Seeking Alpha

Smarty_Pants

Smarty_Pants
Send Message
View as an RSS Feed
View Smarty_Pants' Comments BY TICKER:
Latest  |  Highest rated
  • Equity Investing Or Index Investing [View article]
    "But I look at it and see a dividend of 0.89%. Why would I want to earn 0.89% on my money? You would answer, "Because the stock price is going to go up." And I would say, "But why? Why does ANYONE want to own this stock that pays only 0.89%, even if it has earnings like Apple?"

    I mean, I just don't get that. Essentially, if I bought a stock that paid 0.89%, just because that company was going to earn 10% more next year (but not share much of it with me), I would be looking for a "greater fool" to take that stock off my hands next year (or some time in the future)." - Alexander Alekhine

    What you are overlooking is not the growth of sales or profits, but the dividend itself. Companies that pay a predictable dividend over time will tend (as a generality, not necessarily a certainty) to settle into a band of yield.

    The Board of Directors controls the size and growth of the dividend, the "market" controls the stock's price based on expectations of those changes and usually those expectations are formed based on the consistency of past performance.

    So for whatever reason, the market has given ROST a price in the 1-% yield range, which varies a bit over time based on news flow and other emotional reactions to current events.

    Here's the crucial point to understand. That 1-% yield point is relatively consistent over time, for whatever reason (habit perhaps). So when a company like ROST boosts their dividend by 20+%, what do you suppose happens to the stock's price? Generally, it goes up by about 20+% so that the 1-% yield point is maintained!!

    Now the relationship isn't so exact as to be a mathematical certainty, but over long times it is pretty consistent for established, solid, QUALITY businesses. In fact, the Chowder Number is a good estimate for long term Total Return. Yield + Dividend Growth will show a remarkable parallel to a stock's Total Return.

    That's it. Once you grasp that relationship (consistent dividend growth parallels price growth over time) you can put your emotions on the side of making successful decisions that harness the growth of your stocks to your benefit. You can also find better entry points by using that yardstick to find the stock and then determine a favourable price for entry because boosting the initial yield (with a lower price) also tends to boost TR.

    Not only that, but you can tailor your stock selection to your personal needs and goals. Retirees might want a higher yield with slower DG combination than a 20-something, who has the longer time frame and no need for current income to choose a low yield, high DG stock.

    Additionally, populating a portfolio with 20 to 50 stocks having Chowder Numbers exceeding the long term TR of SPY will give you a good chance to outperform "the market" over time. Sure, a few of those stocks might underperform, but others will outperform. In the long run, provided they each continue to grow that dividend consistently, the portfolio as a whole has a very good chance to outperform. There's a reason why a majority of Chowder's stocks have outperformed SPY in TR (and income generation). His methodology winnows out the businesses with the financial wherewithal to do so via the Chowder Number combined with an emphasis on quality.

    Not only that, but monitoring your portfolio now makes more sense. Keep your eye on the dividend growth, and whether there is sufficient earnings growth to maintain that dividend growth. When earnings or dividend growth start lagging more than makes you comfortable you can re-evaluate and possibly replace that holding before the price drops significantly.

    At least that's how I see it and it seems to work pretty well where it is applied consistently, even for those who are just converting to a more DGI approach.
    Dec 6, 2014. 03:10 PM | 6 Likes Like |Link to Comment
  • 3 Reasons I Prefer Dividend Growth Investing [View article]
    lintervvv,

    I concur with the general expressions above. Convert at whatever pace is comfortable for you. I started my DG portfolio nearly four years ago buying one stock per month. Now I have nearly 30 positions.

    The only extra advice I can offer is to look for the sectors that are beaten down and find a DG stalwart to buy from that sector. Currently, (December 2014) oil stocks are beaten up and you can find several DG gems among the pile the market is throwing out the window. Buying great companies at bargain prices is a tremendous way to really boost your long term performance.

    CVX, COP, KMI, and XOM are a few stocks you might want to check out in the energy sector.
    Dec 4, 2014. 03:16 PM | 3 Likes Like |Link to Comment
  • 3 Reasons I Prefer Dividend Growth Investing [View article]
    "I finally got him to stop by telling him that I was "yielding 5.3%, Beta of .68, and a TR of ~9% and all he had to do was match it." - djsulli

    You meant to match it after his fees were subtracted, I hope. :-)
    Dec 4, 2014. 02:52 PM | 3 Likes Like |Link to Comment
  • 3 Reasons I Prefer Dividend Growth Investing [View article]
    Great article DVK. As you correctly point out the general area of friction between DGI types and TR types is in the presumption that TR WILL outperform DGI in the long run.

    In some ways that strikes me as a bit of wishful thinking. Personal experiences shared here on SA and the striking lack of real-time TR portfolios to examine and compare to the real-time DGI portfolios that ARE available seem to be the point where the rubber hits the road.

    I have only one request of TR adherents who claim they WILL outperform DGI.

    Show me. Set up a portfolio starting now, and we'll compare it to the many DGI portfolios already available and see what happens when all the cherry picking on either side is removed. Until then, their claims are nothing more than opinions to me.
    Dec 4, 2014. 07:40 AM | 4 Likes Like |Link to Comment
  • 3 Reasons I Prefer Dividend Growth Investing [View article]
    "I was just trying to figure out whether correlation also makes a difference in beta or not. DGI stocks are likely to be correlated more strongly with each other than with the overall market." - TF17

    Only to the extent that the portfolio is concentrated into a small number of sectors, I believe. Given that a significant number of DG stocks are already a part of "the market", most effects of correlation would be present in some degree in both places.

    Utilities won't be any more correlated to consumer staples, financials, industrials, or resource stocks in a DG portfolio than they are in "the market". If the portfolio holds most sectors in reasonable weights then it shouldn't matter too much for estimating Beta.

    Putting numbers to concepts like Beta and Correlation requires some level of simplification and/or assumptions. As you point out, there are sometimes different factors which may skew the estimate based on the specific portfolio holdings.
    Dec 4, 2014. 07:32 AM | 1 Like Like |Link to Comment
  • 3 Reasons I Prefer Dividend Growth Investing [View article]
    "Doesn't the portfolio beta depend on the correlation between the stocks themselves?" - TF17

    Think of it using this example. Let's take 3 stocks A, B, and C, with Betas of 0.1, 0.3, and 3.0 respectively and identical prices of $10.00. Now make two small example portfolios with different $ allocations and see what you think the overall Beta would be:

    Portfolio 1:
    $99.80 in A, $0.10 in B, and $0.10 in C = $100.00 total
    (9.98 shares A, 0.01 shares B, 0.01 shares C)

    Portfolio 2:
    $0.10 in A, $0.10 in B, and $99.80 in C = $100.00 total
    (0.01 shares A, 0.01 shares B, 9.98 shares C)

    Now fast forward one day in the market with price moves that reflect each stock's Beta after a 1% gain in "the market":

    A => $10.01 (gain of 0.1%)
    B => $10.03 (gain of 0.3%)
    C => $10.30 (gain of 3.0%)

    The new value for Portfolio 1 will be
    $10.01*9.98 + $10.03*0.01 + $10.30*0.01 = $100.1031

    The new value for Portfolio 2 will be
    $10.01*0.01 + $10.03*0.01 + $10.30*9.98 = $102.9944

    So ...
    volatility estimate for P1 is about 0.1031
    and
    volatility estimate for P2 is about 2.9944

    Dollar weighting really matters in estimating the portfolio Beta.
    Dec 3, 2014. 11:15 PM | 1 Like Like |Link to Comment
  • 3 Reasons I Prefer Dividend Growth Investing [View article]
    "Question on portfolio Beta - do you just do a simple average (count of sum of betas / stocks) or do you do a dollar weighted average?" - prices1950

    The proper mathematical way to get the portfolio Beta is to use a dollar weighted average of each stock's Beta:

    Portfolio_Beta = (Beta1*$1 + Beta2*$2 + ... + Beta_n*$_n) / $Total

    Of course that's only an estimate and the end result will depend on how the individual stock's Betas are calculated in the first place.
    Dec 3, 2014. 10:29 PM | Likes Like |Link to Comment
  • Will Linn Energy Post A Windfall Profit For Q4? [View article]
    It seems to me that 2015 DCF should have a good chance to remain reasonably stable.

    NG is fully hedged at prices above 2014. Oil is around 57% hedged at 2014 prices (~40,000 bpd hedged of ~70,000 bpd production).

    Therefore, loss in revenue at $70/bbl oil would be roughly:

    $20/bbl * 30,000 bpd * 365 days = $219 million

    Yet I recall an expected savings in cap-ex between $300 - $400 million annually due to the recent asset swaps, which should make up for the reduced revenue with a 50+%-ish margin of safety.

    Seems to me that the DCF should be safe for 2015 so long as oil remains above $63/bbl (which is where the revenue losses reach $300 million and equal the minimum cap-ex savings).

    That's what I get with a back of the envelope estimation anyway.
    Dec 2, 2014. 10:56 PM | 2 Likes Like |Link to Comment
  • Dividend Growth Investing, Total Return, And Indexing: Let's Take Another Look [View article]
    "As one buys more and more companies or adds index funds one is allowing more and more mediocrity into their portfolio. Not all companies can be or will be successful so I really don't see the point in owning the 3rd and 4th stringers." - conkjc

    One of the underlying assumptions of MPT and the Total Return types appears to be the idea that it isn't possible to distinguish between very well run companies and the 3rd and 4th stringers, so they buy them all thinking they will get the good ones into the pile that way. (At least that's what I glean from reading numerous interactions with them.)

    According to their way of thinking, DGI can't be possible because "stock picking" can't be done reliably, therefore it's not possible to discern which stocks will be 'successful' and which will be 3rd stringers. DGI violates what appears to be a key tenet of MPT / Total Return, ergo it can't be "better" than just throwing your money into an index of hundreds, or thousands, of stocks.

    Of course that's just my opinion, for what it's worth. My "stock picking" seems to be going pretty well thus far, for a DGI newbie. My portfolio has a 10.1+% CAGR in price and a current yield over 5.5% since starting DGI in early 2011. SPY has a CAGR over that same span of 15.1%, so I'm nosing out the index by 0.5% CAGR with a 30 stock portfolio beta under 0.70 (and a significant portion of my dividends have not been reinvested).

    I can live with that.
    Nov 28, 2014. 01:23 PM | 4 Likes Like |Link to Comment
  • Textainer: A 5.4% Yield Plus A Play On Chinese Growth [View article]
    TGH is a good, though volatile, holding for the long term. I picked my shares up in 2012 at $31. Current YOC is ~6%. They carry a lot of debt, but nearly all of their containers are leased very profitably on long term contracts.

    Wait for a good dip in the share price and get some. The high volatility results in the occasional "offer you can't refuse" kind of prices. The share prices dip significantly on any news of economic slow-downs, but their long term leases keep the money rolling in anyway. The company is well run, IMHO.
    Nov 28, 2014. 12:37 PM | 4 Likes Like |Link to Comment
  • Altria: The Best Is Yet To Come [View article]
    MO was the first dividend growth stock I bought when I started converting to DGI back in early 2011. My shares cost me $24.10 and are up about 104% today, with a YOC of 8.6%.

    Not bad after holding nearly 4 years. MO will always have a place in my portfolio, barring a complete market meltdown. Under those circumstances, MO would probably be the last stock I sell. :-)
    Nov 26, 2014. 08:19 AM | 1 Like Like |Link to Comment
  • Dividend Growth Investing, Total Return, And Indexing: Let's Take Another Look [View article]
    Dave, you completely forgot to mention the one thing that makes DGI work: magic pants. <sarcasm off>

    Seriously, I'm beginning to think it's a waste of time pointing out the lameness of most anti-DGI articles any more. Those who 'get it' can see how DGI principles lead to consistent long term results. Those who don't 'get it' probably never will.
    Nov 25, 2014. 07:03 AM | 17 Likes Like |Link to Comment
  • Kinder Morgan begins test drilling on Burnaby Mountain [View news story]
    I guess you might say this is a case of people being excited about Boring (as in drilling a hole into something - in case you didn't get the intended pun).
    Nov 22, 2014. 04:41 PM | 5 Likes Like |Link to Comment
  • The CCC DiviDogs 2011 - Year 1 [View article]
    Thanks for the update Miz. Your doggies are running pretty well.

    FYI, your pooling approach has returned 12.41% CAGR since inception through 11/19/14 (slightly higher actually, since I counted 2014 as a full year when calculating it).

    ($15,967 / $10,000) ^ (1/4) = 1.1241 ==> 12.41% CAGR

    In comparison, $10,000 of January 2011 SPY is currently worth $17,561.39 for a return of 15.60% CAGR. (per longrundata)

    Still, your pooling approach generated ~6.25% income vs. SPY's ~2.25% in 2011, so for retired folk who are spending the income it appears the dogs may have been the better choice with around 6% income and 6% price growth each year, even if the SPY had slightly better CAGR.

    The 2011 - 2014 time frame was a good one for capital gains. Things might turn out somewhat differently for a period where the markets don't go straight up all the time and under those circumstances the doggies might really shine.
    Nov 22, 2014. 11:19 AM | 1 Like Like |Link to Comment
  • Kinder Morgan: Stock Nosedives, Time To Sell Out Or Buy With Both Hands? [View article]
    "most, if not all, dividends from KMI are expected to be a return of capital and thus tax deferred" - Lookingforincome

    My brokerage statements show all of KMI's distributions as qualified dividends.
    Nov 22, 2014. 10:26 AM | Likes Like |Link to Comment
COMMENTS STATS
2,901 Comments
6,029 Likes