A 10%+ Cost of Capital for Midstream Equities Is Reality
October 27, 2015
Kinder Morgan (KMI) disclosed how it would raise much-needed financing October 26, and our worst fears were realized: The marginal cost of raising capital in the midstream space has soared. As recently as earlier this year, Kinder Morgan’s executive team had been guiding analysts to a 3.3% cost of capital (“hurdle rate”), a level we had outlined was absolutely ludicrous (see page 28 here). The 3.3% mark broke down into a 4.1% yield on equity and a 2.4% cost of debt, evenly split. Those days are now over. Kinder Morgan recently announced that it would float $1.6 billion in mandatory convertible preferred stock, effectively “delayed” issuance of equity capital, which would carry a stated interest rate of 9.75%. Management
Are You Still Trying to Catch Lightning with American Capital Agency?
October 27, 2015
Investors familiar with the mortgage REIT space that have spent any time on our website know of our groundbreaking call on the industry. Please have a look here. American Capital Agency (AGNC), one of the most prominent operators in the mortgage REIT space, reported yet another disappointing quarter. It continues to be painful to write how much we don’t like the uncertainties regarding the broader mortgage REIT environment. Some of the more bullish research shops appear to finally be throwing in the towel. Though the yields on some of the mortgage REIT equities appear attractive, the risks of further dividend cuts continue to grow. Shares of American Capital currently yield ~13%, for example. In the third quarter, American Capital Agency
Explaining the New Page 2 of the Dividend Report
October 27, 2015
Note: Please expect the roll out of the new dividend report on valuentum.com/ to occur gradually, in conjuction with the standard industry update cycle. Summary Visa is one of the best companies in one of the best industries. Not only is the firm “everywhere you want to be,” but its high-margin business model throws off a lot of cash. Perhaps what we like best about Visa, however, is its dividend growth potential. Let’s walk through why and uncover the drivers behind its strong Dividend Cushion ratio. It’s hard to find anything wrong with Visa’s (V) business model. The company offers a secure, payment network that is accepted virtually everywhere in the United States. The firm makes money every time a Visa
The Dividend Cushion Ratio Measures the Magnitude of Potential Dividend Increases
October 27, 2015
On October 26, Hi-Crush (HCLP) and Legacy Reserves (LGCY) became the latest two companies that the Dividend Cushion ratio warned about regarding a distribution cut, both serial “cutters.” Just a reminder, a raw, unadjusted Dividend Cushion ratio below 1 indicates significantly higher risk of the sustainability of the payout. The Dividend Cushion ratio, however, does so much more than warn investors of the risk of potential dividend cuts. Perhaps it is our own fault, as we have noted on several occasions the efficacy of the Dividend Cushion ratio in warning investors of a dividend cut in advance, that readers are focused on the metric primarily as a warning system instead of a generator of ideas that have fantastic dividend growth
Coach Back on Track?
October 27, 2015
Coach (COH) has been somewhat of a black mark on the “hit rate,” or percentage of ideas outperforming the broad market return, in the Dividend Growth Newsletter portfolio, and while we continue to encourage readers to evaluate the weightings we ascribe to positions in the newsletter portfolios for insight on our level of conviction, that Coach resides in there at all means it had been one of our top ideas, added September 19, 2014 at $37.55. Coach currently yields ~4.5%. When we first added Coach to the Dividend Growth Newsletter portfolio, we were aware of the fashion risks and the troubling signs in its North American women’s handbag business. What we liked most about the company, however, was its fantastic
BABA Bounces Big! GMV Growth Solid, Monetization Rate Better
October 27, 2015
Best Ideas Newsletter portfolio holding, Chinese e-commerce giant Alibaba (BABA), reported solid fiscal second-quarter results for the period ending September 30. The report was welcome news after effectively a bear raid on the company’s shares from a widely-read publisher, the note of which effectively marking the company’s trading bottom. We continue to believe shares of Alibaba are a bargain even after the spike. Please be sure to access the company’s 16-page report for its cash-flow derived fair value estimate and fair value estimate range. Management added upbeat commentary in the press release, noting “strong growth across the board and particular outperformance in mobile.” Gross merchandize volume (GMV) in the company’s China retail marketplaces grew to $112 billion in the period,
If It Happened to AbbVie, Could It Also Happen to Gilead?
October 26, 2015
The Valeant (VRX) and Citron saga is not all the drama happening in biotech these days. On October 22, federal health officials warned doctors and patients that two of AbbVie’s (ABBV) hepatitis C treatments can cause life-threatening liver injury in advanced stage patients. The Food and Drug Administration announced October 22 that it will require AbbVie to add new warnings to its Viekira Pak (1) and Technivie (2) drugs after deaths and liver transplants have been reported in patients who already had liver damage caused by the disease. During the second quarter, global sales of Viekira were $385 million, on pace for blockbuster status. Viekira is one of AbbVie’s top drugs, trailing only Humira in sales during the six months
Consumer Staples Giants Demonstrate Pricing Strength
October 25, 2015
The strengthening US dollar continues to muddy quarterly results for multinational corporations. Coca-Cola (KO), Kimberly-Clark (KMB), and Procter & Gamble (PG) were no exception in the calendar third quarter. The consumer staples giants demonstrated the strength of their scale and pricing power in the quarter, though reported results could not overcome the significant pressure of foreign-exchange headwinds in economies around the globe with varying growth levels. Coca-Cola, Kimberly-Clark, and Procter & Gamble hold some of the most well-known consumer staples brands in the world. Coca-Cola, for one, has perhaps the most-recognizable soft-drink portfolio of any company, Kimberly-Clark boasts a wide range of trusted consumer staples brands from Huggies to Kleenex, and Procter & Gamble has one of the most diverse
Flash: Dividend Growth Newsletter Portfolio Holding Microsoft Surges!
October 23, 2015
We’ve been huge fans of Microsoft’s (MSFT) investment merits for some time now. We’ve traveled around the US, from Chicago to San Jose to Milwaukee/Madison and Cleveland highlighting the Dividend Growth Newsletter portfolio holding to investors that were open to learning more about the Dividend Cushion ratio. Please view one of the slide decks from our presentation in San Jose , for example. Not only has Microsoft been a tremendous valuation opportunity for much of the past few years, but its dividend growth prospects, as measured by its solid Dividend Cushion ratio, have simply been pristine since the company initiated the payout. Following Microsoft’s release of solid first-quarter fiscal 2016 results October 23, the company’s shares have converged to our
Alphabet (Google) and eBay Power Best Ideas Newsletter Portfolio!
October 23, 2015
It’s no secret that the Internet and the companies that operate within the Internet space are always changing. There must be continuous innovation and re-discovery to keep up with the competition to amaze society with the next great development. Consumers have become accustomed to many of the Internet giants doing just that, pushing the envelope and enriching their lives with a better, faster, or more convenient way of content consumption. One of the many struggles that Internet-based entities have is not only how to create these new products, devices, or programs, but also how to monetize such breakthrough endeavors successfully. In a fast-changing environment, it is never easy to deliver sustainable, profitable and innovative growth. Let’s take a look at
