Monday, December 21, 2015

Recent Buy: WMT



I took a part time job in November/December ringing bells in front of Walmart for donation to the salvation army. With that money...

On December 21, 2015, I bought 16.9590 shares of Walmart (WMT) at $58.97 per share in my Loyal3 account. Total cost came to $1,000

I now own 57.26 shares of WMT or 5.67% of my portfolio or 5.13% of my dividend income. Unless something else becomes enticing I might just make WMT into 100 shares. Sadly I missed the ex-dividend date for January but that's OK.

My dividend portfolio stands at $2150.6227 + FCISX distributions. 

Thursday, December 17, 2015

Flowers Foods: Wait for the pullback


Flowers Foods produces and markets bakery products in the United States. It operates through two segments, Direct-Store-Delivery (DSD) and Warehouse Delivery. Take a look above. You might know some of these brands. My favorite is the tastykakes.

As of this article FLO is $22.24, with a PE of 25.56x, forward PE of 20.40x, and yield of 2.65%. All data below are provided by Morningstar.

Dividends



FLO has increased its dividends for the last 13 years. On its surface FLO looks like it cut its dividends in 2005 and 2011. According to split history, FLO did a 2:3 stock split in each of those years and David Fish DRiP confirms that FLO did not cut its dividends in either year. FLO is still on a 13 year streak.

FLO highest dividend increase occurred in 2007 when it jumped by 40% and lowest was in 2013 when it decreased by negative -2.38%. Again this was caused by the stock split. FLO did increase its dividends that year.



Dividends vs EPS



Historically FLO maintained its dividends in the 30-40% payout ratio. Recently it has moved up to the 50s and now 60s which is a bit disconcerting. If it goes any higher can FLO pay its dividends without sacrificing growth? Or will the dividend growth go stale? Its an interesting question. FLO lowest EPS payout ratio was 2013 when it paid out 37.61% and its highest was 2012 when it paid out 64.62%. TTM FLO has paid 64.37% of its EPS.




Dividend vs FCF
Some people like EPS payout ratio and some people like free cash flow (FCF) payout ratio. In 2008 FLO free cash flow was $0.04 per share giving FLO a payout of 650% of its FCF/share. I think it would be fair to toss out 2008 and look at the rest of the data. Assume that in 2008 FLO has 0 dividend, 0 FCF per share, and 0 FCF payout.  

Historically FLO paid 30-40% of its free cash flow. In recent years FLO has moved its FCF payout to the mid to high 50 percentile. FLO lowest FCF payout was in 2005 when it paid out 31.43%. FLO highest FCF payout was in 2011 when it paid out 90% of its FCF. I did not add anything for 2015 since M* has yet to calculate FCF/share for the year.

Profit margin

After paying off its expenses, taxes, and preferred stocks FLO net margin is around 5%. In the past FLO had a 3-4% margin but recently it moved to the high 4s and into the 5s. FLO highest net margin was in 2013 (6.16%) and lowest was in 2005 (3.57%). FLO has a thin margin but it’s growing.

Debt


Let’s talk about a fun subject. At this very moment FLO can cover its short term debt with its assets but not its long term debt. Over the past 10 years FLO has been aggressively buying market shares as seen in the above picture. As such FLO currently has a 73% debt to asset ratio. Five years ago FLO’s debt was 20% and now it’s 73%. It’s not uncommon for a high acquisition food company to have high level of debt. It’s just something to keep watch of.  

RISK:

1) People not eating that much bread anymore.

To be honest I’m not sure if this is true or not. I have seen these comments in a lot of FLO articles on SA and other places but I have yet to see a study indicating this. Yes the atkins diet/whatever fad does not allow for bread, people see bread as “sugar” or “empty carbohydrates”, and bread allergies have risen 600% (?) but the question is will people stop eating bread? FLO has gluten free breads but the main question is whether people will just quit eating bread opposed to finding a gluten free brand. It’s an interesting question. Just my opinion but I believe most of us grew up on bread. We will try and past those memories down to our children and their children. The PB&J and grilled cheese are the american classic. As a side note bread is not really that expensive if you know where to look. One of my favorite store is Dollar Tree. They sell Wonderbread for $1 a loaf...downside is I have to consume this bread within a week...but I’m still buying it. $1 bread, $1 PB&J, and $1 orange marmalade = $3 of pure goodness. DON’T JUDGE ME!

2) Debt

I believe this poses a bigger risk than food diet. That 73% debt to asset ratio is problematic. FLO has been able to grow by buying out other companies. The big question is whether after buying those companies can it grow organically or will it have to keep buying to make more money. This is a big question that I can’t find an answer to.     

Fair Value:   

FLO receives so little attention that there is not much to based my fair value calculations on.

SimplyWallst FV is $23.31.
Yahoo Finance is $24.40.
M* does not cover FLO.
The street gives it a 3.67 out of 5 with a Buy rating...whatever that means
S&P capital does not cover FLO
Thompson Reuters gives Flo with a Low of $10, High of $30, and mean of $28.

In my opinion FLO fair value is $17.4 giving it a P/E of 20x using its EPS ttm of $0.87. If you look at FLO’s historic PE charts you will notice that FLO goes through a period of high P/E and then drops like a rock. Only in 2006, 2008, and 2015 did FLO not hit its 20x PE mark. With net revenue and margins falling this year I have absolutely no idea why people are paying 25x for FLO. It’s 20, 50, and 100 are all bearish while its 200 is bullish. There seems to be some resistance at $21.87 but maybe a good china slow down or brexit will….

The last time FLO hit $17.4 was January of 2013. If you are hungry for some bread and don’t mind paying a premium, $19-20 would be a good initial position but that’s just my opinion and I’m just some guy on the internet.  


Conclusion: I like bread but not at these prices.


* You know the drill. I’m not a financial advisor, lawyer, or basically anybody you should trust with money or advice on money (look at my BBL, ARCP, and KMI investments). I’m just some guy on the internet saying crazy stuff.

Wednesday, December 16, 2015

Recent Buy: PG



On Wednesday, December 16, 2015 I added 34 shares of Procter and Gamble (PG) at $79.95/share.

According to my study PG fair value is $85 so a $5 discount.

My forward dividend is now 2128.65 + FCISX distributions. 

Monday, December 14, 2015

Sell: BBL, SOUHY, NSC



On Monday, December 14, 2015, I sold the following


  • 80 shares of BBL at $20.65 for a total of $1,644.97.
  • 34 shares of SOUHY at $3.51 for a total of $112.34.
  • 11 shares of NSC at 90.10 for a total of $984.09.


In return I received $2,756.91. I lost -$236.76 from my dividend fund but received -$3000 for tax harvesting reasons. I expect to receive $1,100 from the federal government next year plus whatever Nebraska and Missouri gives me. I expect it to be anywhere from $1,500 to $2,000.

Rationale: 10% of my dividends came from BBL. 30% of my exposure is in the oil/basic materials. And quite frankly investing in this field is giving me a headache. If you want to know about the inverse SWAN principle go invest in the basic material sector. Nothing hurts more than admitting that I was wrong and I wasted my time/money but life goes on. 

BBL and SOUHY are going down. BBL has no other choice but to cut its dividend. According to its forward statement to maintain its current dividends it has no choice but to cut by 50%. And even after the 50% cut there is no free cash flow for capital expenditures. I may buy back into BBL when the dividend cuts come. I expect at minimum 50% and at max 75%. I could be wrong but this is what I get for chasing yield.

There is nothing wrong with NSC, in fact, I actually made $100 profit. I only had 11 shares and wanted to reduce my exposure in this sector as well.

I will hold onto the $2756.91 for now (3 days rule). I really want to get into the utility sector or more consumer goods. Or if JNJ drops back down to the low 90s I might just toss it all in there. The only reit I will consider is O. My goal in 2016 is to reduce all this crap and focus on defensive stocks.  CORR I'm looking at you!

Watch list:

  • UL under $40
  • SO $42-44 (I really really want SO to reach 42)
  • JNJ $91-95
  • O- $42

My forward income is now $2024.90 + FCISX distributions. 

Friday, December 11, 2015

Recent Sell: KMI & ESV; Recent Buy: HASI




I sold all my share of KMI and ESV on December 7, 2015 (1 day before KMI dividend cut). On December 11, 2015, I bought 29 shares of Hannon Armstrong Sustainable Infrastructure Capital (HASI) at $16.58/share.


  • What is HASI? 
    • It's a reit yieldco BDC Bank. Yep 

  • Why would you buy a reit with higher interest rates? 
    • Because HASI is more of a bank than a reit. It lends and borrows like BAC, WFC, JPM, etc. It is only a reit because it deals in renewable energy. For every .25% interest hike, HASI loses $0.01 core earnings. But they can make up for it by charging higher interest rates (libor) 
  • What does HASI do and why would you buy it?
    • HASI is a BDC/bank that lends money to corporations, individuals, and government to install clean energy at lower rates than other BDC and Banks. 

      • For example, Johnson Controls (JCI) is trying to go full renewable energy. JCI is not asking for tens or hundred of millions of dollars so they can't issue stocks or bonds. If JCI borrows money from the bank, the interest rate on the loan would be anywhere from 13-18%. If JCI borrows money from BDC it would be higher. HASI can issue the loan at a reasonable 7-8%.

    • Let's get serious here. It doesn't matter if Global warming or climate change is real. Renewable energy is the wave of the future...but most renewable energy companies are crap. There I said it. Technology has yet to reach a point where solar companies can survive without tax credits.

      • HASI deals in renewable energy but not in the manufacturing or selling. It deals in the loan distribution which is a lot safer assuming no credit default. HASI deals a majority with high quality companies (see those above) and with the federal government/state government.
  • Risk 
    • HASI is a yieldco-credit crunch
    • HASI is a reit-December 16
    • HASI is a BDC-credit crunch
    • HASI is a bank-December 16
      • what I'm saying is HASI has a lot going against it but a tailwind going for it 
    • HASI is a small cap company. There is a high risk but also a high reward
On December 15, I will make my monthly loyal3 buys. $20 of KO, PEP, UL, YUM, MCD, DPS, KHC, VFC, WMT, HSY, K, DIS, SBUX, MDLZ, and APPL for a total of $300.00. That is all my buys for the month. 

Dividend fund= $2,261.66 + FCISX distribution - BBL dividend cut (probably)


Wednesday, December 2, 2015

November Review



It’s already December! I wish we had these Christmas Markets in the states.


OHI
$47.60
TIS
$6.30
KMI
$11.22
T
$45.12
SBUX
$4.61
LTC
$3.57
AAPL
$2.18
DE
$10.20
KHC
$7.15
O
$4.38
FCISX
$28.36
Total
$170.69

Cash flow


Salary
$4,559.09
Dividend
$107.69
Interest & Online
$7.72
Total
$4,571.19

Deductions


Gas Bill
$48.44
Electric bill
$111.54
Water Bill
$120.25
QT
$0.00
Discretionary
$474.10
Car payment
$435.45
3 cars insurance
$1,338.60
Dog Bill
$2,060.30
Total
$4,588.68

Calculation


Total Saved
$148.82
% saved
3.14%

Safety Net Total


Bank
$1,815.37
Capital One 360 Bank
$2,571.42
Scottrade Tax
$40,893.99
Scottrade ROTH
$1,927.76
Loyal3
$10,338.68
401k
$22,042.87
Edward Jones Roth
$7,419.80
Total
$87,009.89

Summary


  1. Low saving month! But it’s fine.
    1. I paid car insurance for three cars (mine, mom, and dad),
    2. My dog had his spleen removed. Cost 2k+ (still love him though),
    3. and I splurged on my first business trip to Washington DC! If you have never been there I encourage everyone to visit DC even if you are not American. The architect, the historical motivational quotes, and the history. Our old leaders were certainly something else.
    4. My factory had extra overtime this month so it all worked out.
  1. No Dividend increases in November. T and HASI are on deck for December.


  1. Net worth increased $2,000 overall on part to my Loyal3 and 401k contribution/appreciation. Scottrade accounts went down.


  1. Remember folks, work is important but friends and family are more so. Time is an ocean that passes by the timid. Fear and regret are but two sides of the same coin.


Forward 12 month dividend stands at $2,248.93. Mark your calendar. December 16 is probably the date the feds will increase interest rates. I am on the fence if I should sell BBL and take a wash.




How did your November go?

Tuesday, December 1, 2015

LNT: Electrifying results Horrible entry price



At the beginning of 2015, approximately 60% of my portfolio was in oil/gas/basic materials; BBL, COP, CVX, and KMI. In 2H of 2015, I have been buying more and more healthcare, consumer staples, and utilities. Today I will give a novice analysis on a company I found called Alliant Energy Corporation (LNT). The big question is should I buy LNT and is it fair or undervalued?  


Step 1: Description
Alliant Energy Corporation operates as a utility holding company that provides regulated electricity and natural gas services to residential, commercial, industrial, and wholesale customers in the Midwest region of the United States.


As of this post LNT is trading at $60.19, has a dividend yield of 3.67%, and P/E of 16.69x.


Step 2: Dividends history


LNT is not your typical utility. In 2003, LNT sold off its non-regulated properties, cut its dividend, and raised capital to pay off $800 million to $1 billion dollars worth of debt. Ever since 2005, the company has been slowly increasing its dividends to where it is now above 2003. Even during the recession, LNT was able to increase its dividends while not taking on too much debt. LNT today is a lot different from LNT of 2003. LNT has grown its dividends in the past nine (9) years.



3) Dividend Growth Rate
I like looking at DGR from 2006 onwards. It reflects on how well the company handled the recession. Pre-recession LNT was growing at a clip of 9% a year. During the recession LNT slowed down its dividend growth but has made a nice comeback in recent years.



4) EPS payout ratio.


I started from 2010 because this was the most historical eps data i could find. LNT dividends are covered by its EPS. The average payout ratio is 60% with the highest payout in 2012 at 62.28% and its lowest in 2013 at 58.20%. I used the 2015 expected eps from ZACKS.


5) Annual Dividends/FCF per share payout ratio
This is calculating the annual dividend divided by the free cash flow per share according to Morningstar. 2015 is missing since there is no data. The highest FCF payout was in 2013 at 56.46%. The lowest FCF payout was 2010 at 17.73%. LNT dividends are covered by its fcf per share. It should be noted that in 2008 LNT FCF per share was -5.07 which meant that LNT increased its dividends even when it knew that its free cash flow could not cover its dividends.


6) Valuation


The big question is whether LNT is a bargain, overpriced, or fair valued.


  1. From a pure PE perspective over the last 5 years, LNT is overvalued. LNT dipped to its lows in August 2011 at 12.4x and reached its high at in January 2015 at 20.02x. Ignoring the recession, LNT normally trades at 15x which gives it a fair value of $54.15 meaning the stock is $6 overvalued.


  1. From a pure Dividend Yield perspective, LNT normally trades at 4% dividend yield which gives it a fair value of $55 meaning the stock is $5 overvalued.


  1. Yahoo finance gives LNT one year target of $64.17 meaning the stock is undervalued by $4.


  1. Multiple firms give LNT the one year price range of $63 to $67 meaning the stock is undervalued by $3-7 dollars.


  1. S&P Capital gives LNT two stars out of five and a fair value of $54.00.


  1. Thomson Reuters give LNT a Neutral (8) and a one year target price of $61 (low estimate) $64 (high estimate) which means LNT is currently trading at a $1-$4 discount.


  1. During the September interest hike scare LNT fell as low as $54.00 which in my opinion is the correct price.


Conclusion:


LNT is a small company with a bumpy history of dividend cuts and increases. LNT fundamentals are solid and it has enough room to continue growing its dividends. It might be worth a look if the price fell down to $54 or lower.


What do you readers think? Is LNT right for your portfolio.

*My next analysis will be Flower Foods (FLO) the people who makes bread...and other stuff. Is there anything you want me to change about my analysis? Go ahead and post below. The more critiques I get the better I get at choosing stocks.

*you know the drill. I'm not a financial analysis, lawyer, or anybody you should trust with your finances. I'm just some guy on the interweb.