Ryan Schroeder

Long only, long-term horizon
Ryan Schroeder
Long only, long-term horizon
Contributor since: 2012
The dividend payment date is 1/15
Hi Andrew,
Awesome article. Quick question. I was perusing the RDIs 10-k and noticed a big reason for the jump in earnings was a $9.7 million income tax benefit 2014, compared to $4.9 million expense in 2012 and 2013. Any idea the reason for this, or what we should expect in 2015 and 2016?
The big reason for the jump in earnings was a 9 million boost b/c of a tax credit in 2014, compared to -4 million reduction in 2012 and 2013. Any idea the reason for this, or what we should expect in 2015 and 2016?
Josh - I disagree with your statement that organic revenue doesn't matter. Organic revenue gives you a great picture of the overall health of a company. You fall into a short term thinking trap when you put blinders on and only looks at earnings after they are translated to the US dollar. For a company that sells Consumer Staples, organic revenue is key. PepsiCo was able to increase volume and price this quarter, which is a combo that is hard to beat.
If you are worried about short term earnings depression due to the strong dollar you shouldn't be in any names that do a lot of business outside the US. Unfortunately that severely limits the pool of quality companies you can buy. And then you have no margin of safety if the US dollar does weaken.
@positivethoughts - The decline in revenue is due to unfavorable currency translations. Organic revenue is actually up 5%, hence the strong performance pre-market.
Great Article Tim,
It seems like a lot of commenters are having a mental disconnect about where dividends come from. Yes, a company can pay a high dividend by talking on debt, but eventually those dividends need to come out of profits.
A lot depends on how long oil stays below $70-80. If COP is break-even to running in the red at $60 and below, then they will need to continue to take on debt to fund the dividend. The more debt they take on now, the longer it will take them to recover once the price of oil starts going back up (add this to the fact that interest rates will probably start rising and it's a double whammy). The longer relatively low oil lasts, the more it compounds this effect. If it lasts too long there is a point where the prudent thing is to cut the dividend instead of sacrificing the capex and thus the reserve replacement ratio.
Also Tim never said you should be selling COP, just that XOM and CVX are better options right now. And from a current and future profitability stand point he is right.
In OPs defense, while the technical Law of Large Numbers deals with probability, the fact that the bigger a company gets the harder it is to maintain growth rate is generally referred to as the Law of Large numbers as well.
That data is pulled by looking at changes in 13-Fs. If Buffett received an exception to not report his XOM holding this 13-F, then the delta makes it look like he sold everything.
He did the same thing Deere and Company (DE) last year. It looked like he sold everything because DE no longer showed up in his 13-F. He then later filed an amended 13-F and we learned instead of selling his entire DE stake, he actually nearly doubled it.
I'm buying XOM below $90. We may see a "Buffett didn't actually sell" spike. Also, either way XOM is a great long term hold.
It's not 100% certain that Warren Buffett sold his Exxon stake. It' possible (and I'd argue likely) that he has asked the SEC for an exception to not disclose his stake because he is significantly adding to it.
I'm guessing that is 8.8-ounces of beans. Ballpark that will give you around 16 cups of coffee. So less than two bucks for a cup. Not bad considering it is Starbucks.
Good Read Jason,
Like baseball, investing is 90% mental. I just need to figure out what the other half is...
EW - I think Coke is on the right track here with Fairlife. Niche product or not consumer will pay more for a healthier product. And specialty milk is a high growth area right now. Anything that diversifies them away from their CSD core is a positive. Also increased calcium and protein is definitely a tangible benefit.
Overall I enjoyed your analysis and agree that either way Fairlife won't be making much impact in the next few years.
Apple just turned in the most profitable quarter in history.
Todd
The stevia product is Pepsi True and it is available on amazon.com. Ignore the 1 star rating, as it got trolled pretty hard when it came out. I've tried it and am a fan.
David. Double check your yield number on BUD. They pay semi-annual dividends but the first payment is larger than the second. I discuss that in my BUD article here: http://seekingalpha.co...
The problem with buying the company is you assume the debt. which means you just assumed $2.5 billion in debt. This is the ultimate high-risk/high-reward stock. You are basically betting on whether or not NADL can get the Rosneft deal done or find other work for their rigs. Idle rigs and enormous debt are not a good combination.
Long SDRL
"If you look back at history, you will see that the best time to buy stocks is whenever the S&P 500 is in the range of 20% to 50% off its all time high."
If you follow this logic, you wouldn't have been able to buy any stock in the last 4 years, hence missing out on 4 years of dividends and capital returns. That's the author's point in this article, and it's a good one.
At the same time, I'm definitely not buying any index funds at the current market levels, but there are plenty of individual stocks that are fairly valued or undervalued (see integrated oil majors).
Great Article Joseph. Water utilities tend to not get much notice as they are not "exciting" stocks. I personally have a $100/month drip with Aqua America. Definitely a great slow and steady stock. Sit back, reinvest the dividends, and add more every month and it's surprising how fast this "boring" stock grows. Nick DeBenedictis has been managing water utilities forever and has a long track record of success in all sorts of business climates.
WestEnd - 8% Service Revenue growth is not a contraction.. Growth and contraction are antonyms. Since it's down from 12% growth last quarter, you can say slowing growth, but by definition, something that is growing cannot be contracting...
Streewise - Informative article. However I disagree with your final point: "the last thing shareholders want to see is a dividend cut." As a SDRL long, I would not bother me in the slightest if the dividend was halved (YOC for recent buyers would still be in the 6-7% range). This would give the company more flexibility in raising capital and perhaps improve it's credit rating as interest coverage would be much better.
Josh - good, balanced article. I'm long BBBY b/c of the valuation and that awesome buy back. Nice to see a beat put a little life into the shares.
I wouldn't read anything into the layoffs. Eliminating redundant Beats positions (HR, finance, etc.)
I think craft beer will definitely eat at volumes in the short term in the US. International volume is still very strong. I expect new products and pricing/distribution advantages to offset the US decrease in the long term.
Stephen, I don't think that's the case, but ownership structure is pretty complex. Here the most recent one I was able to find http://bit.ly/1nZpAU6
What I can tell you is after the merger AB only had control of 2 of the 14 board of director positions.
"Sorry, as mentally comforting as it may be to use financial gymnastics in an attempt to convince yourself that your portfolio hasn't declined in value, you're not up, you're down"
It is true that your portfolio has declined in dollar amount, but price and value are two different things. If I think the fair value of a security is $14, and i buy at $14, then the price declines to $12, as long as nothing has changed that impacts the fair value, the value of my portfolio is the same, even if the price I could get by selling would be lower.
Say I bought 100 shares of a company at $14 with a yield a touch over 7%. I'm paying $1400 for a income stream of $100/year. Now the stock price of the company goes down to $12. I still payed $1400 for an income stream of $100/year. Nothing changed. Even better, if I choose to re-invest those dividends, I can now pick up more shares at a higher yield than I would have been able to if the stock price hadn't fallen.
It all comes down to value, and how you define it.
Sell ARCP now but buy at $11.50? Does the .50c drop really change the value proposition here that much? Good way to rack up brokerage fees. Also if the stock drops 15%, and the yield is 8%. You are still up as long as you don't sell...
ARCP is high risk b/c a decent % of their tenants are now not investment grade, but their occupancy rate is high, and the dividend is fully covered by earnings. Hold through the volatility, sit back and collect that juicy 8% yield.
Adnan
This is from Bloomberg on PepsiCo's investment plans in China:
"PepsiCo, which ranks fourth in China’s soft-drink market, has been investing in the world’s most-populous nation to catch up with leader Coca-Cola. Purchase, New York-based PepsiCo said in May last year that it plans to invest $2.5 billion in China in the food and beverage businesses over a three-year period, including in manufacturing plants and research and development."
The other major China development for PepsiCo is the bottler swap with Tingyi for 5% stake, with the option to increase to 20% next year.
Slam
The margin on the snacks side is actually better than the beverage and the snacks growth rate is faster is well. This is one of the reasons why Peltz wants Frito-Lay spun off.
Could make 100M over 5 years... Would be nice to see the terms. If the stock price outperforms over 5 years I have no problem with that. Comes out to 20M a year, or slightly higher than the highest paid REIT CEO last year. As long as the "outperformance" plan is significantly stringent, this is a non-issue for me.
Long ARCP.
May want to include the full paragraph so as not to confuse people... Read to the bottom, consolidated revenues are $1.44B.
Revenues for the first quarter of 2014 were US$1,221 million compared to $1,469 million in the fourth quarter of 2014. The decrease is primarily due to the deconsolidation of the Seadrill Partners and downtime on the West Alpha, West Phoenix, West Pegasus, and West Polaris. Offsetting these items was the inclusion of the West Auriga, West Tellus, West Vela, West Castor, and West Telesto for a full quarter. On a consolidated basis revenues for the first quarter were US$1,436 million.
TDG - I use margin in my regular account (non tax-advantaged). Using full leverage is very dangerous unless you have sufficient cash reserves to cover what you are borrowing. Margin calls can wipe you out faster than you'd think possible if the market tanks. I generally never go over 20% leverage so I can withstand any reasonable swing without having to worry about a margin call.
My strategy is similar to Charlie Munger's. Only use leverage for high conviction ideas. And have an exit plan. I bought APPL on margin last year, and recently
sold just enough shares to get me back to cash neutral.
Also 7.5% is probably a more realistic rate for you to expect. That is the rate I have at Scottrade.