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Use Both the Dividend Cushion Ratio (Probability of a Dividend Cut) and the Qualitative Dividend Ratings in Your Assessment of the Payout

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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%. By Brian Nelson, CFA Dividend investing has probably never been as popular as the past couple years. Remember, however, the dividend is capital appreciation that otherwise would have been achieved had the dividend not been paid. If you had a stock that was $10, and it paid a $1 dividend, you don’t have a $10 stock and … Read more

The Dividend Growth Newsletter Portfolio’s Outperformance

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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%. Note: This article corrects the degree of outperformance of the simulated Dividend Growth Newsletter portfolio, as of the date of the calculation (~3.6% –> ~9.4%). By Brian Nelson, CFA Excluding dividends, we estimate that the simulated Dividend Growth Newsletter portfolio is down roughly 4.9% through the interim session October 30 from the beginning of 2022, beating the … Read more

Staying Far Away from Intel; McDonald’s a Better Play

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By Brian Nelson, CFA On October 26, Intel (INTC) reported third-quarter earnings that left a lot to be desired. Revenue fell 8% on a year-over-year basis, while the company’s earnings per share dropped 72%, to $0.07. Management tried to spin the quarter as coming in better-than-expected, but the reality is that Intel’s business transformation is testing even the most patient of investors. At the end of September, Intel held ~$25 billion in cash versus short-term debt and long-term debt of ~$2.3 billion and ~$46.6 billion, respectively. For the first nine months of 2023, Intel’s cash flow from operations dropped to ~$6.8 billion, and it spent ~$19.1 billion in additions to property, plant and equipment. Revenue and earnings pressure, a massive … 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

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

In the News: McDonald’s, Costco, Target

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By Brian Nelson, CFA The market is once again worried about a potential government shutdown in the U.S., beginning on Sunday, as Congress works on a budget for fiscal 2024 through the rest of September. This recurring news has been a seasonal part of the market’s jitters every few years or so, however, and we’re not worried about what we would describe as an overhyped risk. A potential government shutdown in the U.S., if it happens, will inevitably be resolved, and while it tends to make for scary media headlines, it just doesn’t factor into the thesis of long-term investors. We don’t think readers should overreact. That said, it’s hard to know how the markets may continue to perform with … Read more

ICYMI: Questions for Valuentum’s Brian Nelson

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Valuentum’s President Brian Nelson, CFA, answers your questions. Q: What Is Valuentum? A: In short, it is a strategy that combines the concepts of value and momentum within individual stocks. We measure value through the cash-based sources of intrinsic value – net cash on the balance sheet and future expected free cash flow. We measure momentum rather simply, generally via relative strength or other technical and momentum indicators. We like stocks with strong net cash positions on the balance sheet, ones that are generating tremendous free cash flow, and have strong secular growth prospects such that the prospect for expectations of free cash flow can continue to be ratcheted higher. Today, most Valuentum stocks are included in the stylistic area … Read more

Fed Rate Decision, UAW Strike Continues, Microsoft Ups Payout

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Image Source: Mike Mozart By Brian Nelson, CFA If you’re thinking like us about the ongoing Fed rate-hiking cycle, you’re probably thinking that perhaps we’ll see another rate hike or two down the road, even if the Fed pauses at today’s September 20 meeting. However, whether the Fed pauses from here on out or executes a couple more rate hikes, it really shouldn’t matter much to long-term investors. From where we stand, the conversation about interest rates should now be shifting away from worries about elevated inflation to the future positive prospects that correspond to the work that the Fed has already done. With the market-cap weighted S&P 500 (SPY) just a stone’s throw away from all-time highs, despite aggressive … Read more

Subscribe to the Valuentum ESG Newsletter!

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*BONUS* Included in the ESG Newsletter is an ESG-focused simulated newsletter portfolio! Subscribe today. ESG Newsletter $1,000.00 Pay now “The investing landscape has changed dramatically over the past decade and part of that transformation has involved US households placing a much greater emphasis on “ethical” and “sustainable” investing strategies. A decade ago, funds managed with Environmental, Social, and Governance (‘ESG’) standards in mind were a small part of the investing universe at-large, but that is no longer the case. Data from Morningstar notes that US funds considered “sustainable” reported $21.5 billion in net inflows during the first quarter of 2021, up from $20.5 billion in net inflows in the fourth quarter of 2020 and roughly five times greater than the … Read more