Avoid Dividend Double Whammies By Using the Dividend Cushion!
February 29, 2016
By Brian Nelson, CFA I think a lot of investors sell themselves short. Of course you want a strong and growing dividend, but analysis shouldn’t stop there. One of the most important things you could ever do is evaluate just how strong that dividend truly is via the Dividend Cushion ratio, a metric that measures a company’s dividend coverage via future free cash flow generation with consideration of its balance sheet health. For example, how valuable would it have been to know that Kinder Morgan (KMI), ConocoPhillips (COP), and BHP Billiton (BHP) were going to cut their dividends…in advance of them doing so? Our membership knew these cuts were probable long before anyone else because they paid attention to each
When Do the Dark Days Return in Home Improvement?
February 28, 2016
By Kris Rosemann Though there are many way to slice and dice the numbers, total employment continues to grow, helping consumers’ personal income levels, and gas prices have significantly reduced everyday expenses for the average American. Home improvement retail is benefiting materially, from our perspective, and we point to a number of trends that are driving Americans to spend more on their homes, “Is the Time Right to Invest in Home Improvement (Aug 2015).” Though many subdivisions across the country remain unfinished, “What’s the Deal with US Housing? (May 2015),” we’re even started to see life out of the builders in some previously abandoned areas. Things are looking up… Home Depot (HD) and Lowe’s (LOW) embraced the late-arriving winter last
Defense Dividends Remain Solid; Little Valuation Opportunity Present
February 26, 2016
Image Source: Sikorsky S-70 (H-60) Black Hawk, Martijn By Kris Rosemann The defense industry continues to face pressure in the face of weak funding and competing budget priorities, and malaise in the global economy could add pressure to those seeking growth from foreign sovereigns. Having an already strong backlog will certainly help to a degree, and ongoing cyber threats, “The Global Pandemic of Cybercrime, Cyber Espionage and Cyber Warfare,” and preparation for modern-day warfare and all its complexities will post both challenges and opportunities for many, “Annual US Defense Spending Still 85% Higher Than Year of September 11 Attacks.” Defense contractors generally are strong free cash flow generators, and as a result often have reliable and competitive dividends, not to mention
The Delicious Business Model of Domino’s Pizza
February 25, 2016
Domino’s Pizza (DPZ) offers investors one of the best business models, and the company garners one of the ‘Highest Rated’ economic castles in our coverage universe. That means that for each dollar of capital it invests the company generates gobs and gobs more, so much that it is more than almost any other company that we follow. The franchiser really sets the standard with respect to what we define as a pure “Economic Castle.” Not only did the pizza giant raise its dividend nearly 23% February 25, but the company beat expectations on both the top and bottom-line in its reported fourth-quarter results. It’s hard to believe, but domestic same-store sales grew more than 10% in the quarter versus the
Kohl’s Dividend Mostly a Distraction
February 25, 2016
Image Source: Mike Mozart Kohl’s (KSS) may be doing better than JC Penney (JCP) and Bon-Ton (BONT), the owner of Carson Pirie Scott, but the department store arena is flailing and has been for some time, even before the days of irrational exuberance when hedge fund giant Eddie Lampert merged Kmart and Sears (SHLD) in 2005. Things have only headed south since that time, and even the strongest in Macy’s (M), which has experienced falling comparable store sales and a plummeting gross margin as of late, has been forced to pursue innovative ways to generate value for shareholders in the midst of “consumer abandonment,” namely the consideration of an independently-traded real estate investment trust. Fourth-quarter results at Kohl’s, released February
Target’s E-Commerce Growth the Real Story
February 25, 2016
Image: Target’s mascot Bullseye sporting new shades at a local job fair. We have a difficult time dismissing Target’s (TGT) short-sightedness in abandoning its efforts in Canada, as in time, its ability to continue to drive traffic and store count in the US higher will plateau. In no way will this occur anytime soon, or within the next few years or so, but it will, and Target will have wished it wouldn’t have given up in Canada. But that’s not the story today Skeptics are looking wrong in a big way, as Target showcased a pace of e-commerce expansion better than that of Wal-Mart (WMT) and even Amazon (AMZN) and eBay (EBAY) in its most recently-reported fourth quarter. Digital sales
ETE/ETP: You Are Smart Not to Focus on Distributable Cash Flow
February 25, 2016
There’s nothing like taking a punch. Jim Cramer wrote up a piece December 19, “Energy Transfer Partners: Why You Shouldn’t Worry, (Real Money)” (1) calling into question our analyst team and independence. Valuentum is offering new perspectives in the industry, and the old guard may not like it that much. Not only has the ETE (ETE)/ETP (ETP) Group CFO stepped down since that article, shattering confidence, but units of both Energy Transfer Equity and Energy Transfer Partners have fared no better, still but a fraction of their former selves. The headline numbers from the fourth-quarter report of Energy Transfer Equity and Energy Transfer Partners were horrible. Both entities missed consensus expectations, and investors have to get over the idea that earnings
Recent Add Cracker Barrel Surges Ahead; BHP Cuts
February 23, 2016
February 23 was met with intense selling as investors digested news that the crude oil (USO) markets won’t become rational anytime soon. As we had outlined in our opening piece to the Best Ideas Newsletter a few days ago, “,” Saudi Arabia is not going to back down, and the Oil Minister of the member nation of OPEC even went so far as to say he “welcomes new additional supplies,” suggesting that the global glut of crude oil will continue for the foreseeable future. Commodity-oriented equities led the selling pressure. For those that have been reading our work for the past several months, none of this is new “news.” We’ve been warning about the risk for some time, and we
Key Treatment Momentum Drives Big Pharma
February 22, 2016
The momentum of key drugs and treatments is often a solid indicator for the coming performance of a pharmaceutical firm. Growing competition and other market pressures out of a company’s control can often cause material ebbs and flows in financial performance, making a strong and stable pipeline necessary to sustained success. As we walk through the results from some of the biggest names in the pharmaceuticals industry, let’s get a feel for the trajectory of each firm’s drug portfolio and pipeline moving into the rest of 2016. AbbVie (ABBV) AbbVie reported a quarter of strong growth January 29, as adjusted net revenues jumped more than 24% on an operational basis, and GAAP net revenue increase more than 17% from the
You Can Change Your Mind!
February 22, 2016
By Brian Nelson, CFA It looks like the energy master limited partnership (AMLP, AMZ) space has been catching a bid the past few days. It’s so important, however, to keep things in perspective, and the best way to do so is to look at an intermediate-term chart of the group, which remains under considerable stress, “Bye Bye Energy MLPs, Part II (Jan 2016)” The market wants some of the most beaten down equities to rally, including Energy Transfer Equity (ETE) and Energy Transfer Partners (ETP), which have fallen devastatingly from their respective peaks of $35 and near-$70 per share, respectively. If you’re not looking at charts, you’re leaving a lot of free information on the table. Energy master limited partnerships,
