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Tim McAleenan Jr.  

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  • Rate Increases May Come, But Realty Income Dividends Keep Piling Up
    Mon, Feb. 23 O 29 Comments

    Summary

    • Realty Income is an excellent REIT that has been compounding at almost 17% annually since 1994.
    • However, some of that compounding is the result of P/FFO valuation expansion, and this trend will likely reverse course in the coming years.
    • The likely defense of P/FFO compression for Realty Income investors comes from a rising profit base and monthly dividend payments that soften the blow.
  • Yes, The Dividend At Reynolds American Is Safe
    Dec. 24, 2014 RAI 19 Comments

    Summary

    • In 2012, Reynolds American ran into trouble when its dividend payouts exceeded its profits per share.
    • In the past two years, the company has used price increases and share buybacks to reduce the dividend payout ratio to 79%.
    • The stock does have risks, however, as it heavily relies on menthol sales, and the acquisition of Lorillard will only increase Reynolds' reliance on menthol brands.
  • The Difference Between Coca-Cola And Anheuser-Busch
    Dec. 24, 2014 BUD, KO 17 Comments

    Summary

    • Coca-Cola and Anheuser-Busch are similar in that both companies are struggling to achieve organic revenue gains.
    • A difference, however, is that Anheuser-Busch is much more efficient at cutting costs than Coca-Cola is.
    • Anheuser-Busch is able to achieve earnings per share growth without meaningful revenue gains, a feat Coca-Cola has been unable to accomplish.
  • Diageo At The 3% Dividend Sweet Spot
    Dec. 24, 2014 DEO 27 Comments

    Summary

    • Historically, investors that acquire Diageo stock with a starting dividend yield of 3% earn double-digit returns from that point forward.
    • This stock is not for investors who insist upon conservatively managed balance sheets, as the company carries over $15 billion in current debt.
    • This stock is a great consideration for IRA accounts, due to the American tax treaty with Britain and the rapidly rising yield on cost of dividends over time.
  • Monsanto's Buyback Has Become Quite Substantial
    Dec. 24, 2014 MON 2 Comments

    Summary

    • During the first decade and a half of its corporate history, Monsanto was not a company that repurchased its own stock in any meaningful way.
    • Between 2014 and 2015 combined, however, Monsanto will be retiring over 60 million shares of stock.
    • The forward valuation of the stock is under 20x earnings, which is historically cheap and is a fair starting valuation for a company with double-digit growth.
  • Is Procter & Gamble's Tightened Focus Hitting The Bottom Line?
    Dec. 23, 2014 PG 21 Comments

    Summary

    • Procter & Gamble has indicated a desire to sell non-core brands, and the transfer of Duracell to Berkshire Hathaway is the greatest example so far.
    • The company is struggling to achieve bottom-line growth, because the core brands are only growing revenues at 2% annually.
    • The company's payout ratio is at the highest point in the past twenty years, and a lack of retained earnings may make growth difficult in the near future.
  • Some Perspective On Halliburton's Stock Buyback And Business Model
    Dec. 23, 2014 HAL 9 Comments

    Summary

    • Although Halliburton reduced its share count by 8.61% between 2012 and 2013, shareholders shouldn't expect significant buybacks going forward.
    • Even without buybacks, Halliburton is an attractive stock after dropping from the $70s this summer to a little over $40 now.
    • The company is growing profits 25% in its Latin American segment, and that should propel significant profit growth in the coming years.
  • The Philosophical View Of General Electric's 4.5% Dividend Hike
    Dec. 23, 2014 GE 47 Comments

    Summary

    • To fully appreciate GE's recent dividend hike, it is important to keep in mind the transformation of the conglomerate's business over the past generation.
    • As the role of GE Capital diminishes, the renewed focus on the industrial division does mean that GE's short-term earnings will be more volatile.
    • The recent 4.5% dividend hike is not a concession that the industrial division will grow slowly, but rather, a recognition that the dividend payout ratio must be conservatively managed.
  • The Mixed Signals From The M&T Bank Dividend
    Dec. 23, 2014 MTB 3 Comments

    Summary

    • M&T Bank served investors well during the financial crisis by boosting the $2.60 dividend in 2007 up to $2.80 in 2008, and maintaining it throughout the financial crisis.
    • That steady dividend is now a source of criticism as the company has not increased the $2.80 payout since 2008.
    • To fully appreciate M&T Bank, it is important to note the growing amount of retained profits and low level of default for the bank's current portfolio.
  • General Mills: The Quintessential Tortoise Stock
    Dec. 22, 2014 GIS 24 Comments

    Summary

    • General Mills has an unflashy formula for delivering long-term 10% returns: 5% business growth, 2% stock buybacks, and 3% dividends.
    • General Mills has never lowered its dividend since it began publicly trading in the 1890s.
    • The payout ratio, however, is about twenty percentage points higher than it was ten years ago.
  • Citigroup May Pay Out $2 Dividends Within 5 Years
    Dec. 22, 2014 C 7 Comments

    Summary

    • Citigroup, despite its constant bad press, is a healthy bank generating $10 billion in annual profits.
    • The company ought to be able to pay out at least $2 per share in dividends five years from now, as the dividend payout ratio would only be 28.5%.
    • The company's Tier 1 Capital Ratio is 52% higher than it was at the beginning of the financial crisis in 2008.
  • IBM Doing Exactly What Warren Buffett Wanted
    Dec. 22, 2014 IBM 80 Comments

    Summary

    • Many critics of IBM have been focusing on the company's difficulty transitioning to the cloud, and poor stock price performance this year.
    • The company, however, has spent $19.2 billion repurchasing its stock in the past year, and has grown earnings by a double-digit amount over the course of 2014.
    • Warren Buffett specifically desired strong buybacks at low prices in his letter to shareholders, and his desire has been coming to fruition with IBM over the course of 2014.
  • Facebook Has A Negative Margin Of Safety
    Dec. 21, 2014 FB 55 Comments

    Summary

    • Facebook currently has a P/E ratio of 75, which is fertile soil for significant P/E compression over the long term.
    • The company increasingly relies on mobile revenue, which is harder to monetize.
    • A realistic worst-case scenario where Facebook grows at 10% annually, but sees its P/E ratio dip below 20 would lead to a 35% investment loss over ten years.
  • This Is The Third Most Attractive Time To Buy AT&T In The Past Generation
    Dec. 19, 2014 T 80 Comments

    Summary

    • AT&T has only traded at a cheaper valuation twice in the past twenty years (during 2009 and 2010).
    • For every 100 shares of AT&T that you owned and reinvested since 2004, you would have an additional 70 shares today due to the power of reinvestment.
    • The recipe for success with AT&T is: buy at an attractive valuation plus reinvest the annually rising dividend each year.
  • A Few Financial Concerns About Philip Morris International
    Dec. 12, 2014 PM 95 Comments

    Summary

    • Philip Morris International has raised its dividend payout ratio from 30% in 2008 to 78% today.
    • The company now carries $29.5 billion in debt, compared to $13.3 billion in 2010.
    • The high debt load and payout ratio mean the days of financial engineering to fund dividend growth are over, and investors should demand a discount before buying new shares.
  • Edwards Lifesciences: A Quiet, Mid-Cap Gem Sitting In Plain Sight
    Nov. 26, 2014 EW 3 Comments

    Summary

    • This is an excellent company that has delivered 20% annual returns since 2000.
    • The core earnings per share ought to grow by 15%-20% annually in the coming years.
    • The most significant concern about Edwards Lifesciences is the current valuation, which is a bit high.
  • Take Advantage Of Deere's Small Dip From Excellency
    Nov. 26, 2014 DE 30 Comments

    Summary

    • Deere is an excellent company that grows revenues, earnings, and dividends at north of 10%.
    • The company is attractively valued in the 10x earnings range.
    • The profits and share price are volatile over time, and this is something that investors may be wise to take into account.
  • Building Wealth With An Overvalued Stock?
    Nov. 25, 2014 NKE 10 Comments

    Summary

    • By historical accounts, the current P/E ratio of 32 indicates that Nike is overvalued compared to historical norms.
    • Despite this overvaluation, Nike is still building wealth as earnings per share are growing at 14% annually.
    • Holding an overvalued stock has benefits, such as receiving the recent 16.7% dividend hike.
  • Rarely Discussed: The Double Margin Of Safety Dividend Approach
    Nov. 25, 2014 BBL, BHP 52 Comments

    Summary

    • A great way to achieve a double margin of safety is to insist on both a cheap valuation plus a high dividend yield.
    • A good example of a company that meets both of these criteria is BHP Billiton, trading at only 10x-11x profits and offering a well-supported 4.6% dividend yield.
    • The inevitability of P/E expansion, plus the accumulation of dividends, will provide investors two layers of safety in the coming years.
  • Why You Shouldn't Buy Automatic Data Processing Now
    Nov. 14, 2014 ADP 10 Comments

    Summary

    • ADP's payout ratio in the past decade has increased from 30% to 60%.
    • The P/E ratio is approaching 30 (the highest valuation in the past decade).
    • The company lost its AAA credit rating after the spin-off of CDK Global.
  • The Conditions Are Ripe For Value Investing With This Stock
    Nov. 3, 2014 MTW 4 Comments

    Summary

    • Manitowoc has fallen 36% since this summer in response to stagnating revenues, creating a valuation well below traditional P/E metrics.
    • It has compounded at a rate of 12.86% since the 1990 IPO, and at a rate of 11.52% over the past ten years.
    • This stock is not for everyone, as the price of the stock fell from a high of $48 in 2008 to a low of $2 during the recent financial recession.
  • Paccar: An Excellent Investment If You Can Stand The Heat
    Nov. 3, 2014 PCAR 4 Comments

    Summary

    • Over the past twenty years, shares of Paccar have compounded at an annual rate over 17%.
    • The company continues to grow revenue in the range of 10%, and replacement truck parts is a growing portion of this company's business.
    • However, this company experiences significant profit declines and dividend cuts during economic recessions, and therefore, this company will not be attractive to everyone.
  • The Search For Current Income And Nearly 11% Annual Returns
    Nov. 3, 2014 NU 3 Comments

    Summary

    • With dividends reinvested, Northeast Utilities has returned 14% over the past decade. Currently, it seems primed to offer 11% annual returns from here.
    • It is able to offer sound returns by only paying out 60% of profits as dividends, and reinvesting the retained capital at a rate of 8%.
    • A concern about the stock is that it may not secure such lofty rate hikes in the future, as the Federal Energy Regulatory Commission forced Northeast to lower some rates.
  • Safety Insurance: A 4.5% Dividend Yield Growing At 12% Annually
    Nov. 2, 2014 SAFT 22 Comments

    Summary

    • Safety Insurance is one of the few financial firms that managed to grow its dividend payout during the financial crisis.
    • It offers investors a starting yield of 4.5%, especially impressive in today's low-interest climate.
    • The company has a perfectly clean balance sheet with only minimal liabilities in the form of annual rentals.
  • Becton, Dickinson And Co. Continues To Print Money Like It's Going Out Of Style
    Oct. 29, 2014 BDX 21 Comments

    Summary

    • Becton, Dickinson and Co. has a storied dividend history, with annual raises dating back to 1973.
    • The medical firm is currently growing earnings per share at a healthy 9% rate.
    • This stock is not for everyone, as its low starter yield may be below some investors' entry requirements.
  • Altria Is Priced Like A Riskless Stock
    Oct. 29, 2014 MO 47 Comments

    Summary

    • Altria the business is currently trading at a valuation of over 20x earnings, a historical high this millennium.
    • The core business is still growing along nicely, but the price of the stock does not offer a margin of safety.
    • This is still a company experiencing unit volume declines of 3-4% annually, and 84% of the company's profits come from cigarettes.
  • What Getting Ahead Of The Dividend Growth Curve Looks Like
    Oct. 28, 2014 ADT 8 Comments

    Summary

    • To capture a high dividend growth rate with an investment holding, it is useful to own a company that is growing profits per share and increasing its payout ratio simultaneously.
    • An example of this type of company is ADT, which is growing its payout ratio and has reduced its share count by 26% during the 2012-2014 stretch.
    • The company is still repurchasing its stock, growing organically at a moderate pace, and offering current investors the opportunity to own a company that is increasing its payout ratio.
  • Plains All American Can Give You A 22% Yield On Cost Within 10 Years
    Oct. 1, 2014 PAA 7 Comments

    Summary

    • Investors in Plains All American have generated a 22% yield on every dollar invested ten years ago, as the result of distribution growth and reinvestment.
    • Because the firm is growing cash flow per unit at a rate of 14% annually, it seems reasonable to conclude that distribution growth in the 10% range is likely.
    • The firm is not perfect, as it funds its heavy investments and large distribution growth by accessing the debt markets to issue new shares and carries $8 billion in debt.
  • Elbit Systems: Finally, A Cheap Stock With High Growth
    Sep. 30, 2014 ESLT 5 Comments

    Summary

    • Elbit Systems, which currently trades in the 13-14x earnings range, is only trading at a slight premium to the 11x earnings valuation that the stock saw during the financial crisis.
    • The company has a $6 billion backlog of work to perform and has an impressive record of double-digit growth.
    • The company does, however, regularly cut its dividend, and this may deter some income-oriented investors.
  • Corning: Some Warts, But Ultimately A $30 Stock Within 5 Years
    Sep. 30, 2014 GLW 19 Comments

    Summary

    • Corning has recently gotten serious about a stock buyback program, taking off 100 million shares, or about 7% of company stock, within the past twelve months.
    • The optical fiber/cable division, which accounts for 10% of Corning's business, has been growing at north of 20% and ought to spike the company's stock price.
    • Corning does come with some warts in terms of past record, as its current profits are still lower than 2007 levels.
  • Ingersoll-Rand: This Is What Unpopular Management That Creates Value Looks Like
    Sep. 30, 2014 IR 8 Comments

    Summary

    • Ingersoll-Rand took 50 million shares off the market in the financial crisis year of 2009.
    • This shrewd move helps explain why the company has experienced 36% annual returns since 2009.
    • However, the company created value at the expense of the dividend, and its approach is not appropriate for every investor.
  • AmerisourceBergen: Pricey, But With A Growth Record To Justify It
    Sep. 30, 2014 ABC 2 Comments

    Summary

    • AmeriSource is currently trading at its highest valuation in the past five years since the financial crisis.
    • However, the company has grown earnings per share at 16.5% annually over the past five years.
    • Although this stock is not for everyone, lucrative partnership deals that require little capital investment may warrant a higher market multiple to pay for the company and still do well.