Our Industrial Holdings Rev Up in an Otherwise Down Week
Posted on October 17, 2014 | Dividend Investing
Mr. Market threw tantrums, smiled and basically left everyone’s head turning this week. How any domestic-oriented stock portfolio performed depended on both its market capitalization and its industry exposure.
Putting This Week’s Volatility Into Perspective
Posted on October 10, 2014 | Dividend Investing
The relative calm the market has enjoyed over the past couple of years was interrupted this week. Our benchmark, the iShares Dow Jones U.S. Index ETF (IYY), rose or fell by at least 1.5% on three consecutive days. This was the first time the fund has changed in value by 1.5% or more on three consecutive trading days since November 2011.
DI Portfolio Changes, Plus the October Monthly Report
Posted on October 3, 2014 | Dividend Investing
We are making our first changes to the DI portfolio since June. Details can be found in the October Monthly Report, which is now available on the DI website, but here is a quick summary.
Small-Cap Stocks Are Lagging, But We’re Not Intentionally Avoiding Them
Posted on September 26, 2014 | Dividend Investing
Small-cap stocks have been receiving a bit of attention lately for their lackluster performance. As of yesterday’s close, the Russell 2000 index has a year-to-date loss of 3.71%. This is nearly 10 percentage points worse than the Russell 1000 index, which is up 7.64% year-to-date.
The decline has some sparked some debate about the market’s overall momentum. There is a school of thought that large-cap stocks cannot continue to march higher without small-cap stocks also doing well. While we don’t disagree with the concept of a broad-based rally being a good thing, we’ll point out that large-cap and small-cap stocks have not historically always moved in lockstep. The 2014 Ibbotson SBBI Yearbook says small-company stocks have had a 0.79 correlation to large-company stocks since 1926.
Three Dividend Hikes!
Posted on September 19, 2014 | Dividend Investing
We’ll start this week’s commentary with some good news. Three DI companies raised their dividends.
Total Returns Are Nice, but We Prefer Dividend Yields
Posted on September 12, 2014 | Dividend Investing
Last weekend, Barron’s ran an article about total yield, which encompasses dividends and share buybacks.
Buyback yield quantifies the impact of stock repurchases at the share ownership level. In our Stock Investor Pro stock screening program, we calculate the buyback yield as the change in share count for the current period versus the past period. For example, if a stock had 90 million average shares outstanding in the second quarter of 2014 and had 100 million average shares outstanding in the second quarter of 2013, the buyback yield would be 10%.
Financing Cash Flow: Changes in Debt & Equity
Posted on September 9, 2014 | Dividend Investing
In our series on the cash flow statement, we have examined operating cash flows, which measures cash flow through day-to-day operations, and investing cash flows, which measures the net cash from investment or disposition of long-term assets held by the firm. This month we examine financing cash flows, which pertains to changes in capital funding, namely debt and equity. Cash flows from financing looks at activities that allow a firm to raise capital and repay investors, such as issuing cash dividends, adding or changing loans or issuing or redeeming more stock.
One cannot automatically say with cash flows from financing that a negative number is bad and a positive one is good. Early-stage and high-growth companies are unlikely to generate enough cash from operations to fund investment, so they need to turn to capital providers to issue more company stock or notes and bonds. These firms will have positive cash flows from financing. A more mature company should be generating excess cash from operations that exceeds the investment needs of the company, allowing the firm to reduce its debt, repurchase shares and pay a dividend to shareholders. These firms will tend to have negative cash flows from financing. However, even a mature firm may have positive financing cash flows after issuing debt or equity to fund a large acquisition.
Each line item of the financing cash flows section should be evaluated to understand whether the company is raising capital or repaying capital and what changes are being made to the capital structure—i.e., the proportion of debt to equity. A financing activity only appears on the cash flow statement if there is an exchange of cash during the specified period.
September Monthly Report, and Surprise ECB Rate Cut
Posted on September 5, 2014 | Dividend Investing
The new September monthly report is now online. In it, we discuss why we look at both relative and absolute valuations when analyzing a stock. We also explain what cash from financing is and why you should care.
No changes were made to the DI portfolio, due to a lack of acceptable candidates. The DI tracking portfolio’s cash position, though still small relative to the overall size of the portfolio, is growing. Next month, we will consider reinvesting in one or more of our existing holdings if no new stocks appear on our radar screen.
The S&P 500 Is No Longer Far Away From 2,500
Posted on August 29, 2014 | Dividend Investing
The S&P 500 index hit a new milestone this week, crossing above 2,000 for the first time in its history. The new record high wasn’t actually any more special than any previous record high, other than for its number. Big, round numbers catch attention and 2,000 is a big, round number.
What’s always missing in the conversation are considerations of inflation, economic growth and math. If stock prices rise in reaction to inflation, then they should rise over time. Similarly, if stock prices are influenced by economic growth, then they rise as the economy expands. History shows that over the long term, stock prices reflect earnings growth, which in turn are impacted by both inflation and economic expansion. Therefore, the major stock indexes have set and risen above record levels and are expected to continue to do so in the future (with periodic interruptions along the way).
Inversions Can Lead to Capital Gains Taxes
Posted on August 22, 2014 | Dividend Investing
In an inversion transaction, the foreign corporation “buys” the American corporation. This allows for the domicile of the new corporation to move from the United States to the foreign country. (In the case of Medtronic, its headquarters will move from Minneapolis to Dublin.) Shareholders of record as of the date of the merger will see their existing shares swapped for stock in the new combined entity.