The Viacom dividend cut in September, which resulted in the annual payout declining in half from $1.60 to $0.80 per share, is one of the more unnecessary cuts to payouts I have studied based on a fundamental profile analysis.
Despite the circus surrounding Viacom right now, it is still making over $5 per share in profits, or a little over $2 billion per year. Even before the dividend cut, the company was only returning to shareholders $1.60 per share, or about $600 million per year. This Viacom dividend cut meant that the Board of Directors saw wisdom in paying out to shareholders $300 million rather than $600 million of its $2 billion profit stream, or 15% rather than 30% of overall annual profits. Off the top of my head, I cannot recall any other firm cutting its dividend from such a low initial dividend payout ratio amount.
The stated reason … Read the rest of this article!
Imagine you owned a 10% percent stake in a million-dollar restaurant with nine other people that earned $100,000 per year in profits for thirteen years in a row. Although the amount of profits never grew, the profits that did arrive from operations were used to make some modest dividend returns to owners and modest building improvements. But most of it was used to buy out as many of the fellow owners as possible.
Over the course of those thirteen years, five of the owners got bought out. You’d find yourself now owning 20% of a million-dollar restaurant earning $100,000. Your look through earnings jumped from $10,000 to $20,000 and your net worth in the business climbed from $100,000 to $200,000 without any additional capital on your part. And, other than those modest dividend payments along the way, there were no tax payments required along the way as your share of … Read the rest of this article!
If you are a long-term investor, and own cyclical stocks as an investment, the obvious psychological limitation that can give rise to ill-timed selling is the wild fluctuation in earnings that can give rise to even wilder fluctuations in stock price. The profile of an investor that successfully builds wealth over the decades through ownership in these types of companies is the following: (1) he or she must be highly liquid so that there is no forced selling at low prices when general economic conditions are rapidly darkening; (2) he or she must have an even-keeled personality that does not overreact to either good news or bad news; (3) and he or she ought to be capable of buying these stocks on the dips and lows as it can greatly increase the overall compounding rate.
These qualifications are distinguishable from, say, contemplating an investment in Colgate-Palmolive stock which doesn’t really … Read the rest of this article!
Since 2012, Coca-Cola (KO) stock has traded in the low $40 range. It has hit the upper $30s higher and there, but over 82% of the trading days since the start of 2012 have found the stock essentially treading water in the range of $40 to $45 per share. This lack of capital appreciation has triggered a spate of people wondering whether the welcome trend towards fighting obesity has hampered the growth prospects of Coca-Cola’s flagship products and whether a company selling $42 billion worth of beverages each year is capable of posting respectable growth figures.
Over the past four years, the S&P 500 has delivered returns of almost 14% per year. It sounds crazy, but the collection of business that comprise the S&P 500 has almost doubled your wealth in the past four years as it has turned every $1 invested in January 2012 into $1.85 today. I call … Read the rest of this article!
You know how I look for the presence of Google/Alphabet stock and the exclusion of Facebook stock in a mutual fund as a shortcut signal for finding talented mutual fund managers? I feel this way because such a decision means that a growth stock manager is relying upon earnings growth more than P/E expansion to build wealth for investors because the wealth rests on a foundation of more permanent value. Put another way, it is a lot easier for a stock’s P/E ratio to go from 80x earnings to 40x earnings than for earnings to go from x to 0.5x so I would rather own investments that require the latter rather than the former to produce failure.
A similar signal that I use to evaluate the strength of a mutual fund’s management is whether there is a willingness when necessary to close the fund to new investors. Things like the … Read the rest of this article!