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  • Retail Rumble: What Makes Amazon A Short [View article]
    It is always critically important to not confuse the company with the investment. When I panned Netflix all last year (starting in Oct 2010), people commented back that they love the service, it was convenient, etc.. Unfortunately, a great company can still be overvalued in the stock market and be lousy investment. Conversely lousy companies can sometimes be great investments.

    For instance, I wouldn't consider going long AMZN at its current valuation and am considering a short, but I purchased something from this past week-end.
    Feb 22, 2012. 09:54 PM | Likes Like |Link to Comment
  • Frontier Communications: Dividend Reinvesting Gone Bad [View article]
    Good call. Unclear what other factors are driving what I believe is a short term rally, especially since most of it occurred prior to the announcement.
    Feb 20, 2012. 12:51 AM | Likes Like |Link to Comment
  • Frontier's Price Suggests A Possible Dividend Reduction [View article]
    Another correct call from me, I was surprised by the level of the reduction, but the positive for the longs is it takes the uncertaintly out of the market - shorts who have been betting on the cut are now possibly covering, having made a correct bet. I still wouldn't touch this company as a long play.
    Feb 20, 2012. 12:17 AM | Likes Like |Link to Comment
  • Frontier Communications: Dividend Reinvesting Gone Bad [View article]
    return of capital is an accounting item that only occurs when there are insufficient retained earnings/net income to cover the dividend. If the company returns capital to share holders, this is not taxed, but should reduce your cost basis in the stock. In practical terms, this is something that rarely occurs - typically companies will have sufficient net income, retained earnings to cover "dividends" being paid.
    Feb 13, 2012. 09:38 PM | Likes Like |Link to Comment
  • Frontier Communications: Dividend Reinvesting Gone Bad [View article]
    Given the track records of the two companies and your reference to smart phones, I'm going to wager AAPL, although without Jobs there could be challenges further down the road.

    I also find it interesting that you cite keeping your wireline while migrating to mobile, but from the FTR 2010 10-K - "We have lost access lines primarily as a result of competition and business downsizing, and because of changing consumer behavior (including wireless substitution and disconnections of second lines upon an HSI addition), economic conditions and changing technology"
    Feb 12, 2012. 06:40 PM | 4 Likes Like |Link to Comment
  • Frontier Communications: Dividend Reinvesting Gone Bad [View article]
    Dividends require sufficient retained earnings/net income otherwise they cease to be dividends and are simply return of capital. You're right that the cash itself comes from cash flow.
    Feb 12, 2012. 06:32 PM | 1 Like Like |Link to Comment
  • Dividend Reinvesting: Patience Pays Off [View article]
    Best of luck! I remember another comment from one of my other articles that paraphrased like this "let the calendar do the heavy lifting"
    Jim
    Feb 12, 2012. 01:21 PM | 1 Like Like |Link to Comment
  • Frontier Communications: Dividend Reinvesting Gone Bad [View article]
    FTR is behind in customer access lines relative to what they claimed they would be at. Their growth in DISH and HSI is not enough to offset it. There is a broad fundamental trend against wireline phones - which is the core of their business. Analyst estimates for forward EPS have been declining and for 2012 are $0.25. Long term, that is a problem when you have a $0.75 per share dividend.
    Feb 12, 2012. 12:27 PM | 2 Likes Like |Link to Comment
  • How Taxes Diminish Long-Term Returns For Investors In High Yield Stocks [View article]
    This analysis is not quite apples to apples since there is an expected tax liability on the capital gains for the stock appreciation, but that is being ignored. Now it could be avoided if the position is passed along to the heirs of the investor - stepped up cost basis at death. But in any case, the analysis is overstating the benefits of the lower dividend yields. They should still be better due to timing of tax payments, but just not by as large of a margin as the article claims.
    Feb 11, 2012. 03:32 PM | 1 Like Like |Link to Comment
  • Dividend Reinvesting: Patience Pays Off [View article]
    Short answer is no, but it should not change the concept.

    Dividend yield charts do not reflect an after tax dividend yield nor do include the tax impact on taxes in computing the % dividends from reinvested dividends.

    Impacts: dividend yield the after tax yields would climb in the 2003(?) period on relative to the prior periods, when dividends were taxed at marginal income tax rates. It should also be noted that those rates have fluctuated over time and depend on your bracket.

    In terms of the first chart, one could assume some dividends are kept to pay the tax bill while others are reinvested. Assuming a fixed rate this would shift the graph down somewhat (takes longer to get to 50% of total dividends from shares purchased with dividends since you are now purchasing fewer shares with each dividend payment) but should maintain the same shape - e.g., rate of increase. However, since tax rates varied this could ultimately impact the rates of increase, but these should be second order impacts.
    Feb 11, 2012. 12:43 PM | Likes Like |Link to Comment
  • Using DuPont Analysis: Is Amazon Really That Great? [View article]
    For folks simply looking for the answer to Marc's challenge: the short answer is that it does not change the picture and, if anything, makes AMZN look worse.

    Holiday seasons help AMZN, but only create a more disconcerting picture in comparison. Prior to writing the article, I did check that their ttm ROE trails WMT and TGT. But more importantly here are AMZN's holiday quarter stats in Dupont form:

    Asset Turnover 0.79x
    Profitability 1.7%
    Interest Burden 0.93
    Tax Efficiency 65%
    Leverage 2.86x
    ROE 2.3%

    The clear picture here is a big jump in revenue (note that asset turnover goes up substantially) and a small uptick in profitability. In fact, AMZN Q4 revenue surged to $17.4 billion, which is higher than TGT most recent quarter (nonholiday) The concern is that despite this uptick in performance, its ROE for this quarter (a quarterly ROE, rough cut is x4 to get annual) is still lower than WMT and TGT in their "pre-holiday" quarters.
    Feb 11, 2012. 12:11 PM | 1 Like Like |Link to Comment
  • The $27,000 Millionaire: Dividend Growth Unleashed [View article]
    I think they are part of your starting point, but I wanted to caution against blindly saying that they will all repeat or even implying that. At some point in the past autos and banks probably looked pretty good too but history is not a perfect or at times even good indicator of future performance.

    The other point is that when you look at the value breakdown of the current position - there is a large component of stock appreciation.

    The final point is a trend point - JNJ's dividend growth has been without question slowing down - could it reaccelerate again for a while? Perhaps. But consider this, JNJ's total dividend payments in 2010 were 5.8 B. So if this figure grows at 10% per year to hold close to historical average this would require 262.5 B in dividend payments in 40 years. With a 5% yield that implies a 5.3 Trillion market capitalization versus a 176.5 Billion market capitalization today. However, this ignores the fact that JNJ buys back shares which means the individual dividend growth can be much higher than the total dividend growth, but even using a 5% growth rate (perhaps 6-7% on individual dividends with 1-2% annual share repurchases) implies a market capitalization of $817 billion. This sounds more reasonable. - but now your growth is much lower than historical averages on JNJ.
    Feb 11, 2012. 11:05 AM | Likes Like |Link to Comment
  • The $27,000 Millionaire: Dividend Growth Unleashed [View article]
    Thanks for the comment. I'm still quite early in investing and had not really appreciated this approach, unlike my dad, nor the benefits of compounding. When I was college-aged and first out in the work force, it was very difficult (perhaps impossible) to comprehend investing over a 40 year time frame and pretty much doing nothing. It was also in great contrast to the internet boom which was occurring at the same time when stocks when doubling in a matter of months and the NASDAQ 100 had an 80+% in a single year. The concept of getting a 4% dividend and reinvesting it to move from 100 shares to 104 shares seemed quite mundane and without question a surefire way to go no where fast. However, 10-15 years down the road, I have a better appreciation for investing time frames and more patience - the point is not necessarily to go fast, but to get to the end. Depending on when you bought, NASDAQ returns are not looking stellar over the long run while many dividend stocks have held up and outperformed the broader market. While I would caution that picking individual stocks carries some risk, there are other possibilities to apply these principles - ETFs, Dividend oriented mutual funds, high yield corporate bonds. Personally, I use high yield corporate bonds in my retirement accounts since they offer a compounding benefit, portfolio diversification, and that is an optimized tax location.

    Best of luck to you and your son.
    Jim
    Feb 11, 2012. 10:46 AM | Likes Like |Link to Comment
  • Using DuPont Analysis: Is Amazon Really That Great? [View article]
    I think that is the catch. In looking at short opportunities, one has to consider what the catalyst might be to bring them back in line with your thoughts. AMZN had a disappointing quarter, but is still carrying a high valuation. I suspect that they've had ups and downs, but the market still gives them that valuation. Perhaps substantially slower growth or as you point out something related to sales tax.
    Feb 11, 2012. 12:31 AM | 1 Like Like |Link to Comment
  • Using DuPont Analysis: Is Amazon Really That Great? [View article]
    I'm thinking about it. Need to do some more work, but I'm skeptical of their valuation and think they do not have enough growth to support it. Their stumble over the holiday results was not good. Some comments have raised the notion of margin expansion which would obviously help performance, but has the question of exactly when it that going to happen. It was one thing back in the 90s when they had bad cash flow due to capital expenditures which you can grow into and they did. But at what point are they going to raise prices to increase margin (or not lower than as much as COGS declines)?
    Feb 10, 2012. 08:17 PM | 1 Like Like |Link to Comment
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