CAIM, LLC Newsletter Sign Up


ABOUT THE AUTHOR


POSTS BY CATEGORY

bonds (8)

ARCHIVES


DISCLAIMER

No content published as part of the CAIM LLC blog constitutes a recommendation that any particular investment, security, portfolio of securities, transaction or investment strategy is suitable for any specific person. To the extent any of the content published as part of the blog may be deemed to be investment advice, such information is impersonal and may not necessarily meet the objectives or needs of any specific individual or account, or be suitable advice for any particular reader. Each reader agrees and acknowledges that any specific advice or investment discussed in the blog must be independently evaluated by the reader and his or her adviser in view of the reader's investment needs and objectives.

Dividends Moving Higher

August 12, 2010

 

Despite the dismal market this week, two of our companies announced dividend increases.

AFLAC (AFL) initiated a 7% hike increasing their dividend to $.30 a share. The stock now has a current yield of 2.4%. The company has also made a commitment to buy back stock. They may buy back as much as 3 million shares by the end of 2010 and plan to purchase 6 million shares in 2011.

Illinois Tool Works (ITW) announced a 105 dividend increase to$.34 per share. The stock has $2.55 in free cash flow per share and a current dividend yield of 3%.





Where’s the Faith?

June 30, 2010

 

It’s not in the equity markets, that’s for sure. Yesterday’s lack of confidence drove the 10 year bond yields to 2.96%. It’s hard to believe that anyone would lend the debt laden government money for that price.

22 names in our portfolio yield 3% or higher. All of these companies are high cash flow generators and have low levels of debt. You have to believe that 10 years from now that we, as a country have the determination to turn around this economic malaise. If that’s the case, these stocks are cheap and will reward investors over the long term. Let’s not forget that with all that cash on the balance sheet, some of it will be going to increase the dividend. Does anyone think the government will raise your interest payment on the 10 year bond?





Stocks for Today and Tomorrow

June 9, 2010

 

Jimmy Lee, vice chairman of JP Morgan Chase, made an appearance on CNBC yesterday. He listed the following negative attributes for companies:
According to Lee, there are three basic principles that typically get companies into trouble:
1. Too much debt
2. Too little liquidity
3. Poor risk management

We couldn’t agree more. As we have said many times, the U.S. economy encounters several headwinds next year to cause us to have sluggish growth for an extended period of time. What are the best types of stocks for that scenario?
1. low debt
2. strong cash flow
3. management committed to a solid dividend paying policy

In other words, high quality dividend paying stocks.





Reaching for Yield

May 13, 2010

 

As we mentioned last Friday we viewed the correction in the market as a buying opportunity. One of the hardest hit sectors in the correction were the consumer discretionary stocks. As a result, we established a position in Genuine Parts Co. (GPC).

Why we like this company:
1. High quality dividend paying stock. 3.8% yield, 16% debt to total capital, strong cash flow.

2. 55% of the company is leverage to the auto parts segment. With the median vehicle age in the U.S. over nine years old, we believe there will be sufficient demand for GPC’s products (GPC owns NAPA warehouse distribution centers)

3. Strong cash flow has the opportunity to be used for dividend increases, share repurchases, modest acquisitions.





Putting Things in Perspective

May 3, 2010

 

Barron’s this weekend had a great article about JNJ. JNJ is one of our top 5 holdings. As the article says, this stock may not have been as “peppy” as the rest of the market, but there are several standouts about this high quality company:

1. Improvement in eps growth over the next few years.
2. Strong drug and medical device pipeline.
3. Solid balance sheet (low debt, strong cash flow)
4. 3.3% dividend yield.

Stock is trading below a market multiple because of past drug patent expirations, concerns over health care reform and sluggish results in consumer products. We agree with Barron’s that this is all about to turn around. Let’s not forget, next year we enter into several potential headwinds that could slow this market down (higher taxes, higher interest rates, lack of employment). You want to keep your portfolio diversified amongst different sectors.
Just to keep things in perspective, here’s a plug for the value of long-term investing. Below are the rates of return for JNJ versus the S&P 500 over several time periods.

2 years: JNJ -5% S&P -16%

10 years: JNJ +56% S&P -18%

20 years: JNJ +808% S&P +259%
Source: Baseline.





Not Done Yet

April 28, 2010

 

Today we applaud IBM for raising its dividend 18%. Stock sold off last week on what some would say was mixed results. 1st quarter numbers came in $.04 above consensus at $1.97 while revenues were flat year over year. We continue to like the stock for the long term and view the sell off as a buying opportunity. Here’s what we like about IBM:
1. Margins continue to improve.
2. Revenues should show improvement as the year progresses.
3. Cash flow continues to be robust (i.e., dividend hike)
4. We believe the stock is currently undervalued. Historically, IBM has traded on average at a market multiple. Using a 15x multiple and management’s 2010e of $11.20 our target is $168.





53 Years of Shareholder Loyalty

April 22, 2010

 

Emerson Electric Co. (EMR)
Here’s a company that has increased its dividend for 53 consecutive years. With $2.07 in free cash flow, we expect this trend to continue. Company reports on 5/4, $.54e versus $.53. This will be the first quarter of positive year over year gains. While this company is geared more towards later cycle investments, they are thriving in a very difficult environment:
1. Strong balance sheet.
2. Excellent cost controls .
3. Positive momentum in the auto sector and climate business.





Autos in the Driver’s Seat

April 20, 2010

 

Tyco Electronics Ltd. (TEL)
Expected to report 1Q on 4/28, $.52 versus $.14 in 2009. This company is a great proxy for the overall economy as they manufacture many goods from consumer to industrial. On a fundamental basis:
1. Strong cash flow of $2.21/sh.
2. 25% debt to total capital.
3. 14% long term eps growth (versus 10% for S &P).
4. This high quality company has been trading at a 10% discount to the market.

We believe the company will have a great year based on better than expected auto sales in the U.S. and a pickup in cap spending later in the year. Exiting low margin businesses should also help the numbers.





On the Right Track

April 19, 2010

 

Coca Cola (KO)
We have previously blogged about and want to reiterate the following: Stock has a 3% dividend yield (50% higher than the S&P!), over $1.00 in free cash flow/sh and only 17% debt to total cap!
1. Company focus on improving product mix like vitamin waters and healthy alternatives.
2. Attractive exposure to emerging markets.
3. Strong focus on cost controls.
Company is reporting 1st quarter numbers on 4/20. Street is expecting $.74 versus $.65. To confirm that KO is moving in the right direction, the recently announced an increase of its stake in Innocent Drinks to take a majority ownership of the U.K. based fruit and smoothie drink maker.





Our thoughts today on maximizing your investments…

March 18, 2010

 

We at CAIM LLC hope you enjoy hearing our views about the markets and dividend paying stocks. Our first blog starts with our overall view of the economy, markets and investing. We look forward to hearing your comments!

Economy
We believe the worst of the recession is behind us and we have started to move into a recovery phase. Throughout the year we expect to get conflicting data causing us to question whether we double dip or move into the expansion phase. Just last week we had great retail sales numbers , up .3% (up >8% ex autos) and unemployment claims dropped 6,000. This week the trend continued for another drop in unemployment claims, marking 3 weeks in a row of improving numbers. So, what’s the flip side? Consumer sentiment and confidence numbers continue to lag.

Markets
Can the markets continue to go up without the participation of the individual investor? Our expectations are for a choppy market in 2010. This will be caused by conflicting economic data, risk in overseas markets (like Greece) and the outcomes of political reform in Washington. Our target for the S&P 500 is 1280 based on an eps estimate $77.50 (First Call) and a p/e of 16.5x. This earnings estimate is 20% higher than last year. We expect corporate profits to do well and believe the individual investor will start to slowly move into the market this year due to the lack of returns in bonds and cash.


Investing
At Caim LLC, we favor dividend paying stocks that also have growth potential. Our discipline is based on companies that have low levels of debt and positive free cash flow. For example, we like companies such as Intel (INTC) and Coca-Cola (KO). Both companies pay dividends 50% higher than that of the S&P 500 and almost 300% more than money market funds!

More on stocks in our next blog!





 
Home | Contact Us | Privacy Policy | Sitemap

© 2017 CAIM LLC, All Rights Reserved.