Economy:
The Bond Ghouls did not know how to react to Friday's jobs report. Their first reaction, which I view as the correct one, was to take the ten year treasury yield up about .04% to 2.39+%.
At around 10:13 A.M. E.S.T., the Bond Bookies changed their mind and took the yield down rapidly to 2.356%, unchanged from the prior day, and pretty much left that alone for the remainder of the day. U.S. 10 Year Treasury Note-MarketWatch
The odds that the FED will hike the federal fund's range in December rose to a near certainty however:
There is some room for some confusion about the September report.
On the strong side of the equation, wages went up by .12 cents per hour which increased the Y-O-Y change to 2.9%, meaningfully higher than the annual CPI rate. The unemployment rate fell to 4.2% from 4.4%. The U-6 number declined from 8.6% in August to 8.3%.
I would note that the hurricanes cut deep into the lowest paid workers, with leisure and hospitality payrolls declining 110,000, and that would have some positive effect on the wage gain number.
The noise problem in the report was the anticipated job losses due to the two Hurricanes. Those losses will be recouped soon enough and more jobs will be created to deal with the rebuilding in the impacted areas.
The downer in the report was the downward revision in July's number which is a pre-hurricane number. The new number was 138K revised down from 189K. Given the noise in the September numbers, which had a 33k loss in jobs, it is hard to draw any conclusion whether job growth was slowing in the summer and whether or not that softening will continue after October's rebound.
+++++
Portfolio Management:
While I will be discussing several short term CD purchases in this post and the next 2 or 3, I am at this moment on hiatus for any further purchases until yields improve. The short term yields for newly issued CDs have trended down as interest rates have gone up. So I am on strike until that situation is remedied by the banks.
I have focused recently on selling low coupon senior unsecured bonds maturing in 2015-2026, which is the maturity range now for my longest duration corporate bonds. I have consider to repurchase prices at lower levels for each of those bonds.
I am continuing to knock down substantially my exposure to exchange traded bonds and preferred stocks.
These moves have less to due with capital preservation than with a desire to have less at risk money earn more income and an overall lack of interest in owning low coupon bonds, bought near par value and maturing in 4 to 10 years.
The capital preservation issue is more related to an investor being forced to sell those securities at an inopportune time, meaning into a major and persistent downturn in price caused by a rise in interest rates. I do not face that risk.
If I am right about the directional change in interest rates persisting into the 4th quarter and into 2018, I will have saved capital by selling into a bond rally during the summer and into early September, but the purpose was to generate more income by buying those bonds back at lower prices and higher yields than my previous purchases.
If I am wrong, I am not giving up much given the low coupons and the rise in MM yields, particularly in my Vanguard MM funds.
As previously discussed, I also used the proceeds from low coupon corporate bond sales to buy Tennessee Municipals that provide me in most cases a higher double tax free current yield than the taxable yields of those corporate bonds. However, for a better real after tax income stream, I assumed more interest rate risks due to the longer durations. Overall, the credit ratings for the Tennessee municipal bonds, rated mostly AA- or higher, is better as well.
+++++++
Market Commentary:
While the VIX is at or near all time lows, CNN's Fear and Greed Index is deep into Extreme Greed territory. Fear & Greed Index - Investor Sentiment - CNN
There is a debate whether or not a corporate tax cut is currently built into share prices.
It is my opinion that stock prices in the aggregate currently reflect most of the increase in earnings over the next decade caused by a decrease in the top marginal corporate tax rate to 20%.
That opinion reflects the current high multiples, the fact that the last recession ended in June 2009, and the 100% probability of at least one recession within that 10 year time frame and possibly two. The opinion does not reflect that the Democrats would likely raise a 20% rate to 25% to 30% when and if they regain control which I view as likely within 10 years. And, the opinion does not include the impact of a catastrophic economic events similar to 2008.
A variety of assumptions are being made by the Stock Jocks about the future which are more likely than not to be wrong IMO.
One of those assumptions is that the reduction in tax rates will last long enough to impact a corporation's value.
Another important assumption, which is not supported by recent historical evidence, is that corporations will use the tax savings to build their businesses and to increase U.S. jobs, rather than to increase dividends and share buybacks.
And, most importantly, legitimate questions certainly exist about the GOP actually being able to pass a bill that dramatically increases the budget deficit, substantially lowers the corporate tax rate to 20% and then increases the tax liabilities of several million individual taxpayers.
Where is this GOP tax bill anyway, only broad outlines with a lot of holes have been made public to date? Reagan's tax bill was passed by Congress and signed by him in August 1981 or around 7 months after his inauguration.
I am still waiting for a republican to mention that their party wants to take away the exemption deductions when discussing their proposed increased in the standard deduction.
Randall Forsyth mentions in his Barron's column that the BAC/Merrill Lynch economists do not expect the GOP's proposal to become law. Maybe a trimmed down version could be passed, but that will not change the trajectory of U.S. growth in their opinion. And, any positive impact would likely be "offset by the crowding-out effect of a bigger budget deficit."
Stock prices already reflect a rosy view of the future. That view may have to be proven false by indisputable facts widely accepted as true rather than mere contrary or far less optimistic opinions about the future, which simply means that a mountain of arctic cold water will have to inundate the extremely bullish thesis about the future before that thesis is even questioned seriously.
In every bull market cycle that has been marching higher for years, there will come a point when all rational doubts about stock prices cease to exist, risks are downplayed to non-existent, fear dissipates into nothingness, riches only require that one buy stocks, economic cycles no longer apply, recessions and catastrophic economic events have been cured by the wise ones, and there is nothing but blue skies and clear sailing into the distant future.
I am describing the Blowoff phase of a long term bull market in stocks, a dangerous parabolic move skyward occurring after a prolonged period of rising prices. I use the word "dangerous" cautiously, as in my past missives, since it describes a move divorced from a realistic and rational view about the future that will eventually collapse upon itself with blood flowing in the streets.
+++++++
The Bond Ghouls did not know how to react to Friday's jobs report. Their first reaction, which I view as the correct one, was to take the ten year treasury yield up about .04% to 2.39+%.
At around 10:13 A.M. E.S.T., the Bond Bookies changed their mind and took the yield down rapidly to 2.356%, unchanged from the prior day, and pretty much left that alone for the remainder of the day. U.S. 10 Year Treasury Note-MarketWatch
The odds that the FED will hike the federal fund's range in December rose to a near certainty however:
There is some room for some confusion about the September report.
On the strong side of the equation, wages went up by .12 cents per hour which increased the Y-O-Y change to 2.9%, meaningfully higher than the annual CPI rate. The unemployment rate fell to 4.2% from 4.4%. The U-6 number declined from 8.6% in August to 8.3%.
I would note that the hurricanes cut deep into the lowest paid workers, with leisure and hospitality payrolls declining 110,000, and that would have some positive effect on the wage gain number.
The noise problem in the report was the anticipated job losses due to the two Hurricanes. Those losses will be recouped soon enough and more jobs will be created to deal with the rebuilding in the impacted areas.
The downer in the report was the downward revision in July's number which is a pre-hurricane number. The new number was 138K revised down from 189K. Given the noise in the September numbers, which had a 33k loss in jobs, it is hard to draw any conclusion whether job growth was slowing in the summer and whether or not that softening will continue after October's rebound.
+++++
Portfolio Management:
While I will be discussing several short term CD purchases in this post and the next 2 or 3, I am at this moment on hiatus for any further purchases until yields improve. The short term yields for newly issued CDs have trended down as interest rates have gone up. So I am on strike until that situation is remedied by the banks.
I have focused recently on selling low coupon senior unsecured bonds maturing in 2015-2026, which is the maturity range now for my longest duration corporate bonds. I have consider to repurchase prices at lower levels for each of those bonds.
I am continuing to knock down substantially my exposure to exchange traded bonds and preferred stocks.
These moves have less to due with capital preservation than with a desire to have less at risk money earn more income and an overall lack of interest in owning low coupon bonds, bought near par value and maturing in 4 to 10 years.
The capital preservation issue is more related to an investor being forced to sell those securities at an inopportune time, meaning into a major and persistent downturn in price caused by a rise in interest rates. I do not face that risk.
If I am right about the directional change in interest rates persisting into the 4th quarter and into 2018, I will have saved capital by selling into a bond rally during the summer and into early September, but the purpose was to generate more income by buying those bonds back at lower prices and higher yields than my previous purchases.
If I am wrong, I am not giving up much given the low coupons and the rise in MM yields, particularly in my Vanguard MM funds.
As previously discussed, I also used the proceeds from low coupon corporate bond sales to buy Tennessee Municipals that provide me in most cases a higher double tax free current yield than the taxable yields of those corporate bonds. However, for a better real after tax income stream, I assumed more interest rate risks due to the longer durations. Overall, the credit ratings for the Tennessee municipal bonds, rated mostly AA- or higher, is better as well.
+++++++
Market Commentary:
While the VIX is at or near all time lows, CNN's Fear and Greed Index is deep into Extreme Greed territory. Fear & Greed Index - Investor Sentiment - CNN
There is a debate whether or not a corporate tax cut is currently built into share prices.
It is my opinion that stock prices in the aggregate currently reflect most of the increase in earnings over the next decade caused by a decrease in the top marginal corporate tax rate to 20%.
That opinion reflects the current high multiples, the fact that the last recession ended in June 2009, and the 100% probability of at least one recession within that 10 year time frame and possibly two. The opinion does not reflect that the Democrats would likely raise a 20% rate to 25% to 30% when and if they regain control which I view as likely within 10 years. And, the opinion does not include the impact of a catastrophic economic events similar to 2008.
A variety of assumptions are being made by the Stock Jocks about the future which are more likely than not to be wrong IMO.
One of those assumptions is that the reduction in tax rates will last long enough to impact a corporation's value.
Another important assumption, which is not supported by recent historical evidence, is that corporations will use the tax savings to build their businesses and to increase U.S. jobs, rather than to increase dividends and share buybacks.
And, most importantly, legitimate questions certainly exist about the GOP actually being able to pass a bill that dramatically increases the budget deficit, substantially lowers the corporate tax rate to 20% and then increases the tax liabilities of several million individual taxpayers.
Where is this GOP tax bill anyway, only broad outlines with a lot of holes have been made public to date? Reagan's tax bill was passed by Congress and signed by him in August 1981 or around 7 months after his inauguration.
I am still waiting for a republican to mention that their party wants to take away the exemption deductions when discussing their proposed increased in the standard deduction.
Randall Forsyth mentions in his Barron's column that the BAC/Merrill Lynch economists do not expect the GOP's proposal to become law. Maybe a trimmed down version could be passed, but that will not change the trajectory of U.S. growth in their opinion. And, any positive impact would likely be "offset by the crowding-out effect of a bigger budget deficit."
Stock prices already reflect a rosy view of the future. That view may have to be proven false by indisputable facts widely accepted as true rather than mere contrary or far less optimistic opinions about the future, which simply means that a mountain of arctic cold water will have to inundate the extremely bullish thesis about the future before that thesis is even questioned seriously.
In every bull market cycle that has been marching higher for years, there will come a point when all rational doubts about stock prices cease to exist, risks are downplayed to non-existent, fear dissipates into nothingness, riches only require that one buy stocks, economic cycles no longer apply, recessions and catastrophic economic events have been cured by the wise ones, and there is nothing but blue skies and clear sailing into the distant future.
I am describing the Blowoff phase of a long term bull market in stocks, a dangerous parabolic move skyward occurring after a prolonged period of rising prices. I use the word "dangerous" cautiously, as in my past missives, since it describes a move divorced from a realistic and rational view about the future that will eventually collapse upon itself with blood flowing in the streets.
Trump's Efforts to Raise Prices for Obamacare Policies and to Increase Teen Pregnancies in order to Make America Great Again:
The following linked article describes the ways that the Trump administration continues to undermine the ACA and to raise costs for consumers who buy Obamacare policies. As ACA enrollment nears, administration keeps cutting federal support of the law - The Washington Post The most obnoxious one involved Trump's direct intervention to stop the republican controlled Iowa government from revitalizing its "their ailing health-insurance marketplace." The change sought by the Iowa republicans had to be approved by the federal government.
Trump undermines U.S. birth control coverage requirement: Reuters; Trump Just Made It So Employers Can Refuse to Pay for Birth Control - NBC News; Trump’s new rule marks end of affordable birth control that saved American women $1.4 billion - MarketWatch("Since the insurance coverage provision was passed, the U.S. has seen an increase in women using highly effective birth control methods, a decrease in teenage pregnancies, and a decline in unintended pregnancies overall.") In other words, just another example of how the GOP wants to Make America Great Again: increase teen and other unwanted pregnancies.
++++++
Mike Pence’s Nick Ayers: Purge Republicans Who Oppose Trump-National Review
Tillerson, the 'Moron,' the 'Purge' and Team Trump's Unceasing Chaos-US News and World Reports
++++
GOP Owned by the NRA:
The NRA's strategic ploy on bump stocks - CNN (NRA says let the ATF look at whether restrictions are necessary. Congress needs to stay out it according to that organization)
ATF Unlikely to Crack Down on Rapid-Fire Bump Stocks - NBC News (the reason is the National Firearms Act as written does not permit the ATF to ban or regulate that product since a bump stock does not change the mechanics of the gun and does not fit within the Act's narrow definition of machine gun)
NRA Official Opposes Ban on 'Bump Stocks' Used in Vegas Massacre - Bloomberg
After a Shooting, Gun Laws Are Loosened - The Atlantic
The Impact of Mass Shootings on Gun Policy: Harvard Business School Publication (the easiest way to loosen U.S. gun regulations even further is to have a mass shooting first. Those kind of events convince legislators that the appropriate response is to have more guns and gun owners.)
On the positive side, mass shootings in the U.S. do slow down in December. Without that slowdown, there would be on average more than one mass shooting per day. America’s unique gun violence problem, explained in 17 maps and charts
I am curious about any legitimate self-defense need for semi-automatic weapons. A handgun would work just fine to stop an intruder without filling him with 500 holes and scattering body parts throughout the home But, then those who enjoy firing semi-automatic weapons would have to find other, more productive ways to feel empowered, to increase their feelings of self-worth and authority, or just to get their rocks off. Who knows? Maybe those weapons will come in handy when Nicaraguan and Cuban forces invade the U.S., just like in that movie Red Dawn circa 1984.
Demand for 'bump stock,' device used by Las Vegas shooter, surges in Arizona
Las Vegas shooting: Stephen Paddock bought 33 guns in last 12 months: USA Today
The AR-15 has been the gun of choice in the recent Las Vegas shooting and "several other mass shootings: at an elementary school in Newtown, Conn.; at a movie theater in Aurora, Colo.; at a holiday party for county health workers in San Bernardino, Calif.; and at the campus of Umpqua Community College in Oregon." AR-15 Rifles Are Beloved, Reviled and a Common Element in Mass Shootings - The New York Times
Gun Violence Archive
Children Killed | Gun Violence Archive
Accidental Deaths | Gun Violence Archive
Mass Shootings | Gun Violence Archive
Last 72 Hours | Gun Violence Archive
It will get worse with no respite. There is no rational reason for optimism.
+++++++
Trump and Ed Gillespie:
Trump claims that the Democrat candidate for Virginia's governor wants to promote the violent gang MS-13:
I view it as an embarrassment to the nation that any President, regardless of ideology or political party, would publicly make that kind of statement.
Trump's tweet is just another outrageous and inflammatory lie that is an everyday occurrence for this U.S. President.
It goes without saying that Mr. Northam is not a supporter of the MS-13 gang as Trump and Gillespie claim.
Ed Gillespie's 'Sanctuary Cities' Attacks - FactCheck.org (Virginia has no sanctuary cities as Gillespie admitted when pressed on the issue)
If the modern day GOP is a "conservative" party, which is obviously from the case, then telling the truth is not a conservative value.
++++++++
Senator Corker (R-TN)-Trump-Marsha Blackburn:
Bill Haslam, the current republican governor of Tennessee, will not be running for Bob Corker's Senate seat. Marsha Blackburn will likely be Tennessee's next GOP senator. Trump received 61.1% of the vote in Tennessee.
Blackburn enters Tennessee Senate race, as Haslam passes - POLITICO
While I voted for Haslam twice, I have never, and never will vote for Marsha who is my representative in the Tennessee 7th congressional district.
I labelled her an ignorant reactionary, a stellar example of a wingnut masquerading as a Conservative, a long time ago. Everything that she has said or done since then has confirmed that opinion.
Trump's Sunday Twitter Tirade Directed Against Senator Corker (R-TN):
Senator Corker's reply:
That is priceless.
Corker Calls White House `Day Care Center' After Trump Rant - Bloomberg
Bob Corker: Trump setting US 'on the path to World War III' - CNN
I am expecting U.S. prestige and influence to plummet around the world during Donald's first term. If he is re-elected, whatever is left after four years will be pretty much gone in eight.
+++++++++++++++++
My goal with every fixed coupon equity preferred stock is harvest some dividends and to exit the position at a profit, with a consider to repurchase price lower than my last purchase. I have a healthy respect for their downside action when interest rates rise.
1. Stocks, Bonds & Politics: Gateway Post: Equity REIT Common and Preferred Stock Basket Strategy:
A. Sold Last 50 HTPRD Share Lot at $25.85-A Roth IRA Account:
I discussed selling 150 shares in my 9/18/17 post.
Profit Snapshot: +$30.97
Stocks, Bonds & Politics: Item # 3.A. Bought 50 HTPRD at $24.95
History in this Account:
Quote: Hersha Hospitality Trust 6.5% Cumulative Preferred Series D
Last Discussed: Stocks, Bonds & Politics: Item # 2 Sold 150 HTPRD (/18/17 post)
Par value is $25.
Optional Call Date: On or After 5/31/21
Dividends: Cumulative and Non-Qualified (pass through entity)
Final Prospectus Supplement
Issuer: Hersha Hospitality Trust Cl A (HT)-a Hotel REIT
The IPO for this security was in May 2016. When interest rates started to tick up in late Fall, HTPRD declined to $22 and change. HT.PD Stock Chart I bought 50 shares at $22.28 on 12/20/16. Comment The ten year treasury closed that day at a 2.57% yield, up from 1.88% on 11/8/16.
Total HTPRD Trading Profits: +313.49
B. Bought 50 DOC at $17.48 ($1 Commission-IB Trading Account):
Quote: Physicians Realty Trust (DOC)
This is a trade where I anticipate being able to buy another 50 shares near or below $17 for the reasons discussed below.
I have one prior purchase: Item # 2: Bought 100 DOC at $13.75 (10/11/14 Post)
I sold that lot too soon in 2015: +$237.96
DOC SEC Filings
Late in June 2017, DOC sold 20M shares (plus the greenshoe) at $20.4, receiving after the underwriters' discount $19.584 per share.
Brad Thomas published last July an article about this REIT. Just What The Doctor Ordered-Seeking Alpha
I am not going to repeat what he discussed in that article here, except for areas where I have a different perspective or opinion.
My main problem with this company is the constant flow of share offerings to buy properties. The recent share offerings, accompanied by increases in debt as well, have been used to buy properties with low cap rates. DOC is IMO buying aggressively in a seller's market and that explains in part the recent price drop from
While the dividend has grown since my 2014 purchase, the current funds available for distribution("FAD") payout ratio is too high IMO.
Brad discusses the FFO payout ratio which I view as inappropriate where FAD is meaningfully below FFO. He says that the payout ratio is 82%, and he is "pleased with DOC's ability to reduce its payout ratio" which paves the way for dividend growth in his opinion.
As shown below, DOC paid out more in a dividend than it had cash available for distribution in the last quarter.
This snapshot is taken from DOC's second quarter report:
SEC Filed Press Release
Note the substantial increase in shares outstanding. The quarterly dividend during the quarter was $.23 per share. Dividends
Normalized FFO was at $.24. While the company does not specifically calculate FAD per share, it does provide the information necessary to make that calculation: $34.23M in FAD divided by 161M shares = $.217 per share.
Instead of buying MOBs now, let alone buying aggressively as DOC is doing, I would be a net seller of properties. Brad discusses recent purchases at a 4.7% capitalization rate.
Lastly, Brad mentions that DOC experienced a recent major tenant bankruptcy which in his opinion is "likely to impact DOC’s FFO/share by 2-3% on an annualized basis." I would emphasize that issue far more rather than downplaying the significance. It is a by product IMO of too aggressive growth and the frequently inadequate underwriting standards for companies in the empire building mode. Mistakes start to surface when the tide pulls out.
For reasons that can not be rationally justified IMO, the DOC price closed at $21.80 on 6/27/17. DOC Stock Charts
Why too high?
It is generally be known that this REIT will use an upward spurt in the share price to sell more shares and then use the proceeds with mid-single digit capitalization rates. .
Even without that problem, which now appears systemic, the P/FAD ratio would be at 25.11 at $21.8, calculated by annualizing the $.217 number for the second quarter. That is just way too high IMO; even if I assumed no further share offerings to buy low capitalization properties and the bankruptcy of a major tenant as unlikely to happen again within the next ten years.
Capitalization Rate
In summary, I do not view the price that I paid as a bargain by any means, and consequently I disagree with the premise of Brad's article. A 50 share purchase at $17.48 feels about right to me followed by another 50 share purchase in the $16.25 to $16.75 range using a commission free trade. Then, I would see the highest cost lot in the $19 to $20 range.
C. Eliminated DLRPRI: Sold 50 shares at $26.82-A Roth IRA Account:
Profit Snapshot: +$97.48
Item # 1 Bought 50 DLRPRI at $24.59 in Roth IRA: Update For Bond And Preferred Stock Basket Strategy As Of 9/10/15 - South Gent | Seeking Alpha
History in this Account:
I received the first dividend paid by this preferred stock that was higher than the regular quarterly dividend due to that period including more than 3 months.
Quote: Digital Realty Trust Inc. 6.35% Cumulative Preferred Series I
DLR.PI Stock Chart
Par Value: $25
Optional Call: At Par Value on or after 8/24/2020
Prospectus
Category: Equity Preferred Stock
Dividends: Non-qualified (pass through entity) and Cumulative
Capital Structure: Senior only to common stock
My consider to buy price would be below $24.
Just to highlight again what can happen to the price when interest rates rise, I bought 100 shares of DLRPRG at $19.95 in March 2014 which was more than two months after the 2013 interest rate spike had ended and the ten year treasury was once again falling in yield. That preferred stock was sold at $25 in April 2013, shortly before the interest rate spike started, and had fallen to $18 and change by December 2013. The closing price on 12/31/13 was $18.15. DLR.PG (use five year chart with "daily" numbers)
Previously, I sold another 150 shares of DLRPRI, realizing a total gain of $267.78: Stocks, Bonds & Politics: Item # 5.A
Trading Gains DLRPRI = $365.26
My goal with every fixed coupon equity preferred stock is harvest some dividends and to exit the position at a profit, with a consider to repurchase price lower than my last purchase. I have a healthy respect for their downside action when interest rates rise.
1. Stocks, Bonds & Politics: Gateway Post: Equity REIT Common and Preferred Stock Basket Strategy:
A. Sold Last 50 HTPRD Share Lot at $25.85-A Roth IRA Account:
I discussed selling 150 shares in my 9/18/17 post.
Profit Snapshot: +$30.97
Stocks, Bonds & Politics: Item # 3.A. Bought 50 HTPRD at $24.95
History in this Account:
Quote: Hersha Hospitality Trust 6.5% Cumulative Preferred Series D
Last Discussed: Stocks, Bonds & Politics: Item # 2 Sold 150 HTPRD (/18/17 post)
Par value is $25.
Optional Call Date: On or After 5/31/21
Dividends: Cumulative and Non-Qualified (pass through entity)
Final Prospectus Supplement
Issuer: Hersha Hospitality Trust Cl A (HT)-a Hotel REIT
Total HTPRD Trading Profits: +313.49
B. Bought 50 DOC at $17.48 ($1 Commission-IB Trading Account):
Quote: Physicians Realty Trust (DOC)
This is a trade where I anticipate being able to buy another 50 shares near or below $17 for the reasons discussed below.
I have one prior purchase: Item # 2: Bought 100 DOC at $13.75 (10/11/14 Post)
I sold that lot too soon in 2015: +$237.96
DOC SEC Filings
Late in June 2017, DOC sold 20M shares (plus the greenshoe) at $20.4, receiving after the underwriters' discount $19.584 per share.
Brad Thomas published last July an article about this REIT. Just What The Doctor Ordered-Seeking Alpha
I am not going to repeat what he discussed in that article here, except for areas where I have a different perspective or opinion.
My main problem with this company is the constant flow of share offerings to buy properties. The recent share offerings, accompanied by increases in debt as well, have been used to buy properties with low cap rates. DOC is IMO buying aggressively in a seller's market and that explains in part the recent price drop from
While the dividend has grown since my 2014 purchase, the current funds available for distribution("FAD") payout ratio is too high IMO.
Brad discusses the FFO payout ratio which I view as inappropriate where FAD is meaningfully below FFO. He says that the payout ratio is 82%, and he is "pleased with DOC's ability to reduce its payout ratio" which paves the way for dividend growth in his opinion.
As shown below, DOC paid out more in a dividend than it had cash available for distribution in the last quarter.
This snapshot is taken from DOC's second quarter report:
SEC Filed Press Release
Note the substantial increase in shares outstanding. The quarterly dividend during the quarter was $.23 per share. Dividends
Normalized FFO was at $.24. While the company does not specifically calculate FAD per share, it does provide the information necessary to make that calculation: $34.23M in FAD divided by 161M shares = $.217 per share.
Instead of buying MOBs now, let alone buying aggressively as DOC is doing, I would be a net seller of properties. Brad discusses recent purchases at a 4.7% capitalization rate.
Lastly, Brad mentions that DOC experienced a recent major tenant bankruptcy which in his opinion is "likely to impact DOC’s FFO/share by 2-3% on an annualized basis." I would emphasize that issue far more rather than downplaying the significance. It is a by product IMO of too aggressive growth and the frequently inadequate underwriting standards for companies in the empire building mode. Mistakes start to surface when the tide pulls out.
For reasons that can not be rationally justified IMO, the DOC price closed at $21.80 on 6/27/17. DOC Stock Charts
Why too high?
It is generally be known that this REIT will use an upward spurt in the share price to sell more shares and then use the proceeds with mid-single digit capitalization rates. .
Even without that problem, which now appears systemic, the P/FAD ratio would be at 25.11 at $21.8, calculated by annualizing the $.217 number for the second quarter. That is just way too high IMO; even if I assumed no further share offerings to buy low capitalization properties and the bankruptcy of a major tenant as unlikely to happen again within the next ten years.
Capitalization Rate
In summary, I do not view the price that I paid as a bargain by any means, and consequently I disagree with the premise of Brad's article. A 50 share purchase at $17.48 feels about right to me followed by another 50 share purchase in the $16.25 to $16.75 range using a commission free trade. Then, I would see the highest cost lot in the $19 to $20 range.
C. Eliminated DLRPRI: Sold 50 shares at $26.82-A Roth IRA Account:
Profit Snapshot: +$97.48
Item # 1 Bought 50 DLRPRI at $24.59 in Roth IRA: Update For Bond And Preferred Stock Basket Strategy As Of 9/10/15 - South Gent | Seeking Alpha
History in this Account:
I received the first dividend paid by this preferred stock that was higher than the regular quarterly dividend due to that period including more than 3 months.
Quote: Digital Realty Trust Inc. 6.35% Cumulative Preferred Series I
DLR.PI Stock Chart
Par Value: $25
Optional Call: At Par Value on or after 8/24/2020
Prospectus
Category: Equity Preferred Stock
Dividends: Non-qualified (pass through entity) and Cumulative
Capital Structure: Senior only to common stock
My consider to buy price would be below $24.
Just to highlight again what can happen to the price when interest rates rise, I bought 100 shares of DLRPRG at $19.95 in March 2014 which was more than two months after the 2013 interest rate spike had ended and the ten year treasury was once again falling in yield. That preferred stock was sold at $25 in April 2013, shortly before the interest rate spike started, and had fallen to $18 and change by December 2013. The closing price on 12/31/13 was $18.15. DLR.PG (use five year chart with "daily" numbers)
Previously, I sold another 150 shares of DLRPRI, realizing a total gain of $267.78: Stocks, Bonds & Politics: Item # 5.A
Trading Gains DLRPRI = $365.26
2. Short Term Bond/CD Ladder Basket Strategy:
A. Bought 2 Bank of Hapoalim 1.35% CDs Maturing on 4/3/18 (6 month CD):
Bank Hapoalim - Wikipedia (Israel's largest bank)
This CD was issued by the U.S. branch of this bank and is insured by the FDIC.
B. Bought 2 Bank of Baroda 1.45% CDs Maturing on 6/29/18 (9 month CDs):
C. Bought 2 Bank of East Asia 1.1% CDs Maturing on 12/6/17 (2 month CDs):
The issuer is the NY branch of the Bank of East Asia - Wikipedia.
D. Bought 3 First Bank (Maine) 1.15% CDs (monthly interest) Maturing on 2/12/18 (3 month CDs):
Holding Company: First Bancorp Inc. (FNLC)
E. Bought 2 MB Financial 1.6% CDs (monthly interest) Maturing on 4/15/19 (18 month CDs):
Holding Company: MB Financial Inc. (MBFI) - MarketWatch
MBFI Analyst Estimates
$11K into Short Term Bond/CD Ladder Strategy
3. Intermediate Term Bond/CD Ladder Basket Strategy:
A. Sold 1 Kellogg 3.25% SU Bond Maturing on 4/1/26-A Roth IRA Account:
Profit Snapshot: +$15.85
FINRA Page: Bond Detail
Issuer: Kellogg Co. (K)
K Analyst Estimates
Sold at 100.234
YTM Then at 3.218%
Current Yield at 3.24%
Bought at a total cost of 98.499
Stocks, Bonds & Politics: ITEM # 1.E.
YTM Then at 3.452%
Current Yield at 3.3%
My consider to repurchase price would be below 95. The consider to repurchase price for this bond and others takes into account current yield and YTM at the total price paid; my comfort level with the credit risk; and my opinion about the near term direction of interest rates for intermediate term investment grade bonds.
B. Sold 1 ERP Operating Partnership 2.85% SU Bond Maturing on 11/1/2026:
Profit Snapshot: +$22.73
FINRA Page: Bond Detail
Issuer: The operating entity for Equity Residential (EQR)
Moody's recently upgraded the senior unsecured debt to A3 with a stable outlook. Moody's upgrades Equity Residential to A3 and revises rating outlook to stable
S & P at BBB+
Sold at 97.034
YTM Then at 3.229%
Current Yield at 2.937%
Given the low current yield at 97, my consider to repurchase price is below 92.
Bought at a total cost of 95.028
Stocks, Bonds & Politics: ITEM # 1.A.
YTM Then at 3.461%
Current Yield at 3%
C. Bought Back 2 AT & T 3.4% SU Bonds Maturing on 5/15/25-IB Trading Account ($2 Commission):
FINRA Page: Bond Detail
T Analyst Estimates
2017 Second Quarter Earnings Report
Credit Ratings:
Moody's at Baa1 (credit watch negative)
S & P at BBB+ (credit watch negative)
Fitch at A- (credit watch negative)-Fitch Rates AT&T's Sr. Unsecured Note Offering 'A-'; Remains on Rating Watch Negative
Debt Details | AT&T
Bought at a Total Cost of 99
YTM then at 3.551%
Current Yield at 3.43%
Previously Sold 2 Bonds on 9/6/17 at 100: Stocks, Bonds & Politics: Item # 1.A. (realized gain $44.34, plus interest for 4 months and 9 days)
Small Ball.
This AT & T bond has a slightly lower rating than the ERP bond discussed above, matures about 18 months sooner than the ERP bond, and provides an additional .43% in current yield annually.
I own several AT & T bonds with shorter maturities. I also recently bought 30 common shares at $35.95: Item # 7 previously linked post.
Disclaimer: I am not a financial advisor but simply an individual investor who has been managing my own money since I was a teenager. In this post, I am acting solely as a financial journalist focusing on my own investments. The information contained in this post is not intended to be a complete description or summary of all available data relevant to making an investment decision. Instead, I am merely expressing some of the reasons underlying the purchase or sell of securities. Nothing in this post is intended to constitute investment or legal advice or a recommendation to buy or to sell. All investors need to perform their own due diligence before making any financial decision which requires at a minimum reading original source material available at the SEC and elsewhere. A failure to perform due diligence only increases what I call "error creep". Stocks, Bonds & Politics: ERROR CREEP and the INVESTING PROCESS Each investor needs to assess a potential investment taking into account their personal risk tolerances, goals and situational risks. I can only make that kind of assessment for myself and family members.
C. Bought 2 Bank of East Asia 1.1% CDs Maturing on 12/6/17 (2 month CDs):
The issuer is the NY branch of the Bank of East Asia - Wikipedia.
D. Bought 3 First Bank (Maine) 1.15% CDs (monthly interest) Maturing on 2/12/18 (3 month CDs):
Holding Company: First Bancorp Inc. (FNLC)
E. Bought 2 MB Financial 1.6% CDs (monthly interest) Maturing on 4/15/19 (18 month CDs):
Holding Company: MB Financial Inc. (MBFI) - MarketWatch
MBFI Analyst Estimates
$11K into Short Term Bond/CD Ladder Strategy
3. Intermediate Term Bond/CD Ladder Basket Strategy:
A. Sold 1 Kellogg 3.25% SU Bond Maturing on 4/1/26-A Roth IRA Account:
Profit Snapshot: +$15.85
Issuer: Kellogg Co. (K)
K Analyst Estimates
Sold at 100.234
YTM Then at 3.218%
Current Yield at 3.24%
Bought at a total cost of 98.499
Stocks, Bonds & Politics: ITEM # 1.E.
YTM Then at 3.452%
Current Yield at 3.3%
My consider to repurchase price would be below 95. The consider to repurchase price for this bond and others takes into account current yield and YTM at the total price paid; my comfort level with the credit risk; and my opinion about the near term direction of interest rates for intermediate term investment grade bonds.
B. Sold 1 ERP Operating Partnership 2.85% SU Bond Maturing on 11/1/2026:
Profit Snapshot: +$22.73
Issuer: The operating entity for Equity Residential (EQR)
Moody's recently upgraded the senior unsecured debt to A3 with a stable outlook. Moody's upgrades Equity Residential to A3 and revises rating outlook to stable
S & P at BBB+
Sold at 97.034
YTM Then at 3.229%
Current Yield at 2.937%
Given the low current yield at 97, my consider to repurchase price is below 92.
Bought at a total cost of 95.028
Stocks, Bonds & Politics: ITEM # 1.A.
YTM Then at 3.461%
Current Yield at 3%
C. Bought Back 2 AT & T 3.4% SU Bonds Maturing on 5/15/25-IB Trading Account ($2 Commission):
FINRA Page: Bond Detail
T Analyst Estimates
2017 Second Quarter Earnings Report
Credit Ratings:
Moody's at Baa1 (credit watch negative)
S & P at BBB+ (credit watch negative)
Fitch at A- (credit watch negative)-Fitch Rates AT&T's Sr. Unsecured Note Offering 'A-'; Remains on Rating Watch Negative
Debt Details | AT&T
Bought at a Total Cost of 99
YTM then at 3.551%
Current Yield at 3.43%
Previously Sold 2 Bonds on 9/6/17 at 100: Stocks, Bonds & Politics: Item # 1.A. (realized gain $44.34, plus interest for 4 months and 9 days)
Small Ball.
This AT & T bond has a slightly lower rating than the ERP bond discussed above, matures about 18 months sooner than the ERP bond, and provides an additional .43% in current yield annually.
I own several AT & T bonds with shorter maturities. I also recently bought 30 common shares at $35.95: Item # 7 previously linked post.
Disclaimer: I am not a financial advisor but simply an individual investor who has been managing my own money since I was a teenager. In this post, I am acting solely as a financial journalist focusing on my own investments. The information contained in this post is not intended to be a complete description or summary of all available data relevant to making an investment decision. Instead, I am merely expressing some of the reasons underlying the purchase or sell of securities. Nothing in this post is intended to constitute investment or legal advice or a recommendation to buy or to sell. All investors need to perform their own due diligence before making any financial decision which requires at a minimum reading original source material available at the SEC and elsewhere. A failure to perform due diligence only increases what I call "error creep". Stocks, Bonds & Politics: ERROR CREEP and the INVESTING PROCESS Each investor needs to assess a potential investment taking into account their personal risk tolerances, goals and situational risks. I can only make that kind of assessment for myself and family members.
hello SG
ReplyDeleteAs we have discussed a lot, i am a dividend investor trying to decide if holding stocks is an option. I do not believe we are at a Blowoff stage yet for stocks , although timing to me is a fools errand.
I know the market is way ahead of itself in terms of p/e ratios and future belief in endless growth. I remember well 2001.
But I wonder what you thought of the ability of investment grade companies to mostly maintain their dividends during periods of recession or inflation. i know a few companies w poor track records during the Near Depression cut the dividend , ie, GE, PFE , but the majority of my stocks which I did not sell a penny of raised the DIV during this very scary time.
I wonder your opinion on what generally happens
free cash flow for non cyclic companies during these times; I realize the business segments differ so this question may be foolish ; any thoughts would be helpful
By the way, for the first time in my life i am actually afraid our country has passed thru a time warp and we are back in a time of great divide among the people; and we are headed for very bad national political times.
http://www.cnn.com/2017/10/04/politics/trump-generals-mattis/index.html
thanks again
s
Sam: It depends on a host of factors that can not be predicted with any certainty.
DeleteFor example, box retailers like Target may eventually cut their dividends within 10 years, but their dividend growth rate may slow considerably before that happens. A recession could easily tilt some of them into dividend cuts. While the future is always uncertain, it is possible that WMT may prove to be an exception to that trend. We will know more over the next five years.
Banks will frequently cut dividends when a sufficient number of loans go sour. That was certainly the case in the Near Depression where dividend maintenance was the exception and dividend growth during that period and its aftermath was a rarity.
A business model may be in secular decline, so it is helpful to pick industries where that is not the case. Examples from the more recent past would include R.R. Donnelley, Pitney Bowes, and Eastman Kodak.
Others possible sectors that can be identified now would include box retailers, large tech companies that have not adapted well to change (e.g. IBM), packaged food companies and probably pharmacy benefit managers like CAH and CVS.
The Democrats may gain control within the next 10 or 15 years and have enough votes to pass Medicare for everyone which would send a lot of health insurers into the dustbin of history.
So things change that can impact the dividend and dividend growth that are not related to major negative external events like a Near Depression or Depression and can occur during a long period of economic growth.
While there has been dividend growth in technology, more so than in the past, that entire industry is subject to rapid creative destruction. I currently own Intel, Cisco and the ETF TDIV in that sector. My remaining Intel shares were acquired during the Near Depression at an average cost per share of $15.52.
As to divisions in the country, they have always existed but the ability to reach compromises has deteriorated greatly. This will result in a constant shift back and forth on major policy issues like healthcare.
The divisions have been deeper, noisier and far more persistent due to the advent of talk radio, cable TV news channels where journalistic standards are practically non-existent, and the internet of course. It use to be that people gathered their news from their local paper and watching the 30 minute nightly network news. Cronkite would tell us what we need to know and he was largely trusted to do so. Now, people only listen to whatever confirms their pre-existing beliefs and make a concerted effort to avoid everything else. And with the emergence of alternative "information" sources, lying and misinformation has become the norm through many of those mediums.
I personally have zero confidence in Trump's ability to acquire accurate information, to be truthful, and to exercise good judgment. I view him as the embodiment of what happens when truth no longer matters and is even discarded as a hindrance and nuisance to acquiring and maintaining political power.
Do you own in short term or intermediate term bonds?
Thanks for your note; it has been very helpful; Looking thru the lens of business history and just not at the div aristocrats etc has been very helpful and i will study and re evaluate my holdings more; i have been torn between selling and trying to raise the quality of dividend payers that I own.
ReplyDeleteYour views, which I view as extremely pragmatic and much more nuanced,historical and sophisticated than SA , business publications etc have been very helpful;
To answer your question, I have transitioned half of my pension over to cds ladders and bonds of high credit quality.
I am strongly thinking about selling some of my appreciated/( also loses) holdings that were bought for dividend income and never to sell .
I am not nearly as educated re finance as I need to be having relied on Money managers who take a huge fee without adding much (if anything ) to my returns.
As you put it, the inability to agree on compromise has serious consequences which are very worrying to me.
thanks for your help ,
I post this out of interest to show that the earth we live on is not as solid and eternal as most people think!
https://www.theguardian.com/commentisfree/2017/jul/11/sixth-mass-extinction-habitats-destroy-population
https://www.theguardian.com/environment/2017/jul/10/earths-sixth-mass-extinction-event-already-underway-scientists-warn
S: I have mentioned to you in the past that a number of dividend growth companies, which are on the Aristocrats list, have been increasing their payout ratios over the past several years. Cash used to pay dividends and to buy stock exceed free cash flow by considerable sums and that is becoming more common generally. Debt is being acquired to fund those shareholder returns in many cases. The cash is gone but the debt remains and has to be financed and refinanced over time.
DeleteThis is occurring particularly with firms that have been struggling to grow earnings and revenues. In addition to that accelerating problem, those companies are buying up smaller concerns at high multiples, using borrowed cash, in a hoped for effort to generate organic growth.
You can see what I mean looking at a recent FITCH bond report on General Mills dated last April and the problems have gotten worse since that time IMO:
" Over the last 12 months, General Mills bought back $1.4 billion of net shares and paid out $1.1 billion in dividends, while generating $2.3 billion in funds from operations and spending $727 million in capital expenditures."
Subtract $727M in capital expenditures from $2.3B in cash flow to arrive at an approximation of free cash flow for that historical 12 month period and then compare with the money spent on dividends and stock buybacks.
Cash returned to shareholders through dividends and buybacks substantially exceeds free cash flow which means that those cash outflows are being substantially supported by incurring more debt.
You can look at the GIS Morningstar data to see the dividend payout ratio issue:
The payout ratio was 41.4 in 2011 and had risen to 70.4% for the fiscal year ending last May.
http://financials.morningstar.com/ratios/r.html?t=GIS®ion=USA&culture=en_US
Having said all of that, I may start to nibble on GIS stock at somewhere less than $50 as I previously mentioned.
+++
The JPM analyst is piling on GE again this morning suggesting that a dividend cut may be in the works.
Barron's Link:
http://www.barrons.com/articles/general-electric-after-ousters-a-dividend-cut-1507564538
General Electric Company (GE)
$23.36 -$1.03 (-4.22%)
As of 3:55PM EDT
I doubt that will happen but nobody really knows.
I have sold most of my shares in GE and am currently down to 124+ shares, bought during the Near Depression period, at a total cost per share of $12.03. For the first time in about 7 years or so, I have changed my dividend option to reinvestment for the shares owned in that account.
I also recently bought 30 shares in a Roth IRA at $23.9.
Item # 2
https://tennesseeindependent.blogspot.com/2017/09/observations-and-sample-of-recent_25.html
WMT: I discussed WMT in a comment made to my last blog.
ReplyDeletehttps://tennesseeindependent.blogspot.com/2017/10/observations-and-sample-of-recent.html?showComment=1507399171482#c9127336043583168799
There is a typo in that comment. I bought 10 shares at $78.93 on 10/6/17 rather than at $79.93.
Perhaps, I could have bought more than 10 shares.
Wal-Mart Stores, Inc. (WMT)
$84.13 +$3.60 (+4.47%)
Day's Range 82.61 - 84.88
52 Week Range 65.28 - 84.88
Volume 36,531,004
Avg. Volume 8,189,126
That is a huge move for such a large capitalization stock.
There was a lift on Monday from a positive article in Barron's.
Today's move was in response to this press release; where the company announced a $20B share repurchase plan and gave upbeat guidance on its online sales forecast for its F/Y 2019 (up "about 40%):
http://www.businesswire.com/news/home/20171010005735/en/
ORKLA: I recently bought 100 ADR shares:
ReplyDeleteItem # 5 Bought Back 100 ORKLY at $10.05:
https://tennesseeindependent.blogspot.com/2017/09/observations-and-sample-of-recent_21.html
This Norwegian company completed the sale of its interest in SAPA, which I discussed when purchasing a 100 shares recently.
"Orkla has today received NOK 11.86 billion in cash from Hydro as preliminary purchase price...Final purchase price will be determined based on Sapa's balance as of 30 September 2017"
http://www.orkla.com/Press/News/Agreement-regarding-sale-of-Orkla-s-interest-in-Sapa-to-Hydro-completed
This will result in about a $5B NOK gain that will appear in the third quarter report.
Shareholders will as previously noted receive a special dividend of 5 NOKs per share as their cash cut so to speak:
http://www.orkla.com/Investor-relations/Shareholder-services/The-Annual-General-Meeting/Extraordinary-General-Meeting
As of today's close, 1 NOK buys $.12585 USDs so 500 NOKs, the amount payable for 100 shares at 5 NOKs per share, would be about $62.93 at that exchange rate before Norway's dividend tax.
Currency Charts: NOK to USD
http://www.xe.com/currencycharts/?from=NOK&to=USD
Under the U.S.-Norway tax treaty, a U.S. citizen is entitled to no more than a 15% tax withholding rate applied to dividend paid by Norwegian companies. Fidelity asserts citizenship rights and has secured a 15% rate for me in the past. Many other brokers do not bother; which results in the highest possible tax rate, the one for countries with no tax treaty will be applied by Norway.
I will generally hold ORKLY through the annual dividend ex date which will be next Spring.
http://www.orkla.com/Investor-relations/The-share/Dividend-and-treasury-shares
Hello southgent,
ReplyDeleteI appreciate your last comments.
As I mentioned before, I am thinking of selling many winners which I bought between 2011 and 14 not so much to lock in gains, but to protect myself against some unforeseen circumstance like a massive rise in rates.
My question specifically now is related to your comment regarding the packaged consumer retailers. Like General Mills. There is no question that at least in the media, lifestyle changes of the millennial's are impacting buying habits.
I know General Mills has been suffering from their missteps in cereal and yogurt. I've heard from several people that they do like the glass enclosed new yogurt product (OUI) from General Mills. It looks to me very clumsy and hard to open.
My question really relates to the dichotomy between healthy eating and something like the rise in stock price of Pepsi-Cola. Irrespective of interest rates and or a rise in P/E ratios, Pepsi-Cola seems to be on a tear despite a drop in soda sales. I guess I consider Pepsi one of the stalwarts like Peter Lynch would say, it is growing in the mid to high single digits earnings wise.
When I look at their third quarter earnings report, it is difficult for me to see exactly where the increases come from, but I certainly do not consider Frito-Lay or even Quaker products much different than say General Mills nature Valley products.
What I'm asking specifically is whether the package food industry aside from its own missteps is really under is much attack as the media is saying. I tried a generic knockoff of the General Mills nature Valley products and found them to be inferior. I also note the rise in rates of obesity, Diabetes.
Companies like Smuckers that have some iconic products as Jam jellies and now have ventured into the lucrative pet food business, like meow mix, milk bone. Have been really depressed in price while the market seems to reach new highs.
I am sure that as you stated. the multiple paid for the pet food segment was too much, but it seems like this company will survive and prosper given its new foray into increasing healthy protein snacks under the Jif label, and crustebile sandwiches etc. which is part of school lunch programs,
Any thoughts as usual would be helpful. Even the financial press seems to sensationalize fact vs fiction.
SAM
Sam:
ReplyDelete"Millennials Think Eating Cereal Is Way Too Difficult"
http://fortune.com/2016/02/25/millennials-cereal-sales/
"Why Cereal Makers Might Be Gloomy on National Cereal Day"
http://time.com/money/4249752/national-cereal-day-sales-trends-breakfast/
Today, I mixed up some GIS Cheerios with the GIS Cascadian Farm organic brand Fruitful Os. Cascadian is one of General Mills organic brands:
https://www.generalmills.com/en/Brands/organic-natural/cascadian-farm
One of nephews stayed with me last month for a few days. He was being interviewed for admittance to the Vanderbilt Medical School. While I ate my bowl of cereal, he had some yogurt bought at Fresh Market, which I had never heard of, and mixed it with fresh fruit. I asked him whether he wanted some organic cereal. He replied: "I never eat cereal". He has never subscribed to a morning paper either; nor has he ever had a land line; nor does he drink soda.
Those buying decisions are commonplace among the younger crowd. They also do not view many of these packaged food products as healthy. The word "unhealthy" is frequently used when referring to packaged food products, particularly "sugar water".
When consumer staple products are no longer growing in sales, they start to occupy less shelf space which tends to accelerate the slowdown. Declining sales are also accompanied by narrower margins as firms have to compete on price. Food retailers squeeze the package food companies on price too.
http://www.foxbusiness.com/features/2017/09/01/big-food-brands-pressed-on-prices-wsj.html
While those trends are not likely to abate when the company focuses on the U.S. and other developed markets, packaged food sales are still growing in emerging markets. The idea would not be to expand just into more of the same (e.g. cereal) in the U.S. but to expand into EM with products suited to those markets.
Personally, I view GIS, K, and CPB as having some upside at current prices and pessimism is probably overdone.
Pepsico has not experienced the same percentage price decline but was rising in price until May 2017 as if it is immune to the consumer trends outlined above. It has had a good move compared to KO since I bought 50 shares at $78.25 back in February 2014:
Item # 5
http://tennesseeindependent.blogspot.com/2014/02/ymlp-cnq-ko-fampja-redeemed-by-call.html
Pepsi does have significant EM exposure which is a positive. And, apparently, this healthy eating trend does not apply to Frito Lay products particularly when watching sporting events. But, revenue growth is anemic for the earnings multiple assigned by investors:
https://www.sec.gov/Archives/edgar/data/77476/000007747617000044/q320178-kxexhibit991.htm
Go to this page at Morningstar:
http://financials.morningstar.com/cash-flow/cf.html?t=PEP®ion=usa&culture=en-US
Note the last line entry, "free cash flow", which has not been growing since 2014. Note the line titled "dividends paid" which has grown from $3.73B in 2014 to $4.227 in 2016. And, note the line "common stock repurchases" and add that amount to dividends paid and then compare to free cash flow. The cash used to buy stock is trending down as free cash flow declines.
Now go to this page:
http://financials.morningstar.com/balance-sheet/bs.html?t=PEP®ion=usa&culture=en-US
Go to line titled "long term debt" which was $23.544B in 2012 and ended last year at $29.213B.
The low interest rates prevailing since the Near Depression has caused more companies to incur ever increasing amounts of debt.
When deciding to sell, I would just remind you that selling does not have mean eliminating. I frequently pare a position by selling some shares, usually my highest cost shares when the position is held in a taxable account which cuts down on my tax bill and I will select shares bought with dividends to sell at a profit which increases the dividend yield for those payments.
GE: The JPM analyst issued another negative report on GE today, lowering his price target to $20 from $22 and suggesting more strongly than previously that GE would cut the dividend. This is about the 4th negative report over the past month or so issued by that analyst. I am throwing another flag on him for piling on. I get it already.
ReplyDeleteGeneral Electric Company (GE)
$23.07-0.29 (-1.24%)
Day's Range 22.90 - 23.27
52 Week Range 22.90 - 32.38
Volume 81,166,508
Avg. Volume 40,982,967
Barron's Summary of JPM's Most Recent Negative Report:
http://www.barrons.com/articles/jp-morgan-ge-dividend-cut-increasingly-likely-1507735491
Baird clients expect the dividend to be cut according to this Barron's article:
"It appears clients now expect a dividend cut; the current yield is 4% and the average multi-industry yield is more like 2.3% (Baird estimates)."
http://www.barrons.com/articles/ges-dividend-yield-could-slip-to-2-3-1507655031
If GE does cut the dividend again after slashing it in 2009 by 68%, then the Board and management need to be fired at the next shareholder meeting which will never happen because shareholders are sheep to be skinned.
If the cut is justified by its equivalence to the average yield of other industrials, then the Board is doing something even worse, insulting the intelligence of its stakeholders. The only reason a cut would be equivalent to yields from a HON or UTK for example is that those stocks have gone way up since 2009 and GE's stock is in the toilet which is why its dividend yield at the current rate is higher than those other industrial companies. The yield is higher because the stock has declined so much rather than being low since the stock has risen in price far faster than the dividend hikes.
+++++
"Companies say they would use repatriated earnings to buy back stock"
https://finance.yahoo.com/news/companies-say-use-repatriated-earnings-buy-back-stock-140143712.html
To the extent repatriated funds are used to acquire other companies, that will lead to layoffs. Most of the funds would be used to increase dividends and to buyback stock which will benefit the shareholder class, mostly the top 10%, and would have no appreciable impact on the economy or jobs.
I have published a new post this evening rather than tomorrow. I will be away from HQ attending to other affairs tomorrow.
ReplyDeletehttps://tennesseeindependent.blogspot.com/2017/10/observations-and-sample-of-recent_11.html