Sunday, October 5, 2014

High Yield Reads - 10/5/14

Summary of recent stories of interest, sometimes enduring, to investors.

  • Morgan Housel's "Not Your Father's Dividend Stocks" talks about the churn in dividend stocks that's left unexpected stocks like tech stocks among the most interesting dividend payers. Of course, that is no surprise to the users of Todd Wenning's Dividend Compass. The article cites analysis from Patrick O'Shaughnessy on Bell Canada, Telstra, and Total as good foreign candidates for dividend payers. I think these three are all interesting, but the article does not mention the tax implications of Canadian, Aussie and French dividends. All else equal its worth considering foreign payers from countries where there is not an additional dividend tax. Vodafone, BP, and Royal Dutch Shell (B class) are good examples of companies in the same industries in countries which do not have an additional withholding for US investors. Here I should note that I am not a tax professional, so do consult yours. More information courtesy Josh Peters, Morningstar here. What matters in the end isn't headline yield or even value, what matters is total return after taxes and fees to the investor.
  • A Wealth of Common Sense "Fat Tails and Hyperinflationary Fears" - hedging sounds good in theory, but too much cancels out benefits. "You have to take some risk to make money in markets."
  • Base Hit Investor "Importance of ROIC Part 4: The Math of Compounding" - great example of the quality of a top notch business being able to overcome even pretty rich valuations. Also liked that he gives dividends their due in Example B where a company generates 20% ROIC but can only invest about half of it whereas the rest of its paid in dividends. I think for many businesses this is the case, and that as a practical matter, having to pay the dividend forces management to be choosy about any cash they reinvest.
  • Shale revolution - Five years ago Nigeria was the fifth largest oil exporter to the US, today they export no oil to the US. 
  • Tim McAleenan tries to figure out what stock Buffett is buying and lands on Exxon Mobil. "Buffett thought it made sense to purchase long-term shares of ExxonMobil last year at a price of $90.85...Right now, after this most recent slide oil stocks especially, Exxon has come down to the $92, $93, $94 range. Even rounding up, comparing $90.85 to $94 is only a 3.46% increase. Heck, Exxon’s repurchased that much stock alone in the past year, leading me to believe that Buffett sees an intrinsic value increase for the year of at least 3.46%, and is using this opportunity to add some more stock."
  • Speaking of Berkshire, I originally thought the deal for Van Tuyl automotive as a nice little add on purchase, generate a few billion here and there.  But then in thinking more about it, it looks pretty strategic, because it helps address one of Berkshire's unique "problems" - too much cash. When you generate as much cash as Berkshire does its hard to find places to put it to work at scale, this explains BNSF and utilities. In the case of Van Tuyl there are at least two ways to put the zero cost float to work. 1) Consumer credit for auto loans and 2) rolling up fragmented auto dealers under the Berkshire automotive brand.