Tuesday, December 29, 2015

Adding VGR

I decided to add shares of Vector Group Ltd(VGR) on 12/28/15. Remember you can follow at @LngHaulInvestor.

When I looked at the portfolio weighting in the revised spreadsheet I noticed that the pick represented less than 1% of the portfolio. While it is a smaller market cap company compared to some of the big names on the list, I felt the stock should have a bit more weighting overall. Additionally I'm not feeling 100% comfortable with the economic outlook at this time and tobacco stocks have historically provided relative safety.  I expect equities to continue rising, although not straight up, I feel the continuing worldwide events and falling commodity prices have yet to fully play out for investors so I want to add to safe stocks.

My guess is that for 2016 the dividend is raised to .41-.42. Also remember that the company has been paying a yearly 5% stock dividend. That is usually done in September and investors will need to take note of it for yearly income tax reporting.  You can access more information on the companies website.   That gives us a total dividend of around 11.75%. It's not easy finding that kind of return on dividends alone in any security. I think this one is safe enough for the portfolio.

Is the solar industry turning around?

The political news event in Paris a few weeks ago apparently had some major implications for the solar industry. As you may have heard politicians signed an agreement on curbing greenhouse gas emissions and controlling global warming. We won't get into detail about the science behind it which seems to have plenty of research on both sides of the fence, so for now we'll say its inconclusive.

Not to long after Congress included in its budget bill a 5 year extension of the Investment Tax Credit. As of now it appears the solar utility stocks will benefit the most.  They also shot up quite incredibly on the news the last couple weeks.  I think the solar industry overall has plenty of untapped potential as the human imagination works to make it more feasible and cost effective. Either way it's events like this that must be watched as they have profound impacts on stocks. Anything involving energy is definitely going to stand the test of time as humans have acquired an insatiable need for energy since the industrial revolution.

I think for now solar stocks might have put a bottom in. A lot can change within 5 years when the tax credit expires again. For all we know a huge breakthrough could be made in the solar industry, or another one for that matter. Remember there are plenty of people vying to quench our energy thirst.

Friday, December 18, 2015

Portfolio housekeeping and BTI addition

I've been thinking of ways to make everything better around here.  I have made some changes to the portfolio tracking spreadsheet. I'll details those changes below. I'm also looking at ways to create a better blog layout as the current one is pretty blah. I'm not the most tech savvy person so it's a work in progress.

If you have checked out the portfolio's google doc spreadsheet the past few weeks you would have noticed it was pretty basic. I've updated so that each addition I make is to be considered as if I added one share. This will make it possible to calculate a portfolio weighting of each individual holding. I felt this is fair and more transparent since in the real world a fund manager is subjected to the same scrutiny.  I'm also including tracking of the SPY ETF which I feel is representative as the primary channel retail investors participate in the S&P 500. Now we can see the results of the portfolio over time versus the SPY. I hope to beat the SPY, but considering many people smarter than me with more resources struggle to I realize it's an uphill battle. I'll calculate the portfolio returns for the end of the year and continue to do so quarterly. It's not important to update it daily as these are meant to be long term holds. I'm also going to calculate an unweighted return for the portfolio just to see how the individual picks and their respective timing perform.  I believe this will be useful information.

There is a dividend column which represents the amount of dividends received per share as stated in the companies official dividend declaration.  Actual cash dividends from overseas based companies will be different for people in other countries depending on their currency so this is a more transparent representation. For example the portfolio received a dividend from BUD at a declared rate of $1.77 but after conversion to USD it came to 1.709/share. The dividends will be used to calculate an overall return.  So if I have 2 shares in a company and receive a $.50/share dividend the total dividend received will be $1.00.

I'm also adding a spreadsheet with the reported earnings of each company. It will be a work in progress but will allow us to create a long term view of how the company has increased earnings over time.  As time goes on it will give us a quick view to a companies earning history.


I added to BTI the other day as I feel any price under $115 is a decent value for the company. Plus I love tobacco stocks. I could care less that fewer people smoke every year. This industry will continue to buy back shares thus increasing our share of earnings. Also current industry players are well insulated from competition due to government regulations which make it a unique investing opportunity.  I want to own the companies with the best profit margins and highest dividends in this sector.

That's all for now. Feel free to follow on Twitter when you can see during the day when an add is being made to the portfolio as I don't always put up a post the day of. I'm working on getting a feed directly onto the blog which should be cool to see. You can follow at @LngHaulInvestor.  Thank you for stopping by. Have a great weekend!

Wednesday, December 16, 2015

Fed Rate Hike Decision

There has been an awful lot of talk regarding Janet Yellen and the FOMC meeting this week. To me it's pointless.  The Fed made it clear throughout the fall that rates would be hiked in December.

What it means for out portfolio is also quite meaningless.  Years from now it will not matter what the Fed decided to do. Our companies will continue to work hard making more money for us the entire time while we sit back.  Oh how I love investing!

If it really mattered Goldman Sachs wouldn't have upgraded Visa  to their conviction buy list yesterday. Or MasterCard wouldn't have raised it's dividend and announced a bigger share buyback.  Or how about Altria which is one of my favorite holdings. I think after today people will still be buying cigarettes, and many smokers will not even have a clue as to what the Fed is doing today.

So go on about your day like normal.  Stocks will continue to go up(albeit not in a straight line) since capital will continue to flow into the USD and spill over into equities. When the next inevitable recession comes we will be at the ready to buy some companies at insanely cheap prices.

Cheers!

The Long Haul Investor

Monday, December 14, 2015

Ringing the register with MasterCard

Lost in the noise of the falling market this week was news that MasterCard Inc. decided to raise it's dividend 19%, and initiate a new $4 billion share buyback program. With that in mind I decided to finally add shares in one of the worlds leading payment processors and solutions provider.

I love getting a pay raise. Especially one that is way higher than just about any employer would give me on a yearly basis. MasterCard has been paying a dividend since 2006 and it's been generous with raising it ever since.  The company has averaged a 56% yearly gain in pay raises to investors since the dividend began.  While the overall yield is a little low the payout ratio has averaged between 15-22% in recent quarters leaving plenty of room for growth. Personally I see the company targeting a 30-40% payout ratio in the next 3-6 years.

Other things to love about the company is it's operating margin that comes in at 53%, and a net income profit margin of 39%. That's very close to it's peer Visa Inc. Additionally I love the balance sheet. The company has a current ratio of 1.58 and when I subtract Goodwill and Intangibles from Assets against Liabilities I calculate a ratio of 1.41. The higher the ratios the better the company is at managing it's debt and cash. Did I mention this is a Warren Buffet holding also?

MasterCard has been around since 1966 and it has come a long way since then.  MasterCard is benefiting from the same trends as Visa and American Express.  Societies around the world are slowly moving towards less cash within the economic system. No doubt the move is highly touted by the companies as it means more profits and deeper entrenchment into our daily lives. It's my belief that this trend is here to stay and MasterCard has built a dominate position it should easily be able to defend. I added the shares on December 11, 2015.  If you follow on Twitter you can get my updates during the day when I decide to add a security to the portfolio @LngHaulInvestor

Saturday, December 12, 2015

Adding Church & Dwight

I decided to finally add Church and Dwight to the portfolio.  With the market being shaky I want more exposure to sturdy consumer staples. I believe if a recession were to hit in the next 6-18 months stocks of this type will hold up better as big money parks their cash in these assets to ride out the storm. Church and Dwight was founded in 1846 as a baking soda sales company, but now also sells personal care and household products. The company controls the Arm&Hammer brand which is recognized throughout the US.  Additional brands include Trojan, Nair, Oxiclean, and Vitafusion to name a few.  These brands are well known recognized names which continue to generate a lot of cash for shareholders.

The company has provided outstanding results to shareholders the last decade. The stock is up over 355% the last ten years compared to the 57% gain in the S&P 500. This doesn't include dividends which averaged 13% yearly growth over that time, and have shown an actual increase of 466%! Pretty outstanding results. If you are a dividend growth investor(which we like to be as much as possible) that is one outstanding pay raise. While I'm not expecting dividends to grow that much in the next 10 years I expect the returns to be above average. The company pays out 35% of FCF so there is room to increase the dividend over time. The company also has a solid net income profit percentage with the last 3 years coming in right around 12%. The stock is trading on the expensive side as I calculate a total yield of 5.11%. However if I can buy shares at a good discount in the future I'll make additional adds to the portfolio. The company also sports impressive 20% operating margin, ROA of 10%, and ROE coming in at 19%.

The balance sheet is also good. This enables the company to borrow at favorable rates with its highest coupon debt coming in at 3.35%(due 12/15), and the next highest at 2.875%(due 10/22). Additionally the company values it's trade names at $860 million.  If we take all intangible assets & goodwill from the balance sheet that leaves $1.58 billion in assets. It also gives us a ratio of .73 for assets minus goodwill & intangibles divided by total liabilities.  While that ratio is low compared to say WFM which sports a ratio of 2.51, it is not out of line for companies that have valuable brand assets.

Management has also stated the company is continuously looking for strategic acquisitions that provide outstanding return.  The company has so far proven to be very reliable in its acquisitions providing value to shareholders.  In the future I believe the company will provide a good source of stable profits and dividends as consumers generally don't cut back as much on these products as say electronics in rough times. Church and Dwight has also shown how boring products can be immensely profitable.  The shares have been added effective 12/9/15




Monday, December 7, 2015

Adding COST and DEO

Shares of Costco Wholesale Corp and Diageo PLC have been added to the portfolio.  I have a quick synopsis of each below.

Costco Wholesale Corp(COST) -  Sadly I've been personally eyeing this stock when it was $100 a share. Just never pulled the trigger. I even watched it as it came back from the fall swoon.   Sigh. Well I'm proud to say its finally here to stay.

COST has delivered exceptional returns to shareholders.  First of all the company has increased its dividend the last 10 years at an average of 13%. That doesn't even include the special dividends its paid. The dividend has been increased by 248% the last ten years. That's an amazing pay raise if you are a dividend growth investor. The company has a ROE of 20%, ROA of 7%, and ROI of 13%. Very respectable measures across the board. The net income and operating percentages are 2.07% and 3.12% which are expected in this industry.  I'm not crazy about the total stock yield(EPS+Dividend) of 4.30% that I calculated. However when a stock starts hitting new highs before the market does I've learned from other stocks I followed it's a sign of a truly great stock that's destined to outpace the broader market.

Why is Costco worthy of standing the test of time? For one it offers a unique shopping experience all while competing in one of the most competitive landscapes. You can't order bulk sizes of many products it sells online from competitors or at other local stores.  They are one of the largest sellers of organic food.  You have to pay them to even shop at their locations.  Plus a large chunk of their transactions are processed with cash or debit cards which reduces their transaction costs compared to other retailers.  Their online shopping allows members to realize big savings with modern convenience.

Diageo PLC (DEO) - I've been eyeing alcohol stocks lately and I'm pleased with the addition of DEO at this level. The stocks sports a current yield of 3.70%, and has grown an average of 4.80% for the ADR shares the last ten years. Management has stated its committed to raising the dividend mid-single digits as they've hit the outer limits for their payout ratio. So I'm not expecting any 10%+ dividend raises anytime soon. What I like most is the last three years net income profit percentage is over 20%. Basically for every dollar in revenue twenty cents falls right to investors pockets. Not many companies can boast that kind of return.   The stock offers a total yield of 8.68% which is in the range I prefer.

Why would we own this company? The company has a 26% share of the global spirit market and owns some of the worlds premier whisky and scotch brands. The company owns Guinness beer which has only been around since 1759. Also the company took full control over the Don Julio Tequila brand this year. Tequila has been one of the strongest growing spirits the last few years and the company recognizes it's potential.  I have tried many of their products over the years and a couple of their brands are my personal favorites. My hope is the stock will become a personal favorite also!

I'll be on the lookout to make additional buys if the prices drop far enough for either stock. Offer up any comments or thoughts. It's always great to see what others are thinking. Also follow on Twitter at @LngHaulInvestor.

Thursday, December 3, 2015

Market Peculiarities

It's always amazed me how some individual stocks act in regards to the overall market behavior. Even though the market has just corrected and subsequently climbed back towards the highs set over the summer there are some great companies with completely divergent paths.

For example Whole Foods(WFM) and Costco(COST) have completely divergent charts right now despite having one big similarity. They are the nations two largest sellers of organic food. Yet one has been trading near yearly lows while the other is sitting at fresh all time highs. I'm an ardent fan and customer of both companies.

Or in the payment processing space there is American Express(AXP) and Global Payments(GPN). Both serve the purpose of facilitating financial transaction processing for customers and merchants. While you may never know you're using Global Payments or an American Express network at checkout, you will know when you're using an American Express card.

Sometimes good companies get taken to the woodshed. Which is what provides smart investors a great buying opportunity.  Other times they can become over valued which is what we must be careful of when investing.