Valuentum Exclusive Analysis for the Discerning Investor

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Oct 20, 2021

Quants and High-Frequency Trading the Real Cause of the GameStop Frenzy?
Image: The cause of the GameStop trading frenzy remains largely unclassified as it appears to us that quant and high-frequency trading played a much bigger role in the market disruption than what is being reported. We think the SEC staff put out a fantastic “GameStop Report” with some excellent information. However, the report did not get to the crux of the matter, failing to disclose what actually caused the extreme market volatility in meme stocks, while glossing over the substantial increase in institutional accounts, likely belonging to quant/trend/momentum funds, that contributed to the trading frenzy this year. We think investors and market participants deserve to know more about what caused this threat to market integrity and structure as the continued proliferation of which may only grow larger and larger in the coming decades. If it was quant trading, then we encourage the SEC to take steps to ensure that such trading is curbed effectively as it is clear that such price-agnostic activity is not contributing to market efficiency.

May 18, 2021

German Industrial Conglomerate Siemens Remains an Attractive Income Generation Idea
Image Shown: Siemens AG sees the global industrial economy staging a recovery from the COVID-19 pandemic, which in turn supports the firm’s outlook. The company raised its full-year guidance when Siemens published its latest earnings report. Image Source: Siemens AG – Second Quarter of Fiscal 2021 IR Earnings Presentation. Siemens has identified a number of growth avenues and is leaning on its digital capabilities to bring various industrial processes into the 21st Century. Siemens generates strong free cash flow, has a promising growth outlook, and its ‘A-rated’ long-term credit rating is impressive. Shares of SIEGY have been on a nice upward climb during the past year, as investors continue to warm up to its promising growth story. There could be room for substantial upside as the global economy recovers from COVID-19, and investors get paid a nice ~2.5% dividend yield to have exposure to this global industrial powerhouse. We think Siemens could be an interesting income generation idea for consideration.

Apr 8, 2021

The Best Years Are Ahead
The wind is at our backs. The Federal Reserve, Treasury, and regulatory bodies of the U.S. may have no choice but to keep U.S. markets moving higher. The likelihood of the S&P 500 reaching 2,000 ever again seems remote, and I would not be surprised to see 5,000 on the S&P 500 before we see 2,500-3,000, if the latter may be in the cards. The S&P 500 is trading at ~4,100 at the time of this writing. The high end of our fair value range on the S&P 500 remains just shy of 4,000, but I foresee a massive shift in long-term capital out of traditional bonds into equities this decade (and markets to remain overpriced for some time). Bond yields are paltry and will likely stay that way for some time, requiring advisors to rethink their asset mixes. The stock market looks to be the place to be long term, as it has always been. With all the tools at the disposal of government officials, economic collapse (as in the Great Depression) may no longer be even a minor probability in the decades to come--unlike in the past with the capitalistic mindset that governed the Federal Reserve before the “Lehman collapse."

Feb 8, 2021

Stock Market Outlook for 2021
2020 was one from the history books and a year that will live on in infamy. That said, we are excited for the future as global health authorities are steadily putting an end to the public health crisis created by COVID-19, aided by the quick discovery of safe and viable vaccines. Tech, fintech, and payment processing firms were all big winners in 2020, and we expect that to continue being the case in 2021. Digital advertising, cloud-computing, and e-commerce activities are set to continue dominating their respective fields. Cybersecurity demand is moving higher and the constant threats posed by both governments (usually nations that are hostile to Western interests) and non-state actors highlights how crucial these services are. Retailers with omni-channel selling capabilities are well-positioned to ride the global economic recovery upwards. Green energy firms will continue to grow at a brisk pace in 2021, though the oil & gas industry appears ready for a comeback. The adoption of 5G wireless technologies and smartphones will create immense growth opportunities for smartphone makers, semiconductor players and telecommunications giants. Video streaming services have become ubiquitous over the past decade with room to continue growing as households “cut the cord” and instead opt for several video streaming packages. We’re not too big of fans of old industrial names given their capital-intensive nature relative to capital-light technology or fintech, but there are select names that have appeal. Cryptocurrencies have taken the market by storm as we turn the calendar into 2021, but the traditional banking system remains healthy enough to withstand another shock should it be on the horizon. Our fair value estimate of the S&P 500 remains $3,530-$3,920, but we may still be on a roller coaster ride for the year. Here’s to a great 2021!

Jan 29, 2021

Dividend Increases/Decreases for the Week January 29
Let's take a look at companies that raised/lowered their dividend this week.

Jan 27, 2021

ALERT: Raising Cash in the Newsletter Portfolios
Our research has been absolutely fantastic for a long time, but 2020 may have been our best year yet. With the S&P 500 trading within our fair value estimate range of 3,530-3,920 (and the markets rolling over while showing signs of abnormal behavior), we're raising the cash position in the Best Ideas Newsletter portfolio and Dividend Growth Newsletter portfolio to 10%-20%. For more conservative investors, the high end of this range may even be larger, especially considering the vast "gains" from the March 2020 bottom and the increased systemic risks arising from price-agnostic trading (read Value Trap). The individual holdings will be reduced in proportion to arrive at the new targeted cash weighting in the respective simulated newsletter portfolios. The High Yield Dividend Newsletter and Dividend Growth Newsletter are scheduled for release February 1. We'll have more to say soon.

Dec 1, 2020

Walking Through the Calculation of the Dividend Cushion Ratio
Image shown: An image found on page 2 of Valuentum's Dividend Report on Kimberly-Clark. The 'Dividend Cushion Ratio Deconstruction,' shown in the image, reveals the numerator and denominator of the Dividend Cushion ratio. At the core, the larger the numerator (or the healthier a company's balance sheet and future free cash flow generation) relative to the denominator (or a company's future expected cash dividend obligations), the more durable the dividend. In the context of the Dividend Cushion ratio, KimberlyClark's numerator is larger than its denominator suggesting strong dividend coverage in the future. The 'Dividend Cushion Ratio Deconstruction' image puts sources of free cash flow in the context of financial obligations next to expected cash dividend payments over the next 5 years on a side-by-side comparison. Because the Dividend Cushion ratio and many of its components are forward-looking, our dividend evaluation may change upon subsequent updates as future forecasts are altered to reflect new information.We believe the Dividend Cushion ratio is one of the most helpful 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, considers balance sheet health, and is forward looking. Since its development in 2012, we estimate its efficacy at ~90% in helping to forewarn readers of impending dividend cuts. For companies where Valuentum reports are available, the Dividend Cushion ratio can be found in a stock's Dividend Report or in the table on the company's stock landing page. We use Kimberly-Clark as an example of how we calculate the Dividend Cushion ratio and how useful it is for investors of all types.

Nov 2, 2020

ICYMI -- Dividend Growth Strategies Struggle
Image: A large cap growth ETF (orange) has significantly outperformed an ETF tied to a dividend growth strategy, the SPDR S&P Dividend ETF (SDY), which mirrors the total return performance of the S&P High Yield Dividend Aristocrats Index. To no surprise to many members, several dividend growth strategies have faced tremendous pressure during 2020. The Journal recently wrote a piece on the topic, but from our perspective, the problem with many dividend growth strategies is that they tend to be balance-sheet agnostic and pay little attention to traditional free cash flow expectations, focusing only on the yield itself, sometimes dismissing future fundamentals in favor of historical growth trends and the inferior EPS-based dividend payout ratio. In many dividend-targeted ETFs, for example, it may not matter to the index creator whether a firm has $10 billion in net debt or $10 billion in net cash; as long as management has a track record of raising the dividend in the past, it is included. To us, however, there is a world of difference between a company that has a huge net cash position and a huge net debt position. The more excess cash on the balance sheet a dividend payer has, for example, the more secure its payout. In some cases, entities held in high-yielding ETFs don't even cover their dividends or distributions with traditional free cash flow generation, despite having ominous net debt loads. A look at the high-yielding ALPS Alerian MLP ETF, for example, shows a number of entities that are buried under a mountain of debt and are generating meager free cash flow relative to expected distributions. The lofty yield on that ETF should therefore be viewed with a very cautious eye. If the yield weren't at risk for a big cut, the market would bid up the stock, and down the yield would go. In no way should you believe that you can sleep well at night holding stocks yielding north of 10% when the current 10-year Treasury is well below 1%. The market is just not that inefficient. A dividend growth strategy can never be a passive one either. Only through constant attention to the balance sheet (net cash) and future free cash flow expectations can investors truly sleep well at night. At Valuentum, we do the balance sheet and cash flow work and summarize it succinctly in a key ratio called the Dividend Cushion ratio.

Oct 30, 2020

Newmont Posts a Stellar Earnings Report, Raises Dividend
Image Shown: An overview of Newmont Corporation’s recent accomplishments. Image Source: Newmont Corporation – Third Quarter of 2020 IR Earnings Presentation. Shares of Newmont Corp are included in the Dividend Growth Newsletter portfolio because we view its long-term dividend growth trajectory quite favorably, and the gold miner has not disappointed. At the start of 2020, Newmont significantly increased its quarterly dividend. Due to a combination of its enlarged dividend, very promising growth outlook, sizable expected synergies from its 2019 acquisition of Goldcorp, and its stellar cash flow profile, we added shares of NEM as a holding to our Dividend Growth Newsletter portfolio on January 13, 2020.

Sep 15, 2020

Microsoft Boosts Its Dividend and Announces a New Strategic Partnership
Image Shown: Shares of Microsoft Corporation are up significantly year-to-date as of this writing, and we see room for further capital appreciation upside. Shares of Microsoft are included as a holding in both our Best Ideas Newsletter and Dividend Growth Newsletter portfolios. On September 15, Best Ideas Newsletter and Dividend Growth Newsletter portfolio holding Microsoft announced a ~10% sequential increase in its quarterly per share dividend, boosting its payout up to $0.56 per share or $2.24 per share on an annualized basis. As of this writing, shares of MSFT now yield ~1.1% on a forward-looking basis. Furthermore, Microsoft noted its 2020 Annual Shareholders Meeting would be held on December 2 and would be conducted through a virtual format.