Stock Returns and Financially-Engineered Dividends
December 27, 2015
“Business owners across the world know that their business is not more or less valuable because they paid themselves a higher distribution/dividend this quarter. In fact, the more they pay themselves in distributions/dividends, the less the franchise is worth.” – Brian Nelson, CFA Image Source: Images Money This article seeks to introduce investors to a critical concept often lost on those focused intensely on a company’s dividend payout: dividends are not an additive source to total stock returns above and beyond what a company would generate in capital appreciation. Dividends, instead, deduct from the capital appreciation a stock would otherwise have generated in the event that it did not pay a dividend. From what we can tell, this concept is not well understood. For one, widely-circulated research implies
Getting Excited About Potentially Adding Chipotle
December 24, 2015
Sometimes some of the best franchises never really go on sale, so when they get hit with an exogenous, temporary shock such as what is currently happening with Chipotle (CMG), we pay very close attention. In our view, the market is over-reacting to transient E. coli scares that are helping to mark down the company’s equity to more palatable prices for interested “new money.” Chipotle’s shares still aren’t terribly cheap on the basis of our discounted cash-flow process, but we simply can’t ignore the price fall, which has sent the burrito-making giant’s shares under $500, breaching through our fair value estimate to the downside – remember, the Valuentum process first requires a firm’s equity to bottom, form a base and
Valuentum Applauds ONEOK; More Clarity on “FCF” Still Needed
December 24, 2015
For beginners, Investopedia has a video about free cash flow here : cash flow from operations less all capital expenditures. It would be a huge step forward for executive teams to put this measure on all MLP press releases, in our view. ————————- We’re very happy to announce that ONEOK (OKE/OKS) has released a form of a non-GAAP measure of free cash flow in its 2016 outlook press release. Even though we still would like more clarity around the measure (stand-alone capital spending, etc.), we applaud management’s step forward in disclosing additional information to investors. Valuentum has been calling for the disclosure of non-GAAP free cash flow, as measured by cash flow from operations less all capital spending, in press
Cash Is King: Microsoft Leading the Charge!
December 22, 2015
It’s sometimes difficult for companies to overcome a tarnished reputation, particularly when it comes to a spotty dividend track record, but also as it relates to equity performance. The stock market is often unforgiving at times. Microsoft (MSFT) had long been viewed as “dead money,” or a term that describes an equity that languishes in a small trading range for years. For example, from 2010 to the beginning of 2013 (at the time it was added to the Dividend Growth Newsletter portfolio), Microsoft had bounced around in the mid-$20s per share. But as the chart below shows, overcoming a tarnished reputation is not impossible; in fact, Microsoft has put its “dead money” reputation behind it, powering past levels even witnessed
Looking to Trim Apple; Star Wars Mania Continues
December 21, 2015
Let’s get this out of the way. We’re not worried about Apple (AAPL) at all. The company is sitting on a mountain of net cash and is simply a free cash flow machine. We think the iPhone-maker’s products continue to fly off the shelves, and this holiday season for Apple may be the best in its storied history. But sometimes the market is just not fair…and for a company trading at less than 10 times forward earnings, excluding net cash, is borderline an injustice. Still, we plan to take some more profits on the company in the newsletter portfolios if we catch a strong updraft in the markets. We continue to value shares north of $140 each, and as the
Focus on ETE, Not ETP; Strive for Balance and Stick to the SEC Filings
December 21, 2015
We continue to be grateful for the favorable reception of our research and analysis. Our mission to help investors of all types remains our core focus and a cause buttressed by our independence and analytical integrity. You can read more here about Valuentum and its President of Equity Research Brian Nelson, CFA. It appears there continues to be a significant amount of confusion about the securities associated with the Energy Transfer companies, a collection of assets that includes the corporate parent Energy Transfer Equity (ETE) as well its consolidated subsidiaries: “Energy Transfer Partners (ETP), ETP GP, ETP LLC, Regency, Regency GP, Regency LLC, Panhandle, Sunoco, Inc., Sunoco Logistics (SXL), Sunoco LP (SUN), Susser and ETP Holdco (per Energy Transfer Equity, L.P,
Analysis: The Best Ideas Portfolio
December 18, 2015
Please select the image below to download the report. Note: The High Yield Dividend Newsletter portfolio, Best Ideas Newsletter portfolio and Dividend Growth Newsletter portfolio are not real money portfolios. Results, including those in the Nelson Exclusive publication, are hypothetical and do not represent actual trading. Past performance is not a guarantee of future results, and actual results may differ from simulated information being presented. The performance of the High Yield Dividend Newsletter portfolio, Nelson Exclusive publication, Best Ideas Newsletter portfolio and Dividend Growth Newsletter portfolio have not been externally audited. The following download of the Best Ideas Newsletter portfolio is an internal assessment. Newsletter performance figures, including those in the Nelson Exclusive publication, are prepared by Valuentum. Hypothetical results are
MLPs: Circular Flow of Unsubstantiated Support Evaporating
December 17, 2015
Pictured: The circular flow of unsubstantiated support that continues to unravel, previously supporting the prices of the MLP universe. Image published June 18, 2015. © Valuentum Securities. The image above was taken from Valuentum’s President Brian Nelson’s article published on valuentum.com/ June 18. Forward-looking, cash-flow based dividend analysis has proven its worth once again. Shipping giant Teekay LNG Partners (TGP) made a tidal wave in its stock recently, knocking income investors over, after it cut its distribution by 80% December 17 in order to fund capital requirements on its future growth projects, reduce debt, and eliminate its need to access equity capital markets in the near term. The Valuentum thesis on MLPs continues to suggest that distributions related to the business model continue to be fueled
Is the Worst Behind Us? Not Likely
December 14, 2015
By Brian Nelson, CFA US natural gas prices (NGAS) recently dropped to the lowest level in nearly 14 years. Unseasonably warm weather may be to blame for the near-term drop, but we point to more structural concerns that may keep natural gas prices low for some time. Including both unconventional and conventional global natural gas resources, for example, there are more than 200+ years’ of supply based on the current trajectory of demand, and that doesn’t account for technology advances that will inevitably be made in the coming decades. Can you believe it? The situation with crude oil prices is not much better. West Texas crude oil prices (USO) dipped below $35 per barrel recently, still the high end of
FAQ: Help Me Understand Your Research on MLPs
December 14, 2015
FAQ: It looks like your fair value estimates and your adjusted Dividend Cushion ratios aren’t bad. What gives? A: Thank you for your question. The Valuentum process rests on uncovering undervalued companies that are trading at a discount to intrinsic value, but also ones that are supported by the market via strong technical and momentum indicators. The latter consideration is absent from most, if not all of the energy sector, including MLPs. MLPs themselves, however, have a nuanced valuation adjustment in our process that leads us to have significantly less conviction than in other areas. Pasted below is a slide deck that mentions that adjustment (i.e. we exclude growth capex, even though we feel that it is an integral part of
