Eli Inkrot

Long-term horizon, dividend investing
Eli Inkrot
Long-term horizon, dividend investing
Contributor since: 2011
Hi Aristofanis, thanks for the article. However, it should be underscored that I in no way "advised" or "recommended" this strategy. In fact, I spell out that exact notion in the article you link to:
"This is the sort of thing that can be useful to learn about. In no way am I suggesting that you should make any of these agreements. Instead, I simply wanted to provide an illustration of what "doubling your dividend yield" could look like."
All the best.
Hi Ken, thanks for your question. The last paragraph was a summary of both scenarios. By selling a put option you agree to buy shares at a given price in the future. I hope that helps. All the best.
Hi lsk5689, thanks for your comment. That was the closest share price round number at the time of writing. I hope that helps, all the best.
Hi tes39, thanks for your comment. However, I'd contend that the sentiment was neutral or if anything a bit positive. The idea was simple: if you'd like to own V but are turned off by the low yield, here's a way to have both. I hope that helps, all the best.
Hi Kenmare, thanks for your comment. That specific quote was in reference to the 2008 - ~2011 period when PG's dividend was naturally lower. The idea being that at that time GE's share price declined much faster, resulting in higher income opportunities despite the reduced dividend. The overall concept being that despite the much greater deterioration of GE's dividend and earnings during the recession, the share price also decreased enough to compensate the consistent investor. I hope that helps, all the best.
Hi TMiller, thanks for your question. Sure, the "% of divs collected" sums all the dividend payments and divides this by the starting share price. So as an example, if you collected $20 worth of dividends and the starting share price was $100, the percentage of dividends collected would equal 20%. The $20 in dividends is then added to the end share price to come up with the total annualized return.
Hi wedfabcor, thanks for your comment. It should be underscored that I wasn't recommending or dissuading one investment over another. Instead, it was simply an illustration as to what could happen if you have the components working in concert or against one another.
Incidentally, I have previously completed similar exercises with JNJ. Here's an article detailing the format with verbiage only:
Here's one that presents it in table form:
And here's one with JNJ and all of the other dividend aristocrats collectively:
I hope that helps. All the best.
Hi NHKID, thanks for your comment. TROW paid a special dividend of $2 per share in April of 2015. (http://bit.ly/1OA9zje) I hope that helps. All the best.
Hi Louverture, thanks for your comment and kind words. However, I must say I am a bit puzzled (although my original title has been changed, so perhaps that has something to do with it). I’ll rephrase to see if I can add a bit of insight.
1. The article provided a “downside case” as any prudent potential investor ought to contemplate. The results were quite reasonable: mid-single digit investment gains, even if the business did not get better. That’s not suggesting that it won’t get better, it’s simply looking at a less than optimal possibility. Given that it passed that test, that’s a positive (specifically with regard to the security’s valuation) not a negative. So that’s the first part: if anything, in my view, reasonable returns in light of a less than rosy assumptions ought to be viewed as good news, not bad.
2. Even if the sentiment were negative (which it wasn’t) your ongoing logic appears to be misplaced in a number of ways. First, whether the article was overly optimistic or pessimistic, it is quite unlikely to have an affect on the share price (and certainly not on how the company operates). More importantly, as a long-term owner – without the intention to sell in the short-term – you’re apt to be a long-term net buyer as well (either with “fresh” capital, reinvestment or on your behalf via share repurchases). In this case, you benefit in the long-term by seeing a lower, rather than higher share price.
Someday in the next couple of decades, the company will earn X and the share price will reflect this with some multiple of X. Before that happens, you’ll have the opportunity to buy more shares, reinvest dividends or the company will buy back shares on your behalf. In doing so, you would much prefer this to occur at a lower rather than higher price – this gives you more income, a better eventual long-term return and allows the company to retire more shares by buying out a larger percentage of past partners. A lot of people “root” for higher prices in the short-term, but it’s these rosy bids that work against the long-term owner. In other words, what one often laments can be the logically preferable outcome.
I hope that helps, all the best.
Hi Zulalily, thanks for your comment. It should be underscored that I certainly had no intention of "scaring" anyone. In fact, quite the opposite. The idea was simply that expectations are not always met. As such, it's prudent to complete a range of "downside" scenarios, as depicted above. Even in this instance the company still appeared reasonable. That's a mark for, not against, the security in my book.
Moreover, unless you're looking to sell in the short-term, the logic of wanting a rosy consensus does not hold. As a long-term owner, you're apt to be a long-term net buyer as well (either through new capital, reinvested dividends or on your behalf via share repurchases). As a consequence, lower prices in the short-term - not higher, as comes about with rosy assumptions - are more apt to provide a benefit. I hope that helps, all the best.
Hi dnfoxy, thanks for your comment. There are certainly a great deal of excellent companies out there. However, in this case the criteria was both 25+ years of increasing dividends to go along with a credit rating of AA- or above. As MSFT did not begin paying dividends until 2003 it would not have met the first criterion and thus was not "omitted." I hope that helps, all the best.
Hi happo, thanks for your question. All of the numbers in the table are computed. Revenue, profit and EPS numbers are widely available. As you note this information can be found in each company's reports but is also available from various other sources such as Morningstar, Value Line, S&P and many more. The share price and dividends can be looked up manually, often using the investor relations site. Total return is calculated based on the share price and dividends received. All of the numbers in the table are on an annualized basis. I hope that helps, all the best.
Hi mrgosney, thanks for your comment. Annualized returns are computed as follows:
((end price + divs)/(start price))^(1/time)-1
In this particular case you could have a slight discrepancy due to a number of factors. Feel free to share your calculation and I'll point you to where there could be a divergence. All the best.
Hi 8448141, thanks for your comment. The table you are referring to is on an annualized basis over the three-year period. I hope that helps, all the best.
Hi Maverick, thanks for your question. You are correct in thinking about the conversion rate. However, you must also consider compound returns. The first table assumes aggregated payouts that are not reinvested. If you collect a $9.75% coupon each year your annual return is lower than 9.75%. This is because your capital base grows while the payout remains the same. (Think about a $100 investment and three $9.75 payments. Your total value, prior to thinking about capital appreciation, equals $129.25. In order to replicate this total value you would need to have an annualized rate of return of about 8.9%.) The return above reflects this idea, but is adjusted for the lower offering price and slightly altered first dividend payment to be received. I hope that helps, all the best.
Hi BarkingSPDR, thanks for your comment and kind words. Indeed, sometimes "boring" industries can be exceptionally profitable. In this specific case, literally selling a product whereby customers watch paint dry. Additionally, it should be noted that the exceptional performance of the past, especially if fueled by an expanding earnings multiple, is more likely to provide a higher "investment bar" or drag on returns in the future. The companies could perform the same, but the returns could be much lower as a result. I hope that helps, all the best.
Thanks colodude, I certainly appreciate your comment and kind sentiment. If I can add a bit of insight or provide a resource, I've done my job. All the best.
Hi SkipK, thanks for your comment and kind words. Indeed, the MCD example is a great illustration of all the components working together. The revenue growth wasn't spectacular, but it started to snowball from there: higher margins, fewer shares, an uptick in valuation and a steady and increasing dividend. The investing world is filled with opportunities in plain sight, all the best.
Hi doloresbroadway, thanks for your question. All the numbers, with the exception of dividends, are on an annualized basis. Dividends are a percentage of your initial investment. I hope that helps, all the best.
Hi Oraida, thanks for your question. Here's the article in the series including LEG:
I hope that helps, all the best.
Thanks Brian, I certainly appreciate both you comment and kind words. All the best.
Hi rmyurick, thanks for your comment and additional information. You are correct about the spin off. Above the data goes from the end of 2005 through the end of 2014, as to be consistent with the other comparisons. I hope that is helpful, all the best.
Hi Steve, thanks for your comment and kind words. I agree, the market can do interesting things. A corollary to your point works as well. J&J is also a good example of the reverse in action. The business steadily improved, but the stock price remained in the $60's for years. For patient investors it was an opportunity to buy more at a better and better valuation. Without this patience, it could have been all too easy to become distracted. Market pricing, especially in the short-term, and business performance rarely move in lock step. All the best.
Hi mr keeks, thanks for your comment and kind words. Total annualized return is calculated as follows:
((end price + divs)/(begin price))^(1/years)-1
I hope that is helpful. All the best.
Hi Timbives, thanks for your comment. I also neglected to mention that you could trade a $10 bill for two fives. Moreover, it's impossible to detail an event that hasn't occurred yet, only the speculation of such. All the best.
Hi BoomChika. Thanks for your comment and kind words. I have an arbitrary aim, so I've been putting in a bit more effort lately. Thanks for reading, Cheers!
Hi Dave, thanks for your comment and kind words. I think TROW is a classic example of the dividend growth trade off - lower comparative yield, but certainly has the propensity to offer a solid value proposition. All the best.
Thanks CapeCap, I truly appreciate it.
Hi rudiger, thanks for your comment. All numbers are split adjusted. I hope that helps, all the best.
Hi bjin890121,
Thanks for your comment. Ask you shall receive:
I hope that helps, all the best.
Hi Fernando, thanks for your comment. Indeed, the future share price is assuredly unknown. However, for modeling purposes, certain assumptions need to be made. In this instance I presumed a consistent dividend yield, which in turn results in a consistently increasing share price. This isn't realistic in everyday investing, but is more or less reasonable over longer periods of time. You can complete scenario analysis to adjust for this, but for the practice of seeing an effect it works quite well.
In the case of this article's illustration, I assumed 5% yearly dividend growth with a 3% dividend yield. So for every $100 invested, this equates to starting with $3 worth of dividends. In the following year, you would anticipate receiving $3.15 in dividend payments (a 5% increase). If the price remained the same, this results in a yield-on-cost of 3.15%. Alternatively, if you presume the dividend yield remains at 3%, this requires a price of $105, or a 5% increase. Once more it should be noted that anything can actually happen, but for long-term illustration such an example works fine. As the years go on, the pattern continues. I hope that helps, all the best.
Hi colodude, thanks for your comment. I agree. The last few railroad articles have been quite similar to allow for completeness. Once you have a structure in place, future analysis and the resulting thought process become much clearer. I'd much rather error on the side of repetition in an effort to underscore a concept as compared to prematurely skipping over a topic. Not unlike learning a language or your multiplication tables – practice makes all the difference. I hope that helps, all the best.