Dividend Stocks: Lose-Lose-Lose Proposition In Intermediate Term [View article]
James, no offense but I hope you (we) are wrong...I'm sure you do too. Perhaps Polyanna will strut her stuff...there's a chance. Nonetheless, I think southgent has lost site of the forest in the trees (opinion)...and he clearly likes very dense forests (fact). As I like to say, let's talk in ten years.
Dividend Stocks: Lose-Lose-Lose Proposition In Intermediate Term [View article]
Southgent, although I missed a punch line to your facts recital, I believe you are pointing out that all this cheap longer term debt will provide a tailwind to economic activity beyond the point where interest rates begin to rise...I largely agree with this.
An extended view of this view that James largely suggests in (4) in his comment above is that a material portion of the operating improvements for corporations (i.e. earnings) over the past few years has resulted from a reduction in debt service due to refinancing higher rate debt at historically low rates. This means that earnings increases for the past few years have been due less to improved sales or productivity than in "normal" times (which is indeed the case). As rates begin to rise, even modestly, this effect will dissipate...and worse, when large portions of this debt begin to mature in five to ten years, it will become a drag on earnings as it will need to be refinanced at, likely, substantially higher rates. Unless sales and productivity increase to above normal levels (James' Pollyanna scenario), earnings growth will eventually slow or stop. It would be interesting to see if you took all the debt at S&P 500 companies and normalized the interest rate, what the negative effect on earnings would be and what the market's P/E is today based on such a calculation.
I think consumers will benefit much longer from this. I remember how my parents' 4% mortgage from 1953 looked so amazing in the 1970's. Today, this same thing will help the gen x, y and echos consume, save for their children's college and their retirements.
Bottom line, I think we have already seen the greatest effects from low rates. Some will linger but we will feel the hangover starting to kick in soon and the headache will get pretty nasty in five or ten years. Just my opinion based on your facts....after all, what are facts worth if you don't have an opinion about what they mean? Eventually, regardless of how many facts you collect and recite, predicting the future is always an opinion and we are all equally entitled to one. Until the future becomes the past, there is no way to prove whose opinion was more valid.
Dividend Stocks: Lose-Lose-Lose Proposition In Intermediate Term [View article]
James, thank you for a well-written article that has prompted a healthy discussion. This is the first article I have read through in this venue in several months. Even though I have struggled with some of your past positions, it's nice to see someone with a serious intellect and investment experience, that doesn't just write to pander to an audience, can still have a successful article on SA.
While at first you seemed to be generalizing about dividend stocks, as the article progressed I think you made some good distinctions among sectors and individual companies. Your warnings on chasing high yielding investments are welcome to see.
Right now, I like wide moat companies at fair valuations in the tech, energy and medical sectors that yield less that 3% and have been yielding at or below that level for the past few years. I like many companies in these sectors for their total return prospects and the fact that the yield-starved masses have not driven their valuations to excessive levels based on dividend yields rather than intrinsic value.
Dividend Stocks: Lose-Lose-Lose Proposition In Intermediate Term [View article]
Brad, I look forward to seeing your data and I think you are a fine REIT analyst, but I agree with James about where REIT's prices are headed for the next couple of years. It think it's organic growth for dividends with some modest level of additional multiple contraction if rates rise probably leaving prices range-bound all-in-all.
Roll out/consolidate (i.e. buying assets), as you suggest is just about game over IMO. Cap rates on quality real estate have plunged and, as interest rates rise positive leverage is disappearing and make ROE on new investments unattractive. Too much hot private equity money out there...
I think the real trouble for REIT's (and real estate in general) is about 5 to 7 years away when all the cheap long term debt they have put in place the past five years starts to roll over. Even with a strong economy, unless there is high inflation with it, there is no way IMO that REIT's will be able to absorb the added debt service with organic growth...it will be a significant drag and could lead to dividend freezes and cuts. I predict the market will figure this out ahead of time.
Ignoring Buybacks Can Be A Costly Mistake For Yield Starved Investors [View article]
Minyi, your arguments are clear and compelling. You may find that participants in this section of SA have a visceral negative reaction to buybacks. Whatever one's philosophy though, the evidence is quite clear that, on an aggregate basis, companies that undertake buybacks have outperformed their peers on a total return basis (of course to some here total return is not their measure of success, rather it is the amount of dividend income produced by a stock portfolio...any stock price increases are viewed by some here as being on a scale ranging between fragile and illusory).
I think the TrimTabs approach (reduced float) addresses one of the major concerns often expressed here...namely that repurchased shares are just being recycled for executive compensation (not that I believe this is a legitimate argument for the vast majority of buybacks). Thank you for contributing your expertise here.
Study is a bit dated and I just skimmed it but it seems to say that executive ownership does not increase because they often sell shares when options vest. http://bit.ly/VsQYHo
Dave, taking your question literally, the answer is very likely no. Presuming your view on buybacks and executive compensation is correct, it means is that executives should be controlling ever larger percentages of companies engaging in large scale buyback programs. I am open-minded to believing that assertion based on somebody presenting data to support it but, for large cap companies, I truly doubt you will find many if any cases where management controls anywhere near a majority of the stock through stock compensation accretion alone.
Even if management controls a majority of the shares though, access to the public markets is still a critical avenue for these executives to maintain liquidity for their holdings. So, under most circumstances I don't see an advantage to them taking a company private.
Beyond that, highly compensated executives have fewer personal current cash flow concerns are going to be looking to their shares to build wealth and not current cash flow. This pushes them toward buybacks and not dividends. The new tax laws only made this equation more skewed than before. Still, they are smart enough to know that dividends need to maintained and grown just enough to placate the masses.
Tangential to this, I saw this interview live last week on CNBC...note Blankfein's blurb on compensation. This came after some strong jabs from Sorkin. http://bit.ly/WHoDju
On the topic of low payout ratios, you may find the following article interesting http://bit.ly/YmcMH3. Of course as the lone commenter pointed out, albeit indirectly, dividends "compete" with buy backs more so than in the past for the dollars returned to shareholders. Therein lies part of the explanation for today's low ratio and also why payout ratios may not increase much notwithstanding that higher payout ratios are better for most companies from a cost of capital standpoint, presuming the analysis in the article is correct.
Dividend Investors To Face Significant Challenges Going Forward [View article]
Rich, great assessment as always. As some may recall, I addressed the subject of this article from a bit of a different angle last year. http://seekingalpha.co...
Allow Interest Rates To Rise While Keeping Monetary Policy Accommodative [View article]
Lawrence, how about a just zero (not negative) real return from the coupon on Treasuries? Is that an unfair expectation? Perhaps we do have excess easy credit. Wouldn't you say our government has easy credit right now...so easy that it makes it, politically, more difficult to institute deficit reduction?
I think Bob is on to something and hopefully his former colleagues will take note. Of course, the banks will hate it as it would take away their mindless carry trade and force them to lend to small businesses...that will probably be enough to kill it prima facie. In that context, would be curious how Bob would propose addressing the issue of interest on reserves if you let Fed Funds slide up.
Larry Swedroe Positions For 2013: Resist The Temptation To Stretch For Yield [View article]
Larry, let me start by saying I am a total return investor and certainly considered no more of a "friend" of your so called religious people than you are. Nonetheless, I disagree with the notion that those who spend or reinvest dividends always end up in the same place as those who mimic a dividend through small stock sales. It is easy to show that if you have a string of down market years early in an investment that you would have been better off with a dividend paying stock and the opposite, of course, if you have a string of up markets. See my article http://seekingalpha.co... and note the section on variable market conditions (which is the way real markets behave last I checked).
Why I Am Not Worried About The Fiscal Cliff And Dividend Tax Increases [View article]
See attached link. Majority of stocks are held in taxable accounts and a majority of the money in taxable accounts is held by individuals in the top tax bracket. Nonetheless, I generally agree with the conclusion of this and the Fidelity article....but let's get there based on facts. More likely insidious affect is an overall reduction in future dividend growth as new tax laws may push more money towards stock buybacks. See Richard Shaw's recent article on this topic for an in-depth discussion also.
The Trillion Dollar Coin Idea: Beyond Stupid [View article]
This reminds me of when Fred Trump bought $3 million in chips at Donald's casino in the early 1990's so Donald could make his debt payments. As much as I love out-of-the-box thinking, as the author points out, the coin idea is impractical at best and incredibly dangerous at worst.
Dividend Stocks: Lose-Lose-Lose Proposition In Intermediate Term [View article]
Dividend Stocks: Lose-Lose-Lose Proposition In Intermediate Term [View article]
An extended view of this view that James largely suggests in (4) in his comment above is that a material portion of the operating improvements for corporations (i.e. earnings) over the past few years has resulted from a reduction in debt service due to refinancing higher rate debt at historically low rates. This means that earnings increases for the past few years have been due less to improved sales or productivity than in "normal" times (which is indeed the case). As rates begin to rise, even modestly, this effect will dissipate...and worse, when large portions of this debt begin to mature in five to ten years, it will become a drag on earnings as it will need to be refinanced at, likely, substantially higher rates. Unless sales and productivity increase to above normal levels (James' Pollyanna scenario), earnings growth will eventually slow or stop. It would be interesting to see if you took all the debt at S&P 500 companies and normalized the interest rate, what the negative effect on earnings would be and what the market's P/E is today based on such a calculation.
I think consumers will benefit much longer from this. I remember how my parents' 4% mortgage from 1953 looked so amazing in the 1970's. Today, this same thing will help the gen x, y and echos consume, save for their children's college and their retirements.
Bottom line, I think we have already seen the greatest effects from low rates. Some will linger but we will feel the hangover starting to kick in soon and the headache will get pretty nasty in five or ten years. Just my opinion based on your facts....after all, what are facts worth if you don't have an opinion about what they mean? Eventually, regardless of how many facts you collect and recite, predicting the future is always an opinion and we are all equally entitled to one. Until the future becomes the past, there is no way to prove whose opinion was more valid.
Dividend Stocks: Lose-Lose-Lose Proposition In Intermediate Term [View article]
While at first you seemed to be generalizing about dividend stocks, as the article progressed I think you made some good distinctions among sectors and individual companies. Your warnings on chasing high yielding investments are welcome to see.
Right now, I like wide moat companies at fair valuations in the tech, energy and medical sectors that yield less that 3% and have been yielding at or below that level for the past few years. I like many companies in these sectors for their total return prospects and the fact that the yield-starved masses have not driven their valuations to excessive levels based on dividend yields rather than intrinsic value.
Dividend Stocks: Lose-Lose-Lose Proposition In Intermediate Term [View article]
Roll out/consolidate (i.e. buying assets), as you suggest is just about game over IMO. Cap rates on quality real estate have plunged and, as interest rates rise positive leverage is disappearing and make ROE on new investments unattractive. Too much hot private equity money out there...
I think the real trouble for REIT's (and real estate in general) is about 5 to 7 years away when all the cheap long term debt they have put in place the past five years starts to roll over. Even with a strong economy, unless there is high inflation with it, there is no way IMO that REIT's will be able to absorb the added debt service with organic growth...it will be a significant drag and could lead to dividend freezes and cuts. I predict the market will figure this out ahead of time.
Ignoring Buybacks Can Be A Costly Mistake For Yield Starved Investors [View article]
I think the TrimTabs approach (reduced float) addresses one of the major concerns often expressed here...namely that repurchased shares are just being recycled for executive compensation (not that I believe this is a legitimate argument for the vast majority of buybacks). Thank you for contributing your expertise here.
19 Things I Like About Dividends [View article]
19 Things I Like About Dividends [View article]
Even if management controls a majority of the shares though, access to the public markets is still a critical avenue for these executives to maintain liquidity for their holdings. So, under most circumstances I don't see an advantage to them taking a company private.
Beyond that, highly compensated executives have fewer personal current cash flow concerns are going to be looking to their shares to build wealth and not current cash flow. This pushes them toward buybacks and not dividends. The new tax laws only made this equation more skewed than before. Still, they are smart enough to know that dividends need to maintained and grown just enough to placate the masses.
Tangential to this, I saw this interview live last week on CNBC...note Blankfein's blurb on compensation. This came after some strong jabs from Sorkin. http://bit.ly/WHoDju
19 Things I Like About Dividends [View article]
Dividend Investors To Face Significant Challenges Going Forward [View article]
Allow Interest Rates To Rise While Keeping Monetary Policy Accommodative [View article]
I think Bob is on to something and hopefully his former colleagues will take note. Of course, the banks will hate it as it would take away their mindless carry trade and force them to lend to small businesses...that will probably be enough to kill it prima facie. In that context, would be curious how Bob would propose addressing the issue of interest on reserves if you let Fed Funds slide up.
Larry Swedroe Positions For 2013: Resist The Temptation To Stretch For Yield [View article]
Larry Swedroe Positions For 2013: Resist The Temptation To Stretch For Yield [View article]
Why I Am Not Worried About The Fiscal Cliff And Dividend Tax Increases [View article]
http://bit.ly/SZ2jvQ
The Trillion Dollar Coin Idea: Beyond Stupid [View article]
U.S. Taxes: Who Makes And Who Pays - More Than The Rich Will Have To Pay More [View article]