tk77mann

Bill Ackman's Pershing Square: Q3 Portfolio Update

Target has got some pretty good cash flows, at least for the past 12 months and for their last fiscal year. They cover their 1.4% dividend about five times with their cash flow. Pretty darned good for a company in the always tough retail business.

I had never really looked at the stock before but added it to my wish list for investing. Between a ~7% FCF yield and their growth, it sounds both like a value / safe play plus will provide some dividend returns.

MLPs in Good Shape, Despite Credit Crisis

Ozarker,

Seth Klarman is an under-the-radar value investment manager who runs Baupost Group, a mutual fund which has averaged 20% annual returns since he helped found the fund in 1983 or so. His fund now only invests for not-for-profits now to help them.

He wrote a value investing book, Margin of Safety, which is now out of print and sells used on ebay for ~$800 a copy. It describes his valuation and investment style, which is based on Ben Graham's approach.

Here is a link to one interesting article. finance.yahoo.com/news...

Here is a link to a speech he gave to finance students which also describes his work and approach to investing. We should all be so thorough and analytical when picking investments.

www.gurufocus.com/news...

Are High Dividends Sustainable?

Fairpoint had way too much debt and took on a huge acquisition (the wireline business of Maine, NH, and Vermont from Verizon), with all new computer systems required. They could not integrate on time and revenues declined and they were not able to recover.

I look at the Net Debt to EBITDA ratio of stocks to see if their debt loads are too high. For me a ratio of anything less than 4 : 1 in a stable industry is a fairly safe bet. But GD is absolutely correct, you have to watch all of your investments to keep losses to a minimum.

Are High Dividends Sustainable?

Hao,

You are missing the wonderful benefit of depreciation when looking at dividend sustainability of companies like CTL and WIN. In 2008 CTL had a depreciation expense of $523.8M (all of which is a non-cash expense), versus Capital Expenditure spending of $220.3M. Their Free Cash Flow from this difference (~$300M) is more than enough to cover the $220M in dividends they paid out in 2008. And this does not even include their profits for 2008. With their extra cash flow they bought back $332M worth of stock in 2008, a real bargain since they were also reducing the dividends they have to pay in the future.

Some folks might argue the CTLs and WINs of the world might not be able to keep up spending less than they are depreciating. There are two strong factors that will be used to keep their FCF strong. The first is that these are old line companies with assets invested in the 1980's, 1990's, and recently that have still not been depreciated over their 30 year lives. (These are mainly wireline telecom companies.) The second factor is every time they buy another telecom company they get an entire new slug of assets to be depreciated.

In CenturyTel's case, they just bought Embarq. Even though Embarq had depreciated its assets over the decades, these same assets get written back up to the purchase price and now CTL gets to depreciate them again over the next 30 years. And CTL's cash flow goes on and on.

WIN has recently bought two smaller competitors so they are following a similar strategy (with economy of scale efficiencies thrown in, to boot).

So please do not only look at the Dividend Payout Ratio when looking for sustainable dividends. A Dividend Payout Ration based on Free Cash Flow is at least, if not more, as important.

Nobody Knows What Bank Stocks Are Really Worth

Great article and conclusion, but I think bank stocks are even more unpredictable than just their current earnings statements. Lots of banks (like NCC a year ago) said they were in great shape, their dividends were secure, they were buying back shares, etc. but the assets on their books turned out to be significantly toxic.

If we can not determine the quality of their balance sheets, we can not reasonably predict their earnings, and their cash flows are impossible to use for valuation, banks as an investment class are an unpredictable crap shoot.

Why I'm Making First American My Top Position

There was a lot of fraud when the real estate market was at the bubble frenzy. People would sell real estate that they did not really own, and the title companies had to cover the loss. Title companies do not perform due diligence with each new insurance policy, I believe, so they got caught with a lot of claims.

A Closer Look at the Neglected Sub-Sector of Energy Refiners

Valero has large heavy / sour refining capacity in their refineries. They also keep adding more heavy and sour capacity.

Must-Know Criteria for Picking Inflation Proof, High Dividend Stocks

Kinder Morgan Energy Partners does have some earnings exposure to oil prices. In a recent presentation (www.kindermorgan.com/i...), they have a risk analysis for cash flow changes based on oil price changes. Buckeye Pipeline (BPL) is a pipeline company that takes no ownership of oil and therefore has no exposure to oil price fluctuations.

GE: Still a Compelling Proposition for Value Investors

The huge potential writedown uncertainties in GE's portfolio of consumer and industrial debt, plus their very recession-impacted, shaky customer base in their industrial sector (aircraft and airlines. at least), make GE a very questionable investment IMO. We can not even determine by looking at their balance sheet what the potential risks are. Thus they are like many of the other financial stocks, a blind bet with lots of potential risk.

I think Value Investors want a significant margin of safety, and GE has a huge, unpredictable downside. There are just too many other low debt, fairly recession-resistant, high cash flow businesses to invest in to take a chance on GE.

Using Covered Calls to Replace USB Dividend (Barron's)

Great post on how to use covered calls to replace some income from lost dividends.

Wells Fargo Jumps on the Dividend-Cutting Wagon

I would not worry too much about missing out from a "rapid recovery" of financial stock share prices. This recession is going to be a doozy, unfortunately, and we will be lucky to come out of it within a couple years. Consumers have been creamed by the economy and they will not recover quickly since so many jobs have been lost, with more to come. Banks will not do much lending in this kind of economy.

Since banks' balance sheets hide so many toxic loans and their profitability is undependable, I am moving out of these shares into more dependable stock investments. I believe lots of other investors are doing the same, which will keep bank share prices down for a LONG time. Not going to be fooled a second time . . . .

Williams Coal Seam Gas Royalty Trust: Income You Can Believe In

How is it doing the income taxes for this kind of trust? Doing the taxes for limited partnerships (like BPL and FUN) are a pain, but I have never done any tax filings for gas trust units.

Would love the income, but is it worth the IRS paperwork every year?

US Bancorp Cuts Dividend by 88%

This dividend cut is a slap in the face to investors who believed USB management knew what they were doing and knew what assets they had in their books. While it "saves them $2.6 billion annually," it also costs their shareholders $2.6 billion annually.

I sold my USB this morning. My trust in financial stocks is down even more than I ever thought possible. There are a lot of other companies with transparent financial statements paying a decent dividend with cash flows that cover the dividends.

An Estimation of Expected Dividend Growth Rates

An excellent analysis of the dividend paying ability of these companies. I also like to compare the cash flow growth % versus the income growth % to see if they are getting better and better at generating more cash with their increasing revenues.

Thanks for all of this great work.

Nine Companies Buck the Trend, Raise Dividends

notsosmart,

What companies do you recommend for better (but still safe) dividend yields? Thx.