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  • How Much Kinder Morgan Is Too Much For A Dividend Growth Investor? [View article]

    Joel Stern was one of the "inventors" of the idea of free cash flow back in the early 1970s. According to his original definition, one should use "maintenance" capital spending from operating cash flow to get to free cash flow. For the first six months of 2015, KMI spent $245 million in maintenance capital spending to continue to generate their operating cash flows. Using Stern's definition of free cash flow, KMI generated $2.2 billion in free cash flow and paid $2 billion in dividends.

    One might rightly ask why Stern's definition is better. Think of an entity that owns five apartment buildings. The five apartment buildings have all been paid for (regardless of financing--and a mortgage is just a financing vehicle) and now owned by the entity. If the entity now decides to buy three more apartment buildings, one should not consider the capital investment in the new buildings when trying to assess the cash flows (or, as Warren Buffett calls it: "owner's earnings") of the original five buildings. The cost of a new roof on one of the original five buildings (maintenance capital spending) should be included when assessing the cash flows.
    Jul 29, 2015. 03:02 PM | 3 Likes Like |Link to Comment
  • How Much Kinder Morgan Is Too Much For A Dividend Growth Investor? [View article]
    Scoots' suggestion of using EPD or MMP as an alternative is worth considering. KMI has greatly increased their debt relative to cash flow (their ability to pay the debt looks increasingly iffy--this is the cause of the credit downgrades). KMI's net debt equals 9.6 times the latest twelve months operating cash flow--that is toooooooooo high to be sustainable. MMP' debt is less than 3 times operating cash flow and EPD 's is around 5 (that is reasonable). PAA is also a candidate at around 4 times operating cash flow.
    One other thought: as a retiree, I plan as if I will live to 100. I am 65, so a loss of 1% of the portfolio kind of implies that now I am only covered to 99 years and 9 months, rather than 100. I own KMI, but reduced it (similar to your second option) a couple of months ago. I sleep better now but will monitor the position very carefully.
    Jul 28, 2015. 10:12 AM | 1 Like Like |Link to Comment
  • Should You Follow Icahn Out Of Netflix? [View article]
    I did not read your article.
    I have been a NFLX subscriber since 2002 (I think). What used to be a great service has become an absolute POS (piece of s...).
    I can't get to my DVD Queue (for me the most valuable long run reason for NFLX) and navigating the "now it's faster and easier than ever to find something great to watch" is, well, impossible.
    Reed Hastings, go f yourself !!!
    Jun 28, 2015. 09:35 PM | Likes Like |Link to Comment
  • Merger Arbitrage Forum (PART 2) [View instapost]
    Thanks for the link to the EU announcement.
    --Normally I am just part of the woodwork here, watching mostly everything that goes on.
    Jun 15, 2015. 02:23 PM | Likes Like |Link to Comment
  • Bond Investors Beware, History Is Not On Your Side [View article]
    Very very provocative article. Thanks.

    One undeniable fact emerges from this article: something IS different this time. (Not only are the rates the lowest ever, the strangest anomaly seems to be NEGATIVE interest rates--the government promises that you DO NOT get back all of your principle at maturity !!)

    The question is: what IS really different that has led virtually the entire world to ACT (invest) differently than over the past several hundred years?
    Apr 15, 2015. 09:21 AM | 2 Likes Like |Link to Comment
  • Mr. Valuation Says Digital Realty Is A Right REIT At A Right Time For Your Retirement Portfolio [View article]
    A REIT in an IRA will generate NO US federal tax consequences (that applies to the buy, the hold, and the sale of a REIT).
    And You are correct that an MLP in an IRA can have notable tax consequences--either from holding or selling an MLP.
    Hope this helps.
    Apr 3, 2015. 01:29 PM | Likes Like |Link to Comment
  • Chevron Stock At The Magic 4% Yield Mark [View article]
    Congrats, that sounds great....And the CVX that is put to you at $70 has a 6% yield (unless the dividend gets cut--a highly unlikely event).
    Mar 21, 2015. 10:03 AM | 1 Like Like |Link to Comment
  • Chevron Stock At The Magic 4% Yield Mark [View article]
    Nice energy list.
    Suggest you take a look at CLB (if you are willing to own NOV currently) as well.
    I own "nibbles" of both CLB and NOV mostly to help me pay attention, but I want and expect to build considerably larger position in each at about 25% below current prices over the next four to six months. (I expect earnings to be weak for both companies through at least the first half of 2015, so I expect further deterioration in the stock prices.)
    Mar 21, 2015. 09:53 AM | Likes Like |Link to Comment
  • Gilead Sciences Reports: Let's Analyze It [View article]
    Mycroft (and your friends, followers, admirers),

    Thanks for your articles on a couple of great stocks--particularly this one on GILD and the recent one on CLB.

    Your conservativism regarding waiting for the right buy price is very admirable and I respect it. Nevertheless, as an alternative you may want to suggest to your thoughtful and prudent followers (i.e. your readers) that they take partial initial positions in great companies like these two. I am 65 years old (sounds like I could qualify as one of your clients) and while I don't want to become a greeter at Walmart by early next year, I also want to insure that my portfolio grows for another 30 years (my father lived to 93, my maternal grandfather lived to 96). While you rightfully need to address only your clients needs, not my needs, some of the commenters here might want to consider a spectrum of buying potentials rather than only the two possibilities: A) "buy everything you ever plan to buy right now"; or B) "don't buy until the stock dips below $X".

    Personally, I bought a "third" of a position in CLB in our taxable account despite what may well be a sharply bladed falling anvil. The analysis you showed coupled with Morningstar's comment along the lines of that M-Star doesn't seem to know of any company with a wider economic moat (and some additional elaboration that implied that CLB owns a considerable economic networking effect) made me think that I really want to own CLB for the long term; and the price I pay today will likely be almost irrelevant in 20 years. Similarly, GILD's cure for HCV with minimal side effects and convenient compliance led me to buy a small initial position a couple of months ago; I doubled that position when the stock dropped to the mid-90s the day after the earnings release. Again, in 20 or 25 years I may be absolutely indifferent as to whether I paid $95 or $75 to buy the stock, so why not take a partial position now?

    Someone buying CLB or GILD should be cognizant of their risk profile. Someone choosing to put all their eggs in one basket should probably take a pass on both CLB and GILD at current prices with the surrounding fundamental uncertainty and accompanying stock volatility. My financial plan spans 35 years (to when I turn 100 years old) and my initial positions in GILD and CLB each currently only put roughly one month of expenses at risk. Odds are that I won't actually live to 100 (mortality tables give the current probability at less than 10%), so even if CLB and GILD go to $0, the consequences are that I starve at 99 years and 10 months. If I were to put ALL of my portfolio into one of them though and it collapsed, then I might need to greet you at the nearby Walmart, or perhaps starve next month--not a pleasant choice either way.

    By the way, I have also written put options on both CLB and GILD that would roughly triple my positions in either stock if exercised but I would be effectively buying the stocks very close to your buy prices. And if the stocks never get that low, I still own a position and I get paid for writing the put options! Of course, if the puts get exercised and both stocks go to $0, I will starve when I am 99 years and six or seven months old. The point: be cognizant of your risk.
    Feb 6, 2015. 02:28 PM | 3 Likes Like |Link to Comment
  • One Way Johnson & Johnson Can Unlock At Least 25% Upside [View article]
    IH, you are internally inconsistent. First, You argue that the parts are worth more than the whole. If this is true, then your implied conclusion that the stock will not go up is inconsistent.
    Let's assume that JNJ discovers the cure-all for cancer. So let's say this product generates $500 billion a year in cash flow to JNJ. So you are saying that you would not buy the stock because of the corporate structure and the med devices and consumer business??? Some investors somewhere will gain from the value that JNJ creates over time. It may not happen as fast or when you want it, but it will happen regardless of JNJ's corporate structure. Worst case: some very patient investors receive enormous dividend payments in the future when JNJ can't re-invest that cash flow.
    I conjecture that Your proposal "un-locks" only one thing: because they don't generally have much cash flow, biotech companies need to feed large amounts of info to the "market" about their early stage "products" while more mature companies (including Amgen and Gilead too) tend to constrain info on the future products. JNJ's pharma biz is already large enough that a split-up may not change their disclosure significantly.
    Feb 1, 2015. 08:15 AM | Likes Like |Link to Comment
  • Intel declares $0.24 dividend [View news story]
    Intel announced this increase Nov 20.
    This is not new information.
    Jan 23, 2015. 10:12 AM | 1 Like Like |Link to Comment
  • AT&T declares $0.47 dividend [View news story]
    Last 12 months CPI is 1.7%.
    While not very robust, 2.2% still beats the increase--at least as measured by the US government.
    Dec 19, 2014. 02:39 PM | 15 Likes Like |Link to Comment
  • ConocoPhillips sets 2015 capex budget at $13.5B, 20% lower than 2014 [View news story]
    Some "learned" observers conjecture that the Saudis held production constant to enhance the probability of violence in certain middle eastern countries, particularly Iran and maybe Syria. Seems there is already plenty of violence in the latter, but maybe the Saudis are just doing what they feel that they have to do to bring pressure on their enemies.
    Dec 8, 2014. 06:43 PM | Likes Like |Link to Comment
  • Q4 warning from McDonald's after weak November sales report [View news story]
    MCD paid out 73% of their free cash flow in dividends over the past twelve months.
    Operating cash flow for twelve months ending in Sep 2014 was flat compared to operating cash flow for the twelve months ending in Sep 2013 (year over year).
    Free cash flow for the latest 12 months increased about 5% compared to the free cash flow for the 12 months ending in Sep 2013.
    MCD carries 1.5 times their operating cash flow in debt.
    The dividend increase of 4 cents per quarter that they announced in Sept 2014 was exactly the same dividend increase that they announced in Sept 2013.
    They are nowhere NEAR cutting the dividend.
    However, with slow growth and an increasing payout ratio, reasonable people might well expect the dividend increases to decelerate next year and perhaps beyond.
    Dec 8, 2014. 06:36 PM | Likes Like |Link to Comment
  • If Gilead Has The Ace, Is AbbVie Holding The Big Joker? [View article]
    "Any antibiotic with major resistant bacterial outbreak would be known to the likes of CDC and FDA. Any competent doctor should be aware and consider an alternate antibiotic."

    Despite your protestations, the doctor who "treated" you was reasonably competent as he/she knew about the potential for resistance. FYI, bacteria mutate all the time and the more exposure they have to any particular antibiotic, the more likely that resistance will emerge. The CDC and FDA will eventually know about drug-resistant strains of the bacteria; after they emerge and potential kill a few (or a lot) people. For example, MRSA is a strain of bacteria that resistant (that is what the "R" in MRSA stands for) and the CDC and FDA know about it but can't do too much about it--and they didn't know about it until it happened. Overuse of antibiotics, especially for the "placebo" effect that you referenced is a threat to public health. None other than Barry Bloom, former head of Pfizer's R+D, probably was the most strident proponent that I ever heard for reserving azithromycin for really serious cases and avoiding overuse.
    Nov 17, 2014. 05:26 PM | Likes Like |Link to Comment