3 Stocks Near 52-Week Lows - Only 1 Is A Buy [View article]
Excellent points on book value.
I like using dividend yields as sentiment anchor points for rough calculations. If investor sentiment turned around on SVU, the company raised payout ratio to 50%, company hits the earnings target of 1.32 in 2014 and investors value shares at a 4% yield - you have the possibility of a $16.50 price in early 2014.
I personally find the risk too high but I can see the potential upside for a patient investor.
When Is It Time To Sell? 3 Common Triggers [View article]
I've never considered the taxes too much. In the end you gotta pay taxes when you make money - it is just a matter of when.
I use the 200 and the 350 day moving averages. I find that it depends on the stock and what kind of trend it is in as to which one works better. Sort of like using the 10 and 20 period moving averages for daytrading. Sometimes one will work better than the other at different times. Its a tool that I use in conjunction with other signals - usually as a secondary signal - so I haven't backtested it by itself.
Beating The Market Is Harder Than You Think [View article]
Portfolio123 does not suffer from survivorship bias nor lookahead bias. The database keeps tracks of all stocks and if your criteria gets you into a stock that goes bankrupt in 6 months - the portfolio testing program shows it. The same cannot be said for Zacks Research Wizard.
Stock-Picking Isn't Just A Guessing Game [View article]
You can indeed sign up with a free membership (portfolio123) and use the stock screener and backtesting abilities up to 1 year. If you are just starting out new just use that. Also, you can use a 45 day free trial at any subscription level and downgrade to free before the trial is up with the click of a mouse. I put my screens on there for free and you can access them through the Screener search menu
Are Dividends Irrelevant, Or Even Harmful? (Part II) [View article]
I believe there is a stronger link between one dollar in my dividend investment strategy for a consistent return (or better yet yours David) than one dollar invested in R&D, CAPEX, buyouts (or what have you), which has an unreliable link to earnings growth which in turn has unpredictable effect on share price movement.
A company can double thier earnings from $1 to $2 per year but that $1 profit might not be reflected in share price if investors were expecting $3 (in fact I might be at a loss despite them reivesting my cash for decent gain). The book value might double but the share value might not go up exactly with the equity increase due to a drop in sentiment. I say give me the cash (which also keeps valuations down) and let me turn my dollar into $1.10 this year. I know Mr. High-Growth Company Owner might be able to turn it into $1.20 but I could still be left with 80 cents at the end of the year from all the extra moving parts in the equation - along with the leap of faith in his ability to make smart growth decisions.
Buy what you can see, take the profits that are currently there, don't rely on a growing economy (at least not right now), and re-invest the profits in actual shares.
I agree with a move downwards. I see a pullback short-term to the 1250-60 range with good odds on a 1225 bounce - and we go from there. You might also want to add that aggregate forecast earnings for the S&P 500 have stalled since March of last year and are bouncing lower. The valuation premium in the market is starting to lessen. http://tinyurl.com/7z2...
Are Dividends Irrelevant, Or Even Harmful? (Part II) [View article]
While most the debates rally around share price or total returns, how do you separate the gain associated with dividend policy versus the company? Furthermore how do you partially discount the role investor sentiment plays in valuing stocks with various ratios?
This two-part series attempted to answer that question partially. Paying dividends lowers price to earnings ratios by lowering prices. A lower P/E ratio raises the dividend yield without requiring earnings growth. Thus, the simple act of paying dividends creates value as it maximizes the return of future earnings regardless of growth. The second aspect in this article is more of a 'reverting to the mean' concept which should be stronger with dividends than with other valuation metrics as it is based on tangible returns to the shareholder rather than a ratio based on something the company retains.
I've written articles that show the difference of total returns from dividend and the market (mix of dividend and non). I separated the different yields. I ran this test with one year buy and hold periods over the last 11 years - and picked over 500 random entry points for each yield class. http://tinyurl.com/3eh...
You might also be interested in whether larger companies with dividends provide better investment returns than do smaller market cap stocks. http://tinyurl.com/7a7...
While many of my previous articles have dealt with what works in investing, I wanted to dig into why it might work as well.
5 Companies Paying Their First Dividend In 2011 [View article]
Where is the $1 per year dividends coming from? Are you simply multiplying this abnormally large dividend by 4? If you look at the earnings you'll see that this is an impossibility as its 3x higher than what they make and not much cash built up either.
Are Dividends Irrelevant, Or Even Harmful? [View article]
Good points made. However, dividends help manage price and push down valuations which is something high-growth stocks (not paying dividends) don't have a mechanism for.
Some look to forecast earnings growth hoping that this translates into decent returns. But with higher P/E ratios, much of the gain is factored into the price and the downside risk is large if forecast targets are not hit. On the other hand - with high yielding stocks - you don't necessarily require much in the way of earnings growth to get a 5 - 10% total annual return. Risk is still there but I've found, personally, that investing and basing returns in what is already there and what the company is already doing is safer than investing in what you hope will happen (speaking of current earnings versus earnings growth of course).
Granted, you seem like the kind of person that digs deep into each company, can likely forecast returns on capital expenditures by companies, and knows what price is a good entry to profit from future earnings growth. Whatever works best for you is how you should invest.
Misguided Popularity Of Dividends: Not Always What They Are Cracked Up To Be [View article]
Lower P/E means higher yields - there is a reason why the stock must go up if P/E is low. If share prices didn't bounce back from this, eventually you would be getting 100% return on your money. If a $100 stock with no earnings growth fell by its $10 annual earnings every year, in 9 years it is a $10 stock giving 100% yield? Your future return on a dividend stock is directly linked to P/E - more dividends = lower P/E and lower P/E = higher dividend yields.
But I see your point that the share price should rise exactly the amount of annual earnings and once paid out the price deflates. But what happens when earnings are retained? Share price may not go up dollar for dollar with earnings as people begin to discount the net money earned (or book value).
It is similar to buybacks (provided the share price doesn't move and shares could be taken off the table all at once). Cash is gone and EPS is higher leading to a lower P/E ratio. So in theory - a buyback should not move prices on a fundamental level. In that case - the only buying pressure is a technical one which is the act of buying. Shares should fall back down to original levels once that is finished.
Are Dividends Irrelevant, Or Even Harmful? [View article]
And this speaks of earnings growth which is a risky game in this environment. But the one dollar drop in equity may not affect current earnings. Look at GNK trading at $6.88. They have $8.30 in cash. If they paid this out to shareholders and took out a line of credit in case they went into negative earnings - the share price would still be above 0. If prices settled at $1.70 the company would have a trailing P/E ratio of 1. You would have made 45% profit on this company. If their earnings were $1 per share (down from $4.28 in 2010) and they paid out 50%, your dividend yield would almost be 30%. Likely share prices would still be in the $3 - 4 range despite a special one-time dividend and on-going dividends (almost a double-bagger). This happens in a small way every time a dividend is paid out.
Its not a great example since GNK is barely profitable but removing cash from a company and giving it shareholders can lead to excess gain as price to book and price to earnings are two totally different ratios. You are paid out of the book value (so to speak) but your yields are based on the earnings which are not affected by the dividend (although future earnings growth may be but your dividend comes from current earnings not some future potential).
Dividends would be moot if removing 20% of the net equity also lowered current earnings by 20%. Then the company would trade at a lower price with the same valuations and you would merely be shuffling money around from pot to pot paying higher tax. This is not the case.
Are Dividends Irrelevant, Or Even Harmful? [View article]
The article is showing how investors in general can receive excess gain on companies giving decent dividends (like the ones you suggest), as opposed to not paying a dividend. This is to show how dividend policy in general can lower valuations of a stock (lowering price while not affecting current earnings).
My other articles give specific dividend picks, or you can follow my blog and my public portfolios. This was meant to show why dividend stocks have - on average - higher total gains than those companies that do not.
Misguided Popularity Of Dividends: Not Always What They Are Cracked Up To Be [View article]
But I do agree that Apple should not offer dividends for other reasons. They have a practice of investing in factories following which they get exclusive rights to the technology for a set period of time and a discount thereafter. This is a huge front-run in a competitive market and they are pretty smart with creatively using their cash in other ways than lowering valuation ratios through dividends.
Misguided Popularity Of Dividends: Not Always What They Are Cracked Up To Be [View article]
Dividends do have a positive effect. Removal of equity from company is done dollar for dollar on share price. While this alters book value of a company it does not alter earnings reported. If earnings remain the same and your price drops - you have a lower P/E ratio. Lower P/E ratio creates value, the potential for price support, or a higher yield.
Consider: A company trades at $100 per share. They have $30 per share in cash and a $50 per share book value. Then earn $10 per share annually. Growth rate is 0 just to make this simple. How will you make money on this stock unless they do something? Offer a dividend.
*$30 in income - you pay tax on it *Shares drop to $70 *P/E falls from 10 to 7 *If they pay 100% of the net income in dividends(not advised but used so we can compare apples to apples next) - you sit with a 14.28% yield
You have a fat consistent yield in a very low P/E stock. If they didn't pay dividends what will drive the price up? An increase in book value? Maybe but in 10 years the book value will be go up to $150. You really think this stock will trade at a P/B ratio of 2 sending the price up to $300? You realize the P/E ratio is now 30 and without earnings growth I don't see anyone touching that with a 10 foot pole. Even if that were true, your compound annual growth rate would only be 11.61%.
Dividends lower share prices while not affecting earnings for a lower P/E (whether it be a one-time special dividend or a smaller regular one). There is very little positive short-term price momentum associated with regular dividend payments. You get a more smoothed-out growth level throughout the year. It has the same effect as buybacks (except buybacks increase earnings which lowers the P/E ratio and prices also jump on buying which leads to short-term momentum) Buybacks are more open to shady company practices though. http://seekingalpha.co...
3 Stocks Near 52-Week Lows - Only 1 Is A Buy [View article]
I like using dividend yields as sentiment anchor points for rough calculations. If investor sentiment turned around on SVU, the company raised payout ratio to 50%, company hits the earnings target of 1.32 in 2014 and investors value shares at a 4% yield - you have the possibility of a $16.50 price in early 2014.
I personally find the risk too high but I can see the potential upside for a patient investor.
When Is It Time To Sell? 3 Common Triggers [View article]
I use the 200 and the 350 day moving averages. I find that it depends on the stock and what kind of trend it is in as to which one works better. Sort of like using the 10 and 20 period moving averages for daytrading. Sometimes one will work better than the other at different times. Its a tool that I use in conjunction with other signals - usually as a secondary signal - so I haven't backtested it by itself.
Is 2012 Silver's Year? February Update On Silver Price, Stocks To Consider [View article]
Beating The Market Is Harder Than You Think [View article]
Stock-Picking Isn't Just A Guessing Game [View article]
Are Dividends Irrelevant, Or Even Harmful? (Part II) [View article]
A company can double thier earnings from $1 to $2 per year but that $1 profit might not be reflected in share price if investors were expecting $3 (in fact I might be at a loss despite them reivesting my cash for decent gain). The book value might double but the share value might not go up exactly with the equity increase due to a drop in sentiment. I say give me the cash (which also keeps valuations down) and let me turn my dollar into $1.10 this year. I know Mr. High-Growth Company Owner might be able to turn it into $1.20 but I could still be left with 80 cents at the end of the year from all the extra moving parts in the equation - along with the leap of faith in his ability to make smart growth decisions.
Buy what you can see, take the profits that are currently there, don't rely on a growing economy (at least not right now), and re-invest the profits in actual shares.
Was Tuesday The Top? [View article]
http://tinyurl.com/7z2...
Are Dividends Irrelevant, Or Even Harmful? (Part II) [View article]
This two-part series attempted to answer that question partially. Paying dividends lowers price to earnings ratios by lowering prices. A lower P/E ratio raises the dividend yield without requiring earnings growth. Thus, the simple act of paying dividends creates value as it maximizes the return of future earnings regardless of growth. The second aspect in this article is more of a 'reverting to the mean' concept which should be stronger with dividends than with other valuation metrics as it is based on tangible returns to the shareholder rather than a ratio based on something the company retains.
I've written articles that show the difference of total returns from dividend and the market (mix of dividend and non). I separated the different yields. I ran this test with one year buy and hold periods over the last 11 years - and picked over 500 random entry points for each yield class. http://tinyurl.com/3eh...
You might also be interested in whether larger companies with dividends provide better investment returns than do smaller market cap stocks. http://tinyurl.com/7a7...
While many of my previous articles have dealt with what works in investing, I wanted to dig into why it might work as well.
5 Companies Paying Their First Dividend In 2011 [View article]
Are Dividends Irrelevant, Or Even Harmful? [View article]
Some look to forecast earnings growth hoping that this translates into decent returns. But with higher P/E ratios, much of the gain is factored into the price and the downside risk is large if forecast targets are not hit. On the other hand - with high yielding stocks - you don't necessarily require much in the way of earnings growth to get a 5 - 10% total annual return. Risk is still there but I've found, personally, that investing and basing returns in what is already there and what the company is already doing is safer than investing in what you hope will happen (speaking of current earnings versus earnings growth of course).
Granted, you seem like the kind of person that digs deep into each company, can likely forecast returns on capital expenditures by companies, and knows what price is a good entry to profit from future earnings growth. Whatever works best for you is how you should invest.
Thanks for posting.
Misguided Popularity Of Dividends: Not Always What They Are Cracked Up To Be [View article]
But I see your point that the share price should rise exactly the amount of annual earnings and once paid out the price deflates. But what happens when earnings are retained? Share price may not go up dollar for dollar with earnings as people begin to discount the net money earned (or book value).
It is similar to buybacks (provided the share price doesn't move and shares could be taken off the table all at once). Cash is gone and EPS is higher leading to a lower P/E ratio. So in theory - a buyback should not move prices on a fundamental level. In that case - the only buying pressure is a technical one which is the act of buying. Shares should fall back down to original levels once that is finished.
Are Dividends Irrelevant, Or Even Harmful? [View article]
Its not a great example since GNK is barely profitable but removing cash from a company and giving it shareholders can lead to excess gain as price to book and price to earnings are two totally different ratios. You are paid out of the book value (so to speak) but your yields are based on the earnings which are not affected by the dividend (although future earnings growth may be but your dividend comes from current earnings not some future potential).
Dividends would be moot if removing 20% of the net equity also lowered current earnings by 20%. Then the company would trade at a lower price with the same valuations and you would merely be shuffling money around from pot to pot paying higher tax. This is not the case.
Are Dividends Irrelevant, Or Even Harmful? [View article]
My other articles give specific dividend picks, or you can follow my blog and my public portfolios. This was meant to show why dividend stocks have - on average - higher total gains than those companies that do not.
Misguided Popularity Of Dividends: Not Always What They Are Cracked Up To Be [View article]
Misguided Popularity Of Dividends: Not Always What They Are Cracked Up To Be [View article]
Consider: A company trades at $100 per share. They have $30 per share in cash and a $50 per share book value. Then earn $10 per share annually. Growth rate is 0 just to make this simple. How will you make money on this stock unless they do something? Offer a dividend.
*$30 in income - you pay tax on it
*Shares drop to $70
*P/E falls from 10 to 7
*If they pay 100% of the net income in dividends(not advised but used so we can compare apples to apples next) - you sit with a 14.28% yield
You have a fat consistent yield in a very low P/E stock. If they didn't pay dividends what will drive the price up? An increase in book value? Maybe but in 10 years the book value will be go up to $150. You really think this stock will trade at a P/B ratio of 2 sending the price up to $300? You realize the P/E ratio is now 30 and without earnings growth I don't see anyone touching that with a 10 foot pole. Even if that were true, your compound annual growth rate would only be 11.61%.
Dividends lower share prices while not affecting earnings for a lower P/E (whether it be a one-time special dividend or a smaller regular one). There is very little positive short-term price momentum associated with regular dividend payments. You get a more smoothed-out growth level throughout the year. It has the same effect as buybacks (except buybacks increase earnings which lowers the P/E ratio and prices also jump on buying which leads to short-term momentum) Buybacks are more open to shady company practices though.
http://seekingalpha.co...