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





What The End Game For Tobacco Stocks Would Look Like

If you own a conventional dividend company—let’s go with Colgate-Palmolive as an example—there are three techniques (buybacks, volume growth, and raised prices) to raise profits that principally flow from two sources (the volume growth and raised prices). In other words, if you sell toothpaste, the way you make higher profits is by increasing the amount of toothpaste you sell and/or raising the cost you charge your customers for each tube. If you do at least one of those successfully, you might also engage in a stock repurchase program that destroys some of the ownership units so that the remaining shares can lay a greater claim on profits. In the case of tobacco stocks, you only have one tool in your arsenal: raising the price per pack of cigarettes. Selling more of the items is not an option, as smoking rates have been declining in the United States since the 1980s. […]

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“I Like My Job And I’m Good At It, So Why Should I Care About Investing?”

This is a rare topic that I haven’t gotten to address yet explicitly, and I’m glad I now get the chance—I recently heard from a reader who mentioned that she enjoys her job, is quite good at it, is certain of her job security, and does not see the point in investing. It’s a perfectly fair question, and I’m glad she asked me it. Here’s how I think about it. Part of my explanation has to deal with seeking prosperity, and the other part of my explanation has to deal with ensuring survival. First, let’s talk about prosperity. Because the writer said she worked in retail, I’ll use that as an example. Let’s say that you are the manager of a very small boutique clothing store, and you make $60,000 per year. For all of your hard work, you will get about $5,000 per month (and then you’ll have to […]

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Realty Income’s Returns Go Off The Chart When You Reinvest The Dividends

Realty Income is an interesting company for a couple of reasons: the starting yield is usually high, with investors throughout much of its publicly traded life being able to establish a position with an initial yield of at least 5%. The dividend grows each year, which is an unusual characteristic once you leave the tobacco, telecom, and oil industries (although real estate can be a close fourth). And the dividends get paid out monthly, giving you the ability to instantly compound because your dividend income immediately buys new shares every month that then start paying out dividends all of their own. As you can imagine, those factors combine together to produce pretty amazing results when you choose to reinvest your dividends back into the REIT. First, let’s look at what Realty Income’s are returns are when you just add up the share price appreciation and the dividends paid out over […]

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AutoZone Is Gobbling Up Its Own Stock (A Look At One Of The Great Buybacks Of The 21st Century)

Every now and then, you stumble across a company that does not show up on the radar of many investors, often due to its size, lack of a dividend, or decidedly unsexy business model that nevertheless ends up producing a whole lot of money for people that start a position in the stock and hold on to it for a few years. One company that falls into that category is Autozone. What has the car part replacer done over the past ten years? Two things have happened at this business: one, they have rolled out new stores across the United States, increasing the store count from 3400 to a little over 5000. This has enabled the company to grow its profits from $500 million per year to a little over $1 billion per year. Given that there is no dividend, you might imagine that shareholders have doubled their money over […]

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Bed Bath & Beyond: When You Buy A Non-Dividend Stock

We’ll abandon the site’s namesake for the day and talk about times when it makes sense to buy shares of stock in a company that does not pay any dividends to shareholders. Generally speaking, the best candidates for these types of purchases are companies that offer a higher earnings per share rate than what you’d get from buying a traditional dividend stock. After all, if you see a non-dividend paying company growing at 7-8%, why not just purchase BP and enjoy the added benefits of a high dividend that can reinvested and boost your annual income? Sometimes, you have a situation like DirecTV or AutoZone where the company is growing at a high-single dit pace, but is repurchasing stock instead of paying out a dividend, and thus can offer shareholders a total return in the 11-15% annual range. One company doing this that does not get a lot of attention […]

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What If You Can Live Off Your Dividends?

I’ve spent part of my day studying General Mills (sexy, I know) because the company sells products like flour and Cheerios that are immediately recognized as indispensable. The stock never seems particularly cheap, and no one ever talks about buying it despite (1) the easy-to-understand business model, (2) an uninterrupted dividend history dating back to the 1890s, and (3) a track record of compounding at 12.5% annually over the past three decades, leaving behind in the dust almost every hedge fund that exists in America net of fees. Someone who has steadily been committing to buying $300 shares of General Mills every month since 1983 would find himself in the interesting position of owning 22,200 shares of the cereal and breakfast product giant (of course, setting $300 in 1983 would be the equivalent of setting aside $700 today, but hopefully someone in real life would be able to increase their […]

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Most Americans Have No Idea How Financially Savvy And Borderline Brilliant Steve Harvey Is

Sometime in the next month, I’m going to get around to completing posts on Charles Barkley and Steve Harvey, with the discussion point being that both men have very shrewd financial lives and breadth of intelligence that is significantly different from the images that they hold out of themselves in the media. You see Charles Barkley making goofy quips on TNT during basketball season, or turn on the television to see Steve Harvey going after the cheap gags and laugh lines on Family Feud, and you could superficially reach the conclusion that these men are not professionally savvy but reached their positions as a result of a quirk of luck. But if you look at how they position some of their assets, diversify their revenue streams, and listen to the general philosophies they live by personally and use to direct their investments, you will be immediately struck at just how […]

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Gilead Sciences: Approaching Buy-And-Hold, Permanent Investment Territory

Every so often, I get an e-mail from a reader curious to know what company will be the next big player to shake up or join an industry. In response, I very rarely have something new to add to that conversation because I think it’s likely that Coca-Cola will be the next Coca-Cola, PepsiCo will be the next PepsiCo, and Dr. Pepper will be the next Dr. Pepper. Translation: The industry leaders in the beverage sector today will likely be there ten, fifteen, twenty years from now. It’s been no secret that I think they possess the brand equity and vast distribution networks to be around for a long, long time, and that is why they get mentioned as long-term investments here at the site so frequently. But occasionally, there is a newcomer that is on the cusp of attaining blue-chip status, and it can be lucrative to recognize that […]

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Investing Advice To Carry You Through The Next Decade

If you get nothing else from reading the articles on this site, you should pay attention to the strategy advocated by business scholar professor Robert Novy-Marx, whose philosophy can be summed up as follows: “Buying high quality assets without paying premium prices is just as much value investing as buying average quality assets at discount prices. Strategies that exploit the quality dimension of value are profitable on their own, and accounting for both dimensions of value by trading on combined quality and price signals yields dramatic performance improvements over traditional value strategies. Accounting for quality also yields significant performance improvements for investors trading momentum as well as value.” You should his essay here, titled “The Quality Dimension Of Value Investing.” It’s a slight modification of growth at a reasonable price investing. The point of Novy-Marx’s research is this: companies that possess the highest quality assets are those that experience the […]

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