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cpa28761

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  • Dividend Stocks May Be a Good Retirement Strategy, But Protecting Your Principal Is Better [View article]
    >>>Book equity is an accounting creation...you cant pay dividends with book equity and you cant pay down debt with book equity. Both of those actions require cash...something that CLX generates tons of.<<<

    Book equity is an accounting creation. Accountants create it when they subtract liabilities from assets. According to CLX's filing on form 10Q, the company showed more liabilities than assets. That is no different from an individual living on credit cards.

    Let's compare CLX to a few consumer staples companies that I hold in my portfolio: KMB, PG, PG, KO, and PEP.

    YIELD:
    CLX 3.56%
    KMB 4.23%
    PG 3.36%
    KO 2.82%
    PEP 2.95%

    5 Year Div Growth:
    CLX 15.65%
    KMB 7.39%
    PG 11.11%
    KO 8.68%
    PEP 11.41%

    TTM Pretax Margin:
    CLX 11%
    KMB 13%
    PG 18%
    KO 38%
    PEP 14%

    Return on Assets:
    CLX 6.58%
    KMB 9.27%
    PG 8.44%
    KO 19.24%
    PEP 8.84%

    Debt/Assets:
    CLX 61%
    KMB 31%
    PG 23%
    KO 34%
    PEP 37%

    CLX carries twice as much debt, according to the Fidelity web site, as the others. Based on the above margins and returns on assets, what would lead an investor to believe that CLX management can operate so close to the brink while these other companies that have been around a lot longer feel that they should maintain a capital base.
    Jun 30, 2011. 08:15 PM | 2 Likes Like |Link to Comment
  • Dividend Stocks May Be a Good Retirement Strategy, But Protecting Your Principal Is Better [View article]
    It's funny that you mention Burt's Bees.

    PG's balance sheet is about 50/50 debt to equity. I guess their financial management is not as talented as CLX's to know that they finance their company in its entirety with borrowed money.

    Why am I defending my position against CLX? Let me ask it this way, what does CLX offer an investor that PG does not?
    Jun 30, 2011. 04:52 PM | 2 Likes Like |Link to Comment
  • AT&T: A Dividend Stock Pick for the Next 5 Years [View article]
    I am not comfortable with the financial sector as a whole, which includes banks, investment banks, insurance companies, etc. Not only did I get burned by investments in several banks, I also took losses with AXA and HIG. All were highly rated by analysts when I invested. I even had some paper profits at a point.
    Jun 30, 2011. 03:56 PM | 2 Likes Like |Link to Comment
  • 8 High Yield Dividend Stocks Still Offer Opportunity to Boost Income [View article]
    Poortorich, of course we're buddies. My dearest friend tells me that the entire stock market is a ponzi scheme and has all of his money in CD's. Imagine how much closer you and I are than that.

    This forum is about money and not morality. I have probably broken more of the ten commandments than I have kept. Nonetheless, I will have nothing to do with tobacco stocks having lost a person dear to me to lung cancer.

    Different stocks achieve different investment objectives. All other things being the same, were I in my 40's instead of my 60's, I would not be as heavily into power companies, teleco's, and MLP's as I am today. However, I have been buying those to replace bonds as they mature and get called.

    Dividend growth stocks are my hedge against inflation. They will provide a superior total return, but it can take a decade for cumulative dividends to pass those of higher yielding stocks. Therefore my portfolio has a mix of things that provide the level of income I need with what I hope is inflation protection. Then again, I further hedge my position by not spending all my immediate income.

    I hope I have explained why our differences are not personal or even ideological. They are driven by the different stages of life we are at.
    Jun 30, 2011. 02:58 PM | 1 Like Like |Link to Comment
  • AT&T: A Dividend Stock Pick for the Next 5 Years [View article]
    Robert, I am avoiding the entire banking sector in the US and Europe. I got burned too badly on several financials a few years ago. A lack of true transparency and nobody knowing where the true bottom of the housing market is troubles me.

    I hold a small position in TD and would consider adding to it or, perhaps, another Canadian bank.

    Sheldon
    Jun 30, 2011. 02:42 PM | 5 Likes Like |Link to Comment
  • Dividend Stocks May Be a Good Retirement Strategy, But Protecting Your Principal Is Better [View article]
    Only time will tell if a company can be financed 100% by borrowed money.
    Jun 30, 2011. 02:35 PM | 1 Like Like |Link to Comment
  • AT&T: A Dividend Stock Pick for the Next 5 Years [View article]
    There is no reason not to own T and ABT. ABT is a dividend growth stock that, in time, should generate a superior total return. But that is over the long haul and that is why I own it.

    T generates a higher yield today and some dividend growth. I recently added to my position to replace maturing and called bonds. Each has a place in a diversified portfolio.
    Jun 30, 2011. 02:34 PM | 4 Likes Like |Link to Comment
  • Dividend Stocks May Be a Good Retirement Strategy, But Protecting Your Principal Is Better [View article]
    >>>Financing activites are OPTIONAL, unless of course free cash flow is negative and thus needs to financed. CLX generates tons of free cash flow (after capex, after dividend, after interest, after taxes) so all of its financing activities are optional.....

    Said another way, had Clorox chosen not to reduce debt and not buy back stock, CLX would have added $579mm to its cash balance while also growing its dividend.<<<<

    Admittedly, it has been a year since I retired from corporate life. Therefore, clue me in. When did debt service become "OPTIONAL"? CLX had net borrowings in 2008 of almost $1.5 Billion. It seems that they used most of it to buy back their own stock. Do you think paying it back with interest is an option?
    Their latest year-end balance sheet shows over $700 million of short-term debt to be repaid.
    Jun 30, 2011. 10:04 AM | 3 Likes Like |Link to Comment
  • 8 High Yield Dividend Stocks Still Offer Opportunity to Boost Income [View article]
    >>>i stay away from utilitiez and telecoms in general. High cap exp is another form of debt. The likelihood of clx defaulting on its loan is about the same as kmb defaulting its own loan. <<<

    On this, we will have to agree to disagree.
    Jun 30, 2011. 08:28 AM | 1 Like Like |Link to Comment
  • 8 High Yield Dividend Stocks Still Offer Opportunity to Boost Income [View article]
    If you believe what you say, it is highly unlikely that would invest in a utility or a telco. Such companies can never pay off their debt. The idea is not to have no debt; the idea (which I learned in my sophomore finance course) is to have a capital structure appropriate to the assets being financed. Look at it as it even relates to an individual. He would finance his house with 15-30 year debt, his car with 3-4 year debt, and his restaurant dining should be paid monthly. If a corporation is financing paper mills with, say, twenty year economic lives, long-term mortgage financing is appropriate. Taking on a billion dollars in a term loan to facilitate stock buybacks, as CLX did in 2008, and totally depleting shareholder equity, is, IMHO, irresponsible to say the least.

    Do I think CLX will default? I don't know if they will or will not. I will say that the likelihood for them is far greater than for KMB or PG.

    Now, my question for you is, exactly what is the attraction to investing in CLX as opposed to PG? They are sort of similar companies. What advantge does CLX hold?
    Jun 29, 2011. 11:06 PM | 1 Like Like |Link to Comment
  • 30 Dividend Earners That Hedge Funds Love [View article]
    The article listed AZN and BCE, which are foreign stocks.
    Jun 29, 2011. 10:45 PM | Likes Like |Link to Comment
  • Dividend Stocks May Be a Good Retirement Strategy, But Protecting Your Principal Is Better [View article]
    Free Cash Flow is NOT the bottom line on Statement of Cash Flows. You have to consider Financing Activities. These cost CLX $540 Million and $706 Million in each of the last two full reported years. It also means that they burned thru $127 Million in cash in those years.
    Jun 29, 2011. 05:18 PM | 2 Likes Like |Link to Comment
  • 8 High Yield Dividend Stocks Still Offer Opportunity to Boost Income [View article]
    A more correct question may be which company has the resources to service its debt in the normal course of business. The obvious answer is KMB. As I explained, KMB is twice as capital intensive as CLX. Its need for borrowing is dictated by its business model. BTW, for the last two complete years CLX burned thru $127 million in cash while KMB generated $512 million.

    Sorry, but you will never get a financial analyst or an accountant to agree that a company can be 100% leveraged under any circumstances. Then again, if we could find where Andrew Fastow (Enron) or Scott Sulivan (WorldCom) are confined, maybe.
    Jun 29, 2011. 05:04 PM | 1 Like Like |Link to Comment
  • 8 High Yield Dividend Stocks Still Offer Opportunity to Boost Income [View article]
    Poortorich, first, if you "like to take the contrarian view sometimes to liven the discussion," that's fine with me. When I was even younger than you, I was a competitive debater. Second, this is about money, not my granddaughter. There is nothing personal here. I will do my best to address the issues you raise.

    I have no disdain for CLX. I even use some of their products. I believe the company was formed when PG decided to get out of the commodity chlorine bleach business.

    CLX, as of the figures from the 3/31/2011 filing on form 10Q, has less than zero equity. You are correct in that treasury stock purchases contributed to this situation, but so what. Even as recently as the quarter ending March 2011, they bought back $300 million of their own stock. What purpose did that serve other than to hope to boost the value of their shares? The fact remains that they have less than zero equity.

    The relationship between debt and market capitalization is meaningless. No company can sell stock to pay off all its debts without diluting its market value to the point where the public offering would not be enough money to pay the debts.

    Suspending a dividend is not an option for CLX or KMB. At least it is not an option that management would willingly choose to take.

    KMB's business model is such that it would have more debt than CLX because its business is more capital intensive than that of CLX. Over 42% of KMB's balance sheet is Property and Equipment. Only 25% of CLX's balance sheet is Property and Equipment. In and of itself, KMB's business model allows for more debt. For this reason, how long it would take to pay off debt from free cash flow were a dividend to be suspended, is not really a valid metric. However, if you wish to pursue a more meaningful comparison of companies, try doing this measurement with CL, which is my third holding in my non-food staples basket.

    KMB's balance sheet shows debt at 66% of assets. CLX's balance sheet shows debt at over 100% of assets. That leaves zero margin for error.

    I hope I've addressed you concerns. I thank you for this opportunity to help a retiree maintain his skills.
    Jun 29, 2011. 04:17 PM | 1 Like Like |Link to Comment
  • Dividend Stocks May Be a Good Retirement Strategy, But Protecting Your Principal Is Better [View article]
    Guys, thanks for the kind words. I'm here like everyone else. We share ideas and we learn from one another. I've learned from many SA contributors, both those who write the articles and those who post comments. No one knows it all. It's a lot better for us to pool our knowledge. We, collectively, probably know more than the "professionals" who are really commissioned salespeople.
    Jun 29, 2011. 02:15 PM | 4 Likes Like |Link to Comment
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