have to reduce its payout soon, I find it difficult to believe that the reduction will be so significant that the share price will be affected that much; after all, if the NAV is correct for EOD, any future dividend cuts should be factored in already to the value of the underlying assets. EOD typically trades at a discount, so we shouldn't necessarily hide under the typical Wall-Street-must-know-something-that-I don't blanket and pass up a potentially rewarding opportunity. Perhaps Wall Street is wrong, and EOD won't cut its payout after all.

Next time I'll talk about how the Normal Model and z-scores can help us time the buying of CEFs, and I'll outline the very different closed-end fund PTY.

At the time of this writing (Tuesday morning), the market is indeed falling off Clouzot's cliff.

Could This Be the Market That Everyone Called Correctly?

If you take a look at the dates of my postings, you'll conclude (and correctly) that I have taken a month off from writing about the market. I always forget how busy October is in the mathematics department on campuses around the world, with all of our students panicking about math they should have learned last semester. Also, I took some time off from writing about finance to let, as I predicted in my last post, the smarter money of the bond and currency markets drive the stock market lower; yet, the movement of the S&P 500, for example, was not just lower, it was range-bound between about 1100 and 1250.

During those ups and downs, much has happened in our country. The outrage over the U.S. banks has spilled from dinner parties---where I have gleaned that urban professionals, pockmarked with NPR rhetoric, are furious about the banks' plan to charge monthly fees for their services---to Wall Street in the form of the Occupy Wall Street (OWS) movement. The OWS claim is that only one percent of the population make most of the wealth in the U.S., whereas the other 99 percent have been reduced to mere serfs. As a mathematics educator, I was delighted that this crowd got its arithmetic correct; however, as a logical human being with the capacity to employ deductive reasoning, I was disappointed that they have misidentified the upper 1 percent. The real 1 percent are: our doctors, who are writing us a collective overpriced prescription with one hand while emptying our wallets with the other; the U.S. insurance system, which uses mathematical statistics very well to predict how much unregulated profit they can milk from us through premiums; and the lawyers, who will take any side of an argument for a profit, usually a large profit at the expense of consumers in the form of higher costs for all services, especially health care, and insurance premiums. Oh, as it turns out, not much has happened in our country since I last posted an article.

Not much has happened in Europe either, which is perhaps the real source of the recent market diffidence. European banks are experiencing our Fall 2008 now but in slow motion, which has infuriated market participants in the U.S., who are largely short the U.S. indices with the hope of a European Lehman moment, when the world's banking system teeters on the brink of collapse, so that they can profit from a sympathy stock market crash on this side of the Atlantic. When the Europeans don't panic the way Americans would about the need to recapitalize their banks, those traders who are short the U.S. market must cover, and the market action of the last few weeks ensues, a range-bound exercise in hysterical boredom.

I would be careful during the next week establishing new short-term positions except on significant pullbacks; however, if you, like me, are willing to hold your shares (almost) forever, now is at least a decent time to put money to work. During the past few weeks I have added to my (nearly) permanent portfolio by buying more shares of Alcoa (AA), Bank of America (BAC), and PIMCO's closed-end Corporate Opportunity [Bond] fund (PTY), which currently boasts an 8 percent annual dividend yield. With all the negativity around the world (even some caution coming from China), investors and especially traders are more frightened than usual. Historically, such periods of hand-wringing and teeth-gnashing are great times to buy, but could this be the market that everyone (that is, the shorts) called correctly? Probably not, but does the fact that a typically contrarian investor can even suggest that the ubiquitous bears on Wall Street are finally correct point to a near-term bottom?

Following the Smarter Money Lower

If you caught the market action Friday, you already know that the fear among global traders that had been churning under the market's surface has now bubbled to the top. Sure, we've endured some wild swings in the market lately, but Friday was different, because the currency and commodity traders started to get nervous along with their always-jittery, often-downright-craven cousins, the Wall Street stock traders. During the past few months I have claimed that, since the euro/dollar (how many U.S. dollars it costs to buy one Euro) has hovered consistently around $1.45, concerns of a Greek default (and subsequently a Spanish and Italian meltdown in the bond markets) were merely traders looking for an excuse to sell U.S. equities. Also, I have maintained that the fears of a U.S. double-dip recession were overdone because oil prices have remained stubbornly high. These two more accurate predictors of future unpleasantness than stocks, the currency market and oil futures, began to turn lower Friday, which means that the smarter money has begun to show concerns that a default in Greece will, within the next year, cause a contagion similar to the Lehman plague from a few years back, from which we have yet to recover.

The euro/dollar plummeted Thursday and Friday from $1.45 to $1.36, which by currency volatility standards, is an enormous move in two days. Less spectacularly, light sweet crude oil, now called West Texas Intermediate (WTI) to confuse everyone, traded between $89.50 and $85.64, which although still stubbornly high if we are indeed headed into another recession, nevertheless is moving in the right direction if we are about to see a European contagion induced double dip, which is, of course, the wrong direction for the handful of us who are long stocks. Here's what to watch. If the euro/dollar dips below $1.30 and stays there for an extended period of time and if WTI falls to a 70-handle and closes there, that means the smarter money believes the whole European contagion issue is more than just a media event on CNBC. That's when stocks will see even deeper declines (and fast) than we've been enduring this summer. If you are assembling the (almost) permanent portfolio as I am, you'll want to take advantage of the market turmoil by initiating or adding to existing positions of strong, large, cash-hording, dividend-paying U.S. multinational stocks, such as General Electric (GE), Pfizer (PFE), and RPM International (RPM), all of which I have recommended previously.

Last week I recommended RPM as a stock that has raised its dividend 37 years consecutively and that has an impressive list of global and industrial brands, like DAP and Rust-oleum. In the interest of full disclosure, I must tell you that Friday, in the midst of the market mayhem, I traded that stock successfully by buying a whole bunch of shares at $17.75 early in the afternoon and selling my shares at 3:57pm for about $18.05. This sort of trading, which is not really day trading, because I only traded with a relatively small percentage of my portfolio (and not all of it), is only for those of you with cash you are willing to have trapped in a stock for a long time, in case the trade does not work out in your favor. For the short-term trade I find a stock that I have wanted to own for a while with a strong dividend, a stock like RPM, that I would be willing to add to my (almost) permanent portfolio if the stock falls precipitously, and I buy many, many shares during the day at a time of extreme panic in the market (in Friday's case resulting from rumors that Greece was going to announce a default on its debt this weekend, which still hasn't happened yet at the time of this writing). I will sell the stock, all of it, that I'm trading once I have reached a predetermined profit on the trade (minus commissions and fees, which should be under $10 per trade if you're using the right broker). This sort of trading is not for the meek, especially in these uncertain times. Some call this gambling; I call it trading.

You are probably better off to keep adding to solid positions that you are willing to keep (almost) forever. This week we may see a European meltdown, and I might use the volatility to trade RPM again because my guess is that Germany does not want to cast out Greece, its prodigal son, yet, from the Euro zone; Germany will probably wait until later this month or October, when most stock market crashes seem to occur. If that happens, I'll roll up my sleeves and buy, buy, buy.

Reward and its Ugly Stepsister Risk

Remembering that I promised never to talk about politics in my articles, I will not mention the disturbing development this past week that the U.S. Government has now decided to sue the large U.S. money-center banks with two separate agencies and two separate lawsuits. Are these the same politicians who are wondering why U.S. banks are not lending and why U.S. consumers are too petrified to borrow, even those with good, stable employment? Economics has never been a strong subject for American politicians, maybe because it involves so much math, but surely someone, somewhere in the U.S. Government regulatory agencies can follow this (I'll even type slowly): If banks were reluctant to lend to consumers and business two weeks ago, they will be even more loath to lend now that, after regulators have forced them to increase their capital reserves to ridiculously high levels during the past three years, they will have to replace that capital after what can only be a sham of a trial, or more likely an expensive shotgun settlement. Oh, the Europeans have always been better at economics (and math) than we are.

Because of policy mistakes in the U.S., we now are facing the increased probability of a recession. What should we do? If you have a steady stream of investable savings, you should, as the stock market makes new lows, keep adding to positions of large multinational companies with good, stable dividends, like General Electric (GE) and Pfizer (PFE). Therefore, when the U.S. finally comes out of its slow-to-no-growth slump, the shares in your (nearly) permanent portfolio will swell with a healthy, wealthy glow. This is when your risk-tolerance is tested as an investor, and even if you never buy bonds, risk in finance is defined in terms of U.S. Government bonds.

A bond price and its yield are inversely related, that is, when the price of the bond decreases, it's yield, or its payout as a percentage as the bond price, increases. So, when bonds get cheap in value, their yields rise, and that's one way to determine how risky a bond is as an investment. You simply look at its yield compared to Treasuries, bonds issued by the U.S. government, and if the bond is trading at 5 percentage points above the Treasury yield, then it has a credit spread, sometimes called a risk premium, of 5%. A bond trading with a risk premium of 5% would be a very risky bond in the eyes of the market. In other words, the bond market, with such a high risk premium, is betting that the bond may not be able to pay its promised interest to investors and, therefore, might default.  

We also can apply the concept of risk premium to stocks and their dividends, more or less. Let's say that a stock, based on its current price, boasts a 7% annual dividend yield. The market is betting that in the future the company will not be able to pay the dividend that it currently offers; otherwise, investors would dive into the stock, driving its share price up and thereby pushing its dividend yield lower. What is a good dividend yield for a stock? That depends largely on market conditions and the company's industry. Currently, dividends are relatively high owing to a general disdain for stocks and the lack of ownership of stocks among investors like us, referred to in the financial media in the aggregate as the retail investor. For example, you can get a health care company's shares, like Pfizer (PFE), which pays a 4% or 5% annual dividend yield or a utility such as PP&L (PPL). Most dividends in these industries are safe because we are coming out of a once-in-a-generation-financial collapse, when all companies who would have had to reduce their payouts would most likely already have done so. Dividends will rise in the coming years with stabilization in the global economy.

RPM's chart is ugly, but at these levels the stock is interesting.

Years ago I traded RPM International (RPM), and lately I have been interested in building a new position in the company's stock. Friday in the general sell off, the stock closed at $18.64 and currently pays a dividend of $0.21 or a 4.5% annual yield, which, at roughly 2.5% over Treasuries, indicates that either the market sees significant downside ahead for the stock price, namely another recession, or that traders have indiscriminately sold off RPM shares owing to their general disdain for stocks. I think that the latter is more likely the case, and that the current sell off in RPM shares presents a good opportunity to begin building a position in the company. RPM International is basically an industrial chemical company that sells all sorts of specialized  sealants and coatings. The company's most recognizable brand is Rust-oleum, but you probably have other products of theirs in your basement, workshop, or garage, like Dap, which is a popular brand of caulks and sealants. What will happen to RPM if we have a recession next year? RPM's stock price will go down, but chances are the company will do everything in its financial power to keep paying and increasing its dividend. For 37 consecutive years, RPM has raised its dividend, and that means it even raised its dividend during the Great Recession we just went through (and are still feeling). That sort of streak of dividend raises, of course, continues until it doesn't anymore, but RPM, with a streak that impressive, will likely continue it through the next recession, whether it occurs within the next year or five years hence.