With BP on my mind after writing last night’s article, I was once again a bit surprised to study the full effects that dividend payments can have—not just in terms of total returns—but also in providing a cushion against the next fall in the price of stock. The list of companies with worse PR issues than BP is indeed short, and people who remark that the price has little changed since 2010 are, of course, right.
But here is what I see: $1.68 in 2011 dividends, $1.98 in 2012 dividends, $2.19 in 2013 dividends, $2.34 in 2014 dividends, and (projected) $2.40 dividends in 2015. The price at both the start of 2011 and … Read the rest of this article!
When people talk about the checklist of elements that make for a good investment, one of the things you will invariably hear people say is this: Good management. Find companies that are being run by intelligent, forward-thinking people that can anticipate what will come and the risks posed in the future, and you will do well knowing that you entrusted your capital to good hands. The problem with this? A lot of times, talking about good management is a mere platitude and not something that you can actionably make decisions based on—if you visit a corporate website, you will see a lot of people looking regal in their suits accompanied by a list … Read the rest of this article!
Even though I completely understand why investors find dividend cuts unpleasant, I hold the opinion that it is incredibly self-destructive to sell a profitable company after a dividend cut because it is almost assured that the price of the stock has fallen and you would be engaging in the practice of selling low. My opinion on this is intensified when it comes to commodity investing. Outside of, say, Exxon and Chevron, dividend cuts in the sector are fair game. You can grow production of oil and oil equivalents all you want, but if the price of the commodity falls 40%, 50%, 60%, it is unlikely that the company will generate the cash flow … Read the rest of this article!
A guy that was in my fraternity, and took a job on Wall Street, found himself in the position of being able to invest $5,000 per month immediately after graduation. That’s a lot of money, but he is in New York, one of the few places in the world where that amount of money doesn’t actually do as much as it sounds. He calls me up to talk investing a few times per year, not because he wants my insight on anything, but because he knows I will nod my head and agree with him on what he is doing with his money: He is buying shares of credit card companies hand over … Read the rest of this article!
Usually, restaurant stocks are not something to get excited about if you are looking to hold the stock for awhile. The industry itself experiences over 90% failure, and the only real success story (from the perspective of making investors reliably rich) has been McDonald’s. Investors considering a restaurant stock find themselves in the following dilemma: Either the restaurant is the next big hot thing and the valuation goes to something crazy like 100x profits to price in many future years of growth already, or a company has fallen out of fashion and can only stimulate earnings per share by opening up new stores rather than making existing restaurants more profitable which usually leads … Read the rest of this article!