- This is a portfolio value and performance once over using EPS yield, P/E, P/FFO, but in steps to make it easy to follow and perhaps instructional for your own use.
- The evaluation steps taken are explained in full for 53 common stocks along with using different valuation criteria and some fast graphs, for the remaining HY, high yield.
- The Chowder #, and even Chowder is explained and used with analyst buy value suggestions from Morningstar, Value Line and Yahoo finance.
- I will be blogging this article as it was rejected by SA for being boring, and having too many tables, you are now warned its boring.
This is a follow up article from The Rose 93 stock portfolio as written last week here, where I promised to show my work and explain the steps I take to get the results shown in the 18 winner list.
The portfolio has 61 Common stocks and many are not covered by analysts. The 53 stocks that follow are those I could find information for and the reasons some did not make the initial list, which was mostly for not having an investment grade rating. I will explain it as we go along as I now present it in steps.
The 53 Common stocks evaluation
First step involved obtaining the metrics for the following:
-Yearly dividend and yield
-5yr DGR= last 5 years dividend growth rate average
-EPS Yield, earnings per share yield,
-P/E movement= price to earnings, using the current year, 5yr, and 10yr.
Fastgraphs, FG, a paid subscription service I use, has this information in my personal portfolio list kept there.
Determine the Chowder #, number.
First lets review who Chowder is and what that # means.
Source: chowder profile
The Arsenal soccer team is a favorite for Chowder and he uses the logo for his SA identification. His user name is an old moniker given to him from his friends as they had more than 1 buddy with the same name. Some have met him, some know he is retired military and others know him as a portfolio manager with really an excellent dividend income strategy. He still helps many, old and young investor types, including his son in building a growing and quality portfolio. He claims he is a two finger typist and prefers to just blog now. Chowder did do 14 articles which are still listed under his profile name. The old blogs he erased as they had 1000s, yes 1000s, of comments on them. It was a nightmare to load and follow, so he put a stop to it, limiting his participation to a current blog here, allowing no comments other than his own. Eric Landis is doing a series of articles about the lost Chowder blog comments and you can read it here, for part 1 and part 2 found here. Eric is also an amazing young investor with exceedingly excellent investing knowledge and writing skills. Years ago in 2016, I wrote an article about the Chowder # here, when I had over 100 stocks. I used it with the goal back then to trim the holdings to 70 and did manage to get down to under 80. Over the years the Rose portfolio has risen back into the 90s, but still under where it had once been over 100.
The Chowder # got the name when he was the one to introduce it from the investing book written by Lowell Miller, called “The Single Best Investment”. A free pdf link to that book is found here and I also include it at the end of my RoseNose profile. The general idea is to use it mostly for buying any new investment, with the # relying on outperforming the S&P 500 index using set metrics, which may be adjusted to your own comfort level. With all of that in mind, these are the ones I used for this review evaluation:
1- S&P investment grade BBB- or better (BBB+ or better, I believe is suggested in the book).
2- 3% medium yield with the S&P now around 2%; gives a 1.5x jump on it.
3- 5yr DGR of 5 or 6% for common stock, but is probably too high for the HY investments of MLP, utility, ETFs, many real estate and telecom.
Chowder # formula = 5yr DGR % + current dividend yield %
The following Chowder #s are as I learned it years ago and as I continue to use even now.
#8 for utilities, MLPs and telecoms and I add here preferred and many other HY investments.
#12 for 3% or greater dividend yields
#15 for < 3% yields, which rely on price growth as well.
Over time not every stock can continue to perform in the same manner for years, so some leeway should and can be used.
Step Three and more
The chart shows the results and the following abbreviations were used:
Now Div Yield = Dividend yield on August 30.
5yr DGR = 5 year average dividend growth % obtained from FG.
CHDR# = Chowder # using the formula of adding the above 2 statistics.
EPS Yld 1yr % = earnings per share % yield for the year obtained from FG, must be 6.5% or more.
C/E Pass= Pass of Chowder # or Pass of EPS yield using the #s shown.
Y = Yes for a full pass
y = yes for a close call, but sill a pass
N = No, does not pass
n = no, but close, but still not a pass
The P/E decline column shows the actual current P/E for all Yes winners.
Even in the P/E column means it is running even over the 10yrs studied and most likely means fair value.
Many of the bold numbers represent winning values or just close for winning.
53 common stock list- Part 1
|Name||Ticker||Div Yield||DGR||CHDR#||EPS Yld||Pass||decline|
|A Data Proc||(ADP)||1.9%||8.1||10||3.4||N/N||29.7 N|
|Brookf Infr P||(BIP)||4.3%||10.4||14.8||2.1||Y/n|
|Cardinal H||(CAH)||4.5%||11.7||15.9||12.2||Y/Y||8.2 Y|
|Gen Parts||(GPC)||3.3%||6.1||9.6||6.5||Y/y||15.4 Y|
|Johnson & J||(JNJ)||3.0%||6.5||9.6||6.4||y/Y||15.1 fv|
|Kraft Heinz||(KHC)||6.3%||4||10.3||11.6||y/Y||8.6 Y|
|Philip Morris||(PM)||6.5%||4.6||10.2||6.4||Y/y||15.7 Y|
|RD Shell-B||(RDS-B)||6.7%||0.9||7.7||8.8||y/Y||11.4 Y|
|JM Smucker||(SJM)||3.3%||8.5||11.7||7.5||Y/Y||13.3 Y|
|Molson Coors||(TAP)||4.4%||5.3||9.9||9.2||Y/Y||10.8 Y|
53 common stock list- Part 2
The next step was to apply M* ratings and other analyst prices along with 52 week lows and highs.
I have a free library source that allows premium access to Morningstar and Value Line. I looked up each listing individually on August 30th, so note these are prices from then.
The abbreviations used are as follows:
M* = Morningstar and represents the Star rating from 1-5.
5 is the highest * # and represents a buy rating of cheap. It should also involve more in depth investigation to determine the why its so cheap.
4 is still a good value and 3 pretty much means fair value.
2 is getting more expensive and only 1 means down right over bought or loved or very expensive. There are 2 utilities on the list that are over loved with 1*.
VL = Value Line. They offer a mid point future 18 month out guess, which is near the end of 2020 or so.
52 week Low and High are just that and obtained from Google sheets on August 30th.
Here is the information:
53 common stock list/ Part 2:
|M*||M*||M*||Yh-Fin||VL||52 week||52 week||S&P|
I do wish the charts lined up better, but I have too much information to load at one time and must do it in parts.
The information above from Part 1 and 2 was combined into the 18 winners in chart #1 with the 10 runners up in the 2nd chart after it as follows:
|C/E||M*||M*||M*||YF||VL 18mo||52 week||52 week||S&P|
|10-next best||C/E||M*||M*||M*||YF||VL 18mo||52 week||52 week||S&P|
|Johnson & J||y/Y||JNJ||3||107.2||134||149.35||143||$121.00||$148.99||AAA||Healthcare|
Note: Teva, Covanta, TRGP and FTAI (Fortress) have low credit ratings and were eliminated for that along with any holding with no rating. They will all be included in further review to follow.
There are some very interesting 2nd place quality runners up. Note: BMY and VOD are good especially for having a nice price with promising future gains.
Non Qualifying Quality Losers
25 did not qualify, but all are quality credit rated, so I really don’t like calling them losers. I also include 2 eREITs, equity Real Estate Investment Trusts, in this list as they had M* ratings. So the list actually has 27 names for that reason. I will discuss eREITs in a more comprehensive manner using different metrics later in the article.
|VLine 18mo||52 week||52 week||S&P|
|A Data Proc||N/N||ADP||2||93.8||134||176.81||188||$121.40||$172.00||AA||Tech|
|Brookf Infr P||Y/n||BIP||48.63||39||$32.26||$47.56||BBB+||Utility|
|Union Pac||Y||UNP||3||112||160||187.67||184||$128.08||$180.54||A -||Industrial|
These did not qualify because of the Chowder #, EPS yield, or possibly over valuation with many near or at a 52 week high, many. These might not have, but could be suitable now for speculation purchase with a lower price, but that is something you must decide with further due diligence. M* has 4 stars on CVX, D, and INTC that might be of interest and UNP was falling in price. You will see many utilities and consumer staples ranked with 1 or 2 stars denoting more extreme over valuation. The over valuation can also cause a low EPS yield when a stock is at or near a 52 weeks high, such as Visa and MA.
Again, I say, many of these are at 52 week highs and I am not a buyer. The M* 5’s or 4’s are where I would put my cash if I wanted any of these quality companies.
High Yield -HY
The 38 remaining are mostly HY and are the hardest to evaluate on pure metrics, but most pass easily on it using 8 as the Chowder #. This group includes CEFs, closed end funds, ETFs, MLPs, fixed preferred, eREITs and some unrated stocks. The list shows any information found for them from the usual sources, which is not much with Yahoo finance offering some analyst average prices.
The preferred are shown separately at the bottom.
|High||Yield||M*||M*||M*||YF||VL 18mo||52 week||52 week||S&P|
|Alerian MLP||8.5%||AMLP||$8.27||$11.02||MLP Energy|
|Infracap MLP||19.8%||AMZA||$4.54||$7.89||MLP Energy|
|Ares Bond Fund||8.6%||ARDC||$13.07||$15.94||CEF-Fin|
|DNP CEF Ute||6.2%||DNP||9.98||$10.00||$12.81||silver||Utility-CEF|
|Pennant Pk Flt||10.0%||PFLT||13.2||$11.05||$13.66||Fin-BDC|
|52 wk||52 wk|
|NY Mort Tr Prf||8.0%||NYMTN||$25||$20.70||$25.05||Finance|
The next chart shows the same names by descending yield and by sector. I put the preferred in a separate column to show where they line up with the other HY.
Most all RE or real estate sit at the bottom with the lower yields and the MLP energy stocks with BDCs rule the top. I believe this reveals where all the love for eREIT shows up and its not for retail or correctional/prison types. This means eREITS are more loved and the price is high and the yields rather low on average. The reverse is true for the energy stocks, but not necessarily for BDCs. The mortgage or mREITs are sitting pretty in the middle area or sweet spot for yield. Note the 2 outlandish top high yields are the big thorns in the portfolio for low value as well. One is AMZA, Alerian MLP Energy ETF, the other is the preferred-d or CBL-d. CBL is a lower class mall operator, hanging around with a very low share price for the common. Good news: the common price just rose back up over $1 this week. The dividend has been suspended for now on the common, it continues to pay on all the preferred. It has over exposure to JCP, Macy’s and Sears; so no need to say much more. I would not recommend a buy on either of those 2. More good news is I don’t own all that much of them, or less than 1% of PV, portfolio value. I do own about 9.6% of PV in eREITs or real estate and would like to review them next.
I own 13 and I list 3 more just for the sake of comparison as they are popular on SA. I added Realty (O), (SKT) Tanger, and (APLE) Apple hospitality and have owned them in the past and continue to watch them.
|Stock||Divi||Stock||M*||YF||VL 18mo||52 week||52 week|
|Data Storage||Digital Rlty||3.50%||DLR||3||125.95||134||$100.05||$125.19|
|Triple Net Int||WP Carey||4.60%||WPC||84||78||$62.12||$89.89|
|Triple Net||Realty O||3.60%||O||2||76.38||77||$55.55||$76.73|
|Triple Net||Kite Realty||9.10%||KRG||16.15||$13.66||$17.75|
|Retail Mall||Simon Pr Group||5.60%||SPG||4||184.47||164||$145.50||$191.49|
The split in the chart shows the over valued at the top and the under valued at the bottom. The next chart shows the metrics used to determine that and is explained by using the following.
P/FFO is a measurement of Price / Funds From Operations and is used to evaluate in this case real estate and many other type RICs or regulated investment companies. P/E should not be used as it does not reflect that these RICs are allowed more lucrative distributions. The Pay Out, %PO, is allowed to be 90% or higher. I am also showing AFFO, adjusted FFO, as some companies offer and measure by both. Anything over 100% is somewhat alarming but still allowed as flow over revenues could be involved.
The following chart shows these metrics.
WPC and O are the most over valued on using P/FFO as in the chart, with VTR trailing close.
I will show Fastgraphs chart for some of these just for fun, after a brief discussion of them as well.
Realty O- (O)
I also found M* had this price information:
Buy at $41.30
Fair value at $59.
Sell at $79.65.
Below is a FG for the last 10 years and includes 2 future dotted lined projections.
Black line is the price, white line the dividend and blue line the normal P/FFO of 18.7.
I would say waiting for a pull back to buy is warranted.
M* also had the following on Digital Realty:
Fair Value $112.
It sits above fair value now, and not a buy for me.
I also want to show you the FG for it as well and let you decide.
WPC or WP Carey is actually the most scary chart for me:
Here it is and just know I am not buying it.
Those were mostly the over loved and now here are a few charts for the under loved.
I own some of this one and got it too soon, but it owns quality malls and should pull out of this price swoon well. It is or was quite cheap. The chart shows the dividend covered here, but not by much. It has class A malls and Simon did want to buy it at one time for around $40 and was refused. Its an interesting conundrum for sure as to where this one is going. Nice yield and a speculation, probably.
Next is the chart for Simon Property Group.
It has quality malls and management and an “A” credit rating.
I like it and have been adding on dips lower, and probably have what I want now.
5.6% yield on it is quite exceptional and it has the dividend easily covered.
I would like to show more, but will move on to the other HY holdings.
The preferred pretty much speak for themselves and offer fixed coupon payments with par value being $25. You can buy these just like you would buy any stock. I showed them previously, but would love to list them again:
|Stock||Stock||52 week||52 week|
|NY M Tr Prf||8.00%||NYMTN||$25.00||$20.70||$25.05|
Many are over par and I paid close to par for CIM-b and PMT-b. All except CBL-d were bought lower than they are now. NS-b and NGL-b have K1 tax forms but not much UBTI to worry about. TGP-b converted this year to a 1099. They are all fixed to floating rates with CBL and WPG having their call dates reached, but no real worry of them being called back for par as yet.
The 15 HY remaining are shown with what little information is available from just Yahoo finance.
I have them listed by type, with showing 5 BDCs, 2 mREITs, etc.
|Stock||Stock||YF||52 week||52 week|
|Fund||Ares Bond F||8.60%||ARDC||$13.07||$15.94|
|Fund CEF||DNP Ute||6.20%||DNP||9.98||$10.00||$12.81|
|BDC||Pent Pk Flt||10.00%||PFLT||13.2||$11.05||$13.66|
My last article showed charts for my newer purchased MLPs. The high and low prices are very helpful, but I also must follow other writers on SA for what ever information I get for the BDCs and funds. I suggest Stanford Chemist for funds and BDC Buzz and Scott Kennedy for BDCs and mREITs. I also belong to The Fortune Teller service The Wheel of Fortune and he is my main guide for them and most everything. I also enjoy reading Joe, The High Yield Investor, who has his own monitoring system in place for buying HY for his portfolio.
Its not an easy task to monitor RICs as there is little easy available information. It is one reason I keep them to a minimum %PV, right now at ~ 5.5%. There are more writers and information on real estate and I have 9.6% currently in those and will keep it to < 10%.
Defense is what you make it and knowing your investments and their limitations is important. I suggest a service if you want to invest in HY and I use The Wheel of Fortune for those and more.
I do my best and enjoy it and hope you enjoyed learning a bit about how I do it. Now, its up to you to make your own plan and follow it. Remember I am not an investment advisor and what I do, might not necessarily be advised for you.
Happy Investing always.
Analyst's Disclosure: I am/we are long ABBV.
and 93 stocks mentioned and evaluated. I do not own O, SKT or APLE currently, but have in the past.
Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.