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Tim McAleenan Jr.

 
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  • Dividends Matter If They Matter To You [View article]
    David, this is a very nice piece.

    Some of the disagreement does stem from the tendency of people, including me, to say "Because I value X, you should value X as well."

    Another source of disagreement has to deal with vocabulary. When a dividend investor says that price doesn't matter to them, some people who post overwhelmingly negative comments on this site towards dividend investors take it to mean, "Those dumb-dumb dividend investors would hate a $10,000,000 net worth and would be cool with their portfolio collapsing 90%."

    Every clumsily worded statement or shorthand gets held up as proof of a dividend investor's stupidity if a reader has the pre-existing viewpoint that dividend investors aren't smart enough to be in the same room with non-plastic knives.

    Really, when a dividend investor says "total returns don't matter", they are really saying something along the lines of, "Owning something like Abbott Labs from 2003 through 2011, when it delivered no capital appreciation, is tolerable for me because the business profits doubled and the dividend doubled over that time frame, still giving me 5% annual returns when every dividend payment was reinvested. Abbott Labs is an excellent company that I intend to hold for life, and I live off the dividends, so I prefer the reinvestment effect of lower prices over the temporarily feel-gooditis of a rising stock price because I won't sell this holding during my lifetime."
    Aug 14 06:23 PM | 24 Likes Like |Link to Comment
  • What The Coca-Cola Critics Are Missing [View article]
    Thanks, Happo.

    What I like about Coca-Cola is the downside protection that comes with it.

    A lot of people will point to other stocks and say, "This one beat Coca-Cola by a percentage point, this one beat it by two percentage points over the past three years" and so on.

    The incompleteness of arguing like that is the fact that you're not discussing risks that could have materialized but didn't.

    Imagine if we saw Great Depression conditions re-emerge sometime in our lifetime (God hope not). People will still drink soda, water, and sports drinks. The cash flow keeps coming, even in severely distressed economic scenarios.

    I don't devalue Coca-Cola as an investment just because terrible conditions could have materialized but didn't. I like knowing the protection is there.

    Read this story about a Florida banker who bought Coke stock for everyone during the Great Depression and helped them not only ride out the storm, but become millionaires.

    My favorite line: "Mr. Pat noticed that even during the depression, people would spend their last nickel on a cold Coke. He thought that was one of the things that would make it a good permanent investment."

    http://bit.ly/XtDUcg

    That's what I'm talking about.
    Aug 2 04:07 PM | 8 Likes Like |Link to Comment
  • Notes On Yahoo's Strategy [View article]
    David, this was a very candid piece.

    You're doing good things here.

    Thank you.
    Aug 1 06:58 AM | 6 Likes Like |Link to Comment
  • Why It Can Be Self-Destructive To Compare Yourself To The S&P 500 [View article]
    pjsburk, good question.

    No, I did not. I also own Visa. Because they didn't show up as tickers, I didn't see them when filling out disclosures.

    See that includes tab? It says: "ABBV, ABT, IBM, JNJ, SPY"

    That's what I was looking at when I filled out my disclosure because BP and Visa were mentioned in passing and not included as tickers.

    I submitted a revision that will hopefully be updated soon. Thank you.
    Jul 30 12:57 AM | 2 Likes Like |Link to Comment
  • Why It Can Be Self-Destructive To Compare Yourself To The S&P 500 [View article]
    Tuliptown, that's a great question! You're correct to note that it's a balancing act between self-improvement and personal satisfaction, and there should be triggers to indicate when a company has quite frankly become a bad pick.

    For me, it depends on the investment. When contemplating a purchase in Visa or Becton Dickinson, I would consider my investment "bad" if the earnings per share growth was low (less than 5% or so annually, for a period of 7+ years, absent catastrophic economic conditions like a prolonged 2009 type of period in which you adopt the Billy Joel advice that "just survivin' is a noble fight").

    If I owned something like AT&T, I would be bothered by a dividend cut significantly. If the dividend got cut in half, and it was backed by deteriorating earnings power rather than the Board of Directors going off on a wild frolic of their own, I'd probably conclude "Whoops, botched this one, let's see what I can learn so I don't diminish my potential again."

    Although, I'm still hesitant to have absolute standards: The business cycle is long and sometimes harsh, and I think bad things happen when you train "successful investment" to be synonymous with "consistent performance all the time." The past five years for GlaxoSmithKline haven't been as good as envisioned, but I suspect investors buying here will do well over the next ten years in a high-quality, risk-adjusted way that gives them a lot of total income and total returns that resemble or slightly surpass the S&P 500. My basis for that belief is that they have thousands and thousands of high-quality products churning out profits, but the pharmaceutical side makes things lumpy a bit.

    I'd rather not abandon stocks when they encounter choppy waters because it just seems bad business to sell low, and this incidentally reinforces why I focus on dividend stocks: even when McDonald's struggled in the late 1990s and early 2000s, Johnson & Johnson struggled in the mid to late 2000s, and GlaxoSmithKline is struggling now, you still get sent a regular stream of cash for putting up with it.

    To directly answer your point--no, I don't need to know I am above average. A lot of my great fortune came at birth--imagine if I were born in Zimbabwe, I'd likely be dead by now. Instead, I just try to harness any advantage I possess in a way that I can lead a life that is higher quality, more fun, and can eventually facilitate significant charitable giving.

    If you owned 25,000 shares of Chevron, do you think you would be getting frustrated whether or not you beat the S&P 500? No, you'd be looking at those $107,000 annual dividends that are growing at 8% each year, and think, "Damn, I can do some fun things for myself and make the world a better place simultaneously. I can get a nice place with a sweet pool. I can walk away from antagonistic or unethical situations in a way that I couldn't if I were an employee absolutely reliant on a paycheck. I could sneak into bursar's offices of state colleges and pay off the tuition balance for a random student, and do it completely anonymously, and the fact that I did it without any need for self-aggrandizement would make the moment all the sweeter, and I could meet my death knowing that at least one person benefited from my entrance into the world on August 3rd."

    Maybe I should tilt your question: it's not beating the S&P 500 that would make feel above average; it's living life on my terms that would enable me to feel above average. But even then, I wouldn't sit around thinking "I'm above average", I'd be moving around thinking "I have these enormous cash-producing assets that make me free and independent so I can choose how to spend my time, taking care of myself and others as I see fit."

    True passive income is an enormous power, and can create permanent thrills when you: (1) think outside of your own immediate interests, (2) don't care about what others think beyond your close circle of friends, and (3) make a habit of helping others in your community precisely because you look around and see nobody else doing so.

    I just see money as the tool for accomplishing those things.
    Jul 30 12:53 AM | 11 Likes Like |Link to Comment
  • Why It Can Be Self-Destructive To Compare Yourself To The S&P 500 [View article]
    Hey mkemac!

    It's true, I have written a book.

    However, I want to give you the heads up:

    1. Being accused of "selling something" is not something I take as an insult. Creating and selling stuff is the only way a civilization can advance in a way that improves standard of living, and creating a product means you combined skill, labor, and time to build something instead of spending your days mindlessly watching television, biding your time while doing nothing.

    I'm actually more proud of writing an ebook than some things I've done as an employee because I can look at it and say, "but for me, this wouldn't exist", whereas some of my work as an employee has left me with the feeling that an empty suit could have accomplished the exact same task if I were not there. So a word of caution: When you try to insult me as selling something, I actually walk away taking that as a compliment, and figured I should give you that warning.

    2. I couldn't advertise it in a more unobtrusive fashion. To date, I've never referenced my eBook in any of my articles on Seeking Alpha or done any promotion of it here beyond the listing at the top. Not that doing so would be wrong, but I try to focus on the task at hand (here, discussing individual performance against the S&P 500) rather than pursue sales without regard for style.

    3. Almost all of my writing, over 99%, is free. You get almost 500 articles here, and over 300 on my personal site, totaling almost one million words, that you don't have to pay me anything to read. If, for some wild reason, you're not sick of me yet, you can buy the book.

    But there's no pressure to do so. You can completely ignore it--scrolling away from the masthead as quickly as possible--and it's all good. I don't show up in your bedroom with a flashlight in the middle of the night to say, "Did you buy my book yet???" It's an option that you can either accept or decline.

    To me, that's how free markets work. You do your best to create something that you believe will help others, and if someone thinks it will improve their life in some way, they can use their own free will to buy it. I get rewarded for the time spent working rather than lounging around, and the buyer gets something of value in return. It's the most micro form of free will interacting with labor interacting with people trying to improve their lives. I love that part of America.
    Jul 30 12:25 AM | 26 Likes Like |Link to Comment
  • Are Growth Stocks Appropriate For Retirement Portfolios? [View article]
    This is a great article. I have nothing to add.

    Nice job, Chuck.

    -Tim
    Jul 23 05:48 PM | 9 Likes Like |Link to Comment
  • Does Higher Dividend Growth Lead To Higher Dividend Income? [View article]
    Robert,

    Your ability to take a hypothesis, test it with data, and then reach a logical conclusion is awesome.

    Seeking Alpha gets better when articles like this one show up.

    -Tim
    Jul 22 07:22 PM | 11 Likes Like |Link to Comment
  • Silly Rabbit, Dividends Do Matter In Retirement [View article]
    When someone says that dividends don't matter, they are telling that the only way you can benefit from an investment is by, well, relinquishing your ownership of that position by selling at a higher price.

    When someone says that dividends don't matter, they are ignoring the fact that from 1957 through 2002, the highest yielding quintile (top 20% of S&P 500 based on yield) produced an annualized return of 14.27% vs. an annualized return of 11.18% for the rest of the S&P 500 Index.

    When someone says that dividends don't matter, they are ignoring the human tendency to do wasteful things when there are no restraints on cash. Heck, even Coca-Cola, the poster child of dividend growth, started doing things like purchase movie studios--movies!--when it was only paying 15% of cash as a dividend. When's the last time you saw Altria do stupid shit, from a capital allocation perspective? It's been a while, because 75% or so of profits immediately go to shareholders, so the remaining 25% of retained earnings are precious to management.

    When someone says that dividends don't matter, they ignore the dividends that get reinvested in 1974, 1991, 2001, 2008-2009 that turbo-charge wealth. When things go to hell, companies are slow to grow and make acquisitions and increase the buyback, but the dividend continues as a sign of strength. When a dividend gets plowed into an undervalued security, wealth gets created in one of those "value-added" ways that is popular jargon at MBA schools.

    When someone says that dividends don't matter, they are ignoring the fact that dividends get cemented upon pay out. S&P 500 stocks aren't assessable any more like American Express was in the old days--they can't demand money from you. Once you receive a $0.48 dividend from Altria, it's permanent. It can't be taken away. If the company goes bankrupt, that $0.48 is yours forever. On a quarterly basis, that $0.48 may not sound significant, until you realize that Altria has paid out over $30 in total dividends since 1998 (and I'm not even counting the dividends from Kraft, Mondelez, or Philip Morris International that you would have received as part of the spinoff--I'm talking pure Altria dividends). If you held the stock since 1998, even if Altria went poof in the next few years, you would have collected the full amount of your cash investment back. Talk about intelligent risk management. Capital gains come and go every day becaused they are tied to the stock price, each dividend payout to your account is cemented and yours forever.

    When someone says that dividends don't matter, they have no idea what it is like to be a retiree that is relying on a stock portfolio to keep them doing fun stuff and out of cat food. When the market falls 35%, that Exxon Mobil check means the world to you, both in terms of practical utility and providing the emotional comfort necessary to stay the course. Saying "dividends don't matter" to these people shows a profound lack of empathy for what it means to be a retiree with a stock portfolio. If you walked a mile in the shoes of a retiree and actually tried to "get them", you wouldn't say things like "dividends don't matter."

    This is not to say that someone should only own dividend stocks. There are Gaussian outliers like Berkshire Hathaway, Autozone, and Bed Bath & Beyond,
    and you can make a lot of money if you spot them and act accordingly. But when someone says that dividends don't matter, that person is ignoring (1) the logistical requirement that you must sell shares to benefit, (2) the historical data showing superior performance of dividend stocks from at least 1957-2002, (3) the human tendency to be looser with capital when there are no long-standing dividend demands to impose discipline, (4) the ability of dividends to create wealth when they get reinvested at undervaluation, and (5) the permanency of dividends if you choose to collect them because even faltering future performance cannot undo a cash dividend that hits your bank account.

    Oh, and Brad, you are a good writer. Your continued existence on this site makes Seeking Alpha a better place.
    Jul 21 05:38 PM | 33 Likes Like |Link to Comment
  • $3,000 Annual AT&T Dividends Are Like An Aesop Fable Sprung To Life [View article]
    Varan,

    I agree that AT&T isn't the optimal dividend growth stock to select if your aim is to beat the S&P 500. I'd look to things like Colgate-Palmolive and Disney if I wanted to own companies that offered both dividend growth and a reasonably high likelihood of beating the S&P 500 over a 10+ year holding period.

    What I find interesting about AT&T is that the company had such a low growth rate and still put up a fight against the S&P 500 Index. The high starting dividend, mixed with the fact that the dividend moves upward a bit each year, explains why it comes within hailing distance of the S&P 500's performance despite a ten-year growth rate of only 2%.

    Is AT&T ideal if your goal is to beat the S&P 500 going forward? Probably not because of the low earnings per share growth, although the potential passage of the DirecTV deal could make AT&T more interesting from 2014-2024 than 2004-2014. But AT&T is still great for people who have the goal of receiving high current income organically that inches upward each year. If the starting premise is that you buy assets you are going to hold until you die (I recognize not everyone sees the appeal in going through life collecting permanent ownership stakes in businesses), AT&T is one of the few places you can go to find safe 5% income that grows a bit with time.
    Jul 15 04:54 PM | 1 Like Like |Link to Comment
  • $3,000 Annual AT&T Dividends Are Like An Aesop Fable Sprung To Life [View article]
    Peter,

    I have no idea if you'll find this helpful, but here is what I get out of research projects I do for myself like this.

    Even though AT&T only grew at 2%, the starting yield was so high the mere fact that it *grew* over time led to returns in the 8% or so ballpark, a big chunk of which comes from dividend income.

    If the DirecTV deal goes through, some people are talking about a permanent bump upward so that AT&T might have a growth rate from 2014-2024 that is in the 4% or 5% range. Coupled with a 5% dividend range, that's nice.

    I sort of laid out the information about what the past ten-year picture looks like. What I hope that would spark for the reader is an internal monologue like this: Does AT&T seem likely to grow by at least 2% annually over the next decade, and if I answer that in the affirmative, would I be comfortable with the dividend income and total returns offered by that prospect? I'm not concerned with whether you answer that question yes or no, but I want to contribute to fellow investor's thought process as best I can.
    Jul 14 04:00 PM | 22 Likes Like |Link to Comment
  • Visa Is Only Expensive If You Can't Think 5 Years Ahead [View article]
    Buy and Hold,

    Thanks for stopping by. As I've noted in previous exchanges, I find your story very inspiring. If we could get about a hundred thousand more people in this country to be more like you, our country would once again possess the kind of backbone that schoolteachers allude to the historical American as possessing.

    You said you don't pay more than 20x earnings for a stock. That's a policy that will weed out a whole lot of heartache. Such a policy weeds out a whole lot of investing sins of commission.

    The reason why I don't do it? Because ignoring the rare excellent company trading above 20x earnings creates fertile soil for creating the investing sin of omission (In 1992, Starbucks entered the market trading at 50x earnings, and yet, has compounded at 25% annually since then, turning $10k into over $1.2 million). I don't mention that to argue that every pricey company is the next Starbucks, only to show that great wealth can be made by purchasing well-established companies at north of 20x earnings.

    Visa tends to make more money each quarter than the previous one. This past quarter, Visa made $2.20 in profit. In other words, the company should be making at least $8.80 per year, if you size up the company as is. At 20x earnings, you'd find it worth no more than $176. In other words, you would find it primed for a 23% pullback.

    Fair enough, but here is what I see: constantly growing earnings that keep raising the base on what would constitute Visa's fair value. It's a ceiling permanently on the rise.

    Within a year, it wouldn't be terribly surprising if Visa's quarterly earnings figure was around $2.50 per share. What happens when it's normalized profits are $10? Well, you'd be willing to pay $200 per share.

    Compared to six years ago, Visa is now making as much per quarter as it made throughout the entire year in 2008. A person who paid $60 per share in 2008 was buying an initial earnings yield of 4.16%, or about 24x earnings (similar to the situation that exists today). Now, those shares purchased for $60 per share are pumping out $8.80 per share in profits going forward. In just six years, that 4.16% earnings yield on your investment has grown into a 14.67% earnings yield-on-cost. When given time, Visa makes your capital much, much more productive.

    For the overwhelming bulk of an investment portfolio, following Graham's rule that we shouldn't pay more than 20x earnings is a great, intelligent dose of conservatism that will lead to good returns. The only drawback with following this approach is that you will omit some great investments.

    Personally, I try to guard against errors of omission as much as errors of commission. That means using common sense and independent judgment to find the rare companies that can deliver outstanding long-term returns despite their seemingly high initial valuation.

    People get mad at the companies they buy that lose 30% or 40%, and show signs of permanent capital loss (think of a purchaser of AIG from 2007 who will wait for decades to get ahead). In my case, I also get mad at the opportunities I had the skill and knowledge to pursue, but declined to do so. Visa advertises everywhere, has an oligopoly on its market, no debt, is growing at over 30% in some countries, growing at 8% in the U.S., and is buying back massive blocks of stock. The 15% annual growth could continue for quite some time. If I look and see such superior business performance, I couldn't live with myself for not acting on it. To me, few things are worse than having the knowledge and skill to do something life-changing, and then gradually letting the opportunity slip away through inaction.
    Jul 13 11:49 AM | 11 Likes Like |Link to Comment
  • Bank Of America Is My Best Subversive Dividend Idea [View article]
    I think you are correct to note that there is a political angle affecting Bank of America's payout policy.

    It almost always sucks when you're at the mercy of a person or entity who speaks of "being tough on X" or "having a zero tolerance policy for Y" because it means the one wielding power over you is more focused on appearance than substance.

    The basis for forcing Bank of America to resubmit their plans is likely the result of posturing and a desire to look tough on the big bad banks because, really, there is no question that Bank of America possesses the capacity to make this payout.

    That said, Bank of America could still learn a thing or two from Wells Fargo and Richard Davis at US Bancorp.
    Jul 11 05:33 AM | 3 Likes Like |Link to Comment
  • Is Dow 17,000 Dangerously High? This Comprehensive Review May Surprise You! [View article]
    Chuck, I'm going to need to create a standard form "Excellent job!" and save it to Microsoft Word so I can pull it out every time you write an article because the consistency of your excellence is getting to that point.

    It's unfortunate that people often talk about certain mile markers in the stock market: 10,000; 15,000; 20,000, or whatever--without taking into account the underlying profitability shifts that accompany those changes in stock price.

    Broadly speaking, it's not problematic if we see Dow 20,000 *if* stock earnings also grow another 15% or 20% to bring the actual profits in line with the index changes.

    More narrowly speaking, we only have to find one place at a single point in time in which case the underlying earnings present an attractive opportunity in relation to the stock price. It is tolerable if 29 out of 30 stocks in an index are selling at a premium so long as you can find one place to put your money that is fair.

    Sure, it takes time to figure out which stocks apply to those definitions, but luckily, you're a teacher with an open-door policy when it comes to entering the classroom of your 370 articles. Thank you, sir.
    Jul 9 02:42 PM | 21 Likes Like |Link to Comment
  • Dividend Growth Investing: Is It A Strategy Of Cliches? [View article]
    Dave, this is a great piece. I've always been somewhat in awe of Colgate-Palmolive's long-term returns, especially because it never seems cheap at a given moment. Heck, even in 2008 and 2009, the price Colgate was offering only seemed fair, at a time when most companies were trading as if they'd never make a profit again.

    Perhaps dollar-cost averaging into Colgate Palmolive would be wise? My guess is that, at the time of purchase, people who buy Colgate will always feel as if they're overpaying a bit. But then, once you open up the time frame ten, fifteen, twenty years or more, its dividend growth and total returns are devastatingly good.

    Turns out selling toothpaste, mouthwash, and cleaning products at significant premiums to cost and slowly replicating that strategy throughout the world can make a lot of people rich if you find yourself on the ownership, rather than consumer, side of the equation.

    You deserve praise for your wisdom in recognizing this during the 1980s, and educating other investors on this path to success. Even if it's not for everybody, the long-term story for Colgate-Palmolive holders is not one of regret, but rather, almost extreme wealth creation. Well done.
    Jul 7 03:38 PM | 12 Likes Like |Link to Comment
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