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Smart Tax Planning

Tax season officially kicked off for individual filers on Jan. 29, and the IRS has started to process 2023 returns.
If you’re expecting a refund this filing season, there are a few ways to get the money faster, experts say.

D3sign | Moment | Getty Images

Tax season has kicked off and the IRS has started to process 2023 returns. If you’re expecting a refund, there are a few ways to get the money faster, experts say.
Often, “self-inflicted mistakes” cause refund delays, according to Mark Steber, chief tax information officer at Jackson Hewitt.

The IRS is planning for more than 146 million individual tax returns this season, and the deadline for most filers is April 15.

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Here’s a look at more tax-planning news.

Typically, you get a refund when you overpay taxes throughout the year. As of Dec. 29, the average refund for last year’s filings was $3,167, which was 2.6% smaller than 2022.

‘The best way to get your refund fast’

With many Americans relying on tax refunds, there are a few ways to speed up the process, experts say.
“Filing electronically and selecting direct deposit is the best way to get your refund fast,” IRS Commissioner Danny Werfel told reporters during a media briefing Friday. During fiscal 2022, some 93.8% of individual taxpayers filed electronic returns, according to the IRS.

Filing electronically and selecting direct deposit is the best way to get your refund fast.

Danny Werfel
IRS Commissioner

When selecting direct deposit, it’s important to double-check your banking details such as routing and account numbers. If those are wrong, the IRS may have to mail your payment by check, experts say.

Don’t ‘guesstimate’ on your taxes

Tax return mistakes are another reason for delayed refunds.
“You need to be accurate,” Steber said. “You can guesstimate on horseshoes” but not on your taxes, Steber added. You’ll need all the necessary tax forms to file a complete and error-free return. Otherwise, the IRS systems may flag your return for missing information.
Some common tax return errors are “surprisingly simple,” such as missing or inaccurate Social Security numbers, misspelled names, entering information wrong and math mistakes, according to the IRS.

When to expect your tax refund

Most taxpayers will receive their refund within 21 days of submitting their return, “and many people will see it faster than that,” Werfel said Friday. Of course, paper-filed returns or filings with errors may take longer.
There’s also a longer timeline if you’re claiming the earned income tax credit or child tax credit. By law, those filers won’t see refunds until Feb. 27 at the earliest, according to the IRS.
You can check your payment status via the Where’s My Refund tool, which provides more details this season, including actions needed from taxpayers, Werfel said.
You can use the tool to check your refund status within 24 hours of filing a current-year, electronic return and the IRS updates it overnight every day. More

In advance of the Federal Reserve’s first meeting of the year, inflation continues to drift lower, increasing the possibility of securing a sought-after soft landing.
There’s also a chance the central bank could achieve a ‘no landing’ scenario, one economist says.
In that case, the economy would continue to grow and inflation would remain high.

The Federal Reserve is expected to announce it will leave rates unchanged at the end of its two-day meeting this week, after recent reports showed the economy grew at a much more rapid pace than expected and inflation eased.
“In many ways, we already have a soft landing,” said Columbia Business School economics professor Brett House. “The Fed has threaded the needle of the economy very artfully with a kind of ‘Goldilocks’ scenario.”

Gross domestic product grew at a much faster-than-expected 3.3% pace in the fourth quarter, fueled by a solid job market and strong consumer spending. However, inflation is still above the central bank’s 2% target, and that also opens the door to a “no-landing scenario,” according to Alejandra Grindal, chief economist at Ned Davis Research.

What a ‘no landing’ scenario means

“No landing means above-trend growth, and also above-trend inflation,” Grindal said, describing an economy that is “overheating.”
Inflation has been a persistent problem since the Covid pandemic, when price increases spiked to their highest levels since the early 1980s. The Fed responded with a series of interest rate hikes that took its benchmark rate to its highest in more than 22 years.
As of the latest reading, the current annual inflation rate is 3.4%, still above the 2% target that the central bank considers a healthy annual rate.
The combination of higher rates and inflation have hit consumers particularly hard. A “no landing” scenario also means more strain on household budgets and those with variable-rate debt, such as credit cards.

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While still elevated, inflation is continuing to make progress lower, possibly giving the Fed a green light to start cutting interest rates later this year.
“That looks like the soft landing has been more or less achieved and is likely to be sustained,” House said.
For consumers, this means relief from high borrowing costs — particularly for mortgages, credit cards and auto loans — may finally be on the way as long as inflation data continues to cooperate.

The alternative: A hard landing

Some experts still haven’t ruled out a recession altogether.
“The real danger here is that the Fed loosens prematurely, which is exactly what they did in the late 1960s,” said Mark Higgins, senior vice president for Index Fund Advisors and author of the upcoming book “Investing in U.S. Financial History: Understanding the Past to Forecast the Future.”
“The risks of allowing inflation to persist still far outweighs the risk of triggering a recession,” he said. “Their failure to do this in the late 1960s is one of the major factors that allowed inflation to become entrenched in the 1970s.”

According to Higgins, history suggests there could likely still be a recession before this is over.
To that point, 76% of economists said they believe the chances of a recession in the next 12 months is 50% or less, according to a December survey from the National Association for Business Economics.
“It’s normal for an economy to go through periods of expansion and contractions,” Higgins said. “In the short term it will be painful, in the long term we are better off doing what is necessary to return to price stability.”
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“Loud budgeting” emphasizes being vocal about wanting to save money.
“It’s not ‘I don’t have enough,’ it’s ‘I don’t want to spend,'” writer and comedian Lukas Battle said in a TikTok video spurring the trend.
For loud budgeting to be effective rather than gimmicky, experts suggest that people practice moderation with their spending changes. 

Medium shot of smiling woman trying on sunglasses while shopping in boutique during vacation
Thomas Barwick | Digitalvision | Getty Images

Currently trending on TikTok: digital cameras, Jellycat plush toys and lip oils.
But the bigger trend? Not buying any of it.

“Loud budgeting,” which emphasizes being vocal about wanting to save money, is a contrast to last year’s quiet luxury trend, where people attempted to recreate the old money look. But the idea isn’t completely new: for the past few months, self-proclaimed de-influencers have been talking their followers out of buying certain viral products.
Writer and comedian Lukas Battle first posted about loud budgeting on his ins and outs list on TikTok in late December, declaring loud budgeting to be part of the “in” category for the new year. According to Battle, he came up with loud budgeting after spending too much during a night out.
“It’s not ‘I don’t have enough,’ it’s ‘I don’t want to spend,'” Battle explains in a video, which has received more than 1.4 million views and some 175,000 likes.
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Some ways Battle plans on loud budgeting include participating in Dry January, going grocery shopping instead of dining out and hanging out with friends during the day instead of going out at night. 

‘Everything is hyper-commercialized’

Lukas Battle
Credit: Steven Sierra

In an interview with CNBC, Battle noted that for him, the term loud budgeting started out as a joke. But he sees the very real financial consequences that influencers and TikTok trends like quiet luxury have, especially on younger consumers.
“I think that now, everything is hyper-commercialized,” Battle said. “I don’t think that anybody in our generation has a lack of control. I just think it’s in our face all the time.”
Sophia Bera Daigle, a certified financial planner and founder of Gen Y Planning, agreed, saying that nowadays, people are frequently exposed to celebrity purchases like a Chanel handbag that costs thousands of dollars. But what social media often lacks is nuance.
“There was this idea of keeping up with the Joneses,” said Daigle, a member of the CNBC Financial Advisor Council. “Now people are trying to keep up with celebrities. That’s just not sustainable.”
She points to high interest rates, higher prices and the return of student loan payments as other possible reasons for loud budgeting’s popularity. Nearly two-thirds, 62%, of Americans are living paycheck to paycheck, according to LendingClub.

How to make the most of loud budgeting

Daigle has observed a lot of financial trends over the years, including extreme behavior like turning off the oven light to save on energy costs, a trick some frugal bloggers promoted a decade ago.
For loud budgeting to be effective rather than gimmicky, Daigle suggests that people focus on their financial priorities and practice moderation with their spending changes. 

To help stay on track, she recommends using a budgeting tool like YNAB, also known as You Need a Budget. Stash the money saved in a high-yield savings account so it’s working on your behalf. 
What she has seen so far seems promising.
“I think it’s really exciting to see a trend moving towards, ‘Hey, I could go out, but I’m not going to go out right now because this is what I value,'” Daigle said.

‘A different way to think about money’

Loud budgeting’s impact has begun to expand beyond social media.
When Battle shopped at Trader Joe’s recently, he was approached by a person who said he should be loud budgeting instead. After Houston-based marketer Taylor Busse saw Battle’s TikTok video on her For You feed, she told her boyfriend about loud budgeting and he similarly liked the concept.
“I think it’s awesome, chic and a different way to think about money,” Busse, 26, said. 
This year, Busse plans on thrifting instead of buying something new if there’s a style she likes on TikTok. And instead of spending hundreds with friends on dinner and drinks, Busse is thinking of inviting them over to her home.
Battle has leaned into the positive reaction to his TikToks, even joking that he’s practically an economist now. Ultimately, he hopes that by explaining that they’re loud budgeting, people can normalize not wanting to spend money in pursuit of achieving their financial goals.
“I think it’s all about financial autonomy,” Battle said. More

Smart Tax Planning

The standard deduction for married couples filing jointly for 2023 is $27,700, up $1,800 from 2022. For single taxpayers and married individuals filing separately, it’s $13,850, up $900 from the year before. 
Missing estimated tax payments and failing to pay enough tax over the year has become extra costly.

The Internal Revenue Services offices in Washington, D.C.
Adam Jeffery | CNBC

Tax filing season officially starts today, Monday, Jan. 29 — marking the first day that you (or your tax preparer) can submit your 2023 federal tax return for the IRS to accept and process. 
To avoid being surprised by new IRS guidelines or how changes in your financial life will impact your taxes, here are a few key points to know:  

You may benefit from taking the standard deduction

A key consideration when filing taxes is whether to claim the standard deduction or itemize deductions. Most taxpayers take the standard deduction, and even more may do so this year, given the increase in the amount. 
The standard deduction for married couples filing jointly for 2023 is $27,700, up $1,800 from 2022. For single taxpayers and married individuals filing separately, it’s $13,850, up $900 from the year before. 

More from Smart Tax Planning:

Here’s a look at more tax-planning news.

“Even though the standard deduction went up, what did not go up on the itemized side are things like the SALT cap rate,” said Sheneya Wilson, a certified public accountant and founder of Fola Financial in New York, referring to the $10,000 limit on what taxpayers can deduct in state and local taxes on their federal returns.
The SALT cap was enacted as part of the 2017 tax overhaul. 
“Some people who found it beneficial to itemize in the past may find it makes more sense to take the standard deduction in 2023,” said IRS spokesman Eric Smith. Before the 2017 tax reform, “the standard deduction, arguably, wasn’t such a big deal for higher-income taxpayers … it now can be for many taxpayers in these brackets.” 

In 2022, about 30% of taxpayers with incomes of $1 million or more took the standard deduction, according to IRS data.

High earners more likely to owe taxes at filing

If you’re like most taxpayers, you’ll get a refund. According to IRS data, only about 26% of filers had tax due with their 2022 returns. However, the percentage was far more significant for high earners, with 46% of those with incomes of $1 million or more owing tax when they filed. 
Missing estimated tax payments and failing to pay enough tax over the year has become extra costly. The Federal Reserve’s interest rate hikes have pushed up rates for interest-based tax penalties, too.
“People can lessen its impact by paying any tax due sooner, rather than waiting until close to the April deadline,” Smith said, adding the “calculation is based on a daily factor, so every day counts.”

Avoid interest and penalties

If you file a return by the April 15 deadline but don’t pay all taxes owed on time — or file for an extension but don’t pay your tax bill by that due date — you’ll have to pay a late payment penalty. The failure-to-pay penalty is 0.5% for each month, or part of a month, up to a maximum of 25% of the amount of tax that remains unpaid from the due date of the return until the tax is paid in full. 

“It really does add up, especially for those taxpayers that have big balances,” Wilson said. If you pay the tax owed when you file your return on or near the Oct. 15 due date for extensions, “your tax bill is significantly more than what you would have paid if you just made some type of payment in April.”
Whether you want to get a refund quickly or you owe tax, tax experts agree it pays to gather and organize your W-2s, 1099s and other tax documents to file your return now.
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So-called “earned wage access” programs allow workers to take a portion of their paychecks before payday, often for a fee.
They’ve grown rapidly: $9.5 billion in wages was accessed early during 2020, triple the $3.2 billion accessed in 2018, according to the latest data by Datos Insights.
However, in some cases, high fees and frequent use can translate to an annual interest rate of more than 330%, according to experts, regulators and consumer advocates.
EWA programs are also known as daily pay, instant pay, accrued wage access, same-day pay and on-demand pay.

Fotostorm | E+ | Getty Images

Millions of American workers are paying for early access to their paychecks. In some cases, it can come with a steep price.
So-called “earned wage access” programs, which operate either directly to the consumer or through employers, let workers tap a portion of their wages before payday, often for a fee. The services have ballooned in popularity.

While there can be various benefits for consumers — like quick access to funds in the event of an emergency — some services share characteristics of high-cost debt such as payday loans that can cause financial harm, according to some experts and consumer advocates.
“When used properly … it’s great,” said Marshall Lux, a banking and technology expert and former senior fellow at Harvard University.
However, Lux said overuse by consumers and high fees that can translate to interest rates up to roughly 400% can turn the services into “payday lending on steroids,” especially since the industry has grown so quickly.

Earned wage access has gotten more popular

Earned wage access goes by various names: daily pay, instant pay, accrued wage access, same-day pay and on-demand pay, for example.
The programs fall into two general camps: business-to-business models offered through an employer and direct-to-consumer versions.

The B2B model uses employers’ payroll and time-sheet records to track the users’ accrued earnings. When payday arrives, the employee receives the portion of pay that hasn’t been tapped early.
Third-party apps are similar but instead issue funds based on estimated or historical earnings and then automatically debit a user’s bank account on payday, experts said.
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Such programs aren’t new.
Fintech companies debuted the earliest iterations more than 15 years ago. But business has boomed in recent years, accelerated by household financial burdens imposed by the Covid-19 pandemic and high inflation, experts said.
In the employer-sponsored market, $9.5 billion in wages was accessed early during 2020, triple the $3.2 billion in 2018, according to the latest data from Datos Insights, a consultancy firm. The number of transactions also increased threefold over that period, to 55.8 million transactions from 18.6 million, it found.

Branch, DailyPay and Payactiv are among the “most significant” B2B companies, according to a recent paper published by the Harvard Kennedy School and co-authored by Lux and research assistant Cherie Chung.
There are fewer players in the direct-to-consumer market, but the most popular apps “have increasingly large and prominent userbases,” the Harvard paper said. For example, three companies, Dave, EarnIn and Brigit, report a “highly significant” user base of about 14 million combined, it said. MoneyLion is another market leader, according to Datos Insights.

‘It’s another version of payday loans’

Big companies such as Dollar Tree, Kroger, Hilton, McDonald’s, Target, Uber and Walmart now also offer employees early access to paychecks.
Companies in the B2B market often tout themselves as a win-win for employers and for their employees who use the services.
High worker demand for such programs makes them a cost-effective way for businesses to retain and recruit employees, according to consultants and academics. Employees can cover any short-term expenses that might arise before payday — maybe an unexpected car repair or medical bill — perhaps for lower fees than they would incur using credit cards, bank overdrafts or other ways to access quick cash.

The idea that these advances are not loans is a legal fiction.

Monica Burks
policy counsel at the Center for Responsible Lending

Some programs, depending on how consumers use them, may grant that early paycheck access free of charge. Further, 28% of users — who tend to be lower earners, hourly workers and subprime borrowers — said they turned to alternative financial services such as payday loans less frequently than before using earned wage access, according to the Harvard paper.
Meanwhile, 80% of consumer program transactions are between $40 and $100, on average, according to a 2023 analysis by the California Department of Financial Protection and Innovation. Amounts generally range from 6% to 50% of a worker’s paycheck.
“We as human beings incur expenses every day,” said Thad Peterson, strategic advisor at Datos Insights. “But we’re only paid on a periodic basis. That’s a massive inconsistency, especially when there’s technology that allows it to go away.”
However, data suggests the average user can accrue significant costs.

Total fees translate to an annual percentage rate of more than 330% for the average earned wage access user — a rate comparable to payday lenders, according to the California report. It analyzed data from seven anonymous companies across business models and fee structures.
“It’s another version of payday loans,” Monica Burks, policy counsel at the Center for Responsible Lending, a consumer advocacy group, said of earned wage access. “There’s really no meaningful difference.”
However, a recent study by the U.S. Government Accountability Office found that earned wage access products “generally cost less than typical costs associated with payday loans.”
That said, the products pose a few consumer risks, including lack of cost transparency, the study found.

Fees can add up for frequent users

Artmarie | E+ | Getty Images

Fees can add up, particularly for users who frequently access their paychecks early, experts said.
The average user did so nine times a quarter, according to California regulators.
Additionally, 40% of people with employer-sponsored EWA access use the service at least once a week, and more than 75% used money for regular bills instead of emergency expenses, according to the Harvard paper. Liquidity issues most often affect low-income households, which have less savings and less access to traditional credit, it said.
The typical user earns less than $50,000 a year, according to the GAO.
High fees and user dependency “are kind of the darker side of the business,” said Peterson of Datos Insights.
However, it’s “the exception, certainly not the rule,” he added.
Consumer risks are generally greater in the direct-to-consumer rather than the business-to-business market, according to both Peterson and Harvard’s Lux.

We as human beings incur expenses every day. But we’re only paid on a periodic basis. That’s a massive inconsistency.

Thad Peterson
strategic advisor at Datos Insights

A chief concern is that consumers can use multiple apps concurrently and take on more debt than they can handle, according to Datos Insights. Among direct-to-consumer app users, 8% had five or more such apps currently on their phone, according to the Harvard paper.
Consumers who overextend themselves “can end up in the black hole of payday lending,” Peterson said.
“You can’t get out of it,” he said.
Since direct-to-consumer companies generally automatically debit user bank accounts, consumers without sufficient funds may also pay unexpected overdraft fees, the GAO said.
Unlike direct-to-consumer apps, the B2B model allows “full transparency” into how much employees have worked and earned, said Stacy Greiner, COO of DailyPay, which has more than 1,000 employer clients.
A MoneyLion spokesperson said direct-to-consumer providers help gig and freelance workers, small business employees, union and public-sector workers and others “smooth out cash flows between pay cycles to gain better control over their finances.”
An EarnIn spokesperson called EWA a “no risk option” that avoids a negative impact to credit scores since it doesn’t require credit checks or credit reporting.
Representatives for Brigit and Dave declined to comment.

There are many types of fees, including tipping

Consumer fees for EWA use can take many forms.
Employer models may charge per transaction, or for “expedited” delivery whereby users get their money faster — maybe $2 for receipt within a day or $10 within an hour, instead of for free within a few days, according to the Harvard paper.
Direct-to-consumer models may also charge subscription fees, which can range from perhaps $5 to $10 a month, the paper said. Users can also tip. While tips are voluntary, apps may default consumers to tip a certain percentage per transaction, it said. 
Among tip-based providers, consumers tipped on 73% of transactions, California regulators found. The average was $4.09.
Those tips can start to add up. For example, about 40% of EarnIn’s annual revenue comes from tips, Ben LaRocco, the company’s senior director of government relations, said in testimony before the Vermont House Committee on Commerce and Economic Development.
An EarnIn spokesperson said its average “voluntary payment” is $1.47.

Some models may be ‘closer to an ATM’

The earned wage access industry doesn’t think it’s fair to use APRs and interest rate proxies to describe their fee structures.
“It is inaccurate to compare an optional $1 or $2 fee — whether that’s a voluntary tip or fee to expedite a transaction — to mandatory fees and compounding interest rates charged by other short-term lenders,” said Miranda Margowsky, a spokeswoman for the Financial Technology Association, a trade group.
And while companies monetize their businesses in various ways, they always offer a free option to consumers, Margowsky said.
Branch, a B2B company, for example, makes most of its money from an optional debit card. The card is free for consumers but levies a transaction, or “interchange,” fee on businesses when consumers make purchases, said CEO Atif Siddiqi.
In addition, workers may pay a $2.99 to $4.99 fee if they opt to more quickly transfer cash to a debit card from a digital wallet that stores their early accessed wages, Siddiqi said. They may also pay to access cash from out-of-network ATMs.

Similarly, Payactiv, another B2B firm, makes a “significant portion” of revenue from interchange fees, said CEO Safwan Shah.
Users who opt not to use Payactiv’s debit card pay a $1.99 or $2.99 flat fee per transaction. Since the worker is tapping wages they’ve technically already earned, such a transaction fee is akin to an ATM fee, Shah said.
“We feel we are closer to an ATM. You deposited money in the bank and are taking it out,” Shah said.
Broadly, the EWA industry doesn’t publicly share the percentage of paid transactions relative to those that are free — “but I suspect it’s a lot” that are incurring a charge, said Harvard’s Chung.
“If someone signs up in an emergency, they might not be able to wait and would want to get the money instantly,” she said. “That would typically cost a fee.”

Are they loans and why does it matter?

The industry is also loath to refer to early paycheck access as a “loan” or “credit.”
“It’s a common misconception,” said Phil Goldfeder, CEO of the American Fintech Council, a trade group. “EWA is not a loan or an advance. It’s access to the money you’ve already earned,” not future earnings, he said.
There also aren’t credit checks, accrued interest, late fees or debt collection associated with such programs, for example, Goldfeder said.
However, some consumer advocates and state regulators have the opposite view.
While such a distinction may seem like unimportant minutiae, the label could have a significant consumer impact. For example, being regulated as a loan would mean being subject to caps on interest rates and more fee transparency via disclosure of how consumer costs translate into an annual interest rate, or APR, experts said.
“The idea that these advances are not loans is a legal fiction,” said Burks, of the Center for Responsible Lending.
“[These] are agreements to receive money now and pay it back in the future, either without — or much more frequently with — an additional fee paid to the lender,” she added. “In every other context, we call such an agreement a loan, and fintech cash advances are no different.” More

A KeyBank sign with a market ticker is seen on the facade of the KeyBank Building in Columbus, Ohio.
Jay Laprete | Bloomberg | Getty Images

Investors seeking a steady stream of income in these uncertain times can consider adding some attractive dividend stocks to their portfolios.
The selection of the right dividend stock involves a thorough analysis of the fundamentals of a company and its ability to sustain its dividend payments. Bearing that in mind, investors can follow the recommendations of Wall Street’s top analysts to pick dividend stocks that can boost their total returns.     

Here are three lucrative dividend stocks, according to Wall Street’s top experts on TipRanks, a platform that ranks analysts based on their past performance.
Brookfield Infrastructure Partners
This week’s first dividend stock is Brookfield Infrastructure Partners (BIP), which operates a diversified portfolio of assets across the utilities, transport, midstream and data sectors.
Brookfield made a quarterly distribution of $0.3825 per unit on Dec. 29, 2023, which reflected a 6% year-over-year increase. On an annualized basis, BIP offers a dividend yield of 4.9%.
Earlier this month, BMO Capital analyst Devin Dodge reiterated a buy rating on BIP stock, calling it one of his top ideas for 2024. He raised the price target to $40 from $38 to reflect the impact of moderating long-term interest rates on his valuation methods. He finds BIP’s valuation compelling and predicts more than 6% growth in its annual distribution.
The analyst expects BIP to deliver an attractive rise in its funds from operations, as he thinks that key growth drivers could generate a low double-digit increase this year and possibly beyond. In fact, he thinks that there is room for an upside surprise compared to management’s outlook of FFO/unit growth of over 12% in the next one to three years.

Dodge also highlighted that Brookfield has a solid pipeline of new investment opportunities that are projected to generate returns above the company’s targeted range of 12% to 15%.
“In our view, BIP offers a compelling risk/reward underpinned by double-digit FFO/unit growth, attractive yield, and a robust acquisition pipeline, as well as a potential rerating opportunity,” he said.
Dodge ranks No. 576 among more than 8,600 analysts tracked by TipRanks. His ratings have been profitable 70% of the time, with each delivering an average return of 10.1%. (See BIP Insider Trading Activity on TipRanks)  
KeyCorp
Next up is regional bank KeyCorp (KEY), which recently announced its results for the fourth quarter of 2023. The bank reported a significant drop in its Q4 earnings due to charges associated a special assessment from the Federal Deposit Insurance Corporation and other one-time items.
The bank declared a dividend of $0.205 per share for the first quarter of 2024, payable on March 15. This dividend reflects a yield of 5.6%.
Following the results, RBC Capital analyst Gerard Cassidy noted that excluding one-time charges, KeyCorp’s earnings per share exceeded his expectations and the consensus estimate as well. Cassidy reiterated a buy rating on KEY stock and increased the price target to $15 from $13.
The analyst stated that the bank’s net interest income guidance has been inconsistent, triggering volatility in the stock. That said, he thinks that as investors’ attention shifts to credit quality over the next 12 to 18 months, the bank will impress, due to its conservative management of credit in the past five years.
Cassidy also noted that KeyCorp’s capital remained strong in the fourth quarter of 2023, with its estimated common equity tier one ratio of 10%, increasing from 9.8% in Q3 2023 and 9.1% in the comparable quarter of 2022.
“Finally, KEY remains well capitalized, and we expect higher levels of capital return later this year and into 2025,” the analyst said.
Cassidy holds the 122nd position among more than 8,600 analysts tracked by TipRanks. His ratings have been successful 62% of the time, with each delivering an average return of 15.2%. (See KeyCorp Financial Statements on TipRanks)  
OneMain Holdings
This week’s third dividend stock is OneMain Holdings (OMF), a financial services company that caters to the requirements of non-prime customers who may have limited access to traditional lines of credit. With a quarterly dividend payment of $1 per share, OMF offers an attractive yield exceeding 8%.
Recently, Deutsche Bank analyst Mark DeVries initiated a buy rating on OMF stock with a price target of $68, citing the company’s resilient business model.
The analyst thinks that the recent period of elevated inflation was like a “mini recession” for OMF’s target group of lower income borrowers. This implies that the company has already faced a round of credit deterioration and tighter underwriting. Per the analyst, this positions OneMain for an improving credit backdrop in the second half of 2024.
“While the multiple could get pressured if unemployment drifts higher, we think earnings power should hold up well, as should one of the richer dividend yields available,” said DeVries.
The analyst highlighted that despite paying out a high dividend yield, OneMain still generates excess cash and is contemplating the purchase of additional smaller companies (tuck-in acquisitions), like the recently announced Foursight Capital deal.
Given that OMF has penetrated the non-prime personal loan space, which has a total addressable market of $100 billion, DeVries thinks that the company’s expansion into its newer markets, like credit card (TAM of $550 billion) and auto (TAM of $600 billion), is vital for continued growth.
DeVries ranks No. 149 among more than 8,600 analysts tracked by TipRanks. His ratings have been profitable 62% of the time, with each delivering an average return of 15.9%. (See OneMain Holdings Hedge Fund Activity on TipRanks)  More

Compared with their parents at this age, today’s young adults are more likely to have a college degree and work full time, according to a recent report by the Pew Research Center.   
However, Gen Zers are also less likely to own a home, be married or have children. Additionally, about one-third still live with their parents.
But both parents and their adult children are less inclined to mind cohabiting, Pew also found, as living in multigenerational households becomes more mainstream.

By many measures, Generation Z is doing well.
Compared with their parents at this age, young adults are more likely to have a college degree and work full time — particularly women, who are not only achieving increasing levels of education but also earning more.   

However, Gen Z adults are also less likely to own a home, be married or have children.
Today’s young adults are reaching those key milestones later than their parents did in the early 1990s, according to a recent report by the Pew Research Center. Pew surveyed about 1,500 adults between the ages of 18 and 34 and more than 3,000 parents of adult children. Gen Z is generally defined as those born between 1996 and 2012, including a cohort of teens and tweens.

Student loan debt weighs on Gen Z

Although young adults today are much more likely than their parents to have a four-year college degree, work full time and have higher wages than their parents did 30 years ago, they are also more likely to have outstanding student loans, Pew found.
Not only is it common to carry education debt, but those balances have soared, the report also said, primarily as a result of the rising cost of college.
“They [Gen Zers] are more highly educated but they are taking on so much more debt, that is making it harder,” said Kim Parker, Pew’s director of social trends research.

Most people with student loans say they’ve had to delay one or more key life milestones because of their debt, other studies also show.
“Student loan debt prevents family formation, it prevents people from making decisions about their life, about purchasing a home, about buying their first car, about getting married, about having children,” Nicole Smith, chief economist at the Georgetown University Center on Education and the Workforce, previously told CNBC.
But that’s not the whole story.

The housing affordability crisis is also to blame

In addition to hefty student loan balances, inflation’s recent runup caused rent and housing prices to soar.
Between home prices and mortgage rates, 2023 was the least affordable homebuying year in at least 11 years, according to a separate report from real estate company Redfin.
“There are so many challenges with the cost of housing,” Pew’s Parker said. “That is a factor holding young adults back.”
Now, 31% of Gen Z are living with their parents because they can’t afford to buy or rent their own space, a separate report by Intuit Credit Karma found.
Even those who live on their own still lean on their family for financial support. Only 45% of young adults, ages 18 to 34, say they’re completely financially independent from their parents, according to Pew.

When I was growing up, 80 or 90% of people in my generation did better than their parents did. And those numbers have dropped substantially.

Janet Yellen
Secretary of the Treasury Department

“When I was growing up, 80 or 90% of people in my generation did better than their parents did. And those numbers have dropped substantially,” Treasury Secretary Janet Yellen recently told ABC News.
Most Gen Zers agree it’s harder today to make it on their own than it was for their parents when they were starting out, several studies show.
Although consumers as a whole are feeling more confident about the economy than they have in years, young adults blame current conditions for the affordability problems they face — coining the term “silent depression” to explain why financial independence is a work in progress.
More from Personal Finance:3 ways Gen Zers can build creditWhy can’t today’s young adults leave the nest?Gen Z, millennials are ‘house hacking’ to become homeowners
Roughly 38% of Generation Z adults and millennials believe they face more difficulty feeling financially secure than their parents did at the same age, largely due to the economy, according to a Bankrate report.
Additionally, 53% of Gen Zers say higher costs are a barrier to their financial success, a separate survey from Bank of America found.
And 73% of Gen Z respondents said today’s economy makes them hesitant to set up long-term financial goals, according to a recent Prosperity Index study by Intuit. 

Living with mom and dad has its benefits

Overall, the number of households with two or more adult generations has been on the rise for years, according to another Pew Research Center report. Now, 25% of young adults live in a multigenerational household, up from just 9% five decades ago. 
Meanwhile, as living with mom and dad has become more common for young adults — it’s also more socially acceptable, according to Parker.

Parents today are more involved in their adult children’s lives, often calling, texting and even keeping tabs on each other with GPS apps, Pew also found — and grown kids say they are largely fine with that.
“Both parents and young adults rate their relationships positively,” said Rachel Minkin, research associate at Pew.
Young adults who live at home even say the arrangement has been good for their relationship and financial situation and most also said they rely on their parents for advice on their jobs, finances and physical health.
There is, in fact, an economic benefit to these living arrangements, Pew found, and Americans living in multigenerational households are less likely to be financially vulnerable.
There are emotional benefits to these living arrangements as well, Parker said. “It might be keeping those ties to their parents closer.”
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A hand changing television channels with the remote control.
Manuel Breva Colmeiro | Moment | Getty Images

Company: Xperi (XPER)

Business: Xperi is a technology company that develops software solutions and has the following four main business segments. First, there’s pay-TV, which provides backend software for internet-enabled cable boxes. There is the consumer electronics segment, which delivers audio and media technology for consumer devices at home and on mobile. There is also the connected car unit, which brings high-quality multimedia and personalization to the connected car. Finally, Xperi has an independent media platform that allows Smart TV original equipment manufacturers to brand the experience, retain customer ownership and generate recurring revenues through the company’s TiVo brand.
Stock Market Value: $480.29M ($11.05 per share)

Activist: Rubric Capital Management LP

Percentage Ownership: 7.6%
Average Cost: $11.94
Activist Commentary: Rubric Capital is a New York-based hedge fund founded by David Rosen. It first got its start as a division of SAC Capital while Rosen was working there. The firm was launched independently in October 2016 by Rosen, who is a managing member. Rubric is a deep value, long/short investor that will become active in situations that require it. The firm has filed five previous 13D’s in its history and gained board representation in three of those situations.

What’s happening

On Jan. 22, Rubric nominated Deborah S. Conrad, former senior vice president and chief marketing officer of Hinge Health, and Thomas A. Lacey, former CEO and director of Xperi’s predecessor company, for election as directors to Xperi’s board at the company’s 2024 annual meeting.

Behind the scenes

Xperi has mid to high single-digit growth, over $500 million of revenue in 2023 and over 75% gross profit margins. However, the company is only guiding to $35 million of earnings before interest, taxes, depreciation and amortization for 2023. Peer companies with similar gross profit margins generate 25% to 35% EBITDA margins. Meanwhile, Xperi is guiding for 6% to 8%. So, the first opportunity for value creation is cost cutting. Presently the company spends 45% of revenue on selling, general and administrative expenses and 43% on R&D. Together, that is well more than total gross profit. There needs to be a lot more discipline in the company’s spending. Decreasing R&D by just 20% — to 35% of revenue — and SG&A by 5% would increase EBITDA from $35 million to over $95 million. Part of that can be done immediately by divesting or shutting down the Perceive artificial-intelligence chip business. This business has no revenue and burns through $20 million of expenses each year. That would be an immediate bump of EBITDA to $55 million. Moreover, there is value to Perceive, and the company could probably sell it for something.

Another benefit to selling Perceive would be getting back some credibility in the market about management’s strategic decisions after its curious divestiture of AutoSense, its cabin safety business. This is a business that was breaking even and had huge growth potential from regulatory tailwinds mandating additional interior safety precautions. Xperi announced that it would sell the business to the Swedish company Tobii AB for approximately $43 million, of which about $28 million was a promissory note to be paid off over three years starting in 2027, and $15 million was additional payments in aggregate over four years starting in 2028. Moreover, Tobii was a $50 million company, so Xperi transformed itself from an owner of a promising cabin safety and sensor business into the sole creditor of a Swedish micro-cap. As Xperi would need to invest in this business to grow it, this was likely a decision to try to make short-term margin guidance by sacrificing long-term prospects. 
But the problem with the company is not a bloated cost structure or poor strategic decisions. Those are just symptoms. The problem is a culture that is not focused on shareholder value. This can clearly be seen through Xperi’s executive compensation policies. The company has approximately 46 million shares outstanding, including approximately 3.6 million of restricted stock units that have been previously granted to management prior to Jan. 1, 2023. In the last nine months, Xperi has granted an additional 4.1 million RSUs to management, which will result in a 12% dilution to shareholders based on a full year. To make matters worse, 75% of these grants are just time based as opposed to performance based, which has resulted in management owning RSUs for 14% of the company – 75% of which are only subject to time vesting during a period when the company’s stock price has declined by 24%, while the S&P 500 has increased by 36%.
While it seems like Xperi has a lot of problems, the good news is that it has great products in excellent markets and a management team that just needs discipline. All of its problems have the same solution: fresh blood on the board that will change the corporate culture, institute discipline and hold management accountable to shareholder value. Accordingly, Rubric Capital nominated Conrad and Lacey for election as directors to the company’s board at Xperi’s 2024 annual meeting. Lacey certainly knows this industry and Xperi well, as he has been a shareholder since he left the company and seems to care about it prospering.
This is a company that is in desperate need of board refreshment; it has only five directors on the board and could easily add two directors while still having a very manageable board of seven. Moreover, three of the incumbent directors received over 12% of against votes at the last annual meeting. While this is not an unusually high number, it is for a company that had only been public for seven months at the time of the annual meeting. With the use of the universal proxy card, we believe Rubric should easily get at least one, and likely two, of its nominees elected if this goes to a proxy fight. But that should not happen. Rubric is being amicable here: looking to work with management, not threaten them. There is a big difference between settling for two additional directors on a seven-person board and replacing two incumbent directors on a five-person board. The company would be unwise to take that risk. While Rubric is the type of investor that would prefer to settle amicably and has never taken a proxy fight to a decision before, the firm once came very close to doing so at UK-based Mereo BioPharma, and it would take this all the way to a decision if forced to.
Ken Squire is the founder and president of 13D Monitor, an institutional research service on shareholder activism, and the founder and portfolio manager of the 13D Activist Fund, a mutual fund that invests in a portfolio of activist 13D investments.  More