Chevron: Cash Flow and Dividends Are Inextricably Linked
May 1, 2015
We think it’s worth reviewing case studies at times to help members build a greater understanding of and an increased conviction in the products, tools, and proprietary analysis we make available to them. In the case of Chevron (CVX), the efficacy of the Dividend Cushion ratio in helping to predict a company’s future dividend policy was undeniable. The Dividend Cushion ratio is calculated for every non-financial operating company in our coverage universe and can be found in the data strip at the top of each firm’s Dividend Report. A ratio above 1.25 is generally viewed as GOOD. For new members, Chevron had been a holding in the Dividend Growth portfolio since its inception. However, the company was removed from the
May Dividend Growth Newsletter to Be Released Monday, May 4
May 1, 2015
Twitter (TWTR) and LinkedIn (LNKD) – perhaps two of the most “un-ownable” stocks on the market today offered terrible outlooks in their calendar first-quarter reports. Frankly, we’re not surprised. Wall Street is off its rocker with their valuations. We put the largest fair value bands in our coverage on these two stocks, and we wouldn’t touch either one with a ten-foot pole. Investors are reeling. LinkedIn is down ~20% on Friday, and Twitter has dropped more than 20% from earlier this week, to under $40 per share. We’re not harping on these stocks because they are speculative and unproven. That’s a given. We’re bringing this to your attention because we just don’t see the investment case in either one. Their normalized
Apple: Quality from Its Core
April 28, 2015
Image Source: Eric Wüstenhagen On April 27, Apple (AAPL) reported record numbers for its second quarter of fiscal year 2015. Record second-quarter sales of the iPhone and Mac, and best-ever performance from the App Store drove revenue growth of 27% on a year-over-year basis, resulting in $58 billion in revenue. In addition to the significant top-line growth, EPS increased to $2.33 per diluted share, an increase of 40% over the year-ago quarter. Gross margin was higher than expected, at 40.8%, and cash flow from operations also reached a second-quarter high at $19.1 billion. Apple noted that 69% of the quarterly revenue was provided by international sales. Management announced a plan to increase its capital-return program by more than 50% by the
Torn on Procter & Gamble
April 28, 2015
Image Source: Phil Manker When Procter & Gamble (PG) first reported its calendar fourth-quarter 2014 results in January, we came out on the stock suggesting investors need not panic. When we rolled the model forward (what this means), however, our team was left scratching our heads. We ended up cutting our fair value estimate on P&G’s shares to $74 from $84, and we felt we were even being generous to get to the mid-$70s with that estimate. We’re torn. We love the strength of Procter & Gamble’s core brands (especially Pampers, Tide, and Gillette), its dividend track record, and its robust free cash flow, but its valuation has become out of line – mostly due to a reset of its
Knowing When to Consider Selling Altria
April 28, 2015
Image Source: Jonny Williams There are three things you have to know about Altria (MO). First, the company has tremendous pricing strength, which works wonders on driving increased profitability and free cash flow across its core business lines. Second, the company has a lucrative ~27% economic stake in SABMiller (SBMRY), which offers the firm financial flexibility like no other tobacco stock. And third, the entity pays a dividend that makes some REITs and MLPs envious. Altria is one of our favorite corporate dividend growth stocks, and this won’t change anytime soon. The tobacco giant said April 23 that first-quarter adjusted diluted earnings per share leapt more than 10%, to $0.63. Affirming its 2015 full-year adjusted diluted earnings per share guidance
Coach…Ouch!
April 28, 2015
Image Source: m01229 On April 28, Coach (COH) reported a doozy of a calendar first quarter. Sales fell 15% while adjusted net income dropped to $0.36 per share from $0.68 per share in the year-ago period. For many, as with us, it’s difficult to accept such declining performance. However, we think the market is simply overlooking a recovery that we think will eventually take hold. Brand transformation is a difficult maneuver but something that Coach looks to be executing upon, albeit slowly. The company’s international business posted decent growth on a constant-currency basis thanks to fantastic expansion in Europe and China, the latter increasing 10% on a constant-currency basis. The executive suite drove sequential improvement in its North American bricks
Top Weighted Dividend Growth Newsletter Portfolio Holding Leaps!
April 24, 2015
We’ve pounded the table time and time again on Dividend Growth Newsletter portfolio holding Microsoft (MSFT), and shares are surging today on the back of a strong calendar first-quarter report. We are asked quite a bit about how our service differs from others’. Though we’d like to point to our experience and judgment as key considerations, perhaps the most direct answer that speaks to the efficacy of our research, analysis and process rests in our hit rate (the percentage of newsletter portfolio ideas that outperform), which is second to no one. If you’ve read anything about our dividend growth process, it should be no suprise that we expect Microsoft to be a dividend behemoth for decades to come due to its
Yet Another Best Ideas Portfolio Holding Surges!
April 23, 2015
Best Ideas portfolio holding eBay (EBAY) reported excellent first-quarter results, and shares are surging today. We’ve profiled the company many a time before, and it has been in the Best Ideas portfolio for a couple years now, doubling the cost basis. Approaching $60 per share, this story is far from over, and we’re expecting continued value realization following the eBay-PayPal split. The hot hand continues. eBay’s landing page >>
Best Ideas Portfolio Holding Visa Surges!
April 22, 2015
Best Ideas portfolio holding, one of the largest, Visa (V) is rallying on news of its potential in China. We continue to like the company. We’re having a really great month with some of the newsletter ideas. Visa’s landing page >>
Here’s A Quick Proof of Why We Think the Way We Do
April 22, 2015
Let’s walk through a very basic proof of why we think the way we do. 1) Stocks have an intrinsic value per share that is based on the underlying firm’s future free cash flows and net balance sheet (among other adjustments). Why? Because an investor can buy the whole company outright, pay off the debtholders, and reap the rewards of the future free cash flow stream. 2) Stock prices trade around the firm’s intrinsic value per share, sometimes above it, sometimes below it. Why? Because stock prices are unpredictable in the near term, and purchases and sales can be for a variety of reasons that are unrelated to the fundamentals. 3) Stock prices that are converging to intrinsic value have a greater
