We have been blown away by the attention we’ve received from our warning on Kinder Morgan’s (KMI) valuation and dividend health. Our duty as an independent research provider has never been held in higher esteem as we outlined the prevalent hazards that reside both with sell-side research inundated with conflicts of interest and credit rating assessments that are paid for by the company. Independence will always trump biased analysis, and investors of all types have applauded us for this.
We thank you.
But being in the spotlight is nothing new for us. In the short history of the Dividend Cushion methodology, we have called in advance the dividend cuts on a few dozen equities: SeaDrill (SDRL), SuperValu (SVU), Roundy’s (RNDY), Dover Downs (DDE), Strayer (STRA), Exelon (EXC), Cliffs Natural, twice (CLF), Pitney Bowes (PBI), CenturyLink (CTL), Weight Watchers (WTW), J.C. Penney (JCP), Arch Coal (ACI), CONSOL Energy (CNX), and Peabody Energy (BTU), among others. This is business as usual for us. What some investors don’t seem to understand is that no matter how much they try to disagree with us, it doesn’t change the actual financial expectations that support the backbone of the Dividend Cushion ratio. Cash is cash.
I also wanted to reach out personally this Saturday morning because I am concerned that some of you are not getting all of what we offer at Valuentum. Let me give an example or two. First, I’ve received a few emails regarding the stock screens that we provide on the left column of our website and in the monthly newsletters. These screens should only be used for idea generation; at any time, our best ideas are included in the Best Ideas Newsletter portfolio and Dividend Growth Newsletter portfolio. Though most of our attention is spent on the valuation models that drive the 1,400+ 16-page stock reports (and growing) on our website, we also focus a considerable amount of attention on ideas in the newsletter portfolios, because our members are following them closely as well.
In recent weeks, I have also received emails about our stock screener. Yes, we have a comprehensive one that we make available to financial advisor members. It is not your typical screener with commoditized data that can be found anywhere on the web. In our screener, every data point is proprietary to Valuentum, from the Economic Castle rating to our forecasts of free cash flow growth to our expectations of a company’s dividend. This information can’t be found elsewhere, and we release it to financial advisor members on the first of each quarter. The most recent financial advisor publications, including the screener, are delivered via email.
Given all of our attention as of late, from Barron’s profiling our work on Kinder Morgan to it being highlighted on YahooFinance, a member or two has asked about the value of our research if some of it can be found elsewhere. To that, I want to say I’m sorry. We do our best to balance exclusive content for members with our need to stay relevant in today’s marketplace. We were not expecting the impact that came with our work on Kinder Morgan, but our duty to “stick up for the investor” was clearly put on display. The way to think about our research is something along this split: 95% of it is exclusive to Valuentum and 5% of it can be found elsewhere, and that 5% will always be embargoed so our members have first access. You’d never know how profound our research was unless you see how impactful it can be. Sometimes, a reminder or two every once in a while is helpful. Would you say?
Aside from the outperformance in both the Best Ideas Newsletter portfolio and Dividend Growth Newsletter portfolio, there are other significant benefits to our service: 1) we’re completely independent, 2) we have integrity and systematically apply our analytical process; 3) we are comprehensive in our analytics from value through dividends through momentum; 4) our breadth and depth of coverage is solid; 5) we are committed to expanding our coverage; 6) we have significant valuation expertise in all areas; 6) we have fair value estimates for all companies in our coverage; 7) we have a unique and cash-flow based dividend growth assessment process; 8) and our risk-adjusted performance in the newsletter portfolios is second to no one.
The Global Analyst Research Settlement of 2003 showed the potential hazards of conflicts of interest, where enforcement actions were placed against 10 investment banks including Goldman Sachs (GS), JP Morgan (JPM), Morgan Stanley (MS) and Credit Suisse (CS), among others. This settlement only lasted five years. We won’t comment on sell-side research, per se, but it is clear that a biased opinion, as in the words of Captain Jack Sparrow is “even more than less-than-unhelpul.” In our view, independent, objective, and balanced research is all that matters.
After performing an extensive launch of ETF analysis earlier this year and building two unique indexes, the Economic Castle Index and the Dividend Cushion Index, with accompanying back-testing and historical study, we are now plowing full-steam ahead with our report update cycle. We are constantly monitoring every company in our coverage universe, and readers should check the article section underneath the chart functionality to tie a company’s 16-page report date to that of today. We refresh our opinion via the articles section, while we may not update the report itself every 3-4 months, on average.
But that doesn’t mean our opinion is not up to date. For example, is the company included in the newsletter portfolios? If it’s not, we’re not jumping to add it there. Second, what is the firm’s underlying valuation and business model? Is the stock underpriced and is its Economic Castle rating attractive? Third, what about its Valuentum Buying Index rating? Is it an 8 or higher, which we view to be more actionable on the long side? Fourth, what about overall market conditions? Has Valuentum been commenting on whether investors should be cautious heading into a contractionary monetary tightening cycle? There’s a lot to think about it. Unfortunately, we can never give personal advice or tell you whether an idea is right for you.
There are other things to think about as well. For example, in a situation where we worked tirelessly to prepare readers in advance of the impending decline in crude oil prices, the update lag can stretch a bit. For example, heading into the massive decline in crude oil prices, we had zero exposure to energy (oil) in the Best Ideas Newsletter portfolio and only three modest positions in the Dividend Growth Newsletter portfolio: Kinder Morgan, Chevron (CVX), and Energy Transfer Partners (ETP). The positioning was incredibly well-timed and insightful, and for those that followed our views on the business-model risks of energy equities, they were extremely well positioned in advance of the avalanche that soon took hold. We’ve subsequently removed both Kinder Morgan and Chevron from the Dividend Growth Newsletter portfolios, and both were significant relative outperformers while other energy firms were sliding fast. This is a good thing.
We want to let you know that we’re watching our coverage universe like a hawk, and we encourage you to view the recent articles that we write about the companies you follow. Most articles will be more recent than the report itself. Other providers paste their most recent ‘note’ on the top of their reports, but we don’t want to detract from all of the in-depth valuation work we perform. Keep an eye out for industry updates in the Recent articles’ section on the home page, underneath ‘Suggested Reading’ and ‘User Menu.’
In other news, you’ve spoken, and we’ve listened. We are working with our hosting provider to offer a customized portfolio option, so you can personalize a page whereby you receive updates on our research on the companies in your portfolios. You’ll no longer have to search by ticker symbol for each company individually. We’re working tirelessly on this. Second, we’ve been a laggard in the mobile revolution, and are working as we write to optimize our site on a mobile platform. You can currently view our website in ‘desktop version’ on any mobile device, but we’d like to make the functionality easier to navigate.
All in all, we hope that you see how much value we provide and how passionate we are in serving your needs – not ours. Please follow all of our latest articles and report updates on valuentum.com/. If you’re finding something about us elsewhere, it’s old news and our members have already had access to it for weeks or months. We’re never going to put our best information in the public domain. Kinder Morgan was the rare exception, and we’re not done with that story yet.
Have a nice weekend.
Kind regards,
Brian Nelson, CFA
President, Equity Research & ETF Analysis
Edited July 5, 2017