Posted by
4Life |
Wednesday, April 30, 2008
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basics
|
The most dangerous investment is not investing in hedge funds, or even in derivatives. Though very risky, investing in penny stocks or day trading is not the most dangerous investment. Neither is investing in gold, or other commodities. Though investing in emerging markets focused on countries with unsettled governments is quite risky, it is still not at the top of the list. Even "investing" in lottery tickets is not the most dangerous investment.
All the above have something in common - there is a chance of success, albeit very small in several of them. The most dangerous investment has zero chance of success. It is simply not investing at all. I do not consider money market accounts (MMAs) and CDs as investing; they are just another form of cash. With MMAs and CDs your best case scenario would likely be to keep up with inflation.
Before investing, here are some things you should consider:
- Do your homework before turning over your money. If you entrust your money to someone else, make sure they are a licensed and registered investment professional. In the U.S. you can use BrokerCheck to check the background of your investment professional.
- Understand what you are investing in. If someone can't explain the investment where you quickly and completely understand how it works, then you should not be investing in it.
- Make sure the investment meets your needs. Understanding an investment is not enough. I understand how a lot of investments work, most of which I would never invest in because they are outside of my defined long-term strategy.
- Diversify based on a sound asset allocation model. Never put all your eggs in one basket. Spread your risk among different industries, companies (size and type), and kinds of investments. Never invest more in any one security than you can afford to lose.
The U.S. Securities and Exchange Commission (
S.E.C.) has a wealth of information for investors. One item you may find useful is "
Questions You Should Ask About Your Investments". It is not only good for new investors, but also is a good reminder for those of us who have been around the block a couple of times.
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Posted by
4Life |
Tuesday, April 29, 2008
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commentary
|
Like most kids growing up in the late 60's early 70's, I spent my fair share of time reading comic books. I can't remember a lot about what was in them, but I do remember several of the ads. Of course, there was the classic Charles Atlas ad where the beach bully kicked sand on the skinny boy and his girlfriend.
But the ad that I remember the best was the "Magnificent Marvelous Money Machine". It was a wooden block with some rollers in which you would put a one dollar bill in one side and a five dollar bill would come out the other. Being very young and naive, my mom had a tough time convincing me that it was just a trick and something like that didn't really exist.
Sorry mom, but you were wrong on this one. The "Magnificent Marvelous Money Machine" does exist, but it has a different name. It is called Dividend Investing. You invest your money today in solid companies with growing dividends and you will be able to spend the rest of your life pulling money out of your investment; and then you can pass the "Magnificent Marvelous Money Machine" on to your kids.
Unfortunately, I couldn't find the "Magnificent Marvelous Money Machine" on the Internet, but for those that didn't see the ad growing up, click here for the modern version of it.
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Posted by
4Life |
Monday, April 28, 2008
|
analysis
|
Linked here is a PDF copy of my detailed analysis of The Hershey Company (HSY) (alt.1, alt.2). Below are some highlights from the above linked analysis:
Company Description: The Hershey Company engages in the manufacture, marketing, distribution, and sale of various types of chocolate and confectionery, refreshment and snack products, and food and beverage enhancers in the United States and internationally.
Fair Value: I consider four calculations of fair value, see page 2 of the linked PDF for a detailed description: 1.) Avg. High Yield Price, 2.) 20-Year DCF Price, 3.) Avg. P/E Price and 4.) Graham Number. HSY is trading at a discount to only 1.) above. Since HSY's tangible book value is not meaningful, a Graham number can not be calculated. If I exclude the high and low valuation and average the remaining two valuations, HSY is trading at an eye-popping 105.6% premium. HSY has a Star deducted for trading at a premium in excess of 5%.
Dividend Analytical Data: In this section I consider five factors, see page 2 of the linked PDF for a detailed description: 1.) Rolling 4-yr Div. > 15%, 2.) Dividend Growth Rate, 3.) Years of Div. Growth, 4.) 1-Yr. > 5-Yr Growth and 5.) Payout 15% of avg. HSY earned one Star for 3) above. It has grown its dividends for 10+ years. However, it had one Star deducted since its 2007 dividend payout was 122%, which was more the 15 points (15%) higher than the previous 10-year average of 53%. Combined, HSY earned net of zero Stars in this section.
Dividend Income vs. MMA: Why would you assume the equity risk and invest in a dividend stock if you could earn a better return in a much less risky money market account (MMA)? This section compares the earning ability of this stock with a high yield MMA. Two items are considered in this section, see page 2 of the linked PDF for a detailed description: 1.) NPV MMA Diff. and 2.) Years to >MMA. HSY lost one Star in this section since the NPV MMA Diff. was negative.
Other: HSY is not a S&P 500 Dividend Aristocrat but is a member of The Broad Dividend Achievers™ Index. HSY reported in their 2007 10-K that "the 2007 dividend increase represented the 33rd consecutive year of Common Stock dividend increases".
Conclusion: Quantitatively, HSY had a Star deducted in the Fair Value section, earned a net of zero Stars in the Dividend Analytical Data section and had a Star deducted in the Dividend Income vs. MMA section for a total of negative 2 Stars, since the low end of my scale is zero, HSY is rated as a 0 Star-Avoid stock.
As bad as the Quantitative data looks, I think HSY may have hope for the future. The calculated growth rate of 4.4% is based on an estimated $1.19 dividend in 2008. Using my DFL-PreScreen.xls model (available on the tools page), HSY would need a 12.2% dividend growth rate to reach the minimum $10,000 NPV MMA Diff I like to see. I am certainly not buying now, but HSY is worthy of being put on my watch list.
Disclaimer: Material presented here is for informational purposes only. The above quantitative stock analysis, including the Star rating, is mechanically calculated and is based on historical information. The analysis assumes the stock will perform in the future as it has in the past. This is generally never true. Before buying or selling any stock you should do your own research and reach your own conclusion. See my Disclaimer for more information.
Full Disclosure: At the time of this writing, I do not own shares of HSY (0.0% of my Income Portfolio).
What are your thoughts on HSY?
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Posted by
4Life |
Sunday, April 27, 2008
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tease
|
Some call it sweet, others call it sinful. It often finds its way into our homes through our kids. On first contact it is quite pleasurable as it lures your mind into submission. Oh, but there is a dark side. It invades your body and permeates every square inch of it, leaving behind monuments honoring its past conquests. Has it invaded you? But the more important question is, should it be in your dividend portfolio? Stay tuned, and we'll find out...
You can't TiVo this story, or any of the others on the D4L Channel. There is only one way to ensure you don't miss a one of them, and that's by clicking here and claiming your free subscription. Thanks for watching the D4L Channel!
While waiting for this week's presentations. You may want to tune in to a few of these classic episodes:
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Posted by
4Life |
Saturday, April 26, 2008
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admin,
commentary
|
In the book "Genghis Khan or the Emperor of All Men" by Harold Lamb, Khan was described as such:
Eight hundred or so years ago, a man almost conquered the earth. He made himself master of half the known world and inspired humankind with a fear that lasted for generations. Genghis Khan, meaning universal ruler, was a man difficult to measure by ordinary standards. When he marched with his army, it was by degrees of latitude and longitude instead of miles; cities in his path were often obliterated and rivers diverted from their courses; deserts were populated with the fleeing and dying, and after he had passed, wolves and ravens were often the sole living things in a once populous area.
If you could stand face to face with Genghis Khan and call him a "Ruthless Warrior", do you think this would offend him? Probably not, since it is true and he would take great pride in his accomplishments.
Somehow my wife does not understand this concept when she tries to shame me into doing things by calling me "cheap". I have long since learned not to say "thank you" when she calls me "cheap".
However, there are downsides to being naturally and inherently frugal (I prefer frugal to cheap). I have been blogging since November/2007 and until last week had not spent a penny on by new-found hobby. I use Blogger for the blog, Media Max to host my files and Gmail for email; all of which are free. However there can be a dark side to frugal.
Last week I decided to go ahead and upgrade my domain to a custom domain (www.Dividends4Life.com). It was only $10, but I am still sorting out several issues including trying to get my ranking and ratings back. On Alexa my 3-month rank had reached about half a million and my one week rank was closing in on 100,000; now I am back over 9 million for a 3-month rank and 248k for a one-week rank. On Technorati I saw my authority go from the high 80's to 0. My Google page rank went from 3 to 0. Of course you have the normal feed issues and such.
Just as I was finally getting a handle on the domain issue, I got an email from Media Max that they are changing their name and domain and will not be transferring the "free" accounts. So I started scurrying around to manually move my account to their new domain. Curently, I am trying yet another free file hosting service. If you have clicked on one of my PDFs or spreadsheets over the last week you will have noticed it does not work quite as efficient as the old Media Max link. I will continue to sort through these issues. In the mean time, when you find a broke link, let me know and I will correct it.
My wife feeling somewhat smug looked at me and said, "I hope you have learned something from this!". When I replied, "I sure did. When you rely on free stuff you better have a good backup plan."
She just sighed and walked off. Go figure.
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Posted by
4Life |
Friday, April 25, 2008
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carnival
|
Each Friday I highlight the Carnivals I participated in over the past week, along with any notable articles that I came across. For those readers not familiar with carnivals, it's where personal finance bloggers submit their best articles of the week with one blog serving as the host. The entries are separated into various categories such as Investing, Credit, Debt, Budgeting, Frugality, Wealth Building, Money Management, Financial Planning, Insurance, Taxes, The Economy, Real Estate, et. al.
Below are the carnivals that I participated in this week, along with a link to my article:
Articles I enjoyed reading included (in no particular order):
Dividend ArticlesOther Articles (covering a wide and diverse spectrum)There are some really good articles there, please take time and read a few of them.
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Posted by
4Life |
Thursday, April 24, 2008
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commentary
|
If you really want to know what is important to a person, you don't ask the person. Instead, you watch what they do. This will reveal where their heart truly lies. Attached is a PDF copy of my Excel Dashboard that I use to track stocks. I consider each of the metrics on here important, but which do I consider the most important?
In determining which piece of information I consider most important, the answer lies in my actions. Each time I look at this tab, I automatically sort the stocks by the "NPV MMA Diff." column. Upon reflecting on this, I determined that "NPV MMA Diff." is what I consider to be the most important piece of information.
As a reminder, "NPV MMA Diff." is based on a hypothetical $1,000 investment in a stock and a $1,000 investment in a money market account (MMA) earning a pre-defined rate. The value calculated is the net present value (NPV) of the difference between the dividend earnings of this
investment and the interest income from the MMA over 20 years. Other assumptions include:
1. Dividends grow at the Dividend Growth Rate
2. Dividends are reinvested
3. Share price appreciation is not considered
4. Interest income is reinvested in the MMA
If you are interested in seeing how "NPV MMA Diff." is calculated, I will refer you to my DF4-PreScreen.xls model on the Tools page.
Looking at the PDF, you will see four stocks have "NPV MMA Diff." values in excess of $100,000. This is a "too good to be true" situation where the market has discounted the these stocks for some reason. Here is my speculation looking at them individually:
- SFI - This is a finance company focused on the commercial real estate industry. With "finance company" and "real estate" in the description, this company has taken a double hit. I suspect the market has priced a significant economic hit and a dividend cut into SFI. With a 19% yield, if the market is wrong someone will make a lot of money. I consider this to be my most risky stock.
- RY - The market does not believe RY can continue to grow its dividend at a 20+% rate. I agree. Using my DF4-PreScreen.xls to run some scenarios I found that to get the $10,000 "NPV MMA Diff." I like to see, RY will have to grow its dividend at 9.1%. An anemic growth rate of 2.8% will get it to $1,000 of "NPV MMA Diff." I am not overly concerned with RY.
- ACAS - The market believes that ACAS cannot continue to pay a 12% dividend and grow it at 7+%. Maybe it can't, but for the last 10-years it has proved the market wrong. I characterize ACAS as a risky stock - but I am still buying as my allocations allow.
- HD - Historically HD has raised it dividend at 20+%. those days are gone. Its dividend has been flat for six straight quarters. Using my DF4-PreScreen.xls to run some scenarios, I found that to get the $10,000 "NPV MMA Diff." I like to see, HD will have to grow its dividend at 12.3%. It will take a 6.6% growth rate to get $1,000 of "NPV MMA Diff." HD is in trouble, that is why I have put it "on the shelf".
Moving to the other end of the list. Here is my speculation on the bottom four:
- WMT - A recent 8% dividend increase was not enough to keep the "NPV MMA Diff." from going negative. I am hoping WMT will return to its double-digit dividend increase in the future, but until then, it is "on the shelf".
- HCP - With a $1,692 "NPV MMA Diff." driven by a 4.8% yield and a 1.8% growth rate, this stock is a yawner. It is a steady performer, but its performance doesn't leave much room for error.
- JNJ - Your classic dividend stock. With a $2,443 "NPV MMA Diff." driven by a 2.5% yield and a 11.0% growth rate, there is not much room for error. But that's ok, JNJ historically hasn't made a lot of errors.
- ED - Classic utility - good dividend yield of 5.6% with an anemic 0.9% growth rate. I will continue to buy for diversification reasons as my allocation allows.
Ahhh... you got to love that "NPV MMA Diff." metric!
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Posted by
4Life |
Wednesday, April 23, 2008
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commentary
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You are a financial advisor. You have clients that have worked 30 years and built significant nest eggs, now they are ready to retire and enjoy the fruits of their labor. After a few years your clients start to complain that:
they cannot live on the withdrawals they have been making. Inflation, averaging eight percent over the last five years, has so eroded their purchasing power that they must substantially increase their withdrawals or face a drastically reduced quality of life. When you compute the effect on your clients' portfolios of these much higher levels of withdrawals, you are shocked: many clients will deplete their assets in less than ten years, even though in many cases their life expectancies are much longer. You have very bad news to tell them. What could have gone wrong?
The above fictional account is from the article "
Determining Withdrawal Rates Using Historical Data" by William P. Bengen. The article goes on to say:
Assuming a minimum requirement of 30 years of portfolio longevity, a first-year withdrawal of 4 percent, followed by inflation-adjusted withdrawals in subsequent years, should be safe.
But what if you live 31 years? What if the market declines by double-digit figures for three years in a row? What if you don't want to spend your retirement managing and worrying about your portfolio?
Put it on Auto Pilot, specifically on a Dividend Investing Auto Pilot. Dividends from a quality, well-diversified portfolio are much more predictable than capital gains and best of all, they are passive. You don't have to do anything, they just show up in your brokerage account each quarter. Inflation? Not to worry, the good companies routinely raise their dividends well in excess of the inflation rate.
Retirement is not when you want to start learning how to dividend invest. There is a degree of art to dividend investing. Start young, time is always a great ally.
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Posted by
4Life |
Tuesday, April 22, 2008
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commentary
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Regular readers know that Dividends4Life isn't just about dividend stock investing, but developing a winning attitude that can be applied to every aspect of our lifes. Recently I ran across an interesting web page "21 Suggestions for Success", by H. Jackson Brown, Jr. Here are the 10 that I identified as most important building success in my life:
8. Persistence, persistence, persistence.
10. Treat everyone you meet like you want to be treated.
11. Commit yourself to constant improvement.
12. Commit yourself to quality.
13. Understand that happiness is not based on possessions, power or prestige, but on relationships with people you love and respect.
15. Be honest.
16. Be a self-starter.
17. Be decisive even if it means you'll sometimes be wrong.
18. Stop blaming others. Take responsibility for every area of your life.
19. Be bold and courageous. When you look back on your life, you'll regret the things you didn't do more than the ones you did.
I could use some work on many of the others. It is a great list. I hope you enjoy pondering the list as much as I did.
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Posted by
4Life |
Monday, April 21, 2008
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analysis
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Linked here is a PDF copy of my detailed analysis of Canadian National Railway Company (CNI ADR:NYSE) (alt.1, alt.2). Below are some highlights from the above linked analysis:
Company Description: Canadian National Railway Company (CNI) operates Canada's largest railroad, linking customers in Canada, the U.S., and Mexico through approximately 20,400 miles of track.
Fair Value: I consider four calculations of fair value, see page 2 of the linked PDF for a detailed description: 1.) Avg. High Yield Price, 2.) 20-Year DCF Price, 3.) Avg. P/E Price and 4.) Graham Number. CNI is trading at a discount to 2.) and 3.) above. If I exclude the high and low valuation, and average the remaining two valuations, CNI is trading at a 1.5% discount. CNI has a Star added for trading at a fair value.
Dividend Analytical Data: In this section I consider five factors, see page 2 of the linked PDF for a detailed description: 1.) Rolling 4-yr Div. > 15%, 2.) Dividend Growth Rate, 3.) Years of Div. Growth, 4.) 1-Yr. > 5-Yr Growth and 5.) Payout 15% of avg. CNI earned Stars in 1.), 2.) and 3.) above. It has grown its dividends for 12+ years.
Dividend Income vs. MMA: Why would you assume the equity risk and invest in a dividend stock if you could earn a better return in a much less risky money market account (MMA)? This section compares the earning ability of this stock with a high yield MMA. Two items are considered in this section, see page 2 of the linked PDF for a detailed description: 1.) NPV MMA Diff. and 2.) Years to >MMA. CNI did not earn any Stars in this section. With a current yield of 1.8%, has a NPV MMA Diff. of $8,246 (per thousand), which is less than the $10,000 threshold needed to earn a Star. Based on its current yield and estimated growth rate of 17.7%, it will take CNI 11 years to exceed the earnings of a MMA yielding 4.61%.
Other: CNI is not a S&P 500 Dividend Aristocrat or a member of The Broad Dividend Achievers™ Index. S&P's qualitative risk assessment is low based on CNI's strong profitability, cash flow generation, balance sheet and a diverse customer base. CNI is one of the most efficiently run railroads and should be able to maintain its competitive advantage via strict cost controls and efficiency-boosting measures.
Conclusion: Quantitatively, CNI earned one Star in the Fair Value section, earned three Stars in the Dividend Analytical Data section and earned no Stars in the Dividend Income vs. MMA section for a total of four Stars, which rates it as a 4 Star-Buy stock.
My original investment in CNI was in November 2007. My annualized return on CNI from Sep/2007 through Friday is +32.62% with a year-to-date it is a gain of 12.3%. During my short time to hold CNI, I have been well-pleased with its performance. With the CNI trading below the five-year historical average, I will continue to add to my position as my allocation allows and until circumstances dictate a different coarse of action.
Disclaimer: Material presented here is for informational purposes only. The above quantitative stock analysis, including the Star rating, is mechanically calculated and is based on historical information. The analysis assumes the stock will perform in the future as it has in the past. This is generally never true. Before buying or selling any stock you should do your own research and reach your own conclusion. See my Disclaimer for more information.
Full Disclosure: At the time of this writing, I own shares of CNI (1.8% of my Income Portfolio).
What are your thoughts on CNI?
Recent Stock Analyses:
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Posted by
4Life |
Sunday, April 20, 2008
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tease
|
It is the gripping story of "Iron Horse". He spent much of his life in obscurity delivering the goods in the great frozen north. He was good, very good, too good to stay hidden. Before anyone realized it he had turned his sights south and took all the land he needed. The only thing that stopped him was the Gulf of Mexico. But can that even contain him? Stay tuned...
It's been an exciting week! Next week is going to be another exciting one. Don't risk missing a minute of it. You can have it all packaged and delivered directly to you free by clicking here and subscribing to the D4L Channel.
While waiting for this week's thriller. You may want to tune in to a few of these classic episodes:
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Posted by
4Life |
Saturday, April 19, 2008
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commentary
|
Last week I listed the stocks in my portfolio that I considered to be "My Favorite 5 Stocks for Today". I thought it would be interesting to followup with the stocks that I am holding that are on the other end of the spectrum. It is important to note these picks will change over time (maybe even by the time the market opens on Monday). Below are the 5 stocks in my portfolio that I am the least happy with:
- HD - HD has held its dividend constant at $0.225/share for the last six quarters, and I suspect it will continue for at least one more quarter. That's ok if you have a double-digit yield, but at 3+% I expect more. This stock is currently "On The Shelf".
- WMT - Unlike HD, WMT raised its dividend at the appointed time, but at 8.0% it wasn't enough to keep my model smiling. At the current yield and a lower growth rate the NPV MMA Diff. is now negative. WMT is no longer a buy but is also "On The Shelf".
- STI - As noted in an earlier post, I am holding too many different bank stock (6) and I am looking to sell 2-3 of them. From a total return standpoint STI is my worst performer of all income stocks that I hold, which has put it "On The Shelf".
- MTB - Ditto STI above. From a total return standpoint, MTB is my second-worst performer of all income stocks that I hold, which too has put it "On The Shelf".
- SFI - Within my income investments, SFI is by far my most risky investment. This is reflected in its ~20% yield. SFI is normally above-average when it comes to volatility, but recently, its volatility has been especially high. SFI is currently not "On The Shelf", but I am watching it closely.
Disclaimer: Material presented here is for informational purposes only and is based solely on my opinion. Before buying or selling any stock you should do your own research and reach your own conclusion. See my Disclaimer for more information.
Full Disclosure: At the time of this writing, I own shares of all the above-mentioned stocks.
What are your 5 least-favorite stocks in your portfolio?
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Posted by
4Life |
Friday, April 18, 2008
|
carnival
|
Each Friday I highlight the Carnivals I participated in over the past week, along with any notable articles that I came across. For those readers not familiar with carnivals, it's where personal finance bloggers submit their best articles of the week with one blog serving as the host. The entries are separated into various categories such as Investing, Credit, Debt, Budgeting, Frugality, Wealth Building, Money Management, Financial Planning, Insurance, Taxes, The Economy, Real Estate, et. al.
Below are the carnivals that I participated in this week, along with a link to my article:
Articles I enjoyed reading included (in no particular order):
Dividend ArticlesOther Articles
There are some really good articles there, please take time and read a few of them.
Read More...
Summary only...
Posted by
4Life |
Thursday, April 17, 2008
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commentary,
quotes
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"If a man is a quitter, I'd rather find out in practice than in a game. I ask for all a player has so I'll know later what I can expect."
-- Legendary Alabama Coach Paul "Bear" Bryant
Coach Bryant would push players to the very edge of their physical tolerance and dare them to quit. Many did, but those that remained were battle-tested warriors for which failure was not an option. Adversity will either bring out the good or bad in us.
Players in my portfolio often face difficult times, much of it is often brought on by themselves. Wachovia Corp. (WB), the nation's fourth-largest bank, is the latest example of a financial institution facing adversity. WB on April 14th reported:
- A $393 million first-quarter loss
- That it is looking for a $7 billion cash infusion
- Plans to cut 500 jobs
- A provision for credit losses of $2.8 billion
- Stock offerings for an aggregate of $7 billion
- A 41% cut in its quarterly dividend to $0.375
I held shares of WB in my Roth IRA. I consider it an income investment and, as such, it was subject to the same income rules as my taxable account - if you cut your dividend you are off the team and escorted out of my portfolio.
This is not necessarily a bad thing. When the last financial shoe drops, those left standing will be battle-tested warriors ready to face adversity without blinking. My portfolio just got stronger.
Related Articles:
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Posted by
4Life |
Wednesday, April 16, 2008
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who is...
|
A 2003 CNN-Money article described Charles Mangum as such:
As the son of a Merrill Lynch broker, Charles Mangum has always been fascinated by the market. At age 14, he bought a few shares of convenience-store chain Circle K and watched his investment double. "I thought, 'This is so much fun,'" says Mangum.
A few years later, he suffered his first loss when another of his picks, Nichols Oil, went bankrupt. Mangum was unfazed. "It didn't change my view of stocks," he says. "I knew I loved investing."
In 1990, Charles joined joining Fidelity Investments and worked as a research analyst and portfolio manager. Since January 1997, he has worked as vice president and manager of Fidelity's Dividend Growth Fund (
Prospectus) and also manages other Fidelity funds.
His investment philosophy is to find mature growth stocks that tend to be less risky and stronger financially. The emphasis on strong balance sheets steered him clear, for the most part, of tech bubble in the late 1990's. His portfolio is typically concentrated in health-care, consumer and financial stocks, mainly large-caps and midcaps. That is not to say his fund does not take chances. Charles makes concentrated bets by scooping up troubled but financially strong companies.
Charles is now 42 years old and according to a recent
Motley Fool article, the Fidelity Dividend Growth fund has beaten 80% of its peers over the past decade. The article goes on to say:
Like you and me, Mangum is in pursuit of the ultimate dividend stock -- the stock that will leave investors set for life. And having trailed his competition in recent years, Mangum is hungry -- and looking for a promising stock that the market's turned its back on.
And just what is this stock? It is Bank of America (BAC). The above article notes several important facts about BAC:
- The entire financial sector is currently out of favor
- The company absolutely dominates U.S. retail banking
- It is currently paying a dividend of around 7%
- It has a solid balance sheet. BAC sold off its sub-prime business a while back, and credit appears under control
In my opinion (see
Disclaimer), the day will come when we will look back at this time and wish we had bought more quality financial stocks - the key is finding quality in these sometimes murky waters.
Related Articles:
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Posted by
4Life |
Tuesday, April 15, 2008
|
models
|
Last Wednesday I posted "Measuring Asset Allocation Across Your Entire Portfolio" discussing the importance of periodically reviewing your asset allocation across all your holdings. It was a significant project that I undertook to measure my asset allocation over all my investment holdings using three different measures (origin, capitalization and sector).
As with most investment analytical work, I added a new tab in one of my two massive spreadsheets and set it up so that I can update it by cutting-and-pasting information from Morningstar into my spreadsheet. From start to finish, the whole updating process can be completed in about 20 minutes.
After that post, I received a comment requesting that I make this spreadsheet available. So once again I pulled out my surgical knife and extracted a template that can be used as a starting point for reviewing your asset allocation across all your holdings. It is linked on the tools page as D4L-Asset-Allocaton.xls.
As with all the models I post, I assume that you have a working knowledge of Excel. Once you open the above-linked model you will note that I have stripped it down to Income ETFs, Income Stocks and Other. This will provide sufficient examples for you to expand the model to meet your specific needs considering the various types of available investments. As you will note, for each type of investments there is a $ and a % column. The dollars are accumulated then the percentages are calculated based on the dollars. You will also note that above the column headings you can expand and collapse the dollar columns either one at a time by press [+] or [-] or all with them by pressing the [1] or [2] buttons. To begin with, press the [2] button to expand all the columns.
Income Stocks
Let's look at the income stocks first since they are the easiest to work with. This section begins at cell A88. Column A is the ticker symbol; col. B is the capitalization Large, Mid or Small; col. C is the country of origin; col. D is the current market value. As noted in last week's article, I use Morningstar for all my investments to ensure classification consistency. Let's take a look at ACAS as an example.
The above link to ACAS will take you to the company's snapshot. Look at the Key Stats next to the performance graph. The line Morningstar Style Box will show the stock capitalization. In the case of ACAS it is listed as Mid Value so it is a "Mid-Cap" stock as entered in cell B90. It is important to use the capitalization terms exactly as I have them in the spreadsheet (Small-Cap, Mid-Cap and Large-Cap) since I use a sumif() formula to summarize the various capitalizations. This calculation occurs around cell G114.
Back to Moriningstar (still in Key Stats), move down a couple of lines to Sector. Here you will see ACAS is listed as "Financial Services", which is entered into cell D90. Again it is important to use the tags (e.g. Financial Services) just as they are in the model since I once again use a sumif() formula to add them up. This calculation occurs around cell H90.
In col. C is the country of origin. This can be determined by clocking on the Company Profile tab above the performance graph. For ACAS, Bethesda, MD would mean it is a "U.S." company. This is calculated at cell N89. For those outside the U.S. you can change the formula in column N to list your country as "domestic".
To view another company go to the top left and enter a new symbol in the Quote box. Individual stocks held in your IRA or other investment type would work identical to what was described above.
Mutual Funds and ETFs
Now let's look at mutual funds and ETFs. This is where the potential problem could have been. Since these type of investments are made up of multiple stocks across various sectors, this is where Morningstar really steps up and helps us through the process. Let's look at the ETF SDY as an example.
Note I use Internet Explorer instead of FireFox for the next section since IE does a much better job interacting with Excel via copying and pasting.
Go down below the Premium Features section to the Portfolio Analysis section. To the right you will see Sector Breakdown. Starting with the number to the right of "Utilities", use your mouse to highlight the table up through the icon to the left of "Information". Right click, copy, then paste into Excel at cell A134. Beginning at cell B127 you can see where the value associated with SDY is allocated across the various sectors. Repeat the process for your various other investments moving to the right. Everything is totaled up in beginning in cell Q157. A couple of items of note, AOD is a relatively new fund and when I first put this together it did not have a sector breakdown so I listed it as unclassified. Also, VNQ (Vanguard's Real Estate REIT) did not have a sector box so I set up a separate sector for Real Estate.
The capitalization and origin classifications work identical to those in the Income Stock section above. Obviously this is not a plug-and-play template. It will take some work on your part to customize it to meet your specific needs.
I hope you find this template as useful as I have.
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Posted by
4Life |
Monday, April 14, 2008
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analysis
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Linked here is a PDF copy of my detailed analysis of National Retail Properties, Inc. (NNN). Below are some highlights from the above linked analysis:
Company Description: Commercial Net Lease Realty, Inc. is a real estate investment trust (REIT) that invests in high-quality, freestanding retail properties subject to long-term net leases with major retail tenants.
Fair Value: I consider four calculations of fair value, see page 2 of the linked PDF for a detailed description: 1.) Avg. High Yield Price, 2.) 20-Year DCF Price, 3.) Avg. P/E Price and 4.) Graham Number. NNN is trading at a discount to 3.) and 4.) above. If I exclude the high and low valuation, and average the remaining two valuations, NNN is trading at a 4.1% discount. NNN has a Star added for trading at a fair value.
Dividend Analytical Data: In this section I consider five factors, see page 2 of the linked PDF for a detailed description: 1.) Rolling 4-yr Div. > 15%, 2.) Dividend Growth Rate, 3.) Years of Div. Growth, 4.) 1-Yr. > 5-Yr Growth and 5.) Payout 15% of avg. NNN earned a Star in 3.) above. It has grown its dividends for 17+ years.
Dividend Income vs. MMA: Why would you assume the equity risk and invest in a dividend stock if you could earn a better return in a much less risky money market account (MMA)? This section compares the earning ability of this stock with a high yield MMA. Two items are considered in this section, see page 2 of the linked PDF for a detailed description: 1.) NPV MMA Diff. and 2.) Years to >MMA. With a current yield of 6.42%, NNN earned a Star for 2.) above since its current yield is in excess of the 4.61% MMA rate. NNN's has a respectable NPV MMA Diff. of $5,614 (per thousand), which is less than the $10,000 threshold needed to earn a Star.
Other: NNN is not a S&P 500 Dividend Aristocrat, but is a member of The Broad Dividend Achievers™ Index. S&P's qualitative risk assessment is low based on NNN's position as a large owner of retail properties, the geographic and customer diversity of NNN's portfolio, and, its strong financial condition. The shareholders will benefit from NNN's position as a large owner of single-tenant properties. These properties are primarily tenanted by large, nationally recognized retailers, under long-term triple net leases, whereby the tenant bears responsibility for substantially all property costs and expenses associated with ongoing maintenance and operation.
Conclusion: Quantitatively, NNN earned one Star in the Fair Value section, earned one Star in the Dividend Analytical Data section and earned one Star in the Dividend Income vs. MMA section for a total of three Stars, which rates it as a 3 Star-Hold stock.
My original investment in NNN was in September 2005. Since then I have added to my position three times with the most recent purchase in February of this year. My annualized return on NNN from Sep/2005 through Friday is +9.9%. Year-to-date it is a loss of -1.2%. I have been well-pleased with NNN's performance and will continue to add to my position as my allocation allows and until circumstances dictate a different coarse of action.
Disclaimer: Material presented here is for informational purposes only. The above quantitative stock analysis, including the Star rating, is mechanically calculated and is based on historical information. The analysis assumes the stock will perform in the future as it has in the past. This is generally never true. Before buying or selling any stock you should do your own research and reach your own conclusion. See my Disclaimer for more information.
Full Disclosure: At the time of this writing, I own shares of NNN (7.0% of my Income Portfolio).
What are your thoughts on NNN?
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