Fayez Sarofim’s Philip Morris Investment

Fayez Sarofim is a Houston-based investor that I occasionally cover on the blog because he is someone other than Warren Buffett and Charlie Munger that has seen his fortune climb on the coattails of buying-and-holding consumer stock investments. Coke, Nestle, McDonald’s–you name it–he bought it decades ago and holds it on the balance sheet of his Fayez Sarofim & Co. today.

After I published my recent article on Philip Morris International’s recent stock performance, Sarofim’s firm crossed my mind because I know that Philip Morris International (PM) is the investment that catapulted his own way from poverty in Egypt to a gilt-edged life of material success in the United States. To date, Sarofim finds himself sitting on 16,711,214 shares of PM stock.

An aside to precede my commentary: Did you guys see that post on the Mr. Money Mustache website about a year ago when Peter Adeney talks about how … Read the rest of this article!

Philip Morris International Stock: The Poor Recent Performance

The disparity between reported results at Philip Morris International and the underlying economic reality of this tobacco business is on my mind again.

Aside from the usual moral reasons, it has become unfashionable due to its slow earnings growth during the past three years that has been met with low dividend growth as well. Profits of $4.76 per share back in 2014 are actually down a bit to $4.55 right now. The quarterly dividend payout has only grown from $1 to $1.02 to $1.04 over the same time frame. On a P/E basis, it looks like Philip Morris International is trading at almost 20x earnings while profits aren’t even growing.

My personal view is that investors should be hesitant to extrapolate from that set of data points. Philip Morris is bound by the fact that it reports its earnings in U.S. dollars and is domiciled in the United States while … Read the rest of this article!

My Assessment Of The Current REIT Landscape

I like real estate investment trusts, provided that they are invested in some kind of tax-advantaged vehicle. This is because the cash payouts from REIT investments often comprises half or more of your total return, and the attractiveness of the investment relies upon letting the dividends reinvest undisturbed. Because the U.S. Congress decided in the early 1990s to exempt REITs from taxation at the trust level, any dividend paid out can be taxed at the maximum 39.6% rate rather than the maximum 23.8% rate that you see with qualified dividends from traditional corporations.

In a taxable account, taxation on dividends can eat up a quarter of your total returns. That creates a high hurdle–any REIT investment contemplated in a taxable account would have to be extremely attractive compared to your best idea among c-corporations.

Take something like Public Storage. I would love nothing more than to stuff a giant block … Read the rest of this article!

Unilever Is One Of The First Stocks I’d Stick In A Trust Fund

If someone entrusted me with $2.5 million to set up a trust fund for a loved one, one of the first purchases would be 1,000 shares of Unilever (UL). I use this fiction as the frame for this Unilever article because it is the type of stock you consider when pursuing a strategy of “income and growth at a reasonable price” investing.

It plays into that sweet spot of offering moderate earnings growth, decent current income, and the minimal possibility of capital loss. At the current price of $40.85, my guess is that Unilever shareholders will earn long-term annual returns of 8-9%. I anticipate this will come from a combination of the 3.4% dividend yield and expected 5% earnings growth that will translate into 5% annual capital gains. It would be a great way to give a beneficiary meaningful income to meet current living expenses while also positioning the trust Read the rest of this article!

Boeing Hikes Dividend By 30%

From 2001 through 2003, Boeing’s dividend froze at an annual rate of $0.68 per share. From 2007 through 2012, Boeing’s dividend only grew by 3% annually and included a freeze of $1.68 per share from 2009 through 2011. Today, Boeing’s Board of Directors decided to reward shareholders with an eye-popping 30% dividend raise.

I mention the former context because these 30% days are not here to last. Sure, you might see big hikes in 2017, 2018, and even 2019, but Boeing’s business model reminds me of the Warren Buffett quip: “I’d rather have a bumpy 15% return than a smooth 10% return.” A typical decade for a Boeing shareholder will go something like this: 2-3 years of dividend freezes, 2-3 years of low dividend growth, 2-3 years of moderate dividend growth, and 2-3 years of crazy high dividend growth.

There has been a bizarre trend on income investing websites where Read the rest of this article!