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  • The Bull Trap That Is Philip Morris International [View article]
    KC -- You've made the points I have been making for the last couple years, plus a couple more. Someday, PM is likely to reach a tipping-point wherein price increases produce reduced revenue, profits, and dividends (rather than the opposite).

    Already, in the recent quarter, cigarette shipments declined 3.5%. Also PM's DGR is in decline, as the Sept. 10th announced increase of 6 cents is only 6.3%, the smallest increase since separating from MO in 2008. However, cash is being allocated to repurchase shares.

    Thus though I agree with your ultimate thesis, I nonetheless believe PM can raise prices to offset declining volumes for the foreseeable future (usually considered 5 years). I also see black market tobacco stealing PM market share with each price increase.

    IMO, PM's tipping-point most likely lies at about 10 years or beyond, rather than your estimate of 5 years.

    I am monitoring my tobacco positions closely.

    Long: MO & PM

    Sep 19 06:38 PM | 2 Likes Like |Link to Comment
  • McDonald's Corporation: On 'Low D' Notice [View article]
    bg -- The federal minimum wage is presently $7.25/hr. An increase to $15 represents an increase of 107%--and far more if other benefits are added to statutory benefits employers already pay (statutory benefits include 50% employer contribution to Social Security's Old-Age, Survivors, and Disability Insurance (OASDI) program, or 6.2%; 50% employer's contribution to Medicare tax unemployment insurance, or 1.45%; and 100% contribution to state unemployment insurance, contributions and rules vary by state).

    IMO, you are making an unsubstantiated and HUGE leap in assuming the minimum wage will be increased to anywhere near $15 anytime soon.

    Traditionally, when congress acts on minimum wages, they know the businesses employing persons at minimum wage simply cannot handle a sudden huge wage increase. Consequently, smaller increases are phased in over several years.

    Some business have many persons on minimum wage, and some have few or none.

    Imagine a business having 50% of its costs represented by wages, and those on minimum wage being 10% of the 50%--thus minimum wages represent only 5% of total wages paid. If the minimum wage were bumped by 100% in one step, those unskilled employees on minimum wage would be paid more than other employees whose pay represents a differential recognizing their greater skills and experience. The resulting ripple of wage increases upward through the workforce is known as 'knock-on'.

    If that business operates on a 15% gross profit margin, the result of a $15/hr. minimum wage thus results in a huge increase in total wage costs. Therefore a huge increase in the minimum wage must result in a significant increase in the prices the business must charge to maintain its gross profit margin.

    Traditionally, a more likely minimum wage increase would be to the area of about $11 over a period of 4 or 5 years (and is more a political compromise than your or my logic).

    Sep 19 02:34 PM | 5 Likes Like |Link to Comment
  • Did Chevron Corporation Fumble On LNG? [View article]
    Casey -- It could be your reference to a "ton of planned LNG terminals" might indicate increased risk LNG prices and profits might be trimmed due to overcapacity...see this bulletin just published:

    Reuters: Asian buyers of U.S. LNG dial back as exuberance dims

    Sep 19 01:46 PM | Likes Like |Link to Comment
  • The Current Dip Makes BCE, Inc. Attractive For A Buy Rating [View article]
    CB -- I am attracted to BCE's industry and dividend, but also concerned its debt/equity (twice the industry average), and 90% payout ratio are abnormal and could lead to problems.

    Please comment...

    Sep 19 01:19 PM | Likes Like |Link to Comment
  • Did Chevron Corporation Fumble On LNG? [View article]
    <<< The cost of Gorgon is certainly much higher than planned but the revenues and cash flow from the venture have also escalated because of LNG price increases. >>>

    user -- That may be an optimistic view.

    In my corporate experience, the projected project costs submitted for approval by the parties included a contingency factor of at least 10% (maybe up to 15% if new technology or processes are involved). Thus cost overruns from the approved budget indicate poor planning--which is never helpful to one's career.

    Therefore, I'd wager the present $17 billion (46%) overrun is actually about 56% to 62% overrun, because the 46% overrun is only the amount it exceeds the planned budget including a contingency amount.

    Furthermore, I would be quite surprised if the project's break-even point did not assume a bump in the price of LNG due to the increased demand which itself lead to the project.

    Thus all-together, though not the end of the world--the cost-overruns to date will likely reduce profits, and extend by an unknown period the project's break-even point upon completion.

    Sep 19 12:31 PM | 1 Like Like |Link to Comment
  • McDonald's Corporation: On 'Low D' Notice [View article]
    Chowder -- We operate our portfolios a little differently, and I am convinced there are multiple avenues to financial independence. I respect those who have a plan...and are able to follow it long-term.

    Enjoy your vacation.

    Sep 19 10:03 AM | 2 Likes Like |Link to Comment
  • McDonald's Corporation: On 'Low D' Notice [View article]
    FWIW -- I am not a DGI. My strategy is Growth & Income, and thus I focus on earnings and total return. I have excellent results using only dividend-payers to obtain attractive total returns that keep my portfolio near record returns in spite of my annual RMDs. With few exceptions, so long as my companies are generating adequate top and bottom lines, their share prices will tend to advance, and my income does likewise.

    As for MCD...
    My core portfolio consists on well-established largecaps/midcaps most adults (and all SDIs) recognize. These are the horses I depend upon to pull my wagon. MCD is among these 47 horses.

    MCD is clearly tired, it is resting as it reacts to its problems, including some of its own making, as well as changing consumer preferences. Fortunately, some of my other horses have stepped into the harness, and are pulling my wagon while others are resting.

    Stocks rotate into and out of favor--it will always be so. I monitor my companies carefully, and presently IMO the probability is MCD will overcome its problems and again pull my wagon.

    Sep 19 09:19 AM | 16 Likes Like |Link to Comment
  • Did Chevron Corporation Fumble On LNG? [View article]
    Long CVX.

    I often read dividend-payers are superior allocators of capital.

    That theory is challenged here by CVX's costly fumbles.

    A case can be made that CVX management assumes cash is so freely available, they can approve dubious expensive projects in obviously risky counties; they can mismanage projects into gigantic 46% cost overruns (and assume the market will forgive their mistakes); and they can generally allocate stockholder monies much as does Google (a non-dividend payer spending huge sums on questionable projects)!

    Casey's text and conclusion, "if Chevron can execute solidly..." indicates these are not minor problems, and solid execution cannot be assumed. Clearly CVX is not guided by a 5-star management.

    IMO, there being no identified need to consider only legacy "big three" US oil companies, I'm beginning to suspect (compared to CVX), the probability is BP offers equal total returns for about equal risk (or at least different risk). If that were so, spreading risk to add a position in BP (less exposure to nat gas), would seem a logical consideration--I have not undertaken due diligence on BP.

    Sep 19 08:17 AM | Likes Like |Link to Comment
  • GSK to pay $488M penalty over Chinese bribes [View news story]
    I'm long GSK.

    I expect the companies I own to follow all laws and regulations. I have no sympathy for cheaters. Those execs receiving suspended sentences likely got off easy.

    I suspect GSK will also be found guilty by the UK and USA courts or regulators. That there are similar and pending bribery cases in 5 other countries strongly suggests the bribery is not the idea of those 4 execs in China, and the guilty include those having offices in the C suite located in Middlesex.
    Sep 19 06:50 AM | Likes Like |Link to Comment
  • CVS Health, Walgreen, And Rite Aid: Not All Drugstore Chains Are Created Equally [View article]
    FWIW -- Without a doubt, CVS is one of the horses pulling my wagon. Eventually these will tire and rest, while other horses steps into the harness to take their turn pulling.

    Meantime, with its recent emphasis on health, and name change, 'CVS Health' has moved from Drug Stores into the Medical Care category.

    Starting in 2011, CVS's total returns have accelerated to the extent CVS is a winning has out-performed Walgreens, the S&P500, and Medical Care for the 1, 3, 5, 10, & 15 year periods (and also out-performed Walgreens and the S&P for 1 month, 3 months, and YTD).

    Finally, CVS's dividend growth rate is one to be envied...
    1 yr = 38.5%
    3 yrs = 37.0%
    5 yrs = 28.4%
    10 yrs = 22.7%

    But more important than its past, is where CVS goes from here...analysts are bullish. S&P Capital IQ rates CVS a buy, A+ for quality, and has a 12-month target price of $88. As for valuation, CVS is rated a 5 (most undervalued) with a FV of $97.

    Note: Each SDI must complete their own due diligence. Don't bother if income is more important to you than are total returns (or if you have no place in your portfolio for diversification to include a few companies having stronger growth than the typical income stock). CVS has a forward yield of 1.36%. (Dividends have increased from 13 cents in 2004 to $1.10 today).

    Sep 19 06:44 AM | Likes Like |Link to Comment
  • Why Income Investors Should Avoid Clorox [View article]
    CLX announces a new CEO (Knauss kicked upstairs to chairman).
    Is this a good move? the reaction as reflected in the share price.

    Sep 18 04:26 PM | Likes Like |Link to Comment
  • Seeking High-Quality Companies With Sales And Dividend Growth, And A Reasonable Price [View article]
    Thanks Richard -- I always know yours will be a well-developed and professional examination of the topic covered.

    Unfortunately, TROW suffers in some data files (but not in the CCC List) for having issued a $1 special dividend in 2012 (thus 2013 is considered a dividend-cut).

    As for the discussion of Baxter's 3.1% decline, I note most Pharmas rose yesterday, and aside from BAX, only Bristol-Myers Squibb declined (and that a modest 0.5%). There was no BAX-specific news.

    IMO, it is likely a large block (about 2 million shares) was put on the market, and once the share price declined, others sold assuming there was negative news to come. BAX traded about 5 million shares yesterday, versus an average daily volume of about 2 million.

    I can also report my limit-buy was filled. Today BAX is trading up about 0.65%, and about in the middle of the pack of pharms.

    Sep 18 12:33 PM | 1 Like Like |Link to Comment
  • Why Income Investors Should Avoid Clorox [View article]
    Thanks -- That's my story, and I'm sticking to it.

    Besides, it makes more sense to myself than that soap analogy (which I debunk in my profile).
    Sep 18 10:07 AM | 2 Likes Like |Link to Comment
  • Why Income Investors Should Avoid Clorox [View article]
    mbn -- Analogies that 'make sense' are useful in conveying a theory or process.

    No company's shares climb continuously without resting. OTOH, some companies take resting to extremes, going into a prolonged near-comatose state.

    Here's my analogy...
    My companies are horses. I own 50 horses that rotate pulling my large 7-digit wagon (portfolio). While some horses are at work pulling my wagon, those formerly pulling are walking behind as they rest, graze, and gather energy to pull again.

    However two or 3 very tired, or injured, horses must skip one or more pulling turns while they climb into the wagon to recover.

    Clorex is one of my poorest performing horses, and therefore is riding while others take turns pulling. If Clorex recovers in a reasonable period, it will rejoin the rotation taking its turns pulling.

    But I also know if it falls into a prolonged deep sleep, it's value will seriously decline. Thus the earlier I can make a prognosis, the greater my opportunity to sell it to another wagon while it still has reasonable value. But if I wait too long, I risk having no buyers and would be limited to selling to the glue factory.

    It's my job to keep our wagon rolling forward and on course. Our wagon is more important than is any of our horses. It is a mistake to become emotionally attached to horses.

    p.s. I am not planning to sell CLX; instead my prognosis is recovery.
    Sep 18 07:07 AM | 3 Likes Like |Link to Comment
  • AT&T: Does Buying America Movil's Assets Make Sense? [View article]
    IMO, we know T is growth-constrained, and will forever remain #2, if it remains a U.S.A-only entity. It also appears Vodaphone is no longer a viable acquisition candidate.

    I suspect T is salivating at the possibility of devouring DTV, and obtaining a AMX's east coast Mexico telecom assets.

    I suspect T can carry more debt than can a more cyclical business. Nonetheless, in view of T's present high debt, I also suspect an equity offering would be required if T were to stretch itself to reach for the Mexican assets (though that means dilution, I'm not necessarily opposed).

    Sep 17 06:17 PM | 1 Like Like |Link to Comment