Brian Nelson

Brief Take: Microsoft Blows Past Expectations in Q1 Fiscal 2024

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Image Source: Mike Mozart By Brian Nelson, CFA Microsoft (MSFT) hasn’t been a tech dinosaur for many years now, and its first-quarter fiscal 2024 (calendar third quarter 2023) results continued to show just how well the tech giant has adapted to the new economy–from the cloud to gaming to personal computing and, of course, to getting a lead in artificial intelligence [AI] with its investment in OpenAI (ChatGPT). During its fiscal first quarter, Microsoft’s revenue advanced 12% in constant currency, while operating income leapt 24% holding foreign exchange constant—breakneck levels of expansion. Azure and other cloud services sales advanced 28% on a year-over-year basis holding currency constant. The high end of our fair value estimate for shares stands at $368, and … Read more

2 Stocks to Watch: Tesla and Chevron

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  Image Source: Tesla By Brian Nelson, CFA  With the 10-year Treasury rate reaching 5% in recent trading sessions, investors have been laser-focused on this benchmark rate that is commonly used as the foundation to estimate both the cost of debt and the cost of equity to discount future expected free cash flows within equity valuation models. We’re not going to prognosticate on the future direction of the 10-year Treasury rate, but we’re also not concerned about current rate levels either, given that our 10-year Treasury rate assumption within our discounted cash flow models is roughly ~4.3%, a level that we had maintained even when the 10-year Treasury rate was much lower years ago. Though it’s difficult to shift away … Read more

Lockheed Martin Represents Key Aerospace & Defense Exposure

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By Brian Nelson, CFA On October 17, Dividend Growth Newsletter portfolio holding Lockheed Martin (LMT) reported decent third-quarter 2023 results with the firm growing revenue roughly 1.8% on a year-over-year basis, and the firm beating the consensus estimate for non-GAAP diluted earnings per share. We like Lockheed as our aerospace and defense exposure more than Boeing (BA), given the latter’s long list of troubles and deteriorated financial health, punctuated in part by troubles during the height of the COVID-19 pandemic and loss of life related to its 737 MAX platform. We think Lockheed offers a much better risk/reward and a healthy dividend to boot. Lockheed Martin yields ~2.8% at the time of this writing. When Lockheed reported third-quarter results, the … Read more

Kinder Morgan Now Covers Cash Dividends with Traditional Free Cash Flow

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By Brian Nelson, CFA On October 18, Kinder Morgan (KMI) reported third-quarter results that came in lower than expectations, but we’ve taken note of the company’s improved free cash flow generation that now runs in excess of its cash dividends paid, a huge change from a decade ago, where capital spending and cash dividends paid far outweighed its operating cash flow capacity. The company’s dividend stands at $1.13 per share on an annualized basis, and Kinder Morgan now has a forward estimated dividend yield of ~6.7%, which is quite attractive. Shares are trading meaningfully below our estimate of their intrinsic value, too, and we’re warming up to the company’s financials. Its net debt position likely precludes it from being added … Read more

Philip Morris Raises Adjusted Diluted EPS Outlook

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By Brian Nelson, CFA On October 19, Philip Morris (PM) reported excellent third-quarter 2023 results that showed currency-neutral revenue advancing 16.4%, and non-GAAP adjusted diluted earnings per share beating the consensus forecast, increasing more than 20% to $1.67 per share. The company continues to benefit from strong pricing across its combustible tobacco portfolio, its integration of its purchase of Swedish Match, and the popularity of its nicotine pouch ZYN, where shipment volume in the U.S. increased ~66% from the year-ago period. In conjunction with its strong third-quarter report, Philip Morris raised its outlook for adjusted diluted EPS to the range of 10%-10.5% expansion, excluding currency. The firm’s latest dividend increase was ~2.4%, to $1.30 per share, and its payout now … Read more

There Will Be Volatility

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By Brian Nelson, CFA Last year, 2022, was a big test for equity investors, and the downside volatility that we witnessed during the year wasn’t comfortable, to say the least. Following the COVID-19 crash and rebound during 2020, and then the market surge in 2021, it wouldn’t be a stretch to say many investors’ heads are probably still spinning from all the volatility witnessed to start this decade. That said, part of what we’ve been warning about the past few years with respect to the equity market, especially in Value Trap, is that the proliferation of price-agnostic trading (e.g. quant, machine/algorithmic trading, etc.) will only lead to more and more market volatility, so while we were somewhat surprised by last … Read more

Dividend Increases/Decreases for the Week of October 13

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Below we provide a list of firms that raised their dividends during the week ending October 13. The dividend reports of covered firms on this list will be updated shortly with the new information. To access our dividend reports use the ‘Symbol’ search box in our website header. Firms Raising Their Dividends This Week                          A.O. Smith (AOS): now $0.32 per share quarterly dividend, was $0.30. Agree Reality (ADC): now $0.247 per share monthly dividend, was $0.243. Avient (AVNT): now $0.2575 per share quarterly dividend, was $0.2475. Emera Incorporated (EMA:CA): now CAD 0.7175 per share quarterly dividend, was CAD 0.6900. EQT (EQT): now $0.1575 per share quarterly dividend, was $0.1500. Gladstone Land (LAND): now $0.0464 per share quarterly dividend, … Read more

Investors Likely Overreacting to Long-Run Impact That Weight-Loss Drugs Will Have on Snack and Food Stocks

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Image: Domino’s stock has slumped recently due to weakening same-store sales expansion and concerns that weight-loss drugs will have on snack and food demand. By Brian Nelson, CFA The American eater continues to fight the “battle of the bulge” as many seek improved lifestyles and the health benefits from losing weight and getting in shape. The healthcare industry is delivering on this front, too, with diabetes drugs from Novo Nordisk (NVO) and Eli Lilly (LLY) called GLP-1 agonists that also have weight-loss benefits. Though we applaud what looks to be a solution in part for the obesity epidemic that has overtaken the U.S., investors are growing concerned that snack and food stocks will see slackening demand. The retail sector, for … Read more

Dividend Increases/Decreases for the Week of October 6

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Below we provide a list of firms that raised their dividends during the week ending October 6. The dividend reports of covered firms on this list will be updated shortly with the new information. To access our dividend reports use the ‘Symbol’ search box in our website header. Firms Raising Their Dividends This Week                          AGNC Investment Series C Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock (AGNCN): now $0.6825 per share quarterly dividend, was $0.6676. American Financial (AFG): now $0.71 per share quarterly dividend, was $0.63. Bank OZK (OZK): now $0.37 per share quarterly dividend, was $0.36. Bezeq The Israel Telecommunication Corp. Ltd (BZQIY): now $0.1226 per share semi-annual dividend, was $0.0802. EVI (EVI): now $0.28 per share special dividend, … Read more

We Like NextEra Energy’s ESG Focus But Capital Market Conditions Now Showing Cracks

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Image Source: NextEra Energy By Brian Nelson, CFA We’ve written in the past about NextEra Energy (NEE), and our latest note can be found here. The company remains one of our favorite utilities, but mostly because of its renewables energy exposure as it relates to ESG considerations. When it comes to utilities, more generally, however, we tend to take a pass on almost all of them given the capital intensity involved in their operations and their interest-rate sensitivity, especially now in an environment where interest rates are returning to “normal” levels in the mid-single-digits. The forward estimated dividend yield on the Utilities Select Sector SPDR ETF (XLU) stands at ~3.8% at the time of this writing, and if investors are … Read more