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Smarty_Pants

Smarty_Pants
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  • Stress Test For Dividend Growth Investors [View article]
    "Returns of "bonds" for the next 30 years will be significantly less than the past 30 years and investors face increased risk to earn those reduced returns." - six

    An alternative to bonds would be to use your cash as the backing for selling puts on DGI stocks into the market at prices below the current levels. If the puts expire worthless you keep the premium (surrogate interest payment), if not, you own the DGI stock shares, which you can hold for the dividends, or try to sell at a small profit (eventually). Then repeat the process.

    You can sell a July 95 put on JNJ for about $0.72 (as of close on 5/11/15). That would net you $72.00 per $9,500 in cash backing. Repeat 4 times a year and you collect $288.00 on that $9,500 or about a 3% annual yield.

    Rather bond-like returns and the cash just sits there in your account the whole time. Worst case is you buy shares of JNJ at a ~6% discount to the current market price.

    {The premium on the July Put has only two months remaining. With 3 months to go the premium would be more like $1.10. I'm assuming the extra $0.38 of premium is used to pay commissions. Lower commissions would increase the returns accordingly.}
    May 11, 2015. 07:44 PM | Likes Like |Link to Comment
  • The Shocking Truth About Share Buybacks [View article]
    "I actually own 0.00000032% of LMT. So, for example, if LMT bought back 10% of their shares, I would now own 0.0000032% of the company. I donĀ“t believe that I would "see" any benefit to this action." - Silverbug2

    Wouldn't the per share profit increase by 10% the following year (other things held equal)?

    You might benefit in two ways:

    1) If the market holds the P/E at the same level, then your price per share could increase by 10% , maybe even more

    2) The company could increase the dividend significantly depending on what percentage of profits paying the current dividend requires. For instance, if current dividend levels require 10% of profits, adding another 10% of profit per share through buybacks would allow the company to double the dividend from the same profits while maintaining current investment levels. Who wouldn't like that? Imagine how the stock price might react as a result.

    As Chuck rightly explains, buying back shares at prices below the current NPV of future profits is a plus for shareholders. Buying them back at prices above that level hurts shareholders.

    If you would be willing to buy shares of LMT for $100 (a gross exaggeration of an undervalued stock) wouldn't you think it's a good thing for the company to do likewise, provided they don't spend money needed to continue growing the company?
    May 10, 2015. 02:24 PM | 2 Likes Like |Link to Comment
  • Stress Test For Dividend Growth Investors [View article]
    "simple ... own about 60 percent in stocks and 40 percent in bonds in retirement. ... In your scenario the portfolio would be worth about 700,000 instead of 475,000." - correct way to invest

    Assuming that the price of your bond ETF doesn't drop too. The shares of TLH that you buy today at $135 might also drop if the cause of the sudden market meltdown is sharply raising interest rates.

    Where is the article describing the panic of bond holders selling in the face of 25% losses on their 'safe' holding which pays them 2+% yield on their purchase price?

    That would lower the end value of your 60/40 holdings to around 600,000.

    I would also add that at least DGI'ers have a plan for what to do under those circumstances. The relatively few stocks which cut dividends are replaced, the rest are held or accumulated.

    What does the typical 60/40 investor do when the portfolio hits 600,000 besides hold on, and how is that any better a plan than DGI? (that's a rhetorical construct intended to illustrate a point) There is no such thing as a 'perfect' investment strategy. Even high-flying growth stocks can crash and burn. Quadrupling your money in AMZN, while it loses money, won't last unless you have the proper plan for selling before it's price tanks. (See 1999 tech stocks for the object lesson there.) Those who bought CSCO when it 'broke out' to new highs at $40 in 1999 are still sitting on 25% losses 16 years later.

    Investors have to do something with their money under every circumstance. Why is it "OK" to hold DGI type stocks through a correction in an index ETF, but not individually? I think that Dale Roberts' recent articles on index skimming (as he calls it) show that it's possible to outperform an index through careful selection of its individual index holdings.
    May 10, 2015. 01:25 PM | 2 Likes Like |Link to Comment
  • A Potential Double With A Huge Margin Of Safety [View article]
    "Goro is a good company as far as miners go. The only problem is they only have another 3-4 years of production, then what?" - HanYOLO

    This is the primary concern in holding GORO, IMHO. Can they replace production with reserves in the ground fast enough?

    Based on some of the early drill results they are reporting, it looks like they should be able to do just that:

    http://bit.ly/1jaPuAR

    Note that some of their early results have promising numbers. Samples near the El Aguila open pit and currently producing La Arista mine show as much as 12 g/t of gold and it is located within a mile of the current La Arista (producing) mine. That's over 1/3 troy ounce per ton of ore. And it's right next door to the currently operating mill, so the cost of putting it into production will be on the low side. (As a comparison, most open pit mines can be economically profitable at around 1+ g/t.) If they aren't completely incompetent they should be able to extend the official mine life with more infill drilling over the next few years. Doing so will give them the time needed to finish the drilling at their other properties nearby, which are also showing some impressive initial drill results.

    Otherwise, GORO is sitting on more than $22 million in cash and gold/silver bullion (after paying down the $2 million equipment leases owed). Cash flow was positive after dividends and drilling in 2014 and with the completion of their new mill, they should see a reduction in the cost of production too.

    There is a lot of potential upside to compensate for the risk of running out of ore to mine, and you get paid over 3.5% in dividends to wait and see what happens. If production can be ramped up, that dividend might start growing and take the share price along with it too.

    Of course that's all my opinion based on the company presentation linked above. Interested parties might want to look it over for themselves.
    May 10, 2015. 12:27 PM | Likes Like |Link to Comment
  • Should You Replace Bonds With Cash? [View article]
    "Treasury bonds represent systemic risk insurance, among other things, while utilities do not." - bale002

    Because governments never get so far into debt that they default on their bonds:

    http://bit.ly/1zT9RNv

    Meanwhile, sound utilities like SO can manage to go 30 years without cutting their dividend (and actually growing it by 12+% CAGR over that span).

    Personally I believe the risk of Treasury default is higher than the risk a sound utility will be replaced any time soon. I've gone without electricity for a couple summer weeks in the hot southern US. It sucks. As long as air conditioners are available, people will pay their electric bill.

    As for the Treasury, I have yet to see any sort of viable plan to eliminate the deficit, much less repay the debt. One day Uncle Sam's 'free pass' will stop and systemic risk will be turned on its head. And quite likely, for many quarters after that event happens, SO will send dividends to its shareholders.

    The relative risks are something each investor will need to evaluate for themselves, yes, but dismissing sound utilities out of hand only serves to reduce the options available.
    May 9, 2015. 02:35 PM | Likes Like |Link to Comment
  • Should You Replace Bonds With Cash? [View article]
    Why not consider replacing bond funds/ETFs with utility shares?

    The iShares 7-10 Year Treasury Bond (IEF) ETF yields 2%.
    Southern Co (SO) yields 4.8%. SO generates more than twice the yield and has a Morningstar credit rating of A-. With a little patience you could have picked up SO with a 5.5% yield back in 2010.

    Since IEF's inception in 2002, SO has also provided the better total return with 8.5% CAGR vs. IEF's 5.8% CAGR.

    Granted, utility shares will be a bit more volatile in price, but the price is also growing faster over time than bonds, so losing a bit more here and there still leaves you farther ahead than the bonds would.

    It's worth considering, even if you eventually decide that substituting utilities for bonds isn't your cup of tea.
    May 9, 2015. 08:53 AM | 1 Like Like |Link to Comment
  • A Potential Double With A Huge Margin Of Safety [View article]
    Long GORO and dripping for over a year.

    Average price is around $3.67. I'm hoping they begin raising the dividend again and then, just maybe, we'll see a price closer to $10/share (that's probably wishful thinking, but might as well aim high).
    May 6, 2015. 02:09 PM | Likes Like |Link to Comment
  • My First Quarter 2015 Portfolio Review [View article]
    Nicely done Bob. Thanks for taking the time to detail what's happening in your DGI retirement investment portfolio. Adding the credit ratings is a big plus. I'm sure everyone is grateful to have the chance to learn by watching you learn.

    Even the SDRL dividend cut serves to show the benefit of originally choosing to have your investments spread out over many stocks. Losing all dividends for 1 in 50+ stocks is probably not going to hurt your income stream gravely, like it would if SDRL was instead 1 of only 10 investment positions.

    Doing all the 'hard thinking' at the plan writing stage saved you from a great deal of much harder thinking which might have resulted had you not done so originally. Fortunately it appears more like you stubbed your toe than fell flat on your face, so the exercise serves to demonstrate the margin of safety you built into your approach from the beginning. Great job! Surviving mistakes without significant damage is a stellar quality to have.
    May 2, 2015. 10:47 AM | 3 Likes Like |Link to Comment
  • Comparing The DG50 To My 3-Fund Portfolio On The Road To Retirement [View article]
    "[PS - this does not require a bunch of comments about Berkshire, as I just used the name as a real life example, but the name is not important.]" - FinancialDave

    I beg to differ. The name is all important if your goal is TR.

    If your hypothetical exercise started in 1999 instead of 1970, and you picked Cisco (CSCO) instead of Berkshire, your results would be much different.

    This is one often overlooked assumption made by those who continue to insist that more TR is better because you can 'buy' more income at retirement. What if the presumed TR fails to materialize? What you buy, and when you buy it matters a great deal. Naturally buying a fund or ETF reduces that risk at the cost of additional annual fees and expenses.

    Jan 2, 1999 - April 24, 2015 CSCO CAGR = 1.83%
    $2,000 invested then is now worth $2,689

    If instead the goal is to replace a paycheck with investment income then one can ignore the price entirely and focus on the growth in income. When that goal is reached one can retire with little or no financial stress.

    Either way is a workable approach. Which one is 'better' is a matter of opinion. It's sad that you insist on evaluating only the TR aspect of the exercise when there is nothing to lose by providing the income numbers too.

    I also second DVK's comment below, if you're already doing the work, why not post the income? Doing so doesn't reduce the validity of the TR generated, but it provides information that others might find useful. Please reconsider.

    None the less, I'm glad to see you post and track a TR portfolio in 'real time'. I look forward to seeing how it fares as time goes by. Thanks for taking the time and making the effort and sharing the results.
    Apr 25, 2015. 10:12 AM | 7 Likes Like |Link to Comment
  • Comparing The DG50 To My 3-Fund Portfolio On The Road To Retirement [View article]
    "Here is the question I have with that -- what are you going to do with the income?" - FinancialDave

    Oh, I don't know ...

    1) Perhaps keep watching the income increase during the next market downleg when the Total Return goes into reverse gear?

    2) Seeing the continuous and steady growth of the income over time while the portfolio value fluctuates up and down by 20% or 30% on occasion.

    3) Being able to compare how steady the income stream of the two approaches is annually, and over time.

    I can imagine that sort of data might be useful information for some people, even if it isn't what's important to you personally.
    Apr 24, 2015. 10:36 PM | 1 Like Like |Link to Comment
  • Comparing The DG50 To My 3-Fund Portfolio On The Road To Retirement [View article]
    "keep in mind the goal of the article is a sit and forget test for growth. Many get hung up with how the growth occurs -- income for instance, that is just reinvested, commands no greater value than stocks with no dividends, unless you plan to use the income." - Financial Dave

    I believe what DVK is saying is that you can provide useful information for both TR and income investors if you also provide the income generated by each portfolio as you post reviews. While the income may not be important to your goals, it might be important to the goals of others.

    It is quite possible that there are DGI investors who would be very interested in finding a way to generate reliable growing income via the use of ETFs or funds so that they can provide for surviving spouses or heirs should they become incapable of doing so themselves. Your fund mixtures might be just the ticket, so it seems a shame not to provide both sets of data; income and total value.

    Providing information to the widest possible set of readers seems like the most beneficial result. Let the readers interpret it as they wish for their own uses and goals.
    Apr 24, 2015. 05:54 PM | 5 Likes Like |Link to Comment
  • Investors Should Remain Cautious Of Hasbro [View article]
    Agreed. HAS might not be a value at current prices, but the stock has been a rock star since I picked up my shares in January of 2013 at $32.50.

    In a bit over 2 years I'm up 102+% and my YOC is over 5.25%. I wouldn't buy here, but I would suggest you put it on your watch list and hope you can get some shares on any dips that might come along.
    Apr 19, 2015. 12:53 AM | 1 Like Like |Link to Comment
  • Tough day for income favorites [View news story]
    I bought my OHI just under $26 a tad over 2 years ago. What is there to panic about?

    Besides, today's 5.5% WBA gain more than made up for the REIT losses in my portfolio. It's all good, and the income keeps arriving just the same.
    Apr 9, 2015. 10:36 PM | Likes Like |Link to Comment
  • Dividend Growth Portfolio - Spring Checkup And Semi-Annual Review [View article]
    Wow! Has it really been almost 7 years now? It's great to see your actual income hug that predicted income goal line every year while your 0.70 Beta portfolio outpaces SPY in TR. Way to go DVK!

    Anyone else notice an ominously increasing silence from the DGI detractor crowd as DVK's portfolio proves their initial claims wrong, over and over again?

    DGI Stockpickers: 1 _______ Indexers / MPT'ers: 0

    I suppose it's pretty difficult to argue that success isn't possible when it's staring them in the face after 7 years of the same-old, same-old.

    :-) <------- That's DVK smiling all the way to the bank.
    Apr 7, 2015. 07:02 PM | 7 Likes Like |Link to Comment
  • Dividend Achievers Top 20 Hits The Mark, Again [View article]
    "Consider that you can purchase the Dividend Achievers Index for 10 (.10%) basis points, meaning a cost on a $50,000 holding of $50. It may only become more cost effective to purchase the individual holdings on equity portfolios of $200k or more." - Dale

    You can achieve better cost effectiveness with index skimming via the use of the Motif platform to create your own personal mini-ETF:

    http://bit.ly/198YQve

    Anyone can set up their own Motif consisting of your equally weighted Top 20 stocks and buy it for a $10 commission. That means you can match the cost effectiveness of VIG with an investment of as little as $10,000 in a Motif. It's certainly worth considering for the investor who is just getting started and has yet to build up a sizeable nest egg.

    I would also point out that it is a one time cost for Motif and an annual cost for VIG. The longer you hold your individual stocks or a Motif, the larger the savings vs. VIG.

    Thanks for posting your investigations Dale. Index Skimming is an obvious evolution of Indexing for the individual investor. Returns will most likely be similar but the costs can be reduced, which will generate out-performance over longer time frames.
    Mar 28, 2015. 12:26 PM | 2 Likes Like |Link to Comment
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