Member Articles

Dividend Increases for the Week Ending October 2

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Below we provide a list of firms that raised their dividends during the week ending October 2. 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 Adcare Health Systems (ADK): now $0.06 per share quarterly dividend, was $0.055. American Financial (AFG): now $0.28 per share quarterly dividend, was $0.25. Bank of the Ozarks (OZRK): now $0.145 per share quarterly dividend, was $0.14. Clarcor (CLC): now $0.22 per share quarterly dividend, was $0.20. DineEquity (DIN): now $0.92 per share quarterly dividend, was $0.875. Enterprise Products (EPD): now $0.385 per share quarterly dividend, was … Read more

Thank You for the Victory Lap Barron’s!

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For those that saw the reference to our recent article in Barron’s and the unfortunate, derogatory counter-punch by another author, we appreciate the support and congratulations! The Barron’s article highlighting our work was a victory lap on our call on Kinder Morgan, or we think most should have interpreted it as such. The recognition was well-received by existing members and interested new members alike! How to interpret our call on Kinder Morgan >> As many of you know, however, the call on Kinder Morgan has been off the table for some time now. We had recently moved to “neutral” on Kinder Morgan (see here), after shares collapsed from $40 to $29, which is our current fair value estimate of the firm … Read more

Understanding Your MLP’s Financially-Engineered Equity Value

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For background on this topic, please read “5 Reasons Why Kinder Morgan Will Collapse,” and “5 More Reasons Why Kinder Morgan Will Collapse.” In this article, we will synthetically create the equivalent of a master limited partnership (MLP), called iNewCorp with Kinder Morgan’s financial profile, from scratch with effectively no capital at all, with only a strong credit rating. In such an example, we’ll also explain how valuation techniques cannot ignore growth capital in the valuation equation of MLPs or other midstream corporates by pricing them on a multiple of “distributable cash flow” or on the dividend/distribution that follows it. We’ll do so by contemplating the value of a company that has a “distributable cash flow” stream requiring maintenance (and/or … Read more

Free Cash Flow Feeds Cracker Barrel’s Dividend Growth

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We continue to believe balance-sheet strength and solid future free cash flow generation are the building blocks of any company’s dividend health. When looking for quality dividend ideas within the full-service restaurant space, a subset of the restaurant industry, it only makes sense, in our view, that dividend analysis should be rooted in balance sheet and free cash flow assessments, along with an evaluation of the sustainability of the business, itself. One of our favorite dividend growth ideas in the full-service restaurant space, Cracker Barrel (CBRL), reported its fiscal 2015 results September 16. We think it’s one we may add to the Dividend Growth Newsletter portfolio at the right price. Our fair value is ~$130 per share. Many of you … Read more

Must Read: Not Your Father’s Way of Viewing Valuation

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A version of this article appeared on our website September 10, 2015. There are not “right” ways and “wrong” ways to value companies. There are not even different ways to value companies. There is one way. Let’s explain what we mean in this illustrative example. Mrs. Nelson owns a candy store (100 shares in all), and she plans to sell $100,000 worth of tootsie rolls, peppermint hard candies, and caramels this year. The average gross margin on each piece of candy sold is 50%, and she expects revenue to grow 3% each year after the first year. She has overhead of about $10,000 per year comprising of a) interest on the loan for the building she owns ($3,000 per year), … Read more

Speculative Stocks Sinking

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“The world economy is in its worst shape since the Great Recession. And medium- to low-grade corporate credits will not escape the drag of global malaise.” – Moody’s, September 25, 2015 All is not well in the “medium-to-low grade corporate credit market, and if a warning from Moody’s wasn’t enough, famed activist investor Carl Icahn (IEP) applied more pressure with his controversial and headline-grabbing 15-minute video, “Danger Ahead.” We think it makes sense to be cautious in today’s gyrating market environment, which continues to face a number of tangible headwinds, not the least of which are stretched equity valuations, “broken” technicals, and worsening sentiment. The collapse in China’s stock market, its potential knock-on effects across the global banking system, the … Read more

FAQ: Regarding your article, “Warning: The Master Limited Partnership Business Model May Not Survive…”

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Q: Regarding your article, “Warning: The Master Limited Partnership Business Model May Not Survive,” – what are you basing your comments on financial engineering the dividend on? It seems to me that Energy Transfer Equity has enough free cash flow to cover its dividend with a 1.2x coverage ratio. Am I missing something? A: Thank you for your question. Most master limited partnerships and midstream corporates do not cover their distributions and dividends, respectively, on a traditional free cash flow basis, as measured by cash flow from operations less all capital spending. That means that such payouts are being financed in part, some more than others, from the cash flow from financing section of the cash flow statement, hence the term financially-engineered. … Read more

Biotechs Bruised

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Biotech stocks, in general, are more volatile than the average stock. Small-cap stocks (VB), in general, are more volatile than the average stock. Small-cap biotech stocks then may very well be the most volatile of any grouping of stocks. Unfortunately, the recent direction of volatility across equities in the biotech arena has been of the sharp, downward variety and has been most unwelcome, amid a broader market decline. Mr. Market is having a temper tantrum, but all the while, he may have every right to be upset. The iShares Nasdaq Biotechnology ETF (IBB) is perhaps the best proxy for the market’s appetite to bet on the development of long-term drugs and therapies. The industry ETF, which sports a trailing price-to-earnings … Read more

Warning: The Master Limited Partnership Business Model May Not Survive

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Warren Buffett has famously said that, “only when the tide goes out do you discover who’s been swimming naked.” We now know what’s been swimming naked, and it’s the master limited partnership (MLP) business model during the latest downdraft of this energy cycle. A tremendous fall-out may still be ahead for MLPs, unfortunately, as energy markets weaken and as credit markets tighten. We now believe the financial operating structure of the MLP may not survive in its current form, even as we say that most businesses using the MLP model are good ones. Our view continues to be that most master limited partnerships including Energy Transfer Partners (ETP) and most midstream corporate business models including Kinder Morgan (KMI) are dependent … Read more