S&P 500: Positive Dividend Actions Now at 2006 Levels [View article]
Here are the details of my analysis.
I supposed that one purchased SPY on the first trading day in May of each year. Why? Because this is the first day on which the data in this article could be actionable. If we're going to use the data we need to wait until the data is available.
I did a simple calculation of 1 year and 2 year forward returns for each of the years beginning in 2004. Of course, the 1 year return is not available for the May 2011 purchase and the 2 year return is not available for either the May 2010 or May 2011 purchases. I did one data series using actual SPY closes and another with "adjusted" closes that adjust for dividends.
I plotted these future returns against "Positive Dividend Actions" for each year. I did this in two ways: 1) "Positive Dividend Actions" count, which equals the number in the blue bars in the chart above. 2) "Positive Dividend Actions" percentage, which equals the number in the blue bars in the chart above divided by the total for each bar above (I had to estimate that reading the chart).
This results in four graphs, each containing both 1 year and 2 year forward returns vs. a "Positive Dividend Actions" metric.
In all cases it looks most like noise, but you can see that the low "Positive Dividend Action" year resulted in high future returns, while the high "Positive Dividend Action" years resulted in mixed forward results.
(The plots against "Positive Dividend Actions" *percentage* yielded better R^2 values than those against the "Positive Dividend Actions" *counts* for 2 year returns, but even those R^2 values were <0.4)
I won't continue this analysis, but the right thing to do would be to use a longer data set (going back before 2004) and to normalize future returns vs. average returns to test for "excess returns" (this removes the general long-term upward bias in the S&P500 from the data).
Anyway, my conclusion is that the data presented in this article is not useful for making market exposure decisions. I strongly doubt it is useful in making market sector allocation decisions either.
S&P 500: Positive Dividend Actions Now at 2006 Levels [View article]
And this is interesting why?
Does the "Positive Dividends Action", by itself or in combination with other well-defined data series, have any predictive power for future returns? If so, show us the data. Show us the model.
But no worries, I did my own little study using your data. I measured the forward returns on the S&P500 (*) vs. the "Positive Dividend Actions" in the chart. What did I find? Well, it's mostly noise, but there is a bit of a negative correlation: When "Positive Dividend Actions" are low, forward returns are relatively high, but when "Positive Dividend Actions" are high, the results are more variable, but strongly negative future returns are included in the data set.
I will post details shortly.
* I used SPY as a real world S&P500 instrument that investors can purchase with low costs. I did not include commissions.
A Closer Look at 3 High Yielding Oil Royalty Trusts [View article]
Furthermore, take a closer look at the statement for BPT that "The field has ...just over 68 million barrels of oil in net proved reserves. Despite this wealth of oil, the trust only produces about 87,000 barrels of oil a day". Well 87,000/d x 365d/yr = 31.8 million barrels per year which means that reserves are only a bit over two years worth of production. Oh no! But don't worry. The 87,000bbl/d number is the physical production of which BPT is allocated 16.4%. The 68 million barrels number is basically BPT's estimated future allocaiton of present reserves. So comparing the 87,000bbl/d and 68 million bbl reserve is apples to oranges. That said, annual production is entering a decline just as the statutory cost escalations are getting ready to kick into high gear.
A Closer Look at 3 High Yielding Oil Royalty Trusts [View article]
Instead of "A Closer Look..." the title should be "A Cursory Look..." It's clear the author doesn't understand BPT, including the real cost escalation schedule built in its statutory cost structure.
"the United States no longer produces anything but debt"
Wow, Seeking Alpha takes another step down the quality ladder. I'm clicking through fewer and fewer SA headlines and junk like this is the reason why.
(I know, I'm a fool that doesn't understand that the fiat money overlords are running the printing presses while everyone trades debt and nobody produces anything. Lions and tigers and bears, oh my!)
Do Dividend Increases Keep Up With Inflation? [View article]
Indeed. If there are redemptions it's going to force net selling (in addition to changes in index composition).
What was interesting to me was the implied higher level of realized gains earlier in the fund's life and the apparent lack of realized gains during the past ten years.
Upon further reflection I think there's a very plausible explanation for this: Early in the fund's life the stock market was doing well and all of the fund's shares had been purchased at an earlier lower price. When forced to sell underlying shares, either due to composition change or redemptions, the fund managers were forced to realized gains. However, over time as redemptions and purchases ebbed and flowed, the fund had a broader spectrum of purchase prices for each underlying issue. Thus, in response to redemptions they could choose for tax purposes to sell the shares with the highest basis, sometimes even higher than prices at the time of redemption. Then we entered bear markets when redemptions (and index composition changes) could be met by selling underlying shares at a loss.
Thus, the maturity of the fund and the trajectory of the stock market combined with redemption patterns resulted in a steady decline of non-dividend distributions.
Do Dividend Increases Keep Up With Inflation? [View article]
As the footnote in my previous post indicates, there may be more to this story.
I compared the price performance of VFINX with that of the S&P500. It turns out that VFINX began operations in early 1987. It's PRICE underperformed the S&P500 quite a bit during it's first couple of years. In the two years 1988-1989 VFINX price underperformed the S&P500 by 4.0%. From 1990 through 1999 it underperformed an additional 3.0%. Since then VFINX price performance has matched that of the S&P500.
Looking at the chart it seems clear that during VFINX's first 13 years it paid out distributions that exceeded dividend income. I haven't researched why this happened. It may have been fund policy, but more likely it had something to do with tax law and/or mutual fund law in combination witht the way they constructed their portfolio.
What this means is that prior to 2000 we can't just compare VFINX distributions with S&P500 dividends, since VFINX's distributions appear to contain a non-dividend component. My prior analysis that compares the VFINX distributions and S&P500 dividends from 1988 through 2010 would thus show VFINX distributions growing slower than the S&P500 aggregate.
If we plot the distributions and dividends during the past 10 years (2000-2010; see prior post for construction; these are the years in which the price of VFINX and the S&P500 moved together), we see a very close correlation between the two (with exponential curve fit for VFINX distributions actually slightly outpacing that for the S&P500 dividends).
So... Further research into VFINX distribution components prior to 2000 is required to use the entire period (from 1988 forward) for analysis. However, evidence seems to support the conclusion that the dividends from underlying shares (or equivalent instruments) held by VFINX that are distributed to VFINX shareholders do keep pace with the change in aggregate S&P500 dividends.
Do Dividend Increases Keep Up With Inflation? [View article]
Unfortunately, investors do not access the aggregate S&P500 dividends directly as suggested by the article.
"No Free Cake" makes this point well. What we really care about is dividends AVAILABLE to actual SHAREHOLDERS. Investing in VFINX is the best way real world shareholders can access the S&P500.
I downloaded the data for VFINX distributions (*) from Yahoo! Finance and compared with the article data. I wish I could share the graphs. Below is the data set. Plot in Excel. You may want to reorder the years ascending before charting. Create a secondary vertical axis then scale them (go from 0.5 to 5.0 for VFINX and 50 to 500 for article data to get they same span). Make the vertical axes log scale. Then create exponential trend lines.
It is very clear that actual real world payouts are growing slower than the aggregate. Why is this? One reason is probably dilution. Managements are diluting existing shareholders with more and more share grants (inc. options). Thus, per share dividends are growing quite a bit slower than aggregate dividends. Any other ideas out there?
Note that VFINX fund expenses would NOT be the culprit here. Vanguard tends to REDUCE fund expenses as a percentage of assets as assets grow. If anything as VFINX becomes more efficient it should help fund per share distributions grow slightly faster than underlying asset performance.
* As "No Free Lunch" mentions, mutual fund distributions may include items other than dividends. Though we would not expect much in VFINX's distributions from anything other than underlying share dividends I will post a follow up analysis that you'll want to read if you found this post interesting.
Executives like buybacks better than dividends, since buybacks increase the per-share value of the company, which makes their options more valuable. So they are more likely to overpay on buybacks than they are to overspend on dividends.
OME has room to run. Prices for fish meal and fish oil are set to keep increasing - it's a 'secular bull market'. This is a company that could easily earn $2/shr if prices stay firm. They'll get a 15x multiple on that once the market realizes the value. So that's $30/shr vs. today's prices below $12.
A Bump in the Road, But Risk Rally Continues [View article]
"...some kid in Jeddah throws a rock through a window, and you get your head handed to you..." Literally, if you're unlucky enough to actually be in Jeddah...
"Hatred". Maybe you've been reading too many hyperpartisan blogs.
Anyway, INTC has underperformed vs. the market since the article was published on Aug. 4, 2010. INTC: +4.5% SPY: +17.5% (INTC paid about 1% more in dividend, so the total performance gap is just about 12%.)
Since the last post on Aug. 30, 2010 Intel has underperformed, but the gap isn't as big: INTC: +18.7% SPY: +23.4% So, including dividends, the total performance gap is about 4%.
Nothing for anyone to get very excited about.
Does us a favor and post again in around nine months to pick the conversation back up. Should be interesting.
Interested in Short-Selling? Choose the Active Bear ETF [View article]
The claim that "owning HDGE is much cheaper than the competing mutual funds or shorting SPY and IWM since you have to pay the dividend yield and other costs to borrow the ETFs" is misstated and misleading. Either the author is making an honest logical error or he is deliberately trying to mislead readers.
1) Re: "...costs to borrow the ETFs". This is misleading, since it implies that the only way to short things like the S&P500 is to short long ETFs. However, there are plenty of inverse (non-leveraged) ETFs that one can buy long. In addition, as an individual investor I have shorted SPY and have never incurred a borrowing cost.
2) The more serious error is claiming that you have to "pay the dividend yield" when you short these other ETFs. The implication is that when you buy HDGE this cost goes away. This is not so. HDGE will hold short positions in stocks. If any of those stocks pay dividends, then HDGE's NAV will be reduced each time HDGE owns a stock when the dividend is declared. In other words HDGE must "pay the dividend yield". (If HDGE uses options, then the options premium reflects the stock dividend and becomes an embedded cost of the option - the dividend is included in all options valuation methodologies.)
How to Use Leveraged Free Cash Flow to Analyze Stocks [View article]
So this whole article - this system - is comprised of dividing the stock price by a slightly modified form of free cash flow (FCF) rebranded as "levered free cash flow".
The author then casually, but forbodingly tells us that you'd really need 20 years of historical financial data. Hogwash. What use would financial data from 1991 be to any company I would analyze? Just about none. I can't think of a single company where looking at financial results from 20 years ago would benefit a valuation analysis today.
When we do overall market valuations, it is useful to use very long term data (20 years is much too little), but for an individual company, we've got to spend much more effort analyzing the details of more recent results and, more importantly, trying to estimate future results over the next decades.
S&P 500: Positive Dividend Actions Now at 2006 Levels [View article]
I supposed that one purchased SPY on the first trading day in May of each year. Why? Because this is the first day on which the data in this article could be actionable. If we're going to use the data we need to wait until the data is available.
I did a simple calculation of 1 year and 2 year forward returns for each of the years beginning in 2004. Of course, the 1 year return is not available for the May 2011 purchase and the 2 year return is not available for either the May 2010 or May 2011 purchases. I did one data series using actual SPY closes and another with "adjusted" closes that adjust for dividends.
I plotted these future returns against "Positive Dividend Actions" for each year. I did this in two ways:
1) "Positive Dividend Actions" count, which equals the number in the blue bars in the chart above.
2) "Positive Dividend Actions" percentage, which equals the number in the blue bars in the chart above divided by the total for each bar above (I had to estimate that reading the chart).
This results in four graphs, each containing both 1 year and 2 year forward returns vs. a "Positive Dividend Actions" metric.
In all cases it looks most like noise, but you can see that the low "Positive Dividend Action" year resulted in high future returns, while the high "Positive Dividend Action" years resulted in mixed forward results.
(The plots against "Positive Dividend Actions" *percentage* yielded better R^2 values than those against the "Positive Dividend Actions" *counts* for 2 year returns, but even those R^2 values were <0.4)
I won't continue this analysis, but the right thing to do would be to use a longer data set (going back before 2004) and to normalize future returns vs. average returns to test for "excess returns" (this removes the general long-term upward bias in the S&P500 from the data).
Anyway, my conclusion is that the data presented in this article is not useful for making market exposure decisions. I strongly doubt it is useful in making market sector allocation decisions either.
S&P 500: Positive Dividend Actions Now at 2006 Levels [View article]
Does the "Positive Dividends Action", by itself or in combination with other well-defined data series, have any predictive power for future returns? If so, show us the data. Show us the model.
But no worries, I did my own little study using your data. I measured the forward returns on the S&P500 (*) vs. the "Positive Dividend Actions" in the chart. What did I find? Well, it's mostly noise, but there is a bit of a negative correlation: When "Positive Dividend Actions" are low, forward returns are relatively high, but when "Positive Dividend Actions" are high, the results are more variable, but strongly negative future returns are included in the data set.
I will post details shortly.
* I used SPY as a real world S&P500 instrument that investors can purchase with low costs. I did not include commissions.
A Closer Look at 3 High Yielding Oil Royalty Trusts [View article]
A Closer Look at 3 High Yielding Oil Royalty Trusts [View article]
Debunking Faulty Precious Metals Analysis [View article]
Wow, Seeking Alpha takes another step down the quality ladder. I'm clicking through fewer and fewer SA headlines and junk like this is the reason why.
(I know, I'm a fool that doesn't understand that the fiat money overlords are running the printing presses while everyone trades debt and nobody produces anything. Lions and tigers and bears, oh my!)
Do Dividend Increases Keep Up With Inflation? [View article]
What was interesting to me was the implied higher level of realized gains earlier in the fund's life and the apparent lack of realized gains during the past ten years.
Upon further reflection I think there's a very plausible explanation for this: Early in the fund's life the stock market was doing well and all of the fund's shares had been purchased at an earlier lower price. When forced to sell underlying shares, either due to composition change or redemptions, the fund managers were forced to realized gains. However, over time as redemptions and purchases ebbed and flowed, the fund had a broader spectrum of purchase prices for each underlying issue. Thus, in response to redemptions they could choose for tax purposes to sell the shares with the highest basis, sometimes even higher than prices at the time of redemption. Then we entered bear markets when redemptions (and index composition changes) could be met by selling underlying shares at a loss.
Thus, the maturity of the fund and the trajectory of the stock market combined with redemption patterns resulted in a steady decline of non-dividend distributions.
Do Dividend Increases Keep Up With Inflation? [View article]
I compared the price performance of VFINX with that of the S&P500. It turns out that VFINX began operations in early 1987. It's PRICE underperformed the S&P500 quite a bit during it's first couple of years. In the two years 1988-1989 VFINX price underperformed the S&P500 by 4.0%. From 1990 through 1999 it underperformed an additional 3.0%. Since then VFINX price performance has matched that of the S&P500.
Looking at the chart it seems clear that during VFINX's first 13 years it paid out distributions that exceeded dividend income. I haven't researched why this happened. It may have been fund policy, but more likely it had something to do with tax law and/or mutual fund law in combination witht the way they constructed their portfolio.
What this means is that prior to 2000 we can't just compare VFINX distributions with S&P500 dividends, since VFINX's distributions appear to contain a non-dividend component. My prior analysis that compares the VFINX distributions and S&P500 dividends from 1988 through 2010 would thus show VFINX distributions growing slower than the S&P500 aggregate.
If we plot the distributions and dividends during the past 10 years (2000-2010; see prior post for construction; these are the years in which the price of VFINX and the S&P500 moved together), we see a very close correlation between the two (with exponential curve fit for VFINX distributions actually slightly outpacing that for the S&P500 dividends).
So...
Further research into VFINX distribution components prior to 2000 is required to use the entire period (from 1988 forward) for analysis. However, evidence seems to support the conclusion that the dividends from underlying shares (or equivalent instruments) held by VFINX that are distributed to VFINX shareholders do keep pace with the change in aggregate S&P500 dividends.
Further informed comments are welcome.
Do Dividend Increases Keep Up With Inflation? [View article]
"No Free Cake" makes this point well. What we really care about is dividends AVAILABLE to actual SHAREHOLDERS. Investing in VFINX is the best way real world shareholders can access the S&P500.
I downloaded the data for VFINX distributions (*) from Yahoo! Finance and compared with the article data. I wish I could share the graphs. Below is the data set. Plot in Excel. You may want to reorder the years ascending before charting. Create a secondary vertical axis then scale them (go from 0.5 to 5.0 for VFINX and 50 to 500 for article data to get they same span). Make the vertical axes log scale. Then create exponential trend lines.
It is very clear that actual real world payouts are growing slower than the aggregate. Why is this? One reason is probably dilution. Managements are diluting existing shareholders with more and more share grants (inc. options). Thus, per share dividends are growing quite a bit slower than aggregate dividends. Any other ideas out there?
Year Div. Per VFINX shr S&P500 Divs. ($B)
2010 $1.97 205.83
2009 $2.10 196.95
2008 $2.51 247.29
2007 $2.49 245.38
2006 $2.14 224.11
2005 $1.98 201.78
2004 $1.95 181.04
2003 $1.43 160.65
2002 $1.36 147.79
2001 $1.28 142.22
2000 $1.30 141.09
1999 $2.41 137.55
1998 $1.75 128.80
1997 $1.91 119.57
1996 $1.53 112.62
1995 $1.35 101.68
1994 $1.37 95.14
1993 $1.16 88.10
1992 $1.22 85.22
1991 $1.27 81.90
1990 $1.27 80.45
1989 $1.95 74.16
1988 $1.23 67.49
Note that VFINX fund expenses would NOT be the culprit here. Vanguard tends to REDUCE fund expenses as a percentage of assets as assets grow. If anything as VFINX becomes more efficient it should help fund per share distributions grow slightly faster than underlying asset performance.
* As "No Free Lunch" mentions, mutual fund distributions may include items other than dividends. Though we would not expect much in VFINX's distributions from anything other than underlying share dividends I will post a follow up analysis that you'll want to read if you found this post interesting.
Why Does the Market Hate Intel? [View article]
10 Stocks Defying the Bear Run [View article]
A Bump in the Road, But Risk Rally Continues [View article]
Why Does the Market Hate Intel? [View article]
Anyway, INTC has underperformed vs. the market since the article was published on Aug. 4, 2010.
INTC: +4.5%
SPY: +17.5%
(INTC paid about 1% more in dividend, so the total performance gap is just about 12%.)
Since the last post on Aug. 30, 2010 Intel has underperformed, but the gap isn't as big:
INTC: +18.7%
SPY: +23.4%
So, including dividends, the total performance gap is about 4%.
Nothing for anyone to get very excited about.
Does us a favor and post again in around nine months to pick the conversation back up. Should be interesting.
Interested in Short-Selling? Choose the Active Bear ETF [View article]
1) Re: "...costs to borrow the ETFs". This is misleading, since it implies that the only way to short things like the S&P500 is to short long ETFs. However, there are plenty of inverse (non-leveraged) ETFs that one can buy long. In addition, as an individual investor I have shorted SPY and have never incurred a borrowing cost.
2) The more serious error is claiming that you have to "pay the dividend yield" when you short these other ETFs. The implication is that when you buy HDGE this cost goes away. This is not so. HDGE will hold short positions in stocks. If any of those stocks pay dividends, then HDGE's NAV will be reduced each time HDGE owns a stock when the dividend is declared. In other words HDGE must "pay the dividend yield". (If HDGE uses options, then the options premium reflects the stock dividend and becomes an embedded cost of the option - the dividend is included in all options valuation methodologies.)
How to Use Leveraged Free Cash Flow to Analyze Stocks [View article]
The author then casually, but forbodingly tells us that you'd really need 20 years of historical financial data. Hogwash. What use would financial data from 1991 be to any company I would analyze? Just about none. I can't think of a single company where looking at financial results from 20 years ago would benefit a valuation analysis today.
When we do overall market valuations, it is useful to use very long term data (20 years is much too little), but for an individual company, we've got to spend much more effort analyzing the details of more recent results and, more importantly, trying to estimate future results over the next decades.
13% Thursday - When Will You Capitulate? [View article]