Bonds Are Not Safer Than Blue-Chip Stocks [View article]
Prem, sorry it took me so long to get back to you: Ernie Els captured my attention today.
I can't see the US facing any long-term deflation, and here's why:
The US can solve its problems in one of three ways: (1) Take an axe to Social Security, Defense, Medicare, etc. (i.e. reduce expenses) (2) Raise taxes in a way that increases revenue (without a proportionate increase in spending) (3) Print a ton of money to create inflation so that the current debt becomes worth less down the road
The first option will most likely get a politician thrown out of office. I used to work at the congressional office of a very conservative Missouri Republican, and when John Boehner suggested raising the retirement age in an interview, the phones rang off the hook for a week. From what I can tell, the elderly citizens have basically said, "You touch my Social Security and I'll dedicate my civic energy and voting decisions to the purpose of removing you from office." If a politician asked me for an easy way to lose an election, I would tell him to start airing commercials promising to destroy Social Security.
The other big entitlement programs enjoy similar support from the beneficiaries of such programs. So I don't see Option #1 as highly likely.
The second option involves raising taxes. The problem with that is that most tax increases are aimed at the rich (that is to say, we don't have a tax structure that says, "Tax the first $1,000 of dividends at 80%, the next $10,000 at 50%, and all dividends after that at 5%." Although there are some forms of taxation that can be particularly oppressive to the middle class (the payroll tax comes to mind), we generally aim tax increases at the more affluent. The upcoming "Taxmaggeddon" on dividends comes to mind. If you're rich and try to be tax inefficient, you can see your dividends go from getting taxed at 15% to over 40%. Why is this a bad budget strategy for politicians? Well, politicians have to fundraise to raise money for ads so they can get re-elected.
Is that $50,000 donation more likely to come from a schoolteacher or the CEO of a Fortune 500 company? As a general rule, rich people do not like large tax increases, and they are unlikely to fund the re-election of a politician who calls for the tax hikes that will be necessary to fix the budget. In fact, he or she is most likely to give money to such a politician's opponent.
Also, there's the likelihood that tax increases will lead the affluent to modify their behavior in a way that does not lead to the revenue increases expected.
In a nutshell, that's why I think that we'll go with Door #3. If Congress won't take steps to reduce the $9 trillion deficits expected over the next 10 years, the only alternative course is to run the printing presses (actually they're mostly electronic debits now) and once the new money supply starts to eclipse the old money supply (paper dollars + bank credits), inflation starts to accelerate.
My belief in inflation comes down to this: Politicians, who are interested in self-preservation like everyone else, most likely believe they will lose their jobs if they take an axe to the entitlement state or hike the taxes on the wealthy in a way to effectively tackle the budget (note: the current projected increase on dividends and capital gains set to take place in 2013 come nowhere near shoring up the budget). Considering that wealth can be mobile, it's not feasible to tax the very affluent at 80-90% without them renouncing their citizenship and leaving the country. That means we'll have $9-$10 trillion worth of deficits to contend with over the next decade (depending on our wars and other variables). Given that our currency is not backed by a hard metal and we can create new monies whenever we please, I think our government's response to our budget crisis will mean that inflation will be inevitable.
That's why I'm not betting on us facing a Japan style period of deflation down the road.
Why Dividend Investors Do Not Have To Worry About A Bubble [View article]
Buffett says he crosses out the line that includes EBITDA when evaluating a stock. Munger said EBITDA is code for "bullshit earnings." So I don't pay much attention to that metric in my evaluation. If you want to know why I disregard it, watch this six minute satirical video on EBITDA: http://bit.ly/Sp1vTL
You say: "Divvies are nice,and increasing divvies are nicer. But only if the company has increasing cash flow to support them" and "to continuously increase dividends in such a situation is irresponsible at best."
How does Becton Dickinson not have increasing cash flow? It was $7.34 per share in 2010. It was $8.27 in 2011. And it's going to be around $8.80 this year. Becton Dickinson's dividend is only around 20% of this year's estimated cash flow. They're not exactly at risk of having to take out loans to cover its dividend payment.
"Before blindly jumping into high yielding dividend stocks it's worthwhile looking at the financial statements."
BDX's dividend is only 2.42%. If anything, most dividend investors here won't consider it because the yield is too low, so I wouldn't put it in the high yielding category. And you're setting up a straw man with the last part of your argument--I've never advocated making an investment without full due diligence or financial statement examination.
Why Dividend Investors Can Ignore Stock Prices [View article]
All right man, enough with the Polonius insults.
I disagree with you on this: "Buy good-quality stocks low, hold them forever, and you won't go wrong" isn't advice.
I think it is advice because companies like Coke and Johnson & Johnson have decent roadmaps to long-term growth, and once you buy them at an appropriate price, it could be quite lucrative to hold them indefinitely. I don't know anyone who has held Johnson & Johnson stock for 30+ years, but it's a story I look forward to telling.
Why Dividend Investors Can Ignore Stock Prices [View article]
Spangler, Altria investors did phenomenally well because people believed earnings would fall when in fact they didn't. In Altria's case, the price dropped even though earnings and dividends kept growing.
"Price will not drop if earnings and dividends keep growing"
I disagree.
Coke traded at a high of $65.60 in 2008 and fell to $37.40 in 2009. Yet, Coke is earning $4.10 per share now compared to $2.57 in 2007, and paying out $2.04 in dividends in 2012 compared to $1.36 in 2007. The price dropped from 2008 to 2009, yet the long-term earnings and dividend growth continues.
Wouldn't it have been great to reinvest at $37.40? Each share bought with reinvestment at that price would now be worth $75.
Over the short and medium term, I think stock prices can do anything. Over the long term, they ought to roughly match up to the growth of the firm in question.
Is It Time For Dividend Growth Investors To Be Buying Cyclicals? [View article]
"and dividend cuts 30 years ago when the cost to borrow was exceedingly high and the company's business model was significantly different is totally irrelvant anyways."
Then why don't you write that in the article instead?
You wrote: "Deere has raised its dividend by 14% a year on average over the last five years, the company's payout ratio is a very reasonable 21%, and Deere has never cut its dividend."
When you say that a company has never cut its dividend, guess what the readers are going to think? That the company has never cut its dividend.
If you just said, "Whoops, I didn't look back that far. Thanks for letting me know, richjoy", then no one would be mad at you. It would make it seem like you care about being right. I know I make my fair share of mistakes, and most people can forgive them as long as I'm trying to learn, do better, and get it right eventually.
Why Dividend Investors Should Rely On The Past [View article]
*Slower European expansion may be offset by growth/better performance in the biosciences division *The dollar might weaken when Europe recovers, or our trillion dollar deficit takes its toll *Ehh...the Supreme Court might knock down Obamacare. Either way, Johnson & Johnson, Owens & Minor, and Becton Dickinson ought to be the least affected by it since diagnostic demand ought to increase regardless *Value Line predicts 9% earnings growth over the medium term, 6% from the top line and the rest from dividend buybacks (I agree with you that earnings growth might be slow over the next twelve months)
I don't understand your need to bring this up right now. Even when you agree with the general thesis of an article I write, you still feel the need to make the compliment qualified by bringing up something negative from the past. I don't get that.
Procter & Gamble: History Of A Dividend Champion [View article]
David, excellent points. It reminds me of one of Buffett's long-term holdings American Express, which had a history like this from 1968 to 1994:
* 1968: Acquires Fireman's Fund Insurance Co., a large property and casualty insurer.
* 1979: Hostile attempt to take over McGraw Hill Publishing fails.
* 1981: Acquires Shearson Loeb Rhoades, a leading brokerage house. Shearson becomes an independently operated subsidiary and acquires Robinson-Humphrey, a brokerage firm; Foster & Marshall, a securities firm, and Balcor, a real estate syndicator.
* 1982: Reorganizes under a holding company called American Express Corp.; its travel services become a wholly owned subsidiary, American Express Travel Related Services.
* 1984: Purchases Investors Diversified Services, a financial planning company. Shearson acquires Lehman Bros. Kuhn Loeb, a brokerage firm, and becomes Shearson Lehman Bros. Holdings Inc.
* 1985: Fireman's Fund Insurance Co. is spun off, marking the beginning of American Express' formal exit from the insurance business.
* 1987: Optima Card is introduced, allowing cardholders to extend payments for purchases over time.
* 1988: Shearson subsidiary acquires E.F. Hutton, becoming Shearson Lehman Hutton Inc. Shearson later discovers that Hutton came with huge hidden liabilities.
* 1990: Shearson subsidiary reports a $900-million first-quarter loss, one of the biggest ever by a securities firm.
* March, 1993: Retail brokerage segment of Shearson is sold to Primerica Corp.
* Jan. 24, 1994: Plans are announced to spin off Lehman Bros. to its shareholders and the firm's employees.
Think Buffett had any idea that stuff would come? Heck no. Find the companies with the best moats, and as time goes, observe whether it strengthens or weakens them, and adjust your portfolio accordingly.
The Best Thing Warren Buffett Has Said All Year [View article]
Thanks, Matsebula. I recognized that if you can get a 3.7 GPA or better in high school and score above a 32 or so on the ACT, then you can get a full tuition scholarship. For law school, same story, except switch LSAT with ACT. Putting myself in a situation to benefit from that realization saved me hundreds of thousands of dollars (literally). If I worked at minimum wage and got worse grades/test scores, I'd be paying tuition somewhere around $20,000 or so per year while having what, a $5,000 portfolio? That would be penny wise and pound foolish.
Dividend Growth Investing: Beating Inflation With Long-Term Investing [View article]
@rw84041,
That's why I like the dividend crowd. Not only do I like what they say, but I like how they say it. Can you imagine if you asked David Fish a question and he responded, "Give me $20 and I'll tell you."
The whole David gang at Seeking Alpha reminds me of the teachers who stay after school and tutor the students because it's in their nature to help others learn.
2012 Predictions Are Quite Easy For Dividend Investors [View article]
Oh yeah. Exams are over with (thank you Lord). Don't have to go back to the grind until mid-January. I'm trying to spend 4 hours per day writing, so I can claim I wasn't a complete sloth for a month.
Why Tobacco Bonds Are Likely To Outperform Tobacco Stocks Significantly Over The Next Decade [View article]
I think there's a meaningful difference. If a 15% rate gets increased by five percent, it is now up to 15.75%.
If a 15% rate gets increased by five percentage points, it is now up to 20%.
I disagree with your characterization that they are essentially the same.
Bonds Are Not Safer Than Blue-Chip Stocks [View article]
I can't see the US facing any long-term deflation, and here's why:
The US can solve its problems in one of three ways:
(1) Take an axe to Social Security, Defense, Medicare, etc. (i.e. reduce expenses)
(2) Raise taxes in a way that increases revenue (without a proportionate increase in spending)
(3) Print a ton of money to create inflation so that the current debt becomes worth less down the road
The first option will most likely get a politician thrown out of office. I used to work at the congressional office of a very conservative Missouri Republican, and when John Boehner suggested raising the retirement age in an interview, the phones rang off the hook for a week. From what I can tell, the elderly citizens have basically said, "You touch my Social Security and I'll dedicate my civic energy and voting decisions to the purpose of removing you from office." If a politician asked me for an easy way to lose an election, I would tell him to start airing commercials promising to destroy Social Security.
The other big entitlement programs enjoy similar support from the beneficiaries of such programs. So I don't see Option #1 as highly likely.
The second option involves raising taxes. The problem with that is that most tax increases are aimed at the rich (that is to say, we don't have a tax structure that says, "Tax the first $1,000 of dividends at 80%, the next $10,000 at 50%, and all dividends after that at 5%." Although there are some forms of taxation that can be particularly oppressive to the middle class (the payroll tax comes to mind), we generally aim tax increases at the more affluent. The upcoming "Taxmaggeddon" on dividends comes to mind. If you're rich and try to be tax inefficient, you can see your dividends go from getting taxed at 15% to over 40%. Why is this a bad budget strategy for politicians? Well, politicians have to fundraise to raise money for ads so they can get re-elected.
Is that $50,000 donation more likely to come from a schoolteacher or the CEO of a Fortune 500 company? As a general rule, rich people do not like large tax increases, and they are unlikely to fund the re-election of a politician who calls for the tax hikes that will be necessary to fix the budget. In fact, he or she is most likely to give money to such a politician's opponent.
Also, there's the likelihood that tax increases will lead the affluent to modify their behavior in a way that does not lead to the revenue increases expected.
In a nutshell, that's why I think that we'll go with Door #3. If Congress won't take steps to reduce the $9 trillion deficits expected over the next 10 years, the only alternative course is to run the printing presses (actually they're mostly electronic debits now) and once the new money supply starts to eclipse the old money supply (paper dollars + bank credits), inflation starts to accelerate.
My belief in inflation comes down to this: Politicians, who are interested in self-preservation like everyone else, most likely believe they will lose their jobs if they take an axe to the entitlement state or hike the taxes on the wealthy in a way to effectively tackle the budget (note: the current projected increase on dividends and capital gains set to take place in 2013 come nowhere near shoring up the budget). Considering that wealth can be mobile, it's not feasible to tax the very affluent at 80-90% without them renouncing their citizenship and leaving the country. That means we'll have $9-$10 trillion worth of deficits to contend with over the next decade (depending on our wars and other variables). Given that our currency is not backed by a hard metal and we can create new monies whenever we please, I think our government's response to our budget crisis will mean that inflation will be inevitable.
That's why I'm not betting on us facing a Japan style period of deflation down the road.
Why Dividend Investors Do Not Have To Worry About A Bubble [View article]
You say: "Divvies are nice,and increasing divvies are nicer. But only if the company has increasing cash flow to support them" and "to continuously increase dividends in such a situation is irresponsible at best."
How does Becton Dickinson not have increasing cash flow? It was $7.34 per share in 2010. It was $8.27 in 2011. And it's going to be around $8.80 this year. Becton Dickinson's dividend is only around 20% of this year's estimated cash flow. They're not exactly at risk of having to take out loans to cover its dividend payment.
"Before blindly jumping into high yielding dividend stocks it's worthwhile looking at the financial statements."
BDX's dividend is only 2.42%. If anything, most dividend investors here won't consider it because the yield is too low, so I wouldn't put it in the high yielding category. And you're setting up a straw man with the last part of your argument--I've never advocated making an investment without full due diligence or financial statement examination.
Why Dividend Investors Can Ignore Stock Prices [View article]
I disagree with you on this: "Buy good-quality stocks low, hold them forever, and you won't go wrong" isn't advice.
I think it is advice because companies like Coke and Johnson & Johnson have decent roadmaps to long-term growth, and once you buy them at an appropriate price, it could be quite lucrative to hold them indefinitely. I don't know anyone who has held Johnson & Johnson stock for 30+ years, but it's a story I look forward to telling.
Why Dividend Investors Can Ignore Stock Prices [View article]
"Price will not drop if earnings and dividends keep growing"
I disagree.
Coke traded at a high of $65.60 in 2008 and fell to $37.40 in 2009. Yet, Coke is earning $4.10 per share now compared to $2.57 in 2007, and paying out $2.04 in dividends in 2012 compared to $1.36 in 2007. The price dropped from 2008 to 2009, yet the long-term earnings and dividend growth continues.
Wouldn't it have been great to reinvest at $37.40? Each share bought with reinvestment at that price would now be worth $75.
Over the short and medium term, I think stock prices can do anything. Over the long term, they ought to roughly match up to the growth of the firm in question.
Is It Time For Dividend Growth Investors To Be Buying Cyclicals? [View article]
Then why don't you write that in the article instead?
You wrote: "Deere has raised its dividend by 14% a year on average over the last five years, the company's payout ratio is a very reasonable 21%, and Deere has never cut its dividend."
When you say that a company has never cut its dividend, guess what the readers are going to think? That the company has never cut its dividend.
If you just said, "Whoops, I didn't look back that far. Thanks for letting me know, richjoy", then no one would be mad at you. It would make it seem like you care about being right. I know I make my fair share of mistakes, and most people can forgive them as long as I'm trying to learn, do better, and get it right eventually.
Why Dividend Investors Should Rely On The Past [View article]
*The dollar might weaken when Europe recovers, or our trillion dollar deficit takes its toll
*Ehh...the Supreme Court might knock down Obamacare. Either way, Johnson & Johnson, Owens & Minor, and Becton Dickinson ought to be the least affected by it since diagnostic demand ought to increase regardless
*Value Line predicts 9% earnings growth over the medium term, 6% from the top line and the rest from dividend buybacks (I agree with you that earnings growth might be slow over the next twelve months)
I don't understand your need to bring this up right now. Even when you agree with the general thesis of an article I write, you still feel the need to make the compliment qualified by bringing up something negative from the past. I don't get that.
Procter & Gamble: History Of A Dividend Champion [View article]
* 1968: Acquires Fireman's Fund Insurance Co., a large property and casualty insurer.
* 1979: Hostile attempt to take over McGraw Hill Publishing fails.
* 1981: Acquires Shearson Loeb Rhoades, a leading brokerage house. Shearson becomes an independently operated subsidiary and acquires Robinson-Humphrey, a brokerage firm; Foster & Marshall, a securities firm, and Balcor, a real estate syndicator.
* 1982: Reorganizes under a holding company called American Express Corp.; its travel services become a wholly owned subsidiary, American Express Travel Related Services.
* 1984: Purchases Investors Diversified Services, a financial planning company. Shearson acquires Lehman Bros. Kuhn Loeb, a brokerage firm, and becomes Shearson Lehman Bros. Holdings Inc.
* 1985: Fireman's Fund Insurance Co. is spun off, marking the beginning of American Express' formal exit from the insurance business.
* 1987: Optima Card is introduced, allowing cardholders to extend payments for purchases over time.
* 1988: Shearson subsidiary acquires E.F. Hutton, becoming Shearson Lehman Hutton Inc. Shearson later discovers that Hutton came with huge hidden liabilities.
* 1990: Shearson subsidiary reports a $900-million first-quarter loss, one of the biggest ever by a securities firm.
* March, 1993: Retail brokerage segment of Shearson is sold to Primerica Corp.
* Jan. 24, 1994: Plans are announced to spin off Lehman Bros. to its shareholders and the firm's employees.
Think Buffett had any idea that stuff would come? Heck no. Find the companies with the best moats, and as time goes, observe whether it strengthens or weakens them, and adjust your portfolio accordingly.
Very well articulated!
The Best Thing Warren Buffett Has Said All Year [View article]
The Best Thing Warren Buffett Has Said All Year [View article]
The Best Thing Warren Buffett Has Said All Year [View article]
My Fear As A Dividend Investor [View article]
Who let us out of the cage?
Newsflash: The Dividend Aristocrats Found The Lost Decade [View article]
Carnevale hits another one out of the park.
Dividend Growth Investing: Beating Inflation With Long-Term Investing [View article]
That's why I like the dividend crowd. Not only do I like what they say, but I like how they say it. Can you imagine if you asked David Fish a question and he responded, "Give me $20 and I'll tell you."
The whole David gang at Seeking Alpha reminds me of the teachers who stay after school and tutor the students because it's in their nature to help others learn.
Folks are much friendlier around these parts.
2012 Predictions Are Quite Easy For Dividend Investors [View article]