Paul Wagner

Long only, portfolio strategy, teacher of analysis principles, consumer products
Paul Wagner
Long only, portfolio strategy, teacher of analysis principles, consumer products
Contributor since: 2014
Adam..you are certainly correct about the hesitancy to sell when a large capital gain is involved. I just closed on a condo in Arizona and since I don't do debt I had to sell some of my shares in AAPL and RTN to top off the cash kitty. I'll feel the pain next year at tax time. The lion's share of my investments are in tax deferred accounts.
8566031...you comprehend. If you are a DG investor, you understand that you deal in dividends; they are packaged in shares. If you can get a premium for your dividends from company A and buy dividends in Company B at a discount you can goose your returns significantly. "A few extra thousand" every year is a big deal when you relate those dollars to dividend income. Even one per cent annually can make a big difference in a retiree's retirement income. The key is to trade between issues that are relatively equivalent in the metrics that drive dividend safety and dividend growth at least in the short term.
Too often, investors' results are compared to indexes or unattended portfolios of individual stocks. But intelligent active management tactics can enhance a DG strategy.
From the article: "The vast majority of you are not in that situation, however. Which means passive dividend growth may not be a holy grail. You may need to have a higher slugging percentage, because singles won't be enough. You may not need to swing for the fences, but you can't assume you can sit back and necessarily rest your laurels on old reliables like Procter & Gamble, which have become somewhat less reliable over the near term."
Mr. Market often offers more singles. An investor should open his mind to opportunities to capture capital gains when he can do so without sacrificing dividend income. On Wednesday, XOM was up $3.89 (5%) and SO was down 2.25%. There is nothing to suggest that XOM's price will not retreat and nothing to suggest that SO's price will not recover. Both stocks go ex-dividend next week. By selling XOM shares and thereby grabbing the $3.89 the market gifted me and forfeiting the 73 cent dividend, I realized a net cash gain of $3.26 per share and used the proceeds of the sale of XOM shares to buy shares of SO. I did it in time to earn its dividend before the ex-dividend date next week. That leaves me "stuck" with a stock with a 4.37% yield (a higher yield than XOM's) and the potential to reverse the trade at some point.
Trading within your portfolio is one way to generate cash, I contemplate doing a similar transaction with some of my largest position, T, which is currently trading at its 52 week high. This doesn't imply I am not an long-term DG investor; I like to think I'm an opportunistic investor.
I don't do options, but I look for trades that hold promise to increase my cash flow with little apparent risk. I've found that when the market is directionless, like now, there are opportunities to trade around existing positions profitably. If you have the time and can deal with someone calling you a trader (heaven forbid), your IRA/401k removes the burden of accounting for your capital gains and deprives the IRS from benefitting immediately from your skill.
Great defense of your call, Adam.
Rose...My understanding is that ratings are purchased from the rating agencies by issuers of debt that will be widely distributed by the underwriters. Debt that is held by a limited number of institutions, like banks, for their own account are typically not rated.
An important dynamic to keep in mind, but I don't know of anyone who would stand aside and watch their portfolio value decline by 50%. Somewhere in time before it fell that far, the investor would certainly increase his cash by selling shares. To the extent dividend income was adequate to preclude the necessity of making withdrawals, the investor would have to be concerned for the most part on the safety of the dividends and relatively less concerned about the market value of the portfolio.
walter scott. thank you for your advice and best wishes. I retired on my investments in 1997, have no monthly pension checks or annuity payments and won't be taking SS until in July when I turn 70. I can't guarantee that I or you or anyone else will never lose our cause, but I would say my success over an extended period of time gives me a level of confidence about our future.
If you read again the trades I described in my comment, you will hopefully realize that I was the beneficiary of the traders, not a victim. If XOM continues to rise and never falls back, I don't lose money. If SO continues to decline in price and never recovers I am "stuck" with more dividend income than my XOM shares provided. I'm not sure how that kind of trade leads you to forecast that I'm "going down", but if I am going down because of trades like that, it's going to take a long, long time. :=)>
Bob...being a contributor on SA doesn't mean one walks on water. My bad and I apologize to the author.
pokerpaint..I was under the impression that insurance companies wrote supplemental policies only and didn't replace Part B Medicare. If you can supply the name of an insurance company that can replace Part B, I would appreciate it. Thanks.
jwfrazier...sorry, but I have never invested in UTX and never done a thorough job of due diligence. For that reason, I don't think I am qualified to address your question. It's not always a problem for FCF to be tepid if the company is making investments for the future. I might suggest that you focus on the entirety of the Statements of Cash Flow, examining all the elements that go into determining Cash Flow from Operations and then looking at what investments the company makes with the cash it generates.
You are smart to be focusing on trends. Tracking the trend of sales, earnings, operating cash flow, return on invested capital -- those are spreadsheet rows I place a lot of importance on.
If you don't like the trends, nothing says you need to invest.
Good luck,
Ed_K...apparently the author didn't understand either.
al_chemyst..you're right. I even read Alan Ellman's "Complete Encyclopedia for Covered Call Writing", but I just haven't gotten into executing. It's on my bucket list, though.
2Reb...I've been retired since 1997 when I was 50. I didn't retire with enough money to generate dividends in amounts even close to being adequate to finance our expenses. I had to be opportunistic; while in the past couple of years I have converted my investments almost entirely to DG stocks, I retain the old habits to a large extent. If you have the time, as I do, you can be paid well for it.
The Dividend Guy...I do believe that the "EMA" in the chart stands for "Exponential Moving Average" and is not a stock symbol.
Investopedia.com defines EMA as follows
'Exponential Moving Average - EMA'
This type of moving average reacts faster to recent price changes than a simple moving average. The 12- and 26-day EMAs are the most popular short-term averages, and they are used to create indicators like the moving average convergence divergence (MACD) and the percentage price oscillator (PPO). In general, the 50- and 200-day EMAs are used as signals of long-term trends
Read more: Exponential Moving Average (EMA) Definition | Investopedia http://bit.ly/1Suqt6g
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Even without a lot of cash on the sidelines, if an investor is willing to trade he can generate income in excess of his periodic dividends. Today, XOM was up $3.89 (5%) and SO was down 2.25%. There is nothing to suggest that XOM's price will not retreat and nothing to suggest that SO's price will not recover. Both stocks go ex-dividend next week. By selling XOM shares and thereby grabbing the $3.89 the market gifted me today and forfeiting the 73 cent dividend, I have created net cash gain of $3.26 and use the proceeds of the sale of XOM shares to buy shares of SO and earn its dividend before the ex-dividend date next week. That leaves me "stuck" with a stock with a. 4.37% yield (a higher yield than XOM's) and the potential to reverse the trade at some point after I earn SO's dividend next week if I think it is wise to do so.
Trading within your portfolio is one way to generate cash when you don't have it on the sidelines. I contemplate doing a similar transaction with some of my largest position, T, which is currently trading at its 52 week high. This doesn't imply I am not an long-term DG investor; I like to think I'm an opportunistic investor.
I don't do options, but I look for trades that hold promise to increase my cash flow with little apparent risk. I've found that when the market is directionless, like now, there are opportunities to trade around existing positions profitably. Today I took advantage of a pop in KMI to sell 85% of my shares, fully expecting that I can buy them back at a price equal to or lower than yesterday's close and trade them again for a 5% profit.
Rose...."as I want more HCN if it stays this low in value."
I think you meant "low in price and high in value". :=)>
Sorry, I couldn't resist.
jwfrazier..from the 10K for 2013: "The increase in cash used in investing activities of continuing operations in 2012 as compared with 2011 was primarily a result of the Goodrich acquisition, which required cash payments, net of cash acquired, of $15.8 billion, as well as payments made to Rolls-Royce, net of cash acquired, to acquire their ownership and collaboration interests in IAE and license its V2500 intellectual property to Pratt & Whitney of approximately $1.7 billion in total, reflected in acquisitions of businesses and as an increase in collaboration intangible assets, respectively. Partially offsetting these increases, concurrent with the closing of the purchase of Rolls-Royce's interests in IAE, Pratt & Whitney entered into a collaboration arrangement with MTU with respect to a portion of the acquired collaboration interest in IAE for consideration of approximately $233 million, with additional payments due to Pratt & Whitney in the future. Investments in businesses during 2012 also included a number of additional small acquisitions in our commercial and aerospace businesses. Capital expenditures increased $460 million primarily at Pratt & Whitney and Otis, reflecting expenditures related to investments in new programs and low-cost manufacturing facilities, as well as at UTC Aerospace Systems due to spending at legacy Goodrich businesses subsequent to acquisition. Customer financing activities were a net use of cash of $25 million in 2012, compared to a net source of cash of $50 million in 2011. "
Astute of you to notice changes and ask questions, but the best place to get answers is from the reports a company file with the SEC. You can get them at sec.gov. This one was a gimme from me. Now you're on your own. :=)>
Besides the saving of time of going over with an investment advisor a portfolio of a large number of individual stocks, index-based investing negates the need for an advisor at all, saving the individual the fees that an advisor charges.
PSalerno. When free cash flow is less than net earnings, it reflects a period in which the net increase in non-cash assets exceeds earnings. This can be a result of investing more in fixed assets than the amount of depreciation recorded for fixed assets; making acquisitions; a build up of inventory and/or accounts receivable, etc. There can be positive reasons or negative reasons for positive variances and there can be positive or negative reasons or negative variances.
For example, a build up in inventory could reflect increased production to fill a higher level of orders calling for shipment after the end of the period (positive) or it could reflect an inventory glut caused by cancelled orders or deferred shipments (negative).
The Statement of Cash Flow, found in the 10k and 10q reports, lists line by line the changes in the balance sheet that reconcile the difference between earnings and cash flow. The job of the analyst is to determine the causes; conference calls and reading managements' discussion of financial results (found in the 10K and 10Q) can provide the answers. A graph cannot.
kovnat...Dan, if you've never had any exposure to accounting I can appreciate your difficulty. You might consider an easy-to-understand book written with folks like you in mind by Thomas Ittelson if you have any interest at all in improving your understanding. It's less than $9.00 at Amazon: http://tinyurl.com/z74...
By the way, there is more in the 10K report than just numbers. Open one up some time at sec.gov. You can find UTX's latest 10K report here: http://tinyurl.com/gu8...
With respect to Chuck's FUN graphs: I suspect they are so much more expensive than the Basic Service because they are so much more valuable. What's the old saying about penny wise and pound foolish?
Chuck...a nicely communicated walk through your process, a very thorough, logical one.
"Therefore, I now turn to a review of the company's balance sheet, cash flow statement and income statement. Of course, this can only be accomplished through a review of the company's financial statements found in its annual and quarterly reports. Since this can be a tedious and time-consuming task comprised of digging through and pouring over financial reports and spreadsheets, I developed FUN Graphs to make the task easier, more efficient and fun (pun intended)."
I don't know if your intent was to discourage members of your readership from learning how to read and understand financial statements and to consult the original, official documents, i.e. the 10K reports, but that paragraph is bound to have that effect. That's unfortunate, because if "•It is important to know as much about any company you invest in as you possibly can.", ignoring the most comprehensive source document is an impediment to obtaining that knowledge.
currently using the alias "Placebo Investment Advice:
"dividend growth ETF with a semi-high 0.35% annual fee (SDY, the SPDR S&P Dividend ETF). "
Apparently you don't mind using the Wall Street skimmers' ploy of understating the impact of fees. SDY has a yield of 2.72%, which I generously assume is after its 0.35% fee. If that's the case, its gross yield is 3.07% and its fee is in fact a skim of 11.4% of the dividend income.
If you want to give 15% of your dividend income to the Federal government and perhaps 6.5% to your state government and then top it off with another 11.4% to State Street Global Advisors nobody is going to stop you.
TheUnknown. You put a lot more thought into it than I did, and came up with a better number.
I don't add money to my accounts as I have been living off them since 1997. My monthly withdrawals have all been from my Vanguard account and Vanguard calculates my "personal performance" taking the amount and timing of the withdrawals into account. They tell me my average annual return for the 10 years through 12/31/15 is 10.1%. I take their word for it and don't analyze it myself.
techy..instead of changing the subject from no Wall Street banking house predicting recession (which was the author's assertion) to a Wall Street bankruptcy, you might have, if you had been able to, dug up some quotes from June 2008 revealing Wall Street banking houses predicting a recession.
Dave..."The good news is, they won't be taxed on it either."
You should have continued that sentence with "unless the 2-bagger was held in a regular IRA until age 70 1/2, at which time 3.5% of all realized and unrealized appreciation will be taxed."
The portfolio grew 9.30%, represented by 3.15% of new investments and total return of 6.15% on the combination of the initial investments and the new investments.
Robert..I'm attaching a link to a chart of their "Best Ideas" portfolio. They also have a dividend growth portfolio which was established in January of 2012 and they claim a total return of 13.3% through mid-January 2016.
I no longer subscribe, but the reason is not because of the quality of their analyses, which is excellent, or their results.
Here's the link: http://tinyurl.com/hqf...
Tactical111..."they bank BILLIONS on the backs...."
That would suggest that Wal-mart workers are slaves, when the truth is that every single Wal-mart worker filled out an application asking to be hired and agreed to trade their labor for the wage Wal-mart offered.
degolyer...the length of that paragraph may qualify it for the Guinness Book of World records.
remy123. This hasn't been an argument. I've just tried to help you understand. I now turn you over to the investor relations pages of Ecolab where you can find split history, dividend history and investment returns for any period you would like. You will find that the information I gave you was accurate. Here is the link: http://bit.ly/1Pel7Jk
remy123...if there had been no split on June 6, 2003, the share price would be double what it is now, or about $210. And 100 shares held on June 5, 2003 which were then worth $55 each or $5,500 in total would now be worth $21,000. But, the stock WAS split, so on June 6, 2003, 100 shares became 200 shares worth $27.50 each or $5,500 in total and those 200 shares are now worth $21,000.
If you exchange 10 dimes for 20 nickels you still have $1.00. That's what happens when a stock is split 2 for 1. The value of the company doesn't double, just the number of shares.
One way to think of it: pretend your company has issued 1000 shares and you are the only owner. You own all the shares. One day you decide to issue to yourself an additional 1000 shares. Has the value of your company changed or has just the value of each share changed?
remy123. You may be confused about both your facts and your conclusions. ECL hasn't split its stock since June 6, 2003 and the share price has grown from $27 after the split to its current, depressed price around $105. And the dividend has gone from 7.3 cents to 35 cents a share.
Stock splits are attractive to some people from a psychological standpoint. (The same people who prefer a guitar with a volume knob that goes to "9" instead of only to "8"). But, a pie doesn't get bigger when you cut it into smaller slices.