Brian Nelson

FAQ: ETP and MLPs

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Answer: Thank you for your question. It is a good one. The Valuentum process considers both value and momentum in considering ideas. Just because a firm is undervalued does not guarantee that it will be added or remain in the newsletter portfolios. We use the Valuentum Buying Index rating system as a guide for idea consideration (addition and removal), which considers both the attractiveness of the entity from a valuation standpoint and market conviction via its share-price activity. As of late, our fundamental view on MLPs has deteriorated, and we have grown more cautious on the space, a view that has been reinforced through the broad-based sell-off and weakness in shares. We think this has warranted a removal in ETP shares from … Read more

Social Media Posts Mixed Trends

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Image: Twitter has tumbled significantly following the release of the past two of its quarterly earnings reports. The difference between a social media network success story and failure is simple: product iteration and innovation coupled with disciplined execution. This has been the difference between social media giant Facebook (FB) and Twitter (TWTR). While Twitter has spent time fighting through management shifts and attempting to discover its true calling as a social media platform, Facebook has been busy growing its global scale. LinkedIn (LNKD) continues to navigate its wide range of fair value outcomes, and we maintain our view that the company’s business model has yet to be tested. Twitter’s Valuation Distribution: A Lotto Ticket Twitter is still in the midst … Read more

FAQ: What Is the Difference Between the Raw Unadjusted Dividend Cushion Ratio and the Adjusted Dividend Cushion Ratio?

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FAQ: What Is the Difference Between the Raw Unadjusted Dividend Cushion Ratio and the Adjusted Dividend Cushion Ratio?  A number of quarters ago, we rolled out additional transparency with respect to the Dividend Cushion ratio methodology for master limited partnership (MLP) and real estate investment trusts (REIT) we cover in order to help readers understand how much of the adjusted Dividend Cushion ratio is supported by external capital-market assistance.  Both the adjusted and unadjusted ratios are worth keeping a close eye on. For example, should an MLP and/or a REIT have ongoing access to the capital markets, its highly probable that its dividend/distribution will be supported, as revealed by an adjusted Dividend Cushion ratio that would be comfortably north of … Read more

Household Products Stocks Round Up

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Clorox (CLX) Clorox may be executing the best in its peer group. In its fiscal fourth-quarter report, released August 3, reported sales advanced 4% as the company drove an 11% increase in diluted earnings per share in the period. The pace of top-line expansion would have been even better were it not for currency-related headwinds. A benign combination of “cost savings, price increases and lower commodity costs” worked wonders on the firm’s financials. During the quarter, Clorox recorded 3% volume growth, and the company continues to gain share across its brand portfolio. Clorox disinfecting wipes continue to fly off the shelves at a double-digit pace at retailers, and the firm pushed a nice price increase on Clorox bleach in February … Read more

The Game Is Nearing an End for MLPs…

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The game is nearing an end for master limited partnerships (MLPs) in this energy cycle, in our view. We no longer feel comfortable, if we ever did, including any MLP in the Dividend Growth Newsletter portfolio. Linn Energy (LINE, LNCO), of the upstream variety, may have taken on far too much debt as an E&P entity, but its free-cash-flow management during the first half of 2015 has actually been decent…stronger than better-known upstream and midstream operators. Yet, despite Linn’s positive free-cash-flow execution, even after distribution payments, the entity’s bankers appear to be circling like sharks, ready to take a further bite out of its borrowing capacity (due to lower energy resource pricing). Fairly, the company simply can’t afford to take … Read more

Agricultural Equipment Industry Stuck in the Mud

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The agricultural equipment industry is dependent on a global economy that remains mired in mediocrity. Durable goods orders fell in both April and May 2015–as well as 9 of the 10 months prior–and the solid 3.4% increase in June is misleading due to the extraordinary number of aircraft orders. Excluding transportation orders, the increase for the month of June was a slight 0.8%. Economic conditions in the US, if construed as positive, in the words of Caterpillar (CAT), the global economy “remains relatively stagnant,” with ongoing weakness in China and Brazil and uncertainty across the Eurozone given the crisis in Greece. Weak commodity prices are not suggestive of a near-term recovery for the overall economy either. Crude oil prices are … Read more

The Scary Reality of Indexing

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The S&P 500 Index Fund, and derivative ETF products such as the widely-followed S&P 500 SPDR (SPY), are perhaps the most common equity-based indexing instruments on the market today. The pioneer of index mutual funds, the Vanguard Group, defines indexing as follows (1): Instead of hiring fund managers to actively select which stocks or bonds the fund will hold, an index fund buys all (or a representative sample) of the securities in a specific index, like the S&P 500 Index. The goal of an index fund is to track the performance of a specific market benchmark as closely as possible. That’s why you may hear it referred to as a “passively managed” fund. Vanguard’s founder Jack Bogle launched the first … Read more

LINN Energy and LinnCo to Suspend Dividend

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The Dividend Cushion has foretold another cut! On July 30, along with second-quarter results, LINN Energy (LINE) announced it will recommend the suspension of payment of LINN Energy’s distribution and LinnCo’s dividend at the end of the third quarter of 2015 in order to save ~$450 million in cash from the annualized payouts. LINN Energy reported a net loss in both quarters thus far in 2015, and its yield was near 15%; simply unsustainable. We’ve been warning our readers about the risks associated with LINN Energy and LinnCo (LNCO) and their high-yielding payouts for over two years now, as we did again earlier this month. We rated the entity’s distribution safety as VERY POOR, based on its Dividend Cushion ratio … Read more

The Story of Chemical Giants: Sales Down, Margins Up

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Chemical bellwethers’ second-quarter results reflect the impact of unfavorable commodity prices and demand, but cost cutting efforts and savvy execution are driving margins higher. Let’s go around the horn for incremental industry insights across the space. Dow Chemical is executing the best at the moment. DuPont (DD), Dow Chemical (DOW), and Eastman Chemical (EMN) all reported negative impacts from pricing on their top lines in the calendar second period. DuPont’s Performance Chemicals segment, which was spun-off into The Chemours Company (CC) on July 1, reported the largest negative impact for the company with pricing lowering sales by 6% in the period. Each of Dow Chemical’s operating segments experienced sales falling due to pricing, the largest of which came in its … Read more

Kinder Morgan’s Shares Still Not Cheap, Dividend Financially-Engineered

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Kinder Morgan released its 10-Q for the second quarter of 2015 on July 24. The Corporation’s Dividend Continues to Be Financially-Engineered The second-quarter 10-Q revealed that, through the first six months of 2015, free cash flow of ~$630 million, which consists of $2.54 billion in cash flow from operations less $1.91 billion in total capital expenditures, came up significantly short against the company’s total cash dividend outlays of $2 billion during the same six-month period. Said differently, traditional non-GAAP free cash flow less cash dividends paid has been -$1.37 billion, negative $1.37 billion, during the first six months of the year. During the first half of 2015, the company issued $2.56 billion in new shares and floated net debt of … Read more