Valuentum Exclusive Analysis for the Discerning Investor

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May 15, 2021

Two High-Quality REITs with Promising Outlooks: Digital Realty (DLR) and Realty Income (O)
Image Shown: An overview of Digital Realty Trust Inc’s expansive geographical footprint. Image Source: Digital Realty Trust Inc – First Quarter of 2021 IR Earnings Presentation. The real estate investment trust (‘REIT’) industry is steadily recovering from the coronavirus (‘COVID-19’) pandemic. Generally speaking, rent collection rates are on the rise as vaccine distribution efforts are helping enable the economy to slowly open back up, allowing many commercial activities to resume in earnest. Let's have a look at the latest earnings reports from two high-quality REITs in this article.

May 13, 2021

Markets Back on Track – Seeking Net-Cash-Rich, Free Cash Flow Generators with Pricing Power!
Image Shown: The pricing action of ideas in the Dividend Growth Newsletter portfolio May 13. Image Source: Seeking Alpha.  We remain intensely focused on the cash-based sources of intrinsic value—net cash on the balance sheet and future expected free cash flow—when it comes to identifying price-to-fair-value-estimate mis-pricings as well as in assessing long-term dividend health. We think it may be tempting to rotate into some names where fair value estimate revisions have occurred, but the margin of safety around many energy/commodity producers and banking entities may be too large even for conservative investors. We expect most energy/commodity producers to continue to endure boom-and-bust cycles, and banking entities to do the same, as the latter act more like utilities this day and age. Once implicitly nationalized during the Great Financial Crisis, and used as an extension of government programs such as the Paycheck Protection Program during the COVID-19 crisis, outsize economic profit spreads may remain limited for banks/financials given the punitive regulatory environment. Facebook, of course, remains our top idea for long-term capital appreciation potential. Newmont Mining remains our favorite dividend growth-oriented “inflation hedge” followed by garbage hauler Republic Services and its CPI-indexed contracts. AT&T remains our favorite high yield dividend idea, boasting a free-cash-flow covered ~6.5% dividend yield, and we prefer only diversified exposure to the energy and banking sectors through the Energy Select Sector SPDR (XLE) and Financials Select Sector SPDR (XLF). We’ll be looking to deploy the ~10%-20% cash “positions” in the Best Ideas Newsletter portfolio and Dividend Growth Newsletter portfolio in the coming months. The High Yield Dividend Newsletter remains “fully invested,” and Exclusive idea generation remains robust. If you haven’t already, please be sure to have a look at the video in this article to see how we assess the cash flow statement and balance sheet to uncover stocks with strong net cash positions and solid future free cash flows that handily cover expected cash dividend payments. We apply this laser-focus on financial statement analysis across our idea-generation suite of publishing products.

May 11, 2021

Stock Markets Still Healthy, Big Cap Tech and Large Cap Growth Safe Havens
 Image Shown: Facebook’s shares are trading below the low end of our fair value estimate range at the time of this writing. The social media giant registers a 10 on the Valuentum Buying Index as it boasts a tremendous financial position with respect to net cash on the balance sheet and future expected free cash flows. Image Source: Valuentum. It’s easy to get spooked sometimes by the market’s volatility, but what we’ve witnessed the past few days is nothing compared to the volatility during the COVID-19 crisis and the Great Financial Crisis before it—and what we eventually expect the proliferation of price-agnostic trading to do to the markets in the years ahead. We continue to like the areas of big cap tech and large cap growth thanks to their strong competitive positions, solid net cash profiles, and robust and growing future expected free cash flow. Facebook remains our top idea for capital appreciation potential. Newmont Mining is our favorite “inflation hedge” within the metals and mining arena, and investors that would like greater exposure to energy and financials may look to more diversified ETFs to gain access to the broader themes of rising energy resource prices and net interest margins. AT&T is a top equity consideration for the high-yield dividend crowd. In the coming weeks and months, we’ll be looking to put some of the dry powder that we raised in January 2021 “to work” in some of the areas we outlined in this article. In the meantime, we’re going to continue to watch this orderly sell-off that’s being driven by valuation model adjustments (to factor in higher inflation expectations) and modest deleveraging from cryptocurrency volatility. All is well.

May 10, 2021

Utility PPL Is Pursuing a Major Transformation and Has a VBI Rating of 9
Image Source: PPL Corporation – First Quarter of 2021 IR Earnings Presentation. After updating our valuation models for the utility sector, PPL recorded a VBI of 9 and we are keeping a close eye on the firm. Our fair value estimate for PPL sits at $45 per share. As of this writing, shares of PPL yield ~5.8%. The utility’s outlook is bright, and we are excited by its potential upside once the pending transactions with National Grid are complete. In the High Yield Dividend Newsletter portfolio, we include the Utilities Select Sector SPDR Fund ETF (XLU) to gain broad exposure to the space.

May 6, 2021

3 Strong Dividend Payers to Consider Within Consumer Staples
Image: Kellogg has raised its dividend payout each year since 2005. Image Source: Kellogg. Kellogg, Colgate-Palmolive, and Clorox offer investors solid exposure to the consumer staples space, while showcasing impressive track records with respect to dividend growth. Each has a net debt position, but all three generate traditional free cash flow in excess of cash dividends paid, meaning growth in each of their payouts should be expected. Clorox has the highest Dividend Cushion ratio of 1.6 at this time (Kellogg’s is 0.1, while Colgate-Palmolive’s is 1.4), and as one might expect, Clorox’s dividend growth prospects are the strongest out of this bunch. For example, Clorox raised its annual payout more than 7% during fiscal 2020, while both Kellogg and Colgate-Palmolive have had more modest dividend increases in recent years. Evaluating the cash-based sources of intrinsic value helps one derive a fair value estimate range, as it helps rank dividend health and dividend growth, as shown in this group's respective Dividend Cushion ratios. All things considered, Kellogg, Colgate-Palmolive, and Clorox could be valuable additions to a diversified dividend growth portfolio.

Apr 30, 2021

Domino’s Pizza Well-Positioned for Long Run
Image Shown: Domino’s has the right business model for the long haul. Unit economics are fantastic for franchisees, while same-store sales continue to benefit from first-mover digital initiatives. Earnings per share growth has been stellar for the past decade. Image Source: April 2021 Presentation. Domino’s has the right business model for the digital economy, and we expect robust net unit growth and retail sales growth in the mid-to-high single-digit range over the next few years. This asset-light, free-cash-flow generating franchisor is stealing market share hand over fist, while it drives robust earnings expansion and buys back its own stock (it has a $1 billion repurchase authorization, as of February 2021). Everything seems in place for Domino’s to remain atop the global quick-service pizza industry, as operational simplicity is the name of the game. Investors need to pay attention to Domino’s net debt load, but we see little in the way of this fantastic growth story. The firm remains one of our favorite restaurant ideas and a holding in the simulated Best Ideas Newsletter portfolio.

Apr 30, 2021

Public Storage Breaks Out!
Image Shown: Public Storage’s chart looks mighty attractive, with shares having experienced a powerful breakout recently. Its dividend is equally attractive, in our view. There's a lot to like about Public Storage. The company's unique financial position relative to other REITs when it comes to traditional free cash flow covering dividends makes its payout comparatively less risky, while its strength during the COVID-19 meltdown has revealed the durability of its free cash flow stream through thick and thin. Perhaps the only thing more attractive than its fantastic chart is the health of its dividend, which is further backstopped by an A2/A investment-grade credit rating, one of the highest ratings for any REIT. We continue to like Public Storage as an idea in the High Yield Dividend Newsletter portfolio, with shares yielding a solid ~2.9% at this time.

Apr 30, 2021

High Yielding Philip Morris Boosts Guidance
Image Shown: Philip Morris International Inc has been steadily growing its alternative tobacco product sales during the past several years and its growth outlook on this front is quite bright. RRP stands for reduced-risk products according to Philip Morris. Image Source: Philip Morris International Inc – First Quarter of 2021 IR Earnings Presentation. Philip Morris is a high-yielding income generator with a promising growth outlook. Historically, the firm hasn't allocated a significant amount of capital (or any) towards share repurchases, highlighting management’s commitment to income seeking shareholders. Though we understand that some investors may shy away from the company due to ESG-related considerations, for those that do not have such investment restrictions, we continue to like Philip Morris as an idea in the High Yield Dividend Newsletter portfolio. We view its forward-looking dividend coverage quite favorably, though we would like for management to pare down the firm’s net debt load over the long haul. Recently, shares of PM have been on a nice upward climb indicating investors continue to warm up to Philip Morris’ promising free cash flow growth outlook, supported in part by its alternate tobacco products (and what they imply regarding long-term resiliency versus traditional cigarettes).

Apr 27, 2021

Trash Is Cash
Image Source: Clyde Robinson. Increasingly valuable disposal capacity that is only becoming scarcer and pricing power across collection and disposal operations that keep inflationary pressures at bay are just two of the reasons why we like the municipal solid waste space. Waste Management’s first-quarter performance showed that the U.S. municipal solid waste industry remains very healthy while free cash flow generation across the group will remain robust and perhaps grow stronger as the U.S. economy continues its recovery. We include Waste Management's peer Republic Services as one of our favorite ideas in the Dividend Growth Newsletter portfolio.

Apr 27, 2021

Tesla Scaling Up Nicely
Image Shown: Tesla is steadily working towards bringing another manufacturing facility online in the US, this time near Austin, Texas. Image Source: Tesla Inc – Shareholder Letter Covering the First Quarter of 2021. Electric vehicle (‘EV’) giant Tesla continues to impress as it smashed past consensus top- and bottom-line estimates when it reported first quarter 2021 earnings on April 26. The company delivered 184,800 vehicles (182,780 Model 3/Y variants and 2,020 Model S/X variants) and produced 180,338 vehicles in the first quarter of this year, though we note that Tesla only produced Model 3/Y variants last quarter and Model S/X vehicle deliveries were met via its inventory. In the first quarter of 2021, Tesla’s ‘automotive revenues’ of $9.0 billion were up 75% year-over-year, its GAAP revenues of $10.4 billion were up 74% year-over-year, and its GAAP net income came in north of $0.4 billion (up sharply from year-ago levels).