"""Slowly, as analysts start digging into more information, it is rightfully showing more and more of BP´s errors and negligence."""
There is nothing in the article that is new, or unknown, or hasn't been rehashed many times before.
"""I would go along with analyst expectations indicating lower returns on BP."""
If you are talking about analyst EPS expectations, you should realize that the consensus is that EPS will be down for most major companies in 2012 vs 2011. That includes XOM, CVX, and COP. Whether earnings are up or down in 2012 for these companies depends more than anything else on the average crude oil price for 2012. I don't think there is anyone that can forecast the oil price for 2012 with any assurance.
Your link does not contain any reference to a BP refinery in Alaska. The leak was from a pipeline feeding the Trans-Alaska Pipeline. There is no BP refinery at Prudhoe Bay.
10 Mid Cap High Yield Stocks Going Ex-Dividend This Week (January 23 - 29) [View article]
This is a truly useless article, replete with dumb-dumb statistics, and misleading commentary.
There is no indication of what type of business any of these companies are in. There is no indication as to whether we should Buy, Hold, or Sell. There is no discussion of future growth or dividend prospects. There is no support of any kind for statements such as the following: ""Many of them have a high yield, because the market believes that the dividend is not sustainable. Especially in the case of low capitalized stocks, the possibility of a dividend cut is much higher as [sic] for stocks with a higher capitalization.""
As it happens, 3 of the stocks are equity REIT's (IHO, HPT, and NNN) and 5 are LLC's, but there is no indication of that in the article. These entities are driven by IRS rules that compel them to pay out a high percentage of earnings, which explains the high yields.
Dividends from REIT's are taxed at ordinary income rates. If buying in a taxable account, prospective investors would be advised to wait until on or after the ex-div date to buy. Chances are that they will be able to buy at a price that is lower by the amount of the dividend and qualify for a capital gain on the difference.
Distributions from LLC's can have varying tax consequences in taxable accounts. In IRA's, distributions from LLC's can produce UBTI (look it up or google it). This is not a problem if the distribution is less than $1,000, but above that there is a tax and additional tax paperwork, for which the brokerage firm may impose a fee.
For equity REIT's, such as OHI, HPT, and NNN, ratios such as P/E and Price/Book are totally meaningless. Price/Sales is also dumb. What is one to make of a P/E ratio of 105 for HPT, for instance? Book values are distorted by depreciation accounting, since, over time, rents normally go up and the value of the underlying buildings appreciates. NAV (Net Asset Value), which replaces the book value of the assets with market value, is far more meaningful.
Because of the depreciation issue, REIT analysts generally ignore earnings and focus on FFO, which is roughly net income plus depreciation. FFO provides the best indication of dividend paying ability. This article makes no mention of either FFO or of NAV.
Washington REIT: Differentiated By Decades Of Durable Dividends [View article]
Perhaps what I had in mind was the kind of pullback that occurred a couple of times in the second half of last year, to about the 26 area. But looking at the chart and thinking about the current economic outlook, a renewed dip to 26 seems unrealistic. Anyway, since the second trading day of 2012, WRE has had a fairly steady run up and now seems to be meeting resistance in the 29 area. Today is the fourth up day in a row -- not an ideal time to buy, in my opinion, even though technically WRE is in an uptrend and is not yet overbought (according to my interpretation of the chart).
I looked at WRE's fundamentals relative to some other REIT's that I follow, concluded that WRE is a better buy than most. One that I compared it with is Federal Realty (FRT) a Washington area shopping center operator. FRT has commanded a lot of respect in the past for its management and performance. WRE has earned less respect and has been criticized for a lack of focus (most REIT's specialize in just one sector, whereas WRE is in office, retail, and apartments). But given WRE's long experience, one might argue now that this diversification is a strength, especially in light of the uncertain economic outlook.
The bottom line is that FRT has been bid up so that the yield is only 3%, but WRE yields over 6%. The Yahoo consensus for FRT shows future growth (presumably of FFO) at 4.5%, which is the same as the historic growth of dividends. For WRE, future growth is forecast at just 1%, versus 2.4% historic growth in dividends. I am personally skeptical that FRT will outstrip WRE in future growth by 3.5%, and adding dividends, I think that the Total Return for WRE will outstrip FRT, with less risk.
Unless we have another financial crisis in the near future that drives all stocks down in price, I do not now foresee much of a dip. There is support for WRE at 28, and, more remotely, at 27. My buying strategy would be to try to buy in the 28 to 28.25 range, or simply to wait for the second down day and buy in then. More conservative investors might want to hold out for a buy around 27.
Washington REIT: Differentiated By Decades Of Durable Dividends [View article]
A great company? Maybe not.
However, you cannot judge this by P/E or Payout Ratio. Equity REIT's are obligated to pay out at least 90% of their taxable income, which might be less than GAAP net income, due to accelerated depreciation and other accounting differences. However, many REIT's do pay dividends in excess of 100% of net income. REIT analysts judge value, not on P/E but on Price to FFO (Funds from Operations = Net Income with depreciation added back). You may ask, how can REIT's grow while maintaining such dividends? As buildings appreciate, debt is refinanced providing additional funds for new acquiring new assets.
FFO ps for 2012 is expected to be $1.96 vs dividends of $1.74, a (REIT) payout ratio of 89%.
So has WRE been a great long term investment. According to my data, the average yield over the past 7 years has been only 5.6% and annual dividend growth has been 2.4%, also over 7 years. This makes for a total return of about 8.0%. OK, but better if you can buy on dips.
Marathon Oil Has At Least 80% Upside Potential [View article]
I agree that the DDM has limited application -- probably only works for a steady company paying substantial dividends, where the overall value is not heavily dependent on the terminal value assumption.
Marathon Oil Has At Least 80% Upside Potential [View article]
There are 2 issues here, namely, the data and the methodology.
The data may be less critical, but let me deal with that first. You said you discounted earnings rather than free cash flow because FCF exceeded earnings. Your data show that for the latest 12 months, and so do mine. Although your data comes from Morningstar and mine from AAII, the data may in fact be the same. But if you go back to the previous 5 years in aggregate, you get quite a different pattern, one in which FCF was only $11.25 per share, but EPS was $28.05. Clearly, if you discount FCF you will come up with a much lower value, compared with discounting net income, depending on the discount rate.
On the methodology, the accepted methods of equity valuation through discounted cash flow boil down to 2, either the dividend discount model, or discounting FCF. For the DDM, an investor is assumed to buy the stock, collect dividends, and sell the stock at some future date. The valuation is given by the discounted value of the future dividends plus the discounted value of the future sale.
In discounting FCF, we take an inside position and assume we have bought the company and we collect the net cash flows until some time when we sell. If we buy an oil company, we have to spend a lot to increase production and maintain earnings growth, so FCF will typically be much less than net income. In the case of MRO, capital expenditures have fallen far short of net income in the past 5 years -- making FCF less than net income. (See my previous comment.)
Discounting earnings makes no sense, in my opinion, except in a few special cases. Earnings is not cash flow, unless the company has little in the way of capital expenditures and consequent depreciation. A service company that rents its office space and equipment might fall into this category, but not, for instance, an oil company.
Then there's the question of the discount rate, but we'll leave that for another day . .
Meanwhile, here is a treatise on equity valuation using discounting:
BTW, I looked at a couple of analysts reports on MRO from Citigroup, and from S&P. Both use a combination of methods to come up with a 12-month target price, that is, discounted FCF, NAV, and the P/E model. S&P's target price, with a 4-star Buy rating is $35. Citi, in a report dated last November, has a Hold and a $30 target price. Your $55 to $78 range appears totally out of line.
Marathon Oil Has At Least 80% Upside Potential [View article]
The chart appears to be correct. Prior to the spinoff, MRO traded as hihg as $54. Immediately after the spinoff, about August 1st, MRO traded at $33, rose a little, and then declined to as low as $19 by October 1st. Since then it has recovered nicely, to $32.
Washington REIT: Differentiated By Decades Of Durable Dividends [View article]
Frankly, I found the article to be rather pointless as it lacked the metrics by which most analysts of equity REITs judge value. Its a great company in a strong and steady market, I am sure, but is it a great stock?
For example, the book value of an equity REIT can become greatly understated by depreciation accounting and refinancing of debt. Net income is calculated after deducting depreciation, even though landlords are usually able to raise rents over time, which results in the building appreciating in value, not depreciating. (Note that we are talking about equity REITs here, which invest in brick and mortar buildings. Mortgage REITs, on the other hand, invest in mortgages, i.e., paper securities.)
So equity REIT analysts look to the Price/FFO multiple and Price/NAV ratio to judge value. (FFO = Funds from Operations, which is essentially Net Income with Depreciation added back. NAV = Net Asset Value, obtained by replacing the Book Value of assets with the Market Value.)
So what is the forecast FFO for WRI? What is the FFO multiple and how does it compare with the historic average? How does it compare with other equity REITs? And does WRI sell at a premium or discount to NAV? Inquiring investors want to know.
Marathon Oil Has At Least 80% Upside Potential [View article]
I believe that the analysis -- and the data used -- are completely flawed.
Unless there is a major escalation in oil prices, MRO will not be able to maintain an 8% plus rate of EPS growth without heavy capital expenditures in new exploration and production. As a previous poster mentioned, oil "assets" are rapidly depleted.
In the 5-year period from 2006 through 2010, EPS totaled $28.06 per share, but Free Cash Flow (after capital expenditure but before dividends) was only $11.25. I believe that the Free Cash Flow data for 2011 may have been distorted by some adjustment for the Marathon Petroleum spinoff, coming up with $4.52 per share for the latest 12 months, exceeding EPS of only $2.61 for diluted continuing operations. (My data are from the AAII Stock Investor Pro database.)
It is very clear to me that discounting Net Income will not give a current value for MRO. Again, from 2006 through 2010, MRO's capital expenditure were close to $30 billion, but depreciation and amortization was only $14 billion, so Free Cash Flow per Share must fall far short of EPS.
5 Oil Majors Set To Gain From Higher Prices [View article]
This is not a very helpful article. Because of uncertainty and volatility of crude oil prices, it is difficult for any analyst to forecast oil company earnings with any precision. There is usually a wide variance in the estimates, making the consensus less meaningful. If oil prices do, in fact, average higher in 2012, one should expect the earnings of all these companies to be higher. However, the analysts generally lag in posting new estimates in response to oil price changes.
FWIW, the consensus estimates on Marketwatch show slight gains for BP, and RDS-A for 2012 over 2011, while showing slight declines for XOM, CVX and COP. There is a gross error in the table in this article in the 2012 estimate for RDS. Perhaps the author picked up the estimate for the shares traded in London. 1 ADR traded in New York is the equivalent of 2 shares traded in London
Is ExxonMobil A Good Investment For Retirees? [View article]
If held in a taxable account you can get a tax credit for the full amount of the withholding by filing a Form 1116 with your 1040. But if held in an IRA, you lose it.
BP Is Too Risky For Me [View article]
There is nothing in the article that is new, or unknown, or hasn't been rehashed many times before.
"""I would go along with analyst expectations indicating lower returns on BP."""
If you are talking about analyst EPS expectations, you should realize that the consensus is that EPS will be down for most major companies in 2012 vs 2011. That includes XOM, CVX, and COP. Whether earnings are up or down in 2012 for these companies depends more than anything else on the average crude oil price for 2012. I don't think there is anyone that can forecast the oil price for 2012 with any assurance.
BP Is Too Risky For Me [View article]
10 Mid Cap High Yield Stocks Going Ex-Dividend This Week (January 23 - 29) [View article]
There is no indication of what type of business any of these companies are in. There is no indication as to whether we should Buy, Hold, or Sell. There is no discussion of future growth or dividend prospects. There is no support of any kind for statements such as the following: ""Many of them have a high yield, because the market believes that the dividend is not sustainable. Especially in the case of low capitalized stocks, the possibility of a dividend cut is much higher as [sic] for stocks with a higher capitalization.""
As it happens, 3 of the stocks are equity REIT's (IHO, HPT, and NNN) and 5 are LLC's, but there is no indication of that in the article. These entities are driven by IRS rules that compel them to pay out a high percentage of earnings, which explains the high yields.
Dividends from REIT's are taxed at ordinary income rates. If buying in a taxable account, prospective investors would be advised to wait until on or after the ex-div date to buy. Chances are that they will be able to buy at a price that is lower by the amount of the dividend and qualify for a capital gain on the difference.
Distributions from LLC's can have varying tax consequences in taxable accounts. In IRA's, distributions from LLC's can produce UBTI (look it up or google it). This is not a problem if the distribution is less than $1,000, but above that there is a tax and additional tax paperwork, for which the brokerage firm may impose a fee.
For equity REIT's, such as OHI, HPT, and NNN, ratios such as P/E and Price/Book are totally meaningless. Price/Sales is also dumb. What is one to make of a P/E ratio of 105 for HPT, for instance? Book values are distorted by depreciation accounting, since, over time, rents normally go up and the value of the underlying buildings appreciates. NAV (Net Asset Value), which replaces the book value of the assets with market value, is far more meaningful.
Because of the depreciation issue, REIT analysts generally ignore earnings and focus on FFO, which is roughly net income plus depreciation. FFO provides the best indication of dividend paying ability. This article makes no mention of either FFO or of NAV.
Washington REIT: Differentiated By Decades Of Durable Dividends [View article]
The Dark Clouds Have Lifted On BP [View article]
http://lat.ms/xTZwWS
Washington REIT: Differentiated By Decades Of Durable Dividends [View article]
I looked at WRE's fundamentals relative to some other REIT's that I follow, concluded that WRE is a better buy than most. One that I compared it with is Federal Realty (FRT) a Washington area shopping center operator. FRT has commanded a lot of respect in the past for its management and performance. WRE has earned less respect and has been criticized for a lack of focus (most REIT's specialize in just one sector, whereas WRE is in office, retail, and apartments). But given WRE's long experience, one might argue now that this diversification is a strength, especially in light of the uncertain economic outlook.
The bottom line is that FRT has been bid up so that the yield is only 3%, but WRE yields over 6%. The Yahoo consensus for FRT shows future growth (presumably of FFO) at 4.5%, which is the same as the historic growth of dividends. For WRE, future growth is forecast at just 1%, versus 2.4% historic growth in dividends. I am personally skeptical that FRT will outstrip WRE in future growth by 3.5%, and adding dividends, I think that the Total Return for WRE will outstrip FRT, with less risk.
Unless we have another financial crisis in the near future that drives all stocks down in price, I do not now foresee much of a dip. There is support for WRE at 28, and, more remotely, at 27. My buying strategy would be to try to buy in the 28 to 28.25 range, or simply to wait for the second down day and buy in then. More conservative investors might want to hold out for a buy around 27.
Washington REIT: Differentiated By Decades Of Durable Dividends [View article]
However, you cannot judge this by P/E or Payout Ratio. Equity REIT's are obligated to pay out at least 90% of their taxable income, which might be less than GAAP net income, due to accelerated depreciation and other accounting differences. However, many REIT's do pay dividends in excess of 100% of net income. REIT analysts judge value, not on P/E but on Price to FFO (Funds from Operations = Net Income with depreciation added back). You may ask, how can REIT's grow while maintaining such dividends? As buildings appreciate, debt is refinanced providing additional funds for new acquiring new assets.
FFO ps for 2012 is expected to be $1.96 vs dividends of $1.74, a (REIT) payout ratio of 89%.
So has WRE been a great long term investment. According to my data, the average yield over the past 7 years has been only 5.6% and annual dividend growth has been 2.4%, also over 7 years. This makes for a total return of about 8.0%. OK, but better if you can buy on dips.
Marathon Oil Has At Least 80% Upside Potential [View article]
Marathon Oil Has At Least 80% Upside Potential [View article]
The data may be less critical, but let me deal with that first. You said you discounted earnings rather than free cash flow because FCF exceeded earnings. Your data show that for the latest 12 months, and so do mine. Although your data comes from Morningstar and mine from AAII, the data may in fact be the same. But if you go back to the previous 5 years in aggregate, you get quite a different pattern, one in which FCF was only $11.25 per share, but EPS was $28.05. Clearly, if you discount FCF you will come up with a much lower value, compared with discounting net income, depending on the discount rate.
On the methodology, the accepted methods of equity valuation through discounted cash flow boil down to 2, either the dividend discount model, or discounting FCF. For the DDM, an investor is assumed to buy the stock, collect dividends, and sell the stock at some future date. The valuation is given by the discounted value of the future dividends plus the discounted value of the future sale.
In discounting FCF, we take an inside position and assume we have bought the company and we collect the net cash flows until some time when we sell. If we buy an oil company, we have to spend a lot to increase production and maintain earnings growth, so FCF will typically be much less than net income. In the case of MRO, capital expenditures have fallen far short of net income in the past 5 years -- making FCF less than net income. (See my previous comment.)
Discounting earnings makes no sense, in my opinion, except in a few special cases. Earnings is not cash flow, unless the company has little in the way of capital expenditures and consequent depreciation. A service company that rents its office space and equipment might fall into this category, but not, for instance, an oil company.
Then there's the question of the discount rate, but we'll leave that for another day . .
Meanwhile, here is a treatise on equity valuation using discounting:
http://tinyurl.com/7vq...
BTW, I looked at a couple of analysts reports on MRO from Citigroup, and from S&P. Both use a combination of methods to come up with a 12-month target price, that is, discounted FCF, NAV, and the P/E model. S&P's target price, with a 4-star Buy rating is $35. Citi, in a report dated last November, has a Hold and a $30 target price. Your $55 to $78 range appears totally out of line.
Marathon Oil Has At Least 80% Upside Potential [View article]
Washington REIT: Differentiated By Decades Of Durable Dividends [View article]
Washington REIT: Differentiated By Decades Of Durable Dividends [View article]
For example, the book value of an equity REIT can become greatly understated by depreciation accounting and refinancing of debt. Net income is calculated after deducting depreciation, even though landlords are usually able to raise rents over time, which results in the building appreciating in value, not depreciating. (Note that we are talking about equity REITs here, which invest in brick and mortar buildings. Mortgage REITs, on the other hand, invest in mortgages, i.e., paper securities.)
So equity REIT analysts look to the Price/FFO multiple and Price/NAV ratio to judge value. (FFO = Funds from Operations, which is essentially Net Income with Depreciation added back. NAV = Net Asset Value, obtained by replacing the Book Value of assets with the Market Value.)
So what is the forecast FFO for WRI? What is the FFO multiple and how does it compare with the historic average? How does it compare with other equity REITs? And does WRI sell at a premium or discount to NAV? Inquiring investors want to know.
Marathon Oil Has At Least 80% Upside Potential [View article]
Unless there is a major escalation in oil prices, MRO will not be able to maintain an 8% plus rate of EPS growth without heavy capital expenditures in new exploration and production. As a previous poster mentioned, oil "assets" are rapidly depleted.
In the 5-year period from 2006 through 2010, EPS totaled $28.06 per share, but Free Cash Flow (after capital expenditure but before dividends) was only $11.25. I believe that the Free Cash Flow data for 2011 may have been distorted by some adjustment for the Marathon Petroleum spinoff, coming up with $4.52 per share for the latest 12 months, exceeding EPS of only $2.61 for diluted continuing operations. (My data are from the AAII Stock Investor Pro database.)
It is very clear to me that discounting Net Income will not give a current value for MRO. Again, from 2006 through 2010, MRO's capital expenditure were close to $30 billion, but depreciation and amortization was only $14 billion, so Free Cash Flow per Share must fall far short of EPS.
5 Oil Majors Set To Gain From Higher Prices [View article]
FWIW, the consensus estimates on Marketwatch show slight gains for BP, and RDS-A for 2012 over 2011, while showing slight declines for XOM, CVX and COP. There is a gross error in the table in this article in the 2012 estimate for RDS. Perhaps the author picked up the estimate for the shares traded in London. 1 ADR traded in New York is the equivalent of 2 shares traded in London
Is ExxonMobil A Good Investment For Retirees? [View article]