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The CEO’s A Liar

admin — Thu, 02 Sep 2010 09:45:09 +0000

We’ve spent some time on this site discussing how investors can tell if management is behaving in a questionable manner. There are some tip-offs based on EPS rounding, as well as some clues based on management candor. But recently, two researchers pored over conference call verbiage and determined that conference call discussions can reveal whether there is a greater likelihood that management is being deceitful.

Investors are encouraged to listen to conference calls, as they contain a dearth of information that is not available in written releases. But according to Stanford researchers Larcker and Zakolyukina, they reveal much more than originally thought. They contend that deceptive CEOs:

“have more references to general knowledge, fewer non-extreme positive emotions, and fewer references to shareholders value and value creation. In addition, deceptive CEOs use significantly fewer self-references, more third person plural and impersonal pronouns, more extreme positive emotions, fewer extreme unenthusiastic emotions, and fewer certainty and hesitation words.”

Investors interested in looking out for some of these tendencies of deceptive managements can download the entire paper here.

This article was written by Saj Karsan of Barel Karsan. If you loved this article, please consider subscribing to my feed.

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Trading The Volatility In Interest Rate Options

Benjamin Larsson — Thu, 02 Sep 2010 09:45:05 +0000

Traders have been increasingly keen to speculate on the future direction of interest rates. The volatility implied by options on 2-, 5-, 10-, and 30-year Treasury notes and bonds has lifted the Merrill Lynch Go Index above 110. For perspective, note that the recent high of 116 occurred on May 6, the infamous “flash crash” day.

Despite the well-renowned concerns many have about the complexity of leveraged ETFs and options on them, speculators haven’t hesitated to express their views by trading significant volume instock tickeranalyst.com/article/viewarticle/articleid/4462880″>[More...]

Wall Street Retreats On Rate Worries, Hewlett-Packard (NYSE: HPQ) Tumbles
US stock tickers currently trades at 16 era earnings which is cheaper than competitors Coke and Dr. Pepper. Pepsi should be able to easily maintain its 7% growth rate over the next few years. The stock tickers currently trades at two era book value and 1.7 era earnings growth.

PepsiCo investors are also getting a rock solid dividend. The food and beverage maker has increased its dividend for 38 consecutive years. Shares of Pepsi are currently yielding 3% which is aptly in line with the trailing dividend yield of 2.9%. The historical yield has been 2.3%. The payout is very reasonable with only 47% of earnings redistributed back to shareholders.

Pepsi is a practically striking stock tickers at its current price. The stock tickers would be an absolute steal at $57.

This article was written by [Buy Like Buffett]. If you loved this article, please consider subscribing to my feed at [RSS].

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Stock Analysis: Coca-Cola Company (KO)

admin — Tue, 31 Aug 2010 09:45:15 +0000

Linked here is a detailed quantitative analysis of Coca-Cola Company (KO). Below are some highlights from the above linked analysis:

Company Description: The Coca-Cola Company is the world’s largest soft drink company. It engages in the manufacture, distribution, and marketing of nonalcoholic beverage concentrates, fruit juices and syrups worldwide.

Honest Value: I consider four calculations of honest 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
4. Graham Number

KO is trading at a discount to only 3.) above. The stock tickers is trading at a affront discount to its calculated honest value of $57.92. KO earned a Star in this section since it is trading at a honest value.

Dividend Questioning Data: In this section there are three possible Stars and three key metrics, see page 2 of the linked PDF for a detailed description:

1. Free Cash Flow Payout
2. Debt To Total Capital
3. Key Metrics
4. Dividend Growth Rate
5. Years of Div. Growth
6. Rolling 4-yr Div. > 15%

KO earned three Stars in this section for 1.), 2.) and 3.) above. A Star was earned since the Free Cash Flow payout ratio was less than 60% and there were no unenthusiastic Free Cash Flows over the last 10 years. The stock tickers earned a Star as a result of its most recent Debt to Total Capital being less than 45%. KO earned a Star for having an acceptable score in at smallest amount two of the four Key Metrics measured. The company has paid a cash dividend to shareholders every year since 1893 and has increased its dividend payments for 48 consecutive years.

Dividend Income vs. MMA: Why would you assume the equity risk and invest in a dividend stock tickers 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 tickers 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.
2. Years to > MMA

KO earned a Star in this section for its NPV MMA Diff. of the $840. This amount is in excess of the $500 target I look for in a stock tickers that has increased dividends as long as KO has. If KO grows its dividend at 7.3% per year, it will take 3 years to equal a MMA yielding an estimated 20-year average rate of 3.71%. KO earned a check for the Key Metric ‘Years to >MMA’ since its 3 years is less than the 5 year target.

Memberships and Competitors: KO is a member of the S&P 500, a Dividend Aristocrat and a member of the Broad Dividend Achievers™ Index. KO’s peer group includes: Dr. Pepper Snapple Group (DPS) with a 2.7% yield, Fomento Economico ADR (FMX) with a 1.3% yield and Pepsico, Inc (PEP) with a 3.0% yield.

Conclusion: KO earned one Star in the Honest Value section, earned three Stars in the Dividend Questioning Data section and earned one Star in the Dividend Income vs. MMA section for a total of five Stars. This quantitatively ranks KO as a 5 Star-Strong Buy.

Using my D4L-PreScreen.xls develop, I determined the share price would need to increase to $65.57 before KO’s NPV MMA Differential increased to the $500 minimum that I look for in a stock tickers with 48 years of consecutive dividend increases. At that price the stock tickers would yield 2.68%.

Resetting the D4L-PreScreen.xls develop and solving for the dividend growth rate needed to generate the target $500 NPV MMA Differential, the calculated rate is 5.8%. This dividend growth rate is well below the 7.3% used in this analysis, thus providing a margin of safety. KO has a stock tickerss/”>risk rating of 1.00 which classifies it as a low risk stock tickers.

Coca-Cola is one of the most recognizable names in the world. KO is able to deliver products to nearly all points on the globe through an extensive direct distribution network that has few peers. Its world presence will be relied on to compensated for declining consumption of carbonated beverages in the North American market. The company’s pristine balance sheet and strong free cash flow will keep me buying when the stock tickers trades below my honest value price of $57.92, and as my allocation allows. For additional information, including the stock tickers‘s dividend history, please refer to its data page.

Disclaimer: Material presented here is for informational purposes only. The above quantitative stock tickers analysis, including the Star rating, is involuntarily calculated and is based on historical information. The analysis assumes the stock tickers will perform in the future as it has in the past. This is generally never right. Before buying or selling any stock tickers you should do your own research and get to your own conclusion. See my Disclaimer for more information.

Full Disclosure: At the time of this writing, I was long in KO (3.6% of my Income Selection). See a list of all my income holdings stock tickers-and-etfcef-holdings/”>here.

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This article was written by Dividends4Life. If you loved this article, please subscribe to my feed [RSS], or have future articles emailed to you [Email] or follow me on Twitter [Twitter].

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Weekend Reading Links – August 29, 2010

admin — Tue, 31 Aug 2010 09:45:12 +0000

For your weekend reading pleasure, the articles listed below contain some of the best dividend and value investing insights establish on the web. They were written by various members of the Dividend Investing and Value Network over the past week:

Articles From DIV-Net Members

Dividends Value presented stock tickers/”>When To Sell A Dividend stock tickers stock tickerss-just-force-surprise-you/”>
Dividend Growth Shareholder presented Exxon Mobil’s Stingy Dividend Payout
Barel Karsan presented Undervalued and Underfollowed
Buy Like Buffett presented Buffett Invests In The Future
The Dividend Guy presented What to do When the Market Plunges
Disciplined Approach to Investing presented Money Supply, Velocity and Economic Growth
Ancient School Value presented Durable Competitive Advantages through the Cash Flow Statement
40percent 20years presented The problem with the ratio of EV / EBITDA
Value Walk presented Are We In A bond Market Bubble?
Dividend Monk presented Dividends Tax Change 2010
The Passive Income Earner presented What is a real estate bubble? How is it defined?

There are some really excellent articles here, please take time and read a few of them.

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The Credit Recovery At Taylor Capital Continues

Benjamin Larsson — Tue, 31 Aug 2010 09:45:08 +0000

A return to profitability likely this year. After that, meaningful long-term earnings growth<a href="http://www.istock tickeranalyst.com/article/viewarticle/articleid/4453663″>[More...] Related posts:Consumer Credit In U.S. Drops Record $17.5 Billion Fascinating headline out today screening this massive drop in consumer... Scenes From A V-Shaped Recovery As a sanity check for those of you who see... The V-Shaped Recovery In Japan’s Exports [...] Related posts:

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HSBC Has Its Eye On South Africa

Benjamin Larsson — Sun, 29 Aug 2010 09:45:03 +0000

Comprehensive banking giant HSBC Holdings ADR (NYSE: HBC) has long focused on Asia, and China especially. That makes sense taking into account its 1865 start as the Hong Kong and Shanghai Banking Corporation.<a href="http://www.istock tickeranalyst.com/article/viewarticle/articleid/4449023″>[More...] Related posts:DragonBack Assets Under Management DragonBack AUM Hong Kong Hedge Fund, DragonBack, Sees AUM Fall... Saudi Central Banker Confirms That [...] Related posts:

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Stock Analysis: Medtronic (MDT)

admin — Fri, 27 Aug 2010 09:45:09 +0000

Medtronic, Inc. (MDT) develops, manufactures, and sells device-based medical therapies worldwide. This dividend champion has raised distributions for 33 years in a row.

Over the past decade this stock tickerss-for-long-run.html”>dividend stock tickers has bent a unenthusiastic total return of 2.20% per year. The company was grossly overvalued in 2000, ending the year at a P/E of 68 which clarifies the poor income over the past decade.

Earnings per share have increased by 14.10% per year since 2001. For FY 2011 analysts expect earnings to grow by 25.40% to $3.50, followed by an 8.60 % increase to $3.80 in FY 2012.

The annual dividend payment has increased by 17% per year since 2000, which was privileged than the growth in earnings. The company has managed to achieve that by paying a privileged part of earnings to shareholders in the form of dividends. A 17% dividend growth translates in dividend payment doubling nearly every 4 years on average. If we look at the company’s dividend history since 1977, the company has indeed managed to double quarterly dividend every 4 years on average.

The dividend payout ratio has increased from 24% in 2001 to 29% in 2010. Linking 2002 and 2007 the company raised dividends at the pace of earnings growth, as evidenced by a stagnant payout ratio during the period. Since then though the company has started to raise dividends at a much privileged rate, which indicates that there are high chances that investors could realize a high yield on cost in the future.

Income on equity have remained above 19 for the margin of the past decade. Overall the ROE increased steadily over the past decade.

Overall Medtronic looks attractively valued at a P/E of 12.80, an adequately covered dividend and a yield of 2.50%. In comparison rival CR Bard (BCR) has a P/E of 16.50 and yields 0.90%, while rival Becton Dickinson (BDX) yields 2.10% and trades at a P/E of 14.10. While the stock tickers has gone nowhere for one decade, the company has managed to more than triple earnings per share, which makes it a bargain at current prices. Many companies like Medtronic (MDT), Johnson & Johnson (JNJ) and Becton Dickinson (BDX) were overvalued in 2000, which clarifies why buy and hold dividend investing didn’t work as well over the past decade. If Medtronic’s earnings growth managed to be half as excellent as it were over the past decade, the stock tickers could do well over the next decade.

Full Disclosure: Long JNJ and MDT

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This article was written by Dividend Growth Shareholder. If you loved this article, please subscribe to my feed [RSS], or have future articles emailed to you [Email] or follow me on Twitter [Twitter].

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Managing Earnings or Managing The Business

admin — Fri, 27 Aug 2010 09:45:06 +0000

Value investors are generally agreed that managements of going concerns should make their decisions based on long-term cash flow implications. Unfortunately, the pressures on managements to perform on a small-term earnings basis can push them to make decisions that are not in the best interests of shareholders.

Consider Sterling Construction (STRL), a company that builds and repairs roads, highways and water infrastructure. Due to the recession, the amount of work available for the company has declined, leaving it operating at a lower capacity. Idled equipment generates no revenue, but accrues charges for depreciation. This charge shows up on the income statement, but note that no actual cash charges occur (apart from any maintenance that is required).

Though, if the company did sell this equipment, those depreciation charges would disappear, making the company’s income statement look better! Taking into account the company is not hurting for cash, it would seem that Sterling is better off with the superfluous capacity, since the actual cash costs (as different to earnings costs) are minimal. The superfluous capacity could come in handy if competitors go under or if the government passes infrastructure stimulus bills.

Usually, minority public investors don’t get to know what goes through a manager’s mind when it makes a pronouncement to reduce capacity. Sterling, though, illustrated on its last conference call how small-term earnings (as different to long-term cash flow) can influence pronouncement-making. Here were management’s comments on the topic of selling idled equipment that it believes it will eventually require:

“We’re struggling with that issue. So far we are absorbing that superfluous cost…I have some on our management team that would prefer that we [sell idled equipment], mostly to enhance currently reported financial results. Most of us are of the opinion that that’s small-term.”

Warren Buffett has stated time again that managements must concentrate on long-term income over small-term earnings management. He notes, “If a management makes terrible decisions in order to hit small-term earnings targets…no amount of later brilliance will overcome the hurt that has been inflicted.” All sorts of companies are busy trying to make earnings look better than they are; investors would be well served to find and stab with managements doing aptly by shareholders over the long term.

Disclosure: None

This article was written by Saj Karsan of Barel Karsan. If you loved this article, please consider subscribing to my feed.

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Do Biases Affect Investment Performance?

Benjamin Larsson — Fri, 27 Aug 2010 09:45:03 +0000

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