Ganesh Kumar
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Latest Comments18 Comments
Investing in Dividend Paying Companies
Dow Chemical's Liveris Interview: Part V- Earnings
I have heard a couple of earning conferences and presentations where he claims to take DOW out of "cyclical business" and "inflection points" and all the stuff. ALL TALK so far.
The best judge whether a company is confident of its earnings and earnings growth in future is consistent dividend INCREASES. I want to BOLD and CAPITALIZE increases.
There may be share repurchases, talk about cash from Kuwait etc. But SHOW ME THE MONEY.
If Liveris is so confident that DOW can be looked past as a cyclical company why there was NO DIVIDEND increase?
This is the most important measure of company's confidence in itself.
Did the author not get to ask this very important question in this LONG interview? especially when he talked about a possible dividend increase in an earlier article (before declaration of dividend)
I am long DOW and it is disappointing when I see steel companies like Nucor and chemical companies like PPG and Dupont announce consistent dividend increases over many years , DOW keeps talking but not WALKING.
STOP TALKING AND ACT!
Is General Electric Overvalued?
Dividend Aristocrats: Top Dividend Growers
I have seen studies done historically which proves dividend paying companies far outperform non-dividend paying companies.
The problem is investors do not have patience and do not look it from a 10 to 20 years perspective. They always seeing a stock price growth for 5 years and decide the stock is dead beat. For example look at WMT chart for 5 years and then again for 15 years. You will see the difference.
My logical explanation as to why I like dividend paying companies is, it provides discipline to the management. IF a company is 'committed' to pay dividends and to grow them as the companies listed above, it provides them with a good guide line and they do not go on a shopping spree and waste money on big costly acquisitions. It provides a dependable inflation adjusted income stream for the patient investor.
I am still torn between share repurchases and dividends. I normally reinvest dividends through a DRIP program so I wonder whether stock repurchase is better for me tax wise. However a dividend is a public commitment to either retain or increase the distribution (I love companies that are committed to increase dividends like WMT, JNJ) but stock buy back is not a commitment. A company may choose NOT to buy back shares when the prices get too high.
I have some questions on NUCOR though. As I understand they are a commodity company without any 'brand' or moat. How do they manage to perform so well over time?
In the past I have resisted temptations to own NUCOR as it is a commodity company. Can some one provide more info as to why NUCOR will be around for next 30 years?
International Strategy Makes Starbucks as Attractive as Ever
I am tired of people saying oh the ratio has never been lower. They said Starbucks would not go below 25 then they said it will never go below 20 , well now it is at 17.
Will you all look at the road in front and drive instead of looking at the rear view mirror??
CPI: 2008 vs. 1980
It is great to see some optimism about USA from some one. But I wonder whether you have looked at all angles. I am sure Big American companies will do very well no matter what as they are very well diversified internationally but I am not sure whether the same is true for a common man in America. Just look at the s&P 500 companies and calculate how much of their revenues and profits come from outside USA you will know what I am talking about.
One possible difference between the past and now could be "trade". I strongly believe if a country imports more than it exports, its greatness cannot last for ever without a painful correction.
We all know that the standard of living or per capita GDP of BRIC countries are far behind the US and they have a lot to catch up .
As long as US consumes more than it produces why do you think the world will keep financing the debt of US?
Portfolio Theory Vindicated
The reason I ask this is I want to get to the bottom of how this works . We have all read Nasem Taleb's Black Swan and how "Value at Risk" simulations blew up on every one's face.
I also found one more contradictory statement in your article. You said
<Quote>"For the three years through 2005, the correlations between VEIEX, the Vanguard emerging market fund, and IVV was 76% (we couldn’t use EEM because it did not have three years of data at that time). The correlation between IVV and EFA was 83%. By contrast, the correlation between IVV and IDU, IXC, and IGE ranged from 46% (for IDU) to 60% (for IGE)."</Quote&...
If Monte Carlo is always forward looking why do you have to look at correlation data of the past.
I also wonder If some one sets up a diversified portfolio of all asset classes you mentioned above and uses dollar cost averaging by investing in all classes periodically, whether a particular asset class underperforming for a period of time really matters. In other words I have started investing now in a small cap fund (RYVPX) using dollar cost averaging (Systematic Investment). I know small caps are going to underperform but I see this as a plus than a minus. Please comment on your thoughts on DOllar Cost Averaging and Portfolio Management.
Black Swans, Portfolio Theory and Market Timing
a)Take the average returns of multiple asset classes .
b)Overweight on the assets that have underperformed recently and C)Underweight on asset classes that have outperformed(like REIT)?
Though you have given an example of the REIT currently under performing because it outperformed in 2003-2007, there are no examples of a call you made on an "under performing" asset in the past that is currently outperforming.
Here is the problem I have with this "long term market timing", what is the duration that needs to be taken as basis? For example, currently REIT sector is under performing and commodities (especially precious metals) are outperforming. Does that mean I should shift assets away from GOLD to REITs? Had I done that in middle of 2007 after six months of under performance by REIT I would be kicking myself. Is it time to shift assets now? I don't know . I am not sure whether you do.
The Market's Irrational Apathy Towards Cisco
Their Routers/Switches division enjoys these very fat margins but not their Advanced Technologies division, but their highest growth (27%) comes from the Advanced technology division not their routers/switches division
Starbucks: Accept The Addiction
I am interested in knowing how much Starbucks is spending on just leasing costs (for real estate)and what is the clause for increase in lease rents every year.
In emerging markets real estate is red hot and I am worried that Starbucks may pay too much in leasing costs at the top of the bubble.
I like licensing the stores. I wish Starbucks licensed more stores and preserved cash and use it wisely for Advertisements, brand promotion and may be start a dividend.
I was just warning that Starbucks has licensed more stores in 2007 but the % increase in licensing revenues has come down.
Starbucks: Accept The Addiction
I was also very passionate about SBUX and put in an 52-week low alert. Without looking at the numbers and without looking beneath the surface it is easy to be romanticized with Starbucks.
Of course wherever you look you see starbucks and which ever store you go there are people. I even sat at a store for about an hour to see whether the traffic slows down on a Sunday morning but could see a steady stream of people flowing in. I was more pleased!.
Starbucks is increasing its reach with bottle Frappucino's, Icecreams, choclates and Liquer. Some analyst once compared Starbucks to Amazons in the sense that as how Amazon was able to use its distribution/logistics capacity beyond books into everything now, Starbucks can use its distribution network to market and sell many more things than coffee.
In fact in one of economics book the author refers to Starbucks in London and Newyork and makes a valid point of how Starbucks has cornered all the prime locations in these cities and how it is very convenient for a consumer to get a Starbucks cofee. Would an average $50000 earner take the trouble to walk two block out of the way from his or her commute to find a coffee that is a dollar cheaper NO WAY. So all these are plusses right? I bough more SBUX shares and was patting myself in the back!
Now recently I thought that as I now own some serious amount of Starbucks stock, let me dig deeper myself rather than just listening to others opinion on Starbucks.
I downloaded the less flashy 10K report filed by Starbucks and patiently started reading it. Let me confess that reading through the 10K report requires a lot of patience than reading a blog or an Analyst report which is written in a sensational way (either arguing for bullish or bearish case).
There are couple of things that stuck me as I was reading the analyst report.
1. We all including the company agrees that the greatest growth potential for SBUX lies internationally not in US. SBUX has 171 stores in Manhattan alone!.
2. In many countries abroad, SBUX reports the revenue as "licensing revenues" wherever they have agreement with other partners (ALL middle east, Turkey, Russia etc)
3. I was very concerned about the leasing/Real estate costs for SBUX. I am also worried about their dairy and cofee costs but I think that they being commodities, Sbux can ride through these cycles easily.
As I was looking at these the things rather closely I found the following.
Regarding licensing revenues SBUX reported as follows:
"Licensing revenues, which are derived from retail store licensing arrangements as well as grocery, warehouse club and certain other branded-product operations, increased 19% to $1.0 billion for the fiscal year ended 2007, from $861 million for fiscal 2006. The increase was primarily due to higher product sales and royalty revenues from the opening of 1,229 new licensed retail stores in the last 12 months and a 20% increase in licensing revenues from the Company’s CPG business"
In 2007 SBUX reported 19% increase and licensed 1229 stores. Great right? not so soon. For 2006 you find the following:
Licensing revenues, which are derived from retail store licensing arrangements, as well as grocery, warehouse club and certain other branded product operations, increased 28% to $861 million for fiscal 2006, from $673 million for fiscal 2005. The increase is primarily due to higher product sales and royalty revenues from the opening of 1,156 new licensed retail stores in the last 12 months and, to a lesser extent, growth in the licensed grocery and warehouse club business.
In 2006, licensing revenues increased 28% and sbux opened 1156 new stores only! Remember that most of these licensed stores are abroad. The number of new licensed stores increased but the increase in revenues were much lower.I saw this as a warning sign.
I dig deeper. I started analyzing the margins for SBUX in US and abroad. Here is what I found:
For US, the cost of sales including store occupancy costs as a percentage of revenues is 40.2% and operating income as a percentage of revenue is 14.3%
For international, the cost of sales including store occupancy costs as a percentage of revenues is 48.6% and operating income as a percentage of revenue is 8.1%
The company has been telling that they would be able to leverage the fixed costs better as they open more stores internationally, I AM NOT BUYING it.
I doubt that Starbucks has to shell out a lot internationally for leasing costs for real estate and it is eating into its margins. Also I suspect whether SBUX has the pricing power it has in US abroad. Atleast in emerging countries like China, Middle east and Russia.
We all acknowledge that the major growth for SBUX is going to come from international sales. IF SBUX is pressured on margins for all the incremental sales, we may see revenue growth but not bottom line growth!.
Can some BULL analyst of SBUX dig deeper and give me good explanations why SBUX will be a good buy in the long run?
It is easy to fall in love with SBUX company as you see it everywhere and see a lot of people in the stores you visit. You may even like their coffee. BUT remember this may not justify the stock purchase as a great stock.
I have stopped accumulating (not sold my position yet). I am looking for some deeper analysis on the stock from analysts rather that saying SBUX is like crack and people got to buy it so buy the stock! Come on!
Motorola's Warning: Unmitigated Disaster
Is Motorola A Long Term Value?
RAZR is loosing its shine. Apple is invading cell phone market. I was expecting MOT to make some headway in the set top box business and in networking business. But now there are talks of Nokia and Siemens combing their networking business. We already know the Lucent merger. So MOT is going to be left alone. I am not convinced yet they can sustain their competitive advantage.
Mean Reversion: When There Is Blood In the Streets, It's Time To Buy
'False' Diversification May Prove Costly In 2007
Other than treasury securities is there any other asset class that will guard against "Deflation"?
I think long term US treasury securities are over valued(Untill 10 year yield crosses 5.25%). Is there any other asset class we could consider as a hedge against deflation?