The Conservative Income Investor | Welcome To The Financial Home Of Tim McAleenan Jr.



Citigroup Stock Pre-2008: When Investors Can Never Truly Recover

Most of the time, when we discuss stocks that have been irreparably harmed, we are talking about companies that have gone bankrupt, or have seen prices deteriorate so much that investors will never again so the “good old days” (usually this is the result of some kind of technological shift or high fixed costs that can’t realistically be lowered). Today, I want to talk about a third kind of harm: share dilution. Citigroup is one of the best companies that comes to mind I can use to illustrate the principle. Even though no one gets made mocked by the financial media quite like Citigroup (although it does trade positions frequently with Bank of America) in this regard, the truth remains that Citigroup is an immensely profitable banking enterprise. It’s so unpopular and it is involved in so many legal settlements that it is easy to miss if you don’t check […]

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Berkshire Hathaway: Breaking The Traditional Rules Of Income Investing

Lately, I’ve been coming around to the notion that buying Berkshire Hathaway is on the short list of “very intelligent” moves you can make today if your time horizon is 15+ years out and you are looking for something that will eventually pay dividends, but are investing in a taxable account and don’t mind seeing a pile of money quietly build up as Buffett does his thing. There’s a couple things that brought me to this point: Upon reflection on Buffett’s letter to shareholders that came out in the spring, we have a very rough gauge of what Buffett considers to be the fair value of Berkshire Hathaway stock (you should note that Buffett doesn’t spoon-feed information to his audience, so he makes you do just a little bit of independent thinking before you reach the conclusion that he desires). In that letter, Buffett indicated that Berkshire would be repurchasing […]

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Campbell Soup Vs. Disney Dividends (When Higher Yield Leads To Inferior Investing)

Peter Lynch once remarked that casual investors know just enough to be dangerous when they start combining two principles—the belief that having heard of a company that’s been around for a while is proof that it is of blue-chip quality with the belief that a low price-to-earnings ratio is proof that a stock is cheap. By way of example, Lynch pointed to Ford Motor Stock (F) at the high point of a business cycle right before the economy turns for the worse because: (1) stock prices tend to be high when the economy is doing well, making investors feel more comfortable about making new stock investments despite all the historical studies pointing out that this is a bad impulse, (2) Ford “feels like a blue-chip” because investors have heard of it, and (3) the low P/E ratio lures people in, who are unaware that automotive profits fall 50-75% as the […]

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Microsoft’s 2004 Special Dividend And Growth Investing

August 23, 2014 by Uncategorized No Comments

I was reading a forum post at Money Crashers where Hank Coleman wrote an article four years ago concerning the effectiveness of one-time dividends, with Microsoft’s $32 billion special dividend in 2004 being the most famous example in the past generation. Hank said: The problem with Microsoft is that it is a cash cow like Frontier, but Microsoft cannot come up with much else to do with their free cash flow. They could be expanding, buying companies, coming up with new product lines, etc. But, no…they are just handing their profits back to their stock holders, and I think that is why stock holders have seen the company’s share price go nowhere for years now. In fact, shares of Microsoft are the same price and even a dollar less now than when it began issuing dividends in 2004. The entire post seemed reasonable until the conclusion “and I think that […]

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The Future Of Anheuser-Busch’s Dividend

August 22, 2014 by Uncategorized No Comments

In the past month or so, I’ve become very curious about trying to figure out what Anheuser-Busch’s dividend future might look like. At first, my curiosity was tied to the fact that I’m from St. Louis, and the brewery had been the trademark business of economic pride. You know how people have a tendency to own companies located geographically near them, especially before the 2000s liberated stock data and dividend histories for investors to broaden their scope? Well, if someone in St. Louis had ever bought the local company, on the basis that they could actually see the factories and see people consuming the wide array of alcoholic products every Friday and Saturday night, they would have built significant wealth. The specific numbers on Anheuser-Busch’s history are starting to fade as the result of the Inbev merger so I might need to print out hard copies to save for my […]

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A Good Time To Sell The Low-Quality Stocks That Slithered Into Your Portfolio

August 21, 2014 by Uncategorized No Comments

In 2009, the S&P 500 went up. In 2010, the S&P 500 went up. In 2011, the S&P 500 went up. In 2012, the S&P 500 went up. In 2013, the S&P 500 went up. So far in 2014, the S&P 500 has gone up. I have no idea what will happen the rest of this year, next year, or the year after that, other than to say this: It would be highly unusual for this string of consecutive up years to continue, and the consequence is this: A bunch of bull market years in a row can make it easy for some trash and junk—truly low-quality holdings—to work their way into your portfolio. With the stock market up around 30% in 2013, and gains continuing into 2014, it can be easy for something to work its way into your portfolio that you would never want to own if something […]

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How To Use Income Investing For Index Funds

August 20, 2014 by Uncategorized No Comments

Possibly the most underrated tool in portfolio risk management is this: Take the dividends that you are receiving from a cash cow, high income-generating asset, and then redeploy those dividends into something that is either of a higher quality or promises more future growth. I’ll give an example of how this might work out. Let’s say you greatly enjoy receiving present income, and always want to take actions that have a high probability of increasing your net worth. How would you resolve that conundrum? For this example, I’ll use something like Linn Energy as an example of our income investments. For most of 2014, Linn Energy was paying out a dividend slightly higher than $0.24 each month. The company owns some very high-quality energy assets, however: (1) the company carries a very high amount of debt, and (2) energy assets are especially known for fluctuating. In other words, Linn Energy […]

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The Discussions Concerning Procter & Gamble Miss The Forest For The Trees

August 20, 2014 by Uncategorized No Comments

If you’ve read the headlines about Procter & Gamble’s plans for its future lately, you have probably encountered headlines like “Procter & Gamble Set To Shed 100+ Brands” or other similar expressions aimed at noting a shake-up at P&G. At first glance, it sounds like a lot—Procter & Gamble has 170-180 brands, and plans to get rid of about 100 of them, conjuring up the image that it’s shedding half its portfolio or something that sounds similarly drastic. The thing to keep in mind is this: the brands being sold only amount to $8 billion in sales per year. As a point of reference, Procter & Gamble sells $88 billion worth of household cleaning merchandise per year. We are talking somewhere between 9% and 10% of the company being sold off here, not enough to really change the quality of the company or expectations for future growth. I think the […]

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Altria Investors Continue To Get Rich

August 18, 2014 by Uncategorized 2 Comments

One of the truly lucrative opportunities—and you only have to get it right once or twice to permanently change your life—that faced investors in the past five years was the opportunity to buy the incredibly stellar cash-generating asset The Altria Group, Inc. for fire sale prices. A lot of things came together to put Altria on sale in 2009. Obviously, that was the year of the deepest panic selling from the financial crisis, giving you a chance to do well if you bought any company that has survived over these past five years. But you also had the fact that Altria had recently spun-off Philip Morris International and Kraft (which had also split into what is now Kraft and Mondelez), and a lot of investors didn’t know what would be left standing when it was just a domestic cigarette manufacturer (after losing its most lucrative, fast-growth asset in Philip Morris […]

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The Twenty Stock, Twenty Year Investment Plan

August 15, 2014 by Uncategorized 7 Comments

 “Hello Mr. McAleenan….[few paragraphs redacted]…I can’t help but feel that most of your advice is not going to be applicable to a majority of Americans. Getting a large estate is nice if you’re in the 1%, but what’s a realistic plan for the rest of us schlubs?… –Derek” Hey Derek. When dealing with the emotional and seemingly impossible side of compounding/building wealth, I remind myself that it all comes down to three things: the amount of time that you have to invest, the amount that you invest, and the rate of return that you are able to return on what you invest. Those are the three numbers that you must manipulate in order to get what you want from an investment portfolio. If you find yourself in a situation where the variable “amount of money” is going to be relatively scarce, then you have to rely on the other two […]

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