Alliance Resource: Strong Mid-Cap Income Holding In Core Industry [View article]
AHGP's distributions ran up a lot faster - 27% v 13% - for the last 5 years but the way I read AHGP's SEC form 10-K, they're now at the maximum 48% of ARLP's distributions on the incentive plan so from here on it looks like the distributions increase at the same pace. So, I'll just stay in ARLP; their future looks good.
6 Types Of Dividend Investment Strategies, Part I [View article]
Good article! Regarding your opening question, though, and as you know, if you hold a stock indefinitely it doesn't matter whether the return comes from the current yield [CY] or the growth rate of the dividend [DGR]. The overall return is simply the sum of the two. This is a version of the Gordon Growth Model which states that
Value [of the stock] = Dividend in $/ (required % return - dividend % growth rate)
Handling Your Emotions: Using Asset Allocation And Beta [View article]
I've seen 3 and 5 yr betas, and they differ. Seems longer would be better. I do my portfolio calculation based on a weighted overall average using market values.
Handling Your Emotions: Using Asset Allocation And Beta [View article]
I agree. I'm retired, but I withdraw only dividends and interest, never principal. I think even a standard 4 percent withdrawal is risky given that markets can remain down for a long time, and these days one could easily live to 90-100 years old.
Handling Your Emotions: Using Asset Allocation And Beta [View article]
Thanks for your interest in the article. Defining risk in a finance sense is difficult. A pure definition would tell you that risk is the possibility of loss. A finance professional might say 'risk is the possibility that returns are different from those expected.' Very often we see beta associated with risk - as in the capital asset pricing model - or sometimes used as a proxy for risk when in fact beta is only a measure of volatility relative to the overall market.
Looking at Treasuries, for example, if risk is the possibility of loss then there is no risk if you hold to maturity. On the other hand, Treasury prices can fluctuate greatly during the holding period and if you're forced to sell at an inopportune time then you could lose money, and therefore because there was volatility there was risk involved.
So I look at risk, volatility and standard deviation of returns relative to the specific investment and the planned holding period. If I'm buying a high quality bond and I'm basically certain that I'm going to hold it to maturity and that it will pay off at that time, then I ignore volatility and standard deviation since they're irrelevant to me. But if I'm looking at a very long term commitment then I study carefully the mean returns, standard deviations, Sharpe, beta and alphas when I compare alternatives.
'Show Me The Kwan, Jerry!' Cash Is King [View article]
Regarding KMP...
Using their 12/31/2010 numbers, they had cash flow from operations of $2.419 billion, reduced by capital expenditures of $1.000 billion leaving free cash flow of $1.419 billion. With a hefty dividend of close to 6%, KMP chose to pay out $1.826 billion in dividends. This meant they needed to fund $407 million externally, which they did - and then some - by selling $771 million in stock as well as borrowing $931 million more. They did this primarily to cover $925 million in investments - non-mandatory expenditures to enhance the value of the business. So they ended the year with $179 million in cash, almost exactly what they started with.
Ideally, free cash flow would cover the dividend. However, in capital expenditure intensive businesses like pipelines, this is often difficult.
'Show Me The Kwan, Jerry!' Cash Is King [View article]
I'll take a look at Kinder Morgan, too. I use data from the 10K, annual report, Value Line [if available], S&P, and Morningstar, mainly. The 10K's are dry, but the MD&A section especially is one place you can pretty much rely on for an honest discussion. I tend to look too at any archived investor conference presentations that might be available as they often go into depth with good background.
'Show Me The Kwan, Jerry!' Cash Is King [View article]
You're right - great business, and great management. Note that when PM was spun off, Louis Camilleri chose to go with PM rather than remain with the US company, Altria. I think that's pretty telling of his views of the future.
'Show Me The Kwan, Jerry!' Cash Is King [View article]
Having 'been there and done that', part of the company's reason for the stock buyback is to increase EPS, thus hopefully increasing the share price which hugely benefits all those with stock options. Personally I prefer increasing the dividend, but Boards view that as akin to a permanent commitment whereas buying stock back is a one-time action.
As to ONLY investing in companies with Free Cash Flow, it's a major consideration but no, because there are some capital-intensive industries in which consistent free cash flow is often difficult to achieve. Also - let's say you're building a new plant - the cash flow gain will occur in a different reporting period from the investment. But in general, moderate debt and free cash flow are a long term winning combination!
'Show Me The Kwan, Jerry!' Cash Is King [View article]
Good question! Actually, the reason is the dividend. If I can get 8%+ it's worth a small commitment [one of my rules is never commit more than 5% to anything, no matter how good it seems. Who knew about Bernie Madoff, or who ever thought BP would blow up?]. I researched ETP, and they were able to both sell stock and borrow money even in 2008 and 2009 so they've been tried under fire, and they have a lot of hard to replace tangible assets, so I gave them the benefit of the doubt. Not my favorite pipeline MLP, but a nice yield on a small investment. Now PM is another story...maybe my favorite long term hold.
Alliance Resource: Strong Mid-Cap Income Holding In Core Industry [View article]
Alliance Resource: Strong Mid-Cap Income Holding In Core Industry [View article]
6 Types Of Dividend Investment Strategies, Part I [View article]
Value [of the stock] = Dividend in $/
(required % return - dividend % growth rate)
A related version is the Dividend Discount Model.
Handling Your Emotions: Using Asset Allocation And Beta [View article]
Handling Your Emotions: Using Asset Allocation And Beta [View article]
Handling Your Emotions: Using Asset Allocation And Beta [View article]
Handling Your Emotions: Using Asset Allocation And Beta [View article]
Handling Your Emotions: Using Asset Allocation And Beta [View article]
Looking at Treasuries, for example, if risk is the possibility of loss then there is no risk if you hold to maturity. On the other hand, Treasury prices can fluctuate greatly during the holding period and if you're forced to sell at an inopportune time then you could lose money, and therefore because there was volatility there was risk involved.
So I look at risk, volatility and standard deviation of returns relative to the specific investment and the planned holding period. If I'm buying a high quality bond and I'm basically certain that I'm going to hold it to maturity and that it will pay off at that time, then I ignore volatility and standard deviation since they're irrelevant to me. But if I'm looking at a very long term commitment then I study carefully the mean returns, standard deviations, Sharpe, beta and alphas when I compare alternatives.
'Show Me The Kwan, Jerry!' Cash Is King [View article]
'Show Me The Kwan, Jerry!' Cash Is King [View article]
Using their 12/31/2010 numbers, they had cash flow from operations of $2.419 billion, reduced by capital expenditures of $1.000 billion leaving free cash flow of $1.419 billion. With a hefty dividend of close to 6%, KMP chose to pay out $1.826 billion in dividends. This meant they needed to fund $407 million externally, which they did - and then some - by selling $771 million in stock as well as borrowing $931 million more. They did this primarily to cover $925 million in investments - non-mandatory expenditures to enhance the value of the business. So they ended the year with $179 million in cash, almost exactly what they started with.
Ideally, free cash flow would cover the dividend. However, in capital expenditure intensive businesses like pipelines, this is often difficult.
'Show Me The Kwan, Jerry!' Cash Is King [View article]
'Show Me The Kwan, Jerry!' Cash Is King [View article]
'Show Me The Kwan, Jerry!' Cash Is King [View article]
'Show Me The Kwan, Jerry!' Cash Is King [View article]
As to ONLY investing in companies with Free Cash Flow, it's a major consideration but no, because there are some capital-intensive industries in which consistent free cash flow is often difficult to achieve. Also - let's say you're building a new plant - the cash flow gain will occur in a different reporting period from the investment. But in general, moderate debt and free cash flow are a long term winning combination!
'Show Me The Kwan, Jerry!' Cash Is King [View article]