Valuentum Exclusive Analysis for the Discerning Investor

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This Remains a Technically-Driven Stock Market
Image: We expect the S&P 500 (SPY) to test support at both its technical uptrend and the 200-day moving average. In the event the SPY breaks through technical support, we’d be looking to “raise cash” across the newsletter portfolios. S&P 500 companies will end 2022 with roughly a 4%-5% decline in fourth-quarter 2022 earnings, but earnings season has come in better-than-feared. We expect the Fed to continue to raise rates given recent producer price inflation readings and a continued strong labor market. The 10-year Treasury continues to pose headwinds to asset values, and while many are talking of “disinflation,” we expect the market to remain technically driven and begin to test support at the 200-day moving average across major indices. We believe 2023 will be a choppy year, as we look ahead to better times in 2024.

Follow Up on Intel’s Dividend Cut: We Will Strive to Do a Better Job Communicating
As noted in our brief note on Intel this morning, “Intel Cuts Dividend, As Expected,” we have now refreshed the company’s reports on the website, with updated Dividend Safety and Dividend Growth Potential ratings, both as VERY POOR. After factoring in Intel’s updated outlook to our valuation model from its fourth-quarter release, our updated fair value estimate is now $25 per share (was $27 per share) and our updated Dividend Cushion ratio is -1.7 (negative 1.7), was 0.4. This includes the dividend cut.

Intel Cuts Dividend, As Expected
Image Source: Aaron Fulkerson. The Dividend Cushion ratio caught another dividend cut. This time it was Intel’s. With a Dividend Cushion ratio of 0.4, Intel announced February 22 that it has slashed its dividend by nearly two thirds, to $0.125 on a quarterly basis, down from its prior quarterly dividend of $0.365. The company’s estimated forward yield now stands at ~1.9%, and we can’t say that the dividend cut was unexpected given its massive net debt position and significantly weakened free cash flow generation--the two most important components behind an assessment of its cash-based intrinsic value and dividend health.

Our Reports on Stocks in the Recession Resistant Industry
Image Source: Mike Mozart. Our reports on stocks in the Food Retailing industry can be found in this article. Reports include BUD, CL, CLX, CPB, COST, FDP, GIS, HRL, K, KDP, KHC, KMB, KO, KR, MDLZ, MKC, MO, PEP, PG, PM, SJM, TAP, TGT, TSN, WMT, CHD, SYY, ADM, LANC, CASY.

Dividend Increases/Decreases for the Week of February 17
Let's take a look at firms raising/lowering their dividends this week.

Investing's Odd Couple: Value and Momentum
The American Association of Individual Investors highlighted the significant benefits of combining value and momentum strategies in the July 2013 edition of its Journal. This article previously appeared on our website.

PepsiCo's Pricing Actions Fantastic; Needs Better Free Cash Flow in 2023 to Cover 10% Dividend Hike
Image Source: PepsiCo. PepsiCo revealed tremendous product pricing power during its fourth quarter of 2022, but inflationary pressures were still present across its business operations. The beverage and snacks giant raised its dividend 10%, marking the 51st consecutive year the company has upped its payout. However, PepsiCo will have to step up its free cash flow generation during 2023 in order to cover the increased payout obligations. During 2022, for example, free cash flow came up short in covering cash dividends paid. PepsiCo also has a rather large net debt position, even as it plans to spend $1 billion in buybacks during 2023. We still like PepsiCo as an idea in the Best Ideas Newsletter portfolio, however, and peg its fair value estimate at $187 per share. Shares yield ~2.8% at the time of this writing.

The Dividend Cushion Ratio Warned of Risk to V.F. Corp’s Dividend
Image: The Dividend Cushion ratio is one of the most powerful financial tools an income or dividend growth investor can use in conjunction with qualitative dividend analysis. The ratio is one-of-a-kind in that it is both free-cash-flow based and forward looking. Since its creation in 2012, the Dividend Cushion ratio has forewarned readers of approximately 50 dividend cuts. We estimate its efficacy at ~90%.V.F. Corp cut its quarterly dividend by more than 40% on February 7, to a quarterly rate of $0.30 per share from $0.51 per share previously. The cut is yet further evidence of the importance of paying attention to the cash-based sources of intrinsic value--net cash on the balance sheet and future expected free cash flow--when it comes to evaluating dividend health. Please be sure to pay attention to the Dividend Cushion ratios of firms that you follow. Even if you are not a dividend growth or income investor, the Dividend Cushion ratio provides an assessment of the cash-based sources of intrinsic value relative to future potential outlays in the form of the dividend.

Albemarle Outlines Strong Lithium Demand Outlook
Image Source: Albemarle. Albemarle released a very promising outlook in late January, one that implies a tremendous pace of top-line expansion, profitability growth, and free cash flow generation. We’re huge fans of the outlook and believe lithium demand will continue to be robust, even as new supply comes to market. The company has called its next five years a period of “transformational growth,” where expected net sales are targeted at 2.5x 2022 levels and adjusted EBITDA is targeted to more than double. Electric vehicle demand remains robust, and Albemarle has opportunities across the end markets of mobility, energy, connectivity, and health, too. We think Albemarle remains one of the best growth stories on the market today, and we like shares.

Disney: Iger’s Back, Peltz Concedes, Thousands of Jobs Gone, Dividend Coming Back Soon
Image Source: Valuentum. Disney has a lot of work to do. The company’s Parks, Experiences and Products segment has recovered nicely from the worst of the COVID-19 pandemic, but pricing increases may put the experience out of reach for many. Disney+ subscribers may have peaked given that the company will begin to cut costs to the bone in an effort to stop the billions in cash burn. Disney ended the year with $8.47 billion in cash and equivalents and a massive $48.4 billion debt load. Investors are happy that Bob Iger is back and with the company’s plans to re-instate a modest dividend later this year, but we think former CEO Bob Chapek may have gotten a bad shake. Chapek took over the week of the huge COVID-driven market crash in February 2020 and led the firm through a once-in-a-century pandemic, only to be shown the door before his investments could ever be given a chance of bearing fruit. There’s more to this story than we’ll ever know, and we doubt that Disney or Iger will have much to say about it.