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Tim McAleenan Jr.

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  • Boeing: 50% Dividend Hike Good, Buybacks Destroy 30% Of Shareholder Value [View article]
    "If BA is $200 in three years, management is a hero."

    Couldn't a $200 per share price indicate that a stock has gone from overvalued to even more overvalued?

    However, if Boeing grows organic, sustainable profits by 75% in the next three years (and thus increases its profit baseline), then I'd be inclined to agree that the buyback was wise in retrospect.
    Jan 12, 2014. 09:20 AM | Likes Like |Link to Comment
  • Stocks For 2014: Something For Everyone: Part 1 [View article]
    "Even a seasoned investor like you, with decades of experience in analyzing companies, can not significantly outperform the index..."

    Lots of problems with reaching that conclusion:

    (1) Chuck didn't say he bought them on that date, merely that he owned them on that date. His purchase prices could have been much lower, and his total returns much greater.

    (2) You're assuming that he owned them exactly equally weighted, which is probably unlikely to be the case. What if Walgreens was his largest position by far out of the group?

    (3) You assume that represents his complete portfolio, rather than just the part of the iceberg that Chuck chose to share with the public.

    Also, two years is nowhere near long enough of a time to form any conclusions about a strategy. And, even if the stats were true, beating the market by 2.5% over long periods of time would lead to extraordinarily large differences in outcome.
    Jan 11, 2014. 10:00 PM | 4 Likes Like |Link to Comment
  • The Passing Of Dr. Eugene Narrett (Emmet Kodesh) [View article]
    Terrible news. I'm very sorry to hear this, and I pray that Dr. Eugene Narrett has found a permanent peace.
    Jan 6, 2014. 03:57 PM | 4 Likes Like |Link to Comment
  • The Perfect Portfolio: End Of Year Review [View article]
    Dave, great read. Keep rockin' it in 2014.
    Jan 1, 2014. 11:20 AM | 3 Likes Like |Link to Comment
  • BP: A Great Source Of Dividends And Long-Term Gains [View article]
    Thanks, Larry! It's nice for me to hear that. I hope your 2014 is off to a good start.
    Jan 1, 2014. 10:46 AM | Likes Like |Link to Comment
  • BP: A Great Source Of Dividends And Long-Term Gains [View article]

    The current dividend is $2.28. Over three years, you'd collect at least $6.84 in total cash (i.e. twelve dividends paid) without factoring in the increases.

    Those big oil dividends matter. Since the $0.48 dividend at the start of 2012, the current dividend has increased 18.74% to the current $0.57 quarterly dividend payout. And if you had been reinvesting along the way, you'd be sitting on a 29.5% increase due to the additional shares.

    It's crazy: BP has just been sitting there in the $40s, the dividend goes up a few cents here and there, and yet someone that reinvests would have seen his income grow by almost 30% with this company since the start of 2012. The headlines don't report it, but the income generated by BP stock has quietly been making people richer these last two years.

    This stuff's great.
    Dec 31, 2013. 05:52 PM | 6 Likes Like |Link to Comment
  • The Role Of ExxonMobil's Buyback In Creating 10% Growth [View article]
    I made the bulk of the purchase at a little under $40. I have a number of shares in mind that I want to hit, and I'm going to exclusively focus on Coca-Cola until I get there, or the price quickly rises to $50 per share and I have to go look somewhere else.

    Even though it is talked about all the time, I don't think people realize just what a diversified, cash-generating monster it is. It has sixteen billion-dollar brands, but I only know of thirteen of them by name: Coke, Diet Coke, Fanta, Del Valle, Dasani, Sprite, Coca-Cola Zero, Vitaminwater, Powerade, Minute Maid, Simply, Minute Maid Pulpy and Georgia.

    The fact that they are all folded under the Coca-Cola brand is deceiving. Imagine if they were all separately traded companies, and you owned stock in each: you had stock in Sprite, you had stock in Powerade, you had stock in Coca, you had stock in Fanta, you had stock in Vitaminwater, you had stock in Minute Maid, and so on. You'd feel like the freakin' king of beverages.

    Yet, you can do that just by clicking on the "KO" screen on a brokerage account. It's so straightforward and deceptively simple and people ignore it.

    If you study Jeremy Siegel, you will know that Philip Morris was the best stock of the 20th century, often giving investors returns of around 20% annually. Here's why it dominated: the product costs nothing to make, it sells for a lot more because of the brand name (i.e. Marlboro), tons of cash can be extracted from the company, it's a very scalable business, and it sells an affordable product that gets repeated ad nauseum. Also, there is pricing power thrown in there. All of this explains why Philip Morris has rocked the house over the past century.

    Coca-Cola is much the same thing. The syrup concentrate costs a few cents, tons of cash can be extracted from the company, good lord it is scalable, it only sells for $1, and the consumption habits of the different products are on autopilot. It possesses the same exact character traits as the old Philip Morris (in fact, Coca-Cola is habit-forming as well, but it in a more moderate form), and the business model seems to have sprung up from the pages of Siegel's research itself.

    As an aside, the one material difference between the old Philip Morris and Coca-Cola is that the old Philip Morris always traded at a cheap valuation, and had a much higher dividend yield. This explains why Philip Morris gives investors 20% returns over super long periods of time, whereas Coca-Cola is more likely to fall into the 11-14% range.

    Some people say Coca-Cola is behind the 8-ball and is way too reliant on soda. I think they're nuts. Check out this link, it lists all of the 500 brands owned by the Coca-Cola umbrella:

    The soda business in the United States is only like 10-15% of what Coca-Cola does. Soda consumption is going up everywhere else in the world, and it will go up here eventually as well. The concerns are way overwrought. Look at that portfolio of brands! Get off your U.S. centric worldview and look at Coca-Cola consumption everywhere else.

    It has the most straightforward, guaranteed avenue for profit growth in the world: it has huge distribution networks that cannot be replicated, and even its competitors have to use them. You cannot produce a drink cheaper than Coca-Cola. Furthermore, it has the best brand names in the world that give it pricing power. And it sells a product that people buy ad nauseum.

    It has the most consistent formula for long-term dividend growth on the planet. There is a reason why Warren Buffett clutches onto those 400,000,000 shares for dear life over the past 25 years. There is a reason why Fayez Sarofim collects millions and millions of dividends each quarter with the stock. There's a reason why when Charlie Munger takes over a hospital trust, the first thing he does is convert some of the existing investments into Coca-Cola stock. Instead of looking for the next Coke, people should be buying THE Coke.

    You have Donald Yacktman going on TV and saying, "Coke is a good buy here, the bottling transactions are making it seem more expensive than it really is. That 20-21x earnings P/E ratio is really more like 17-18x earnings." How many of these super long-term investors need to say, "Hey, this is the greatest company I've ever seen" before it's our job to give it a good, hard look and see if they are right.

    Whatever excites you about a long-term investment, Coca-Cola possesses. The revenue is diversified across 200 countries with 500 different brands. There are segments of the global population that use the word "Coke" when discussing soda or pop. It's like Kleenex or Google in that regard. The company pays almost nothing to make the product, and earns 30% returns on equity. Thirty. Percent. Profits have increased in 76 of the past 80 years. The dividend has been steady since 1893 when it was private. It's been increasing every year since that son-of-a-gun killed Kennedy. This is a "bad year" for Coca-Cola, and profits have still gone up 7%. It gives you raises almost tripled the rate of inflation each year. That turns into huge dividends and capital gains, in a very reliable and obvious manner. What more could you ask for?

    Coca-Cola stock is the greatest insurance policy you can carry through life. Nothing in this world is guaranteed, but if I had to craft a strategy that called for me to get 10% increases in income every year until I die, I could not come up with a better idea than purchasing Coca-Cola stock. If reliable, significant wealth creation without much effort is your goal, there is no better place to look.

    Drinking is the most basic of human needs. Coca-Cola gives you 500 different ways to meet that need. It is the cash cow that allows restaurants and gas stations to turn a profit; the concept of making something for $0.05 and selling it for a little over $1.00 is the most lucrative thing that exists in the world.

    I've been on this site for two years, and there's only so many ways to say "buy Coca-Cola". It never seems to do anything, and I know it bores the hell out of people, but you know what, the cash income from Coca-Cola has increased 19.14% since I've started writing here. Where else can you get those kinds of guaranteed growth without having to do a damn thing? You just sit there, and the check amount goes up year after year like clockwork.

    My attitude towards Coca-Cola is: "Just write the damn check and become an owner." Wash, rinse, and repeat. The 500+ brands. The cheap $0.05 per serving production. The great scope across 200+ nations. The 30% returns on equity. The rich history. The endorsement of well-respected long-term investors. In this case, long-term financial security is about daring to do the obvious. It's not just for widows and orphans. It's for people who want to build inter-generational wealth and want to see large raises above inflation each year while you have the pleasure of kickin' it on this mortal coil. If I wrote one of those "How To Be A Millionaire" books, it would be one sentence long: Find a few hundred dollars each month and keep buying Coca-Cola, and time will do the heavy lifting until you become the beverage tycoon of your town.
    Dec 31, 2013. 03:09 PM | 7 Likes Like |Link to Comment
  • The Role Of ExxonMobil's Buyback In Creating 10% Growth [View article]
    Thanks buyandhold. I really appreciate that.

    Happy New Year!

    Dec 30, 2013. 11:38 PM | Likes Like |Link to Comment
  • A Strategic Shift In My Dividend Portfolio [View article]
    Miz, you can call me whatever you want.

    With all the good will the name David generates around here, I figured I might as well get in on the action ;)
    Dec 30, 2013. 04:00 PM | 3 Likes Like |Link to Comment
  • The Role Of ExxonMobil's Buyback In Creating 10% Growth [View article]
    All I'm doing these days is buying Coca-Cola. We'll see how that works out.
    Dec 30, 2013. 03:58 PM | 2 Likes Like |Link to Comment
  • Lorillard: Big Dividends, Relentless Buybacks, And Nice Growth [View article]
    My calculations use the post split figures. A stock split does not affect anyone's actual ownership interest because it is the equivalent of cutting up a pizza from 4 pieces into 12 pieces. The buybacks, however, gradually reduce the number of people with whom you have to share the pizza.

    If there was no split, I would be talking about the share count going from 170 million to 123 million, instead of 520 to 370. The economic reality of the buyback continues undisturbed, even if Lorillard announced a 100 for 1 stock split tomorrow. The stock split is entirely cosmetic, and does not reduce the effectiveness of a robust buyback.
    Dec 29, 2013. 12:02 PM | 4 Likes Like |Link to Comment
  • A Strategic Shift In My Dividend Portfolio [View article]
    Thanks Christine. That about sums up my current perspective. When I was studying Coca-Cola, I reached the conclusion that earnings are artificially depressed due to bottling reconfigurations. You're starting to see heirs and beneficiaries of old bottlers sell out their interests to Coca-Cola. This sucks up capital in the short-term, but in my opinion, makes Coca-Cola more of a cash cow in the long term.

    In other words, even though people using stock screeners "see" a price of 20x earnings (which is accurate), the earnings power is more like 17-18x earnings because this has been a big year of bottling transactions for Coca-Cola.

    Sometimes, when I say things like Coca-Cola has over 500 brands, people don't really realize what that says about Coca-Cola. Making money in 200+ countries is a heck of an accomplishment; not many businesses can say they have bases in more countries than the United Nations.

    I watched this video over break:

    If that doesn't make someone want to save up every disposable penny they have and put it into Coca-Cola stock, then nothing will.

    The breadth of Coca-Cola's manufacturing, the strength of their brand names, and the fact that it only costs a few cents in aggregate to sell a product for significantly more than that ($1-$2) is basically a license for Coca-Cola to print its own money as fast as it can.

    It took me a while to realize why every long-term investor I admire owns substantial amounts of Coca-Cola stock. I didn't realize what made it so special until I started to study the extraordinarily low cost of the product, the distribution network that is second to none in the beverage industry (heck, Dr. Pepper has to hire Coca-Cola to distribute its product in some instances), and dozens of brand names that mean something to people (the world is not filled with people that would rather pay $0.50 for Vess Soda than $1.00 for Coca-Cola, and therein lies the ability to mint money).

    Any way I ran the numbers, I couldn't see myself regretting buying Coca-Cola for under $40 in 2013 come fifteen years from now. The valuation is better than people think because of the bottling reconfigurations; the concerns about the soda bogeyman is a farce that is not hindering the company in a material way--if people don't drink Coca-Cola, they're drinking Powerade, Dasani Water, or something else that puts money into the accounts of KO shareholders. It's a classic case of "same pants, different pockets" syndrome with Coca-Cola profits.

    It's the best idea I've got, and I don't expect others to follow me ever, but this is an instance where I think this is a decision that will substantially improve my life years from now. Life is hard enough as it is, might as well go through it with a block of Coca-Cola stock spitting out more and more money each year to make things easier.
    Dec 27, 2013. 05:22 PM | 14 Likes Like |Link to Comment
  • Federal Realty Is A 'Rock Star' REIT Worth Keeping [View article]
    I have a couple thoughts:

    (1) I don't think the earnings quality of a company like Coca-Cola is directly analogous to something like Federal Realty Trust. Back in the day, Woodruff and Keough used to joke at Coca-Cola's annual shareholder meeting that if all the factories making cola burned down, they ought to be able to borrow $100 billion on the brand name alone.

    In their jest, they were showing extreme humility by demonstrating that the Coca-Cola brand of products are so powerful that management and production disasters would not be enough to derail the company. Is Federal Realty so strong that it cannot tolerate mangement blunders?

    Because of the amount of debt involved in real estate investing, and because real estate companies don't have any inherent brand strength, I would suggest that the comparisons between earnings quality are not even in the same ballpark--any REIT in existence is one incompetent buffoon away from bankruptcy. When Johnson & Johnson or Procter & Gamble hire incompetent CEOs, the worst that happens is earnings stagnate a bit for a few years.

    (2) Secondly, I have said in many of my articles (which you did not choose to quote) that there are points where the valuation becomes so excessive that it may even make sense to sell a blue chip.

    Federal Realty at $101 per share is not analogous to Coca-Cola at $40 per share. If Federal Realty ever has the valuation it experienced when interest rates hit 5%, then you are looking at 83% overvaluation. That would be roughly analogous, on a historical basis, to waking up tomorrow to see Coca-Cola trading at $69 per share (an 83% premium to Coke's historical 20x earnings rate).

    In some things I have written that did not get quoted in this article, I have drawn a line between modest overvaluation and gross overvaluation. Federal Realty seems to hit that gross territory in ways that Coca-Cola has not since the dotcom bubble days (incidentally, Coca-Cola has only returned 3-4% annually if you bought at its gross overvaluation, which might be a foreshadowing for those that buy Federal Realty here).

    (3) It seems we have a different opinion regarding the effect that interest rates have on stocks. I know that you enjoy quoting Benjamin Graham extensively--in the Columbia classroom, he always taught that you should compare possible investments to the risk-free rate of return, which is defined as either the ten-year or thirty-year US Treasury. As Zweig mentions in his footnotes to The Intelligent Investor, it is companies with the lowest PEG ratios that get hit the hardest when rates rise. In practice, that means utilities and REITs.

    For large chunks of Federal Realty's forty-year trading history, its dividend yield was one to two percentage points above the ten-year treasury. If ten-year treasuries rose from the current 3% to 5-6%, then Federal Realty would have to yield 7% or so. If that happened, the price would have to fall from $101 per share to $44 per share to get the $3.12 dividend (which just got raised) to yield over 7%.

    Of course, growth can offset this, but my article pointed out that Federal Realty would still deliver unsatisfactory results if it grew in line with its "highest" historical five-year pace, and had to endure significantly rising interest rates simultaneously.

    The only way Federal Realty investors can break even over the next 5-10 years is if FRT grows at the highest rate in its history, and rates don't increase.

    You cite to Graham's margin of safety principle quite a lot. But wouldn't you agree that if FRT's growth is slow, and/or interest rates increase substantially in the next five years, investors will find themselves in the position of the Coca-Cola investor that bought in 1997, enduring meandering 3-4% annual returns while the world passes them by?

    The only way you can make the numbers work with Federal Realty is if you assume historically high forward growth accompanied by no meaningful increase in interest rates. That's why the deck isn't stacked in your favor.
    Dec 24, 2013. 01:55 AM | 11 Likes Like |Link to Comment
  • Altria: 10-13% Annual Dividend Growth When You Reinvest Dividends [View article]
    If you want it cheap, I'd insist on a price below $31, based on current earnings. I would define fair value as $32-$41 (again based on current earnings). Of course, Altria's earnings have been blowing past expectations these past few years, so any analysis is constantly being revised upward as the earnings base improves.
    Dec 19, 2013. 08:13 PM | 1 Like Like |Link to Comment
  • Turn Your Roth IRA Into Your Own Oil Well [View article]
    Thanks for the kind words.

    This is the basic rule in the United States: Once an IRA generates over $1,000 in "Unrelated Business Tax Income" in a given year, you are subject to taxation on the amount in excess of $1,000. This is not necessarily the same thing as saying "$1,000 in distributions from an MLP." To determine which part is unrelated business tax income, your brokerage will send you a K-1 form (those often lag 1099's by a few months). Under Section 20, next to Code V, there will be a figure. That's your UBTI. If it is over $1,000, then you are subject to taxation, even though it is in an IRA. If it is under $1,000, you maintain full protection on your investment.

    If the figure is at or above $1,000, some brokerages will pay the fee and then deduct the cash from your account. If you do not have enough cash in the IRA, they will see the necessary amount of whole shares sold on a given day to satisfy the tax. Others place the burden on you to file the 990-T form to pay the tax.

    It's all about adding up the figures in Code V of Section 20 on your K-1's for your IRA holdings and seeing if that figure is above $1,000. If it's below, you're fine. And if it's above, you need to get in touch with your brokerage account to see how the 990-T form is handled for the purpose of paying the tax. There is a huge range in how the custodian of the assets handles this.

    You should note I'm not a tax advisor, but I'm just sharing with you my current understanding, and your best bet is to hire a tax advisor or engage in the wonderful experience of reading through the IRS website.
    Dec 19, 2013. 05:20 PM | 3 Likes Like |Link to Comment