The WSJ reports that U.S. companies have announced $200 billion in share buybacks over the last three months. That’s double the pace of last year. Management teams love buybacks because they boost share prices, which in turn make executive stock options more valuable. The problem with buybacks is that they are discretionary. And corporate boards and management teams have terrible timing. Buybacks tend to be highest late in the business cycle. During recessions, when share prices are at their most attractive levels, buyback activity falls as companies look to conserve cash. Buying back … [Read more...]
Dividends are on the Rise
Dividends are the backbone of the Retirement Compounders. Now Michael Wursthorn reports in The Wall Street Journal that dividends are on the rise. Dividends are on the rise when investors have fewer reasons to buy the stocks that pay them out. More than a fifth of the companies in the S&P 500 have boosted their dividends to shareholders so far this year, while none have slashed their payouts, a first since 2011, according to S&P Dow Jones Indices. The increases are getting bigger too, with companies on average raising their payouts by 14%, the biggest jump since 2014. The … [Read more...]
This is why Dividends are Better than Buybacks
The FT reports that stock buybacks are fading and the performance of companies that buyback shares is trailing the broader market averages. Companies that return cash to shareholders in the form of buybacks are better than those that don't return any cash at all, but companies that favor dividends are the clear winners in our book. Dividends are more consistent and most often more reliable than buybacks. Corporate share buybacks have been the single biggest source of demand for US equities since the financial crisis, as companies largely shunned business investment plans in favour of … [Read more...]
This is One of the Most Conservative Stocks in the World
Nestle is adding to its coffee business with an acquisition of the high-end coffee roaster and retailer Blue Bottle Coffee. The Wall Street Journal reported on it here. The acquisition is a small one for Nestle, but it is a savvy move to remain competitive and relevant in the food business. Change is afoot in the packaged foods industry. Brands that have dominated the industry for decades are under assault. Changing consumer tastes and shifting media consumption patterns are eroding the competitive position of branded packaged foods companies. Nestle’s Strategy for a New Environment As … [Read more...]
Are Investors Too Bullish?
As a group, the retail investing public tends to arrive to the party late and stays too long. This chart comes courtesy of the WSJ Daily Shot and TD Ameritrade. According to TD Ameritrade, retail investors are more bullish than they have been in years. Elevated levels of investor sentiment tend to be most useful as a contrary indicator. The higher investor sentiment, the lower you should set your return expectations and the more you should demand those returns in the form of dividend payments. Share prices tend to fluctuate wildly as sentiment shifts, dividend payments do not. … [Read more...]
Lower Portfolio Risk to Boost Return
UPDATE: The words I wrote in this post from August 27, 2010 are as sound today as they were back then. The basic principles of good investing just never change. This is how we operate at Richard C. Young & Co., Ltd. Do you know the difference between total return and investor return? Most investors are familiar with the concept of total return. The total return of a fund is simply the sum of the capital and income return of a fund over a certain holding period. The total return of a fund of course assumes a buy-and-hold strategy. Investor return (a Morningstar term) is a measure of … [Read more...]
Bank Dividends Soar
After U.S. banks passed the Fed’s latest stress tests with flying colors, bank dividends are soaring. Some of our highly favored banks just increased their dividends as much as 35% in addition to announcing increased buybacks. The FT reports on bank dividends. Now, rather than accumulating capital to build buffers against losses, the likes of Morgan Stanley and Bank of America can start handing it back. Across the 34 banks which took this year’s exam, payouts to shareholders will come close to 100 per cent of projected profits over the next year, according to senior Fed officials, up from … [Read more...]
Bezos’ Law: Prices will be Lower, But what about for Income Investors?
Great ideas don’t always translate into great investments. Remember Amazon almost going out of business in the dot com bust? When I think of Jeff Bezos I think of Steve Jobs. Both are, and were one of a kind. That doesn’t mean I’d buy their stocks. There’s plenty of ways to benefit from Bezos’ Law, which I define as whatever business Bezos decides to get into, “prices will be lower.” But, and here’s the catch, to make Bezos’ Law into the law of the land, Mr. Bezos needs LOTS of capital and GREAT people working for him. The ONLY way to make that work is with a high stock price to reward both … [Read more...]
Warren Buffett and Apple Paying a Dividend Would Be Nice
“It’s our job, though, to over time deliver significant growth, bumpy or not. After all, as stewards of your capital, Berkshire directors have opted to retain all earnings,” writes Warren Buffett in his 2016 Annual Report Chairman’s letter. In other words, Berkshire doesn’t pay a dividend. It retains all earnings to invest in its companies or to acquire new ones. If you’re a Berkshire shareholder and need retirement income you need to rely on Berkshire’s capital gains to sell shares. I don’t like that and it's not how Mr. Buffett operates. He loves cash and invests it wisely (most of the … [Read more...]
Calculating Shareholder Yield
To calculate the shareholder yield, pick up the annual report for a company you are interested in (preferably a non-financial company), and turn to the Statement of Cash Flows. In the Statement of Cash Flows, move down to the section labeled - Cash Flows from Financing Activities. For most companies, this is the last section of the Cash Flow Statement. To calculate shareholder yield, you have to determine the total amount of dividends that were paid to shareholders, the net amount of stock that was repurchased, and the net amount of debt that was repaid. Before you get started, remember you … [Read more...]
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