How To Turn Facebook Into A 4.2% Yielding Rich Retirement Dream Stock
Summary
- The lowest interest rates in history have created challenges for income investors and retirees, who can no longer depend on a 60/40 portfolio to meet their needs.
- Fortunately adapting a 60/40 into an 80/20 high-yield blue-chip portfolio is a reasonable way to solve your retirement income problems.
- Facebook is the global king of social media, is 18% undervalued, and analysts expect 17.6% long-term growth and return potential.
- Combining Facebook with high-yield blue-chips like MMP, BTI, or MO can create 4.2% yield, and 14.7% long-term return potential.
- A portfolio that's 50% 60/40 and 50% FB + high-yield blue-chips can safely allow for 10% to 12% annual withdrawal rates and isn't likely to run out of money over the next 75 years.
- Looking for more investing ideas like this one? Get them exclusively at The Dividend Kings. Learn More »
anyaberkut/iStock via Getty Images
Interest rates are at their lowest levels in history, creating a significant challenge for income investors.
Thanks to numerous secular trends most economists think that ultra-low rates will persist for the foreseeable future. Some even think interest rates might keep falling, potentially to zero or negative in the US.
When even junk bonds average just 3.5% interest, below the current rate of inflation, you can see why income investors are worried.
Thankfully, there is always a solution to any financial problem if you have the right tools.
Today I wanted to explain a simple and effective three-step process for potentially solving your retirement income needs. Not through dangerous speculation, but merely by buying and holding Facebook (FB), which is now called Meta, but which I'll refer to the former name until most investors can get used to the new one.
Yes, non-dividend paying Facebook could indeed be a way to generate not only generous, safe, and growing income, but also life-changing long-term returns.
Returns that could help you retire rich, stay rich in retirement, and potentially allow your children and grandchildren to retire even richer.
Step 1: Buy Facebook, The Global King Of Social Media
The bottom line up front, I've bought over $60,000 worth of Facebook so far. And about $50,000 of that was during the recent correction.
And here's why.
Reasons To Buy Facebook
- stable, wide moat business
- 17.6% CAGR consensus long-term growth rate (14% to 38% margin-of-error adjusted growth consensus range)
- dominant global social media giant
- Metaverse could potentially be a game-changer (like when Apple (AAPL) invented the iPhone, and later services)
- 19% undervalued (a wonderful company at a good price)
- 14% to 24% CAGR 5-year consensus return potential
- 11.5% CAGR 5-year risk-adjusted expected returns vs. 3.26% S&P 500 (3.5x market returns)
Facebook is a volatile stock, but that's a feature, not a bug.
Volatility Is Your Friend...Or At Least Not Your Enemy
Basically, price fluctuations have only one significant meaning for the true investor.
They provide him with an opportunity to buy wisely when prices fall sharply and to sell wisely when they advance a great deal." - Benjamin Graham
Quality And Fundamental Safety Has Nothing To Do With Volatility
FB Peak Declines Since 2013 (Each One A Great Buying Opportunity)
(Source: Portfolio Visualizer)
FB corrections tend to be sharp, short, and it usually recovers to new highs in less than a year.
From correction lows, 7 year returns as strong as 37.4% CAGR = 9.25x your money in 7 years.
These are Buffett-like returns from a hyper-growth blue-chip bargain hiding in plain sight.
In fact, Facebook is better than a blue-chip, it's a Super SWAN quality company.
Balance Sheet Safety
| Rating | Dividend Kings Safety Score (120 Point Safety Model) | Approximate Dividend Cut Risk (Average Recession) | Approximate Dividend Cut Risk In Pandemic Level Recession |
| 1 - unsafe | 0% to 20% | over 4% | 16+% |
| 2- below average | 21% to 40% | over 2% | 8% to 16% |
| 3 - average | 41% to 60% | 2% | 4% to 8% |
| 4 - safe | 61% to 80% | 1% | 2% to 4% |
| 5- very safe | 81% to 100% | 0.5% | 1% to 2% |
| FB | 84% | Effectively AAA Credit Rating | Approximately 0.07% 30-year bankruptcy risk |
Long-Term Dependability
| Company | DK Long-Term Dependability Score | Interpretation | Points |
| Non-Dependable Companies | 18% or below | Poor Dependability | 1 |
| Low Dependability Companies | 19% to 57% | Below-Average Dependability | 2 |
| S&P 500/Industry Average | 58% (58% to 67% range) | Average Dependability | 3 |
| Above-Average | 68% to 77% | Very Dependable | 4 |
| Very Good | 78% or higher | Exceptional Dependability | 5 |
| FB | 69% | Very Dependable | 4 |
Overall Quality
| FB | Final Score | Rating |
| Safety | 84% | 5/5 very safe |
| Business Model | 90% | 3/3 wide moat |
| Dependability | 69% | 4/5 very dependable |
| Total | 77% | 12/13 Super SWAN |
The Dividend King's overall quality scores are based on a 207 point model that includes
dividend safety
balance sheet strength
short and long-term bankruptcy risk
accounting and corporate fraud risk
profitability and business model
growth consensus estimates
cost of capital
long-term risk-management scores from MSCI, Morningstar, FactSet, S&P, Reuters/Refinitiv and Just Capital
management quality
dividend friendly corporate culture/income dependability
long-term total returns (a Ben Graham sign of quality)
analyst consensus long-term return potential
It includes over 1,000 metrics if you count everything factored in by 12 rating agencies we use to assess fundamental risk.
credit and risk management ratings make up 38% of the DK safety and quality model
dividend/balance sheet/risk ratings make up 77% of the DK safety and quality model
How do we know that our safety and quality model works well?
During the two worst recessions in 75 years, our safety model predicted 87% of blue-chip dividend cuts during the ultimate baptism by fire for any dividend safety model.
So let's take a closer look at why Facebook is a Super SWAN retirees can trust.
Some investors worry about people quitting FB because of anecdotes from friends and family saying they have quit the platform.
The plural of anecdote is anecdotes, not data." - Bryan Dunning
(Source: earnings presentation)
Across all its platforms Facebook has 3.6 billion monthly users.
- the largest empire in human history
- the strongest network effects in social media history
(Source: earnings presentation)
Facebook users are growing in North America and every region of the world.
(Source: earnings presentation)
(Source: earnings presentation)
In the past year, ARPU, average revenue per user, is up significantly in every region and across every platform and that's expected to continue for the foreseeable future.
(Source: FactSet Research Terminal)
- consensus growth in the average revenue per user (ARPU) 2020-2024: 13.1% CAGR
- consensus growth in the monthly active users 2020-2026: 3.5% CAGR
- 632 million more monthly users = almost 2X the population of the US
- Daily active users: 3.5% CAGR growth = 424 million more (128% US population)
An Effective AAA Balance Sheet
Here's what FB's balance sheet looks like.
(Source: GuruFocus Premium)
Johnson & Johnson (JNJ) Balance Sheet (AAA negative outlook)
(Source: GuruFocus Premium)
Microsoft (MSFT) Balance Sheet (AAA stable outlook)
(Source: GuruFocus Premium)
FB's Z-score of 19.82 is almost 7x the very safe 3+ guideline, and 2x that of MSFT, and 5x that of JNJ.
- Z-score is an advanced accounting metric that is 84% to 92% accurate at forecasting bankruptcies over time
Here are the leverage guidelines for most companies, including big tech.
| Credit Rating | Safe Net Debt/EBITDA For Most Companies | 30-Year Default/Bankruptcy Risk |
| BBB | 3.0 or less | 7.50% |
| A- | 2.5 or less | 2.50% |
| A | 2.0 or less | 0.66% |
| A+ | 1.8 or less | 0.60% |
| AA | 1.5 or less | 0.51% |
| AAA | 1.1 or less | 0.07% |
And here's Facebook's Balance Sheet.
(Source: FactSet Research Terminal)
| Year | Cash | Net Debt (Millions) | EBITDA (Millions) | Operating Income (Millions) |
| 2020 | $17,576 | -$61,954 | $46,069 | $32,671 |
| 2021 | $23,880 | -$69,941 | $64,181 | $47,405 |
| 2022 | $40,644 | -$86,076 | $67,734 | $49,909 |
| 2023 | $62,202 | -$117,917 | $79,801 | $59,562 |
| 2024 | $78,192 | -$82,698 | $97,755 | $67,035 |
| 2025 | $138,174 | -$112,774 | $111,733 | $80,660 |
| 2026 | $198,234 | -$156,760 | $124,809 | $88,573 |
| Annualized Growth | 49.75% | 16.73% | 18.07% | 18.08% |
(Source: FactSet Research Terminal)
If Facebook bothered to pay $1.5 million per year for credit ratings, it would likely be rated AAA indicating a 0.07% 30-year bankruptcy risk.
- 1 in 1,429 chance of going to zero over the next three decades
$156 billion in net cash despite $193 billion in consensus buybacks through 2026.
And for those worried about Facebook's profitability in the future don't be.
Profitability: Wall Street's Favorite Quality Proxy
(Source: GuruFocus Premium)
Facebook's moat is wide, strong, and stable.
FB Trailing 12-Month Profitability Vs. Peers
| Metric | Industry Percentile | Major Interactive Media Companies More Profitable Than FB (Out Of 570) |
| Operating Margin | 94.96 | 29 |
| Net Margin | 91.49 | 49 |
| Return On Equity | 90.81 | 52 |
| Return On Assets | 93.36 | 38 |
| Return On Capital | 65.67 | 196 |
| Average | 87.26 | 73 |
(Source: GuruFocus Premium)
In the last year, profitability was in the top 13% of its industry.
FB Margin Consensus Forecast
| Year | FCF Margin | EBITDA Margin | EBIT (Operating) Margin | Net Margin | Return On Capital Expansion | Return On Capital Forecast |
| 2020 | 27.5% | 53.6% | 38.0% | 33.9% | 1.00 | |
| 2021 | 30.5% | 54.5% | 40.3% | 33.9% | TTM ROC | 79.94% |
| 2022 | 24.7% | 48.4% | 35.6% | 29.8% | Latest ROC | 80.1% |
| 2023 | 26.1% | 48.4% | 36.1% | 29.9% | 2026 ROC | 80.19% |
| 2024 | 26.7% | 52.6% | 36.1% | 29.6% | 2026 ROC | 80.3% |
| 2025 | 34.9% | 52.2% | 37.7% | 30.9% | Average | 80.2% |
| 2026 | 39.3% | 53.7% | 38.1% | 31.2% | Industry Median | 26.70% |
| Annualized Growth | 6.13% | 0.04% | 0.05% | -1.39% | FB/Peers | 3.01 |
| Vs S&P | 6.18 |
(Source: FactSet Research Terminal)
In the future analysts expect stable or improving margins, including free cash flow margins of nearly 40%. That's that in the top 5% of all global companies.
(Source: GuruFocus Premium)
Returns on capital, Joel Greenblatt's gold standard proxy for quality and moatiness, is expected to remain stable as it has been for the last decade despite 570 major media companies trying to steal FB's market share and revenue.
Most impressively, Facebook's margins are expected to remain stable or growing despite epic growth spending.
FB Growth Spending Consensus Forecast
| Year | SG&A (Selling, General, Administrative) | R&D | Capex | Total Growth Spending | Sales | Growth Spending/Sales |
| 2020 | $18,155 | $18,448 | $15,115 | $51,718 | $85,965 | 60.16% |
| 2021 | $22,512 | $22,659 | $19,291 | $64,462 | $117,734 | 54.75% |
| 2022 | $29,427 | $30,408 | $27,812 | $87,647 | $140,055 | 62.58% |
| 2023 | $34,126 | $35,744 | $29,652 | $99,522 | $164,932 | 60.34% |
| 2024 | $36,420 | $42,899 | $30,460 | $109,779 | $185,812 | 59.08% |
| 2025 | $41,996 | $47,159 | $31,770 | $120,925 | $213,961 | 56.52% |
| 2026 | $46,299 | $49,648 | $31,642 | $127,589 | $232,331 | 54.92% |
| Annualized Growth | 16.89% | 17.94% | 13.10% | 16.24% | 18.02% | -1.51% |
(Source: FactSet Research Terminal)
And a significantly higher tax rate.
FB Tax Consensus Forecast
| Year | Operating Income | Tax Costs | Tax Rate |
| 2020 | $32,671 | $4,035 | 12.35% |
| 2021 | $47,405 | $7,920 | 16.71% |
| 2022 | $49,909 | $8,493 | 17.02% |
| 2023 | $59,562 | $10,321 | 17.33% |
| 2024 | $67,035 | $12,796 | 19.09% |
| 2025 | $80,660 | $15,760 | 19.54% |
| 2026 | $88,573 | $17,190 | 19.41% |
| Annualized Growth | 18.08% | 27.32% | 7.82% |
Total Taxes 2020-2026 | $76,515 |
(Source: FactSet Research Terminal)
But one that's still below the current 21% corporate tax rate thanks to such large growth spending (capex is tax-deductible).
FB Growth Consensus Forecast
| Year | Sales | Free Cash Flow | EBITDA | EBIT (Operating Income) | Net Income |
| 2020 | $85,965 | $23,632 | $46,069 | $32,671 | $29,146 |
| 2021 | $117,734 | $35,869 | $64,181 | $47,405 | $39,950 |
| 2022 | $140,055 | $34,640 | $67,734 | $49,909 | $41,692 |
| 2023 | $164,932 | $43,122 | $79,801 | $59,562 | $49,371 |
| 2024 | $185,812 | $49,566 | $97,755 | $67,035 | $55,077 |
| 2025 | $213,961 | $74,708 | $111,733 | $80,660 | $66,038 |
| 2026 | $232,331 | $91,286 | $124,809 | $88,573 | $72,444 |
| Annualized Growth 2020-2026 | 18.02% | 25.26% | 18.07% | 18.08% | 16.39% |
(Source: FactSet Research Terminal)
Few companies in the world are growing at 18% top-line and 25% free cash flow, and even fewer companies of Facebook's size.
FB Dividend/Buyback Potential Consensus Forecast
| Year | Dividend Consensus | FCF/share Consensus | Retained (Post-Dividend) Free Cash Flow | Buyback Potential |
| 2021 | $0.00 | $12.45 | $35,184 | 3.95% |
| 2022 | $0.00 | $10.87 | $30,719 | 3.45% |
| 2023 | $0.00 | $14.33 | $40,497 | 4.55% |
| 2024 | $0.00 | $17.52 | $49,512 | 5.56% |
| 2025 | $0.00 | $26.89 | $75,991 | 8.53% |
| 2026 | $0.00 | $32.83 | $92,778 | 10.42% |
| Total 2021 Through 2026 | $0.00 | $114.89 | $324,679.14 | 36.46% |
| Annualized Rate | NA | 21.40% | 21.40% | 21.40% |
(Source: FactSet Research Terminal)
Facebook isn't expected to pay a dividend for the next few years, but eventually, it likely will.
That's courtesy of $198 billion in consensus cash in 2016, and $91 billion in annual (and rapidly growing) free cash flow. By 2026 analysts expect $325 billion in retained free cash flow from Facebook.
About 2/3 of that is expected to be used for buybacks.
We repurchased $14.4 billion of our Class A common stock in the third quarter and had 8 billion remaining on our prior authorization as of September 30th. Today, we announced a $50 billion increase in our stock repurchase authorization." - CFO Q3 conference call
FB has a $58 billion buyback authorization right now and is repurchasing shares at an annualized rate of nearly $60 billion per year.
- 2021-2026 buyback consensus forecast: $193.408 billion
- 21.7% of shares at current valuations
Facebook is new to the buyback party but it's embracing the practice with enthusiasm.
$200 billion per year is approximately the most any company can buy back its stock without significantly moving its share price given the legal limitations for buyback black-out periods surrounding earnings.
It might take several years for Facebook to exhaust its buyback potential and start paying dividends, but if it keeps growing as analysts expect, it eventually will.
That's not speculation; it's simple math.
FB Long-Term Growth Outlook
(Source: FactSet Research Terminal)
FB is the 2nd most widely covered company on Wall Street (behind BABA with 60 analysts).
- 17.6% to 26.8% CAGR growth consensus range
Smoothing for outliers, 20% margin of error to the downside, and 40% to the upside.
- 14% to 38% CAGR margin-of-error adjusted growth consensus range
(Source: FAST Graphs, FactSet Research)
Analysts expect FB to keep growing at a similar rate to the last three years.
And it has the secular catalysts (including the Metaverse) to achieve that.
And speaking of the Metaverse...
Metaverse: The Future Of Facebook... And Potentially The Next Internet
Here's Facebook's take on the metaverse and why it's so important they renamed the company around it.
The next platform will be even more immersive - an embodied internet where you're in the experience, not just looking at it. We call this the metaverse, and it will touch every product we build...
In the metaverse, you'll be able to do almost anything you can imagine - get together with friends and family, work, learn, play, shop, create - as well as completely new experiences that don't really fit how we think about computers or phones today. We made a film that explores how you might use the metaverse one day.
In this future, you will be able to teleport instantly as a hologram to be at the office without a commute, at a concert with friends, or in your parents' living room to catch up. This will open up more opportunity no matter where you live. You'll be able to spend more time on what matters to you, cut down time in traffic, and reduce your carbon footprint.
Think about how many physical things you have today that could just be holograms in the future. Your TV, your perfect work setup with multiple monitors, your board games and more - instead of physical things assembled in factories, they'll be holograms designed by creators around the world.
You'll move across these experiences on different devices - augmented reality glasses to stay present in the physical world, virtual reality to be fully immersed, and phones and computers to jump in from existing platforms. This isn't about spending more time on screens; it's about making the time we already spend better." - Mark Zuckerberg
It's worth watching Mr. Zuckerberg's 77-minute introduction to the metaverse because it makes one thing abundantly clear.
Just as the iPhone and services were a game-changer for Apple, so too could successful execution on the metaverse prove a wealth spewing game-changer for Facebook.
Does that mean that Facebook is guaranteed to dominate the Metaverse as it does social media today? Well, open-source Metaverses are springing up, including on blockchain, and a lot of people don't want to be part of Facebook's walled garden.
But guess what? Android is the more open version of phones, and iPhone and iOS are still the kings of mobile phones. In fact, some analysts estimate that within three years, Apple's advertising revenue from the App Store alone will be $20 billion per year.
And with 3.6 billion users and counting, it's likely that Facebook is going to be a dominant force in the meta-verse which tech experts such as Marc Andreesen, one of the best venture capitalists in history, say could revolutionize the world to an equal extend at the internet did our world over the last three decades.
Why should investors listen to Mr. Andreesen? Because this guy knows tech and is almost always right.
As venture capitalists, Mr. Andreessen and Mr. Horowitz aggressively raised money and outbid rivals, taking early stakes in Facebook, Twitter, Pinterest, Airbnb, and Slack." - NYT
In 2011 he wrote in the NYT "Software is eating the world" so buy GOOG, Facebook's upcoming IPO, AMZN, MSFT, and AAPL.
In early 2013 he wrote that Bitcoin (BTC-USD) and blockchain were "the next internet" when Bitcoin was $350
- Bitcoin is now $60,000, a 171x return in eight years, which is equal to 90% CAGR
Bottom line, when Andreesen calls something "the future of tech" it usually pays to listen. And Andreesen is calling the Metaverse the future of the internet and potentially as revolutionary as the internet itself.
And guess who has the largest userbase on earth and virtually infinite resources to potentially cash in on this multi-trillion opportunity? In fact, Facebook has already hired over 10,000 computer programmers in Europe (where tech regulations are strictest) to create its metaverse.
Success is not guaranteed, of course, but if anyone can pull this off profitably, it's likely to be Facebook with its mountain of rapidly growing cash.
Facebook Return Potential: Exceptional Returns From An Exceptional Company
For context, here's the return potential of the 27% overvalued S&P 500.
S&P 500 2023 Consensus Total Return Potential
(Source: FAST Graphs, FactSet Research)
S&P 500 2026 Consensus Total Return Potential
(Source: FAST Graphs, FactSet Research)
| Year | Upside Potential By End of That Year | Consensus CAGR Return Potential By End of That Year | Probability-Weighted Return (Annualized) |
| 2021 | -23.99% | -75.60% | -56.70% |
| 2022 | -15.69% | -13.32% | -9.99% |
| 2023 | -7.08% | -3.29% | -2.47% |
| 2024 | 2.21% | 0.69% | 0.52% |
| 2025 | 12.28% | 2.80% | 2.10% |
| 2026 | 23.22% | 4.10% | 3.32% |
(Source: DK S&P 500 Valuation And Total Return Tool)
Aristocrats are expected to deliver about 8.4% CAGR returns over the next five years.
And here's what investors buying FB today can reasonably expect.
- 5-year consensus return potential range: 14% to 24% CAGR
FB 2023 Consensus Total Return Potential
(Source: FAST Graphs, FactSet Research)
FB 2026 Consensus Total Return Potential
(Source: FAST Graphs, FactSet Research)
Facebook Valuation: A Wonderful Company At A Wonderful Price
| Metric | Historical Fair Value Multiples (6-Years) | 2020 | 2021 | 2022 | 2023 | 2024 | 12-Month Forward Fair Value |
| Earnings | 26.24 | $264.75 | $366.30 | $396.47 | $482.27 | $521.39 | |
| Owner Earnings (Buffett Smoothed Out FCF) | 20.79 | $312.55 | $316.69 | NA | NA | NA | |
| Operating Cash Flow | 17.81 | $238.93 | $342.19 | $407.76 | $468.61 | NA | |
| Free Cash Flow | 28.99 | $237.26 | $350.54 | $350.54 | $468.55 | $507.90 | |
| EBITDA | 18.13 | $248.14 | $410.13 | $433.47 | $513.37 | NA | |
| EBIT (operating income) | 21.42 | $242.37 | $359.01 | $405.26 | $476.67 | NA | |
| Average | $254.96 | $355.31 | $396.76 | $481.35 | $514.56 | $389.59 | |
| Current Price | $316.92 | ||||||
Discount To Fair Value | -24.30% | 10.81% | 20.12% | 34.16% | 38.41% | 18.65% | |
Upside To Fair Value (NOT Including Dividends) | -19.55% | 12.11% | 25.19% | 51.88% | 62.36% | 22.93% | |
| 2021 EPS | 2022 EPS | 2021 Weighted EPS | 2022 Weighted EPS | 12-Month Forward EPS | 12-Month Average Fair Value Forward PE | Current Forward PE | |
| $13.96 | $15.11 | $2.42 | $12.49 | $14.91 | 26.1 | 21.3 |
FB growing at rates analysts expect in the future has historically been valued at 26x earnings. Today it trades at 21.3%, creating a potential upside to fair value of 23% in the next year.
Analyst Median 12-Month Price Target | Morningstar Fair Value Estimate |
| $405.50 | $404 (DCF Model = 27.1 PE) |
Discount To Price Target (Not A Fair Value Estimate) | Discount To Fair Value |
| 21.84% | 21.55% |
Upside To Price Target | Upside To Fair Value |
| 27.95% | 27.48% |
Analysts are very bullish on FB, expecting nearly 3x the returns of the S&P 500 over the next year.
| 12-Month Forward S&P Bottom-Up Consensus | 5071.96 | Forward PE Forecast (12 Months From Now) | Forward Overvaluation Forecast (12 Months From Now) |
| 12-Month Consensus Market Return Potential | 10.3% | 21.65 | 28.9% |
(Source: Dividend Kings S&P 500 Valuation And Total Return Tool)
We don't actually care about 12-month price targets, which never have any basis in our recommendations.
| Time Frame (Years) | Total Returns Explained By Fundamentals/Valuations |
| 1 Day | 0.02% |
| 1 month | 0.4% |
| 3 month | 1.25% |
| 6 months | 2.5% |
| 1 | 5% |
| 2 | 16% |
| 3 | 25% |
| 4 | 33% |
| 5 | 41% |
| 6 | 49% |
| 7 | 57% |
| 8 | 66% |
| 9 | 74% |
| 10 | 82% |
| 11+ | 90% to 91% |
(Sources: DK S&P 500 Valuation And Total Return Potential Tool, JPMorgan, Bank of America, Princeton, RIA)
- over 12 months luck is 20x as powerful as fundamentals
- over 11+ years fundamentals are 11x as powerful as luck
| Rating | Margin Of Safety For 12/13 Super SWAN Quality Companies | 2021 Price | 2022 Price | 12-Month Forward Fair Value |
| Potentially Reasonable Buy | 0% | $355.31 | $396.76 | $389.59 |
| Potentially Good Buy | 10% | $319.78 | $357.09 | $350.63 |
| Potentially Strong Buy | 20% | $284.25 | $317.41 | $311.67 |
| Potentially Very Strong Buy | 30% | $223.85 | $277.74 | $272.71 |
| Potentially Ultra-Value Buy | 40% | $213.19 | $238.06 | $233.75 |
| Currently | $316.92 | 11.12% | 20.40% | 18.65% |
Upside To Fair Value (Not Including Dividends) | 12.51% | 25.63% | 2.93% |
FB is a potentially good buy and very close to a potentially strong buy for anyone comfortable with the risk profile.
FB Investment Decision Score
| Ticker | FB | DK Quality Rating | 12 | 77% | Investment Grade | A+ |
| Sector | Communications | Safety | 5 | 84% | Investment Score | 100% |
| Industry | Interactive Media & Services | Dependability | 4 | 69% | 5-Year Dividend Return | 0.00% |
| Sub-Industry | Interactive Media & Services | Business Model | 3 | Today's 5+ Year Risk-Adjusted Expected Return | 11.50% | |
| Super SWAN, Phoenix, Top Buy, Hyper-Growth | ||||||
| Goal | Scores | Scale | Interpretation | |||
| Valuation | 4 | Good Buy | FB's 18.94% discount to fair value earns it a 4-of-4 score for valuation timeliness | |||
| Preservation of Capital | 7 | Excellent | FB's credit rating of AAA implies a 0.07% chance of bankruptcy risk and earns it a 7-of-7 score for Preservation of Capital | |||
| Return of Capital | N/A | N/A | N/A | |||
| Return on Capital | 10 | Exceptional | FB's 11.50% vs. the S&P's 3.26% 5-year risk-adjusted expected return (RAER) earns it a 10-of-10 Return on Capital score | |||
| Total Score | 21 | Max score of 21 | S&P's Score | |||
| Investment Score | 100% | Exceptional | 73/100 = C(Market Average) | |||
| Investment Letter Grade | A+ | |||||
(Source: DK Automated Investment Decision Tool)
For anyone comfortable with the risk profile, FB is as close to a perfect hyper-growth blue-chip opportunity as exists on Wall Street today.
Ok, that's all great, but what about retirees who need immediate income? Are they supposed to hold Facebook for the next five to 10 years waiting for it to eventually pay a very safe and rapidly growing dividend?
Yes, but you don't have to wait a decade for Facebook to start paying handsomely today. Not when you use the Dividend Kings' Phoenix strategy.
Step 2: Buy Magellan Midstream Or Some Other Ultra-High-Yield Blue-Chip
This is the Zen Phoenix strategy.
- Zen Phoenix: always buy growth with yield and yield with growth
- always at fair value or better
- and always focusing on safety and quality first and sound risk management always
- balance in all things that matter (safety, quality, risk management, yield, growth, and value)
(Source: Dividend Kings Research Terminal)
- green = potentially good buy or better
- blue = potentially reasonable buy
- yellow = hold
- red = potential trim/sell
Our Phoenix watchlist consists of every blue-chip quality company (or better) that analysts expect to deliver 8+% annual returns (defensive sectors) or 10+% long-term annual returns.
These are the strongest companies on earth, the ones most likely to rise like a Phoenix from the ashes of even the most severe recessions and soar to new heights.
It's the only watchlist I personally use for my $1.7 million retirement portfolio and runs all DK portfolios.
And as you can see, Magellan Midstream Partners (MMP), is the highest safe yield on Wall Street, though British American Tobacco (BTI) is a very close second, and Altria (MO) is third.
BTI and MO represent potentially wonderful alternatives to MMP if you want to avoid K-1 tax forms.
- 3 Ways 8.9% Yielding Magellan Midstream Can Help You Retire Rich
- British American Tobacco: This 8.5% Yielding Dividend Aristocrat Is Set To Soar And Too Cheap To Ignore
- Altria: 3 Ways The Greatest Stock In History Can Help You Retire Rich
The Zen Phoenix strategy is totally flexible for your individual needs. And here's how it works.
| Company | Yield | Growth Consensus | Long-Term Consensus Total Return Potential | Weighting | Weighted Yield | Weighted Growth | Weighted Total Return Potential | Conservative Risk-Adjusted Expected Return |
| AMZN | 0.0% | 29.6% | 29.6% | 0.00% | 0.0% | 0.0% | 0.0% | 20.72% |
| BTI | 8.2% | 4.2% | 12.4% | 0.00% | 0.0% | 0.0% | 0.0% | 8.68% |
| MMP | 8.4% | 3.40% | 11.8% | 50.00% | 4.2% | 1.7% | 5.9% | 8.26% |
| FB | 0.0% | 17.60% | 17.6% | 50.00% | 0.0% | 8.8% | 8.8% | 12.32% |
| ENB | 6.4% | 8.40% | 14.8% | 0.00% | 0.0% | 0.0% | 0.0% | 10.36% |
| PM | 5.2% | 11.80% | 17.0% | 0.00% | 0.0% | 0.0% | 0.0% | 11.90% |
| GOOG | 0.0% | 20.40% | 20.4% | 0.00% | 0.0% | 0.0% | 0.0% | 14.28% |
| MO | 7.5% | 4.50% | 12.0% | 0.00% | 0.0% | 0.0% | 0.0% | 8.40% |
| Dividend Aristocrats (NOBL) | 2.3% | 8.90% | 11.2% | 0.00% | 0.0% | 0.0% | 0.0% | 7.84% |
| Nasdaq (QQQ) | 0.7% | 10.9% | 11.6% | 0.00% | 0.0% | 0.0% | 0.0% | 8.12% |
| S&P 500 (VOO) | 1.4% | 8.5% | 9.9% | 0.00% | 0.0% | 0.0% | 0.0% | 6.93% |
| 60/40 (BAGPX) | 1.7% | 5.1% | 6.8% | 0.00% | 0.0% | 0.0% | 0.0% | 4.76% |
| US Bonds (SCHZ) | 1.3% | 0.0% | 1.3% | 0.00% | 0.0% | 0.0% | 0.0% | 0.91% |
| Cash (VGSH) | 0.3% | 0.0% | 0.3% | 0.00% | 0.0% | 0.0% | 0.0% | 0.21% |
| Bitcoin | 0.0% | 60.0% | 60.0% | 0.00% | 0.0% | 0.0% | 0.0% | 42.00% |
| Ether | 0.0% | 80.0% | 80.0% | 0.00% | 0.0% | 0.0% | 0.0% | 56.00% |
| BlockFi | 9.0% | 0.0% | 9.0% | 0.00% | 0.0% | 0.0% | 0.0% | 6.30% |
| Total | 43.4% | 133.3% | 176.7% | 100.00% | 4.2% | 10.5% | 14.7% | 10.29% |
(Source: Dividend Kings Portfolio Construction Tool)
By combining any growth blue-chip with high-yield blue-chips in equal amounts you can create an amazing combination of yield, growth, and attractive valuation.
In the case of MMP and FB, you effectively create a brand new company with
- 4.2% very safe yield
- 10.5% annual long-term growth consensus
- 14.7% annual long-term return potential
| Investment Strategy | Yield | LT Consensus Growth | LT Consensus Total Return Potential | Long-Term Risk-Adjusted Expected Return |
| Safe Midstream | 6.1% | 6.2% | 12.3% | 8.6% |
| FB + MMP | 4.2% | 10.5% | 14.7% | 10.3% |
| Safe Midstream + Growth | 3.3% | 8.5% | 11.8% | 8.3% |
| REITs | 3.0% | 6.9% | 9.9% | 6.9% |
| High-Yield | 2.8% | 11.2% | 14.0% | 9.8% |
| Dividend Aristocrats | 2.3% | 8.9% | 11.2% | 7.9% |
| Value | 2.1% | 11.9% | 14.0% | 9.8% |
| REITs + Growth | 1.8% | 8.9% | 10.6% | 7.4% |
| 60/40 Retirement Portfolio | 1.7% | 5.1% | 6.8% | 4.8% |
| High-Yield + Growth | 1.7% | 11.0% | 12.7% | 8.9% |
| S&P 500 | 1.4% | 8.5% | 9.9% | 7.0% |
| Nasdaq (Growth) | 0.7% | 10.9% | 11.6% | 8.1% |
| Chinese Tech | 0.3% | 12.0% | 12.3% | 8.6% |
(Source: Morningstar, FactSet Research)
For context
- 0.7% is the yield of the Nasdaq
- 2.7% is the yield of Vanguard's high-yield ETF
- 3.5% is the yield on junk bonds
FB + MP offers a higher yield than most high-yield ETFs and mutual funds, and 25% higher risk-adjusted expected returns than not just the dividend aristocrats, but even the Nasdaq.
What is the risk-adjusted expected return? It takes the consensus analyst long-term return forecast and then applies historical statistical adjustments for
- the probability that companies won't grow as expected
- won't return to fair value over 5 years
- may go bankrupt over the next 30 years
In other words, risk-adjusted expected returns are a very reasonable estimate for what returns you can actually expect.
For example, analysts expect the S&P 500 to potentially deliver 1.4% yield + 8.5% growth = 9.9% annually over time.
Adjusting for all relevant risks the expected return can conservatively be estimated at 7.0% CAGR, which is the 200-year market historical return.
Step 3: Collect Very Safe And Growing 4.2% Yield While You Wait For Facebook To Make You Rich
Let's take a closer look at just how combining Facebook with high-yield blue-chips might be the answer to your retirement needs.
The future doesn't repeat, but it often rhymes" - Mark Twain
Past performance is no guarantee of future results, but studies show that blue-chips with relatively stable fundamentals over time offer predictable returns based on yield, growth, and valuation mean reversion.
So let's take a look at how the Facebook Zen Phoenix strategy performed over the last eight years.
For context, William Bengen, the father of the 4% rule, now estimates that retirees can safely withdraw 5% of a 60/40 portfolio without running out of money over a 30-year retirement.
Most analysts think it's closer to 3%. But here's how Facebook Zen Phoenix would have performed over the last eight years with a 10% withdrawal rate, twice what Mr. Bengen recommends for a 60/40 portfolio.
Jeremey Siegel, a professor at the Wharton School of Finance, calls the 75/25 portfolio the "new 60/40" and recommends it for most of his wealth management clients.
If you combine a 60/40 portfolio with a 50% allocation into Facebook and a high-yield blue-chip, you get an 80/20 portfolio.
Facebook Ultra SWAN Zen Phoenix Total Returns Since 2013 (Annual Rebalancing, 10% Annual Withdrawals)
