Imagine buying a used paperback book for $5, reading the first few chapters, and then finding a $1 bill tucked neatly between two of the pages. Because the book came with a little cash, the net purchase price essentially drops to just $4. That’s essentially what we see with cash-rich companies like GPS-maker Garmin for example. The company holds $13.84 per share in cash with zero debt. So a potential acquirer that bought all the outstanding shares at the recent price of $46.25 would really only end up paying about $32.41. #-ad_banner-#Of course, buying a few shares doesn’t mean you… Read More

Imagine buying a used paperback book for $5, reading the first few chapters, and then finding a $1 bill tucked neatly between two of the pages. Because the book came with a little cash, the net purchase price essentially drops to just $4. That’s essentially what we see with cash-rich companies like GPS-maker Garmin for example. The company holds $13.84 per share in cash with zero debt. So a potential acquirer that bought all the outstanding shares at the recent price of $46.25 would really only end up paying about $32.41. #-ad_banner-#Of course, buying a few shares doesn’t mean you can march in and demand payment. But as a stockholder, you do have a pro-rata claim on that cash. And while you can’t spend it freely like the $1 in the book, it can still be used in numerous ways to enhance shareholder value.  That money can be used to repurchase stock, to make a special dividend distribution, to pay down debt, to upgrade equipment, to fund an acquisition… you name it. Equally important, having access to that much cash negates many of the financial worries that can cripple a stock. Expanding companies need capital, and raising it isn’t always… Read More

They say to never trust a skinny cook, the logic being that any chef who works in a kitchen all day and creates irresistible dishes probably can’t help but overindulge and pack on a few pounds. For much the same reason, I find it reassuring when a mutual fund manager invests their personal cash in his or her own fund. And I like it even better when CEOs and other top executives stash a sizable percentage of their net worth in their own company’s stock. Conventional wisdom says that it’s a bullish sign when a company invests in itself through… Read More

They say to never trust a skinny cook, the logic being that any chef who works in a kitchen all day and creates irresistible dishes probably can’t help but overindulge and pack on a few pounds. For much the same reason, I find it reassuring when a mutual fund manager invests their personal cash in his or her own fund. And I like it even better when CEOs and other top executives stash a sizable percentage of their net worth in their own company’s stock. Conventional wisdom says that it’s a bullish sign when a company invests in itself through stock buybacks. If that’s true (and in most cases it is), then what does it say when these same managers sink a few million dollars of their OWN money in the shares? After all, board members, directors, chairmen and other upper executives know the business and the industry better than anyone else. Who understands the inner workings of Apple (Nasdaq: AAPL) better than Tim Cook? Who has their finger on the pulse of online advertising quite like Google (Nasdaq: GOOG) boss Larry Page? These well-connected individuals also have access to privileged information that the rest of us don’t get to… Read More

When I was 14, my grandmother gave me 200 shares of a small insurance company called Statesman Group, which eventually became American International Group (NYSE: AIG). The certificates were buried somewhere in my father’s law office, but dividend checks appeared in my mailbox every three months. (I remember they were usually for about $50. That was big money for a teenager in the early 1980s.) I always thought — and still do — that that was the neatest thing in the world: getting paid just to own stock. Historically, many equity investors have felt the same way — especially after… Read More

When I was 14, my grandmother gave me 200 shares of a small insurance company called Statesman Group, which eventually became American International Group (NYSE: AIG). The certificates were buried somewhere in my father’s law office, but dividend checks appeared in my mailbox every three months. (I remember they were usually for about $50. That was big money for a teenager in the early 1980s.) I always thought — and still do — that that was the neatest thing in the world: getting paid just to own stock. Historically, many equity investors have felt the same way — especially after the drubbing of the dot-com bubble burst, the 2001-’02 bear market and the most recent bear market resulting from the financial crisis and Great Recession. Companies that have consistently paid and increased their dividends tend to perform well in times of market uncertainty. The iShares Select Dividend ETF (NYSE: DVY) is proof positive of that sentiment. From trough to peak, investors who felt brave enough to buy have done quite well. Conventional wisdom would say maybe it’s time to take money off of the table. While playing defense and taking some profits is never a bad thing, investors… Read More

This company has grown its dividend 11% a year since 2003. It’s also one of my favorite dividend stocks on the market today. In the uncertain world of investing, a regular stream of dividend payments is the closest thing investors have to a guaranteed return. We all buy common stocks in anticipation the shares will increase in value at some point, but dividend stocks can provide us with a steady paycheck while we wait for shares to increase in value. And while it’s hard to know what has “real” value in the stock market, dividends are undoubtedly real money. This… Read More

This company has grown its dividend 11% a year since 2003. It’s also one of my favorite dividend stocks on the market today. In the uncertain world of investing, a regular stream of dividend payments is the closest thing investors have to a guaranteed return. We all buy common stocks in anticipation the shares will increase in value at some point, but dividend stocks can provide us with a steady paycheck while we wait for shares to increase in value. And while it’s hard to know what has “real” value in the stock market, dividends are undoubtedly real money. This is why stocks that distribute reliable, recurring dividend payments year after year should form the core of an income investor’s portfolio. And I’ll show you exactly why… #-ad_banner-#Today, speculators often look to make a quick fortune on the next Microsoft — some fast-growing company operating in an exciting new industry. But it would be misguided to focus entirely on volatile, unproven industries or companies while overlooking the numerous benefits offered by well established dividend-paying companies. While the current 2% yield offered by the S&P 500 might seem trivial, it would be a huge mistake to dismiss dividends entirely. Read More

Short sellers love to focus on major themes, and one of their favorite themes involves unsustainable dividends. The shorts know that any time a dividend must be cut or eliminated, shares can drop sharply as the primary appeal of such high-yielders disappears. Case in point: Frontier Communications (NYSE: FTR), which currently has a short position in excess of 200 million shares. (I recently discussed this telecom’s impending dividend woes.) But Frontier’s not alone. A few of its peers in the telecom industry are also at risk of a painful dividend cut, and it’s unwise to focus on their current unsustainable… Read More

Short sellers love to focus on major themes, and one of their favorite themes involves unsustainable dividends. The shorts know that any time a dividend must be cut or eliminated, shares can drop sharply as the primary appeal of such high-yielders disappears. Case in point: Frontier Communications (NYSE: FTR), which currently has a short position in excess of 200 million shares. (I recently discussed this telecom’s impending dividend woes.) But Frontier’s not alone. A few of its peers in the telecom industry are also at risk of a painful dividend cut, and it’s unwise to focus on their current unsustainable dividend yields. 1. Consolidated Communications (Nasdaq: CNSL )  Current yield: 8.3% This local and long-distance phone company has supported an impressive $1.55 a share annual dividend since 2006. Trouble is, over the years, business has steadily deteriorated as its client base slowly defects to large wireless service providers. In years past, Consolidated typically generated around $15 million in annual operating cash flow, which was just enough to support the dividend. But operating profit fell 40% in 2012 to below $10 million, and of greater concern, free cash flow turned negative for only the second time in the past eight… Read More

As a rule, most investors are utterly preoccupied with earnings.  That’s understandable, of course. At the end of the day, the goal of any business is to turn a profit. The problem comes when we focus on the bottom line to the exclusion of everything else.  At best, this offers an incomplete view of how a company is performing. At worst, it can mask underlying weakness.  In response to the last recession, businesses of all shapes and sizes streamlined their operations to cut costs and preserve cash. Many did an outstanding job of erasing red ink from the books. The… Read More

As a rule, most investors are utterly preoccupied with earnings.  That’s understandable, of course. At the end of the day, the goal of any business is to turn a profit. The problem comes when we focus on the bottom line to the exclusion of everything else.  At best, this offers an incomplete view of how a company is performing. At worst, it can mask underlying weakness.  In response to the last recession, businesses of all shapes and sizes streamlined their operations to cut costs and preserve cash. Many did an outstanding job of erasing red ink from the books. The deeper they slashed, the more money they pocketed.  At first, this delighted investors. They saw growing earnings each quarter and cheered. But eventually, they began to realize that the phantom “growth” was nothing more than belt-tightening. In many cases, revenues were actually flat or sometimes even falling.  You can boost your household disposable income by eliminating the $100 weekly maid service and the $100 weekly lawn care service — but you’d much rather get a $200 weekly pay raise.  #-ad_banner-#The same rings true in the business world, where you’d much rather attract new customers or increase prices. There’s a limit… Read More

Ever wonder how the super-rich manage their investments and retire on that private island with afternoon mojitos? A big part of it is investing in the assets not available to regular people like you and me.#-ad_banner-# I’m talking about private equity. Yes, the same asset class that made Mitt Romney and Carl Icahn mega-superstars of finance. The problem is, unless you have a net worth in excess of seven figures or a salary above $200,000, then you are not allowed to invest in private equity deals.  These investments in… Read More

Ever wonder how the super-rich manage their investments and retire on that private island with afternoon mojitos? A big part of it is investing in the assets not available to regular people like you and me.#-ad_banner-# I’m talking about private equity. Yes, the same asset class that made Mitt Romney and Carl Icahn mega-superstars of finance. The problem is, unless you have a net worth in excess of seven figures or a salary above $200,000, then you are not allowed to invest in private equity deals.  These investments in struggling or new companies can go bust or can produce triple-digit returns in a matter of years, but you and I are not allowed on the playground. An analysis of 146 public pension funds over the past year showed that private equity investments have earned a 10% annualized return over the past decade, well above the 5.8% return the funds made on the general stock market. The pension for Texas’ Teacher Retirement System scored a whopping 15.5% annual rate over the past 10 years. In fact, even the worst quartile of private equity returns outperformed almost all (75%) of manager… Read More

The “Bond King” has issued a dire warning for income investors. If he’s right, it could affect how much money people earn from dividend and interest payments for the next two decades.  The “Bond King” is Bill Gross, one of the biggest names on Wall Street. Not only is he co-founder of Pacific Investment Management Co. (PIMCO), one of the largest investment firms in the world, but as money manager of the PIMCO Total Return Fund, he’s directly responsible for over $270 billion in assets.  So what is the “Bond King” predicting?  In short, Gross thinks interest rates could stay… Read More

The “Bond King” has issued a dire warning for income investors. If he’s right, it could affect how much money people earn from dividend and interest payments for the next two decades.  The “Bond King” is Bill Gross, one of the biggest names on Wall Street. Not only is he co-founder of Pacific Investment Management Co. (PIMCO), one of the largest investment firms in the world, but as money manager of the PIMCO Total Return Fund, he’s directly responsible for over $270 billion in assets.  So what is the “Bond King” predicting?  In short, Gross thinks interest rates could stay low — ridiculously low — for a long, long time. According to his analysis, interest rates could stay as low as 1% until sometime around 2035.  #-ad_banner-#The reason for the perennial low-rate environment, as Gross explains, is the government’s desire to create a “beautiful deleveraging” — which is financial lingo for saying the U.S. wants to lower its dependency on debt without sacrificing the health of the overall economy.  As Gross explains in his most recent Investment Outlook letter:  “If the Fed’s objective is to grow normally again, then there is likely no more beautiful or… Read More

Investors are always looking for the newest strategies and tactics to extract profits from the financial markets. Newer and faster is often believed to be superior to the old, traditional ways of doing things.#-ad_banner-#​ Thanks to technology, this belief holds particularly true when it comes to the financial markets. Today, with the advent of personal computers, stock-screening programs, technical analysis tools with hundreds of built-in indicators, and near-instant news services, investing is easier and more efficient — and hopefully more profitable — than ever. However, sometimes it pays to slow down and look back at the old ways… Read More

Investors are always looking for the newest strategies and tactics to extract profits from the financial markets. Newer and faster is often believed to be superior to the old, traditional ways of doing things.#-ad_banner-#​ Thanks to technology, this belief holds particularly true when it comes to the financial markets. Today, with the advent of personal computers, stock-screening programs, technical analysis tools with hundreds of built-in indicators, and near-instant news services, investing is easier and more efficient — and hopefully more profitable — than ever. However, sometimes it pays to slow down and look back at the old ways of doing things. Taking a step back and slowing down provides an opportunity to locate an overlooked and mostly forgotten money-making tool, method or strategy that remains a solid edge in today’s market. I rediscovered one such strategy — a way to purchase financial assets at a discount — that was first used more than a century ago, in 1893. These investments are often passed down from generation to generation, and they keep on churning out profits for each new holder. Some even have been in continuous operation for the past half-century with the same management team in place. While there… Read More

With the recent decline in interest rates thanks to a strong bond market, dividend stocks are back in favor. Sectors that do well when bonds rally are setting up for a nice move higher. HCP (NYSE: HCP) is a real estate investment trust (REIT) that owns and manages health care properties. I am not big on trying to figure out what stocks will do well under the Affordable Care Act (aka Obamacare) — I’d rather look for stocks with charts that signal they are ready to go higher. With a generous 4.9% dividend yield and improving technical indicators, HCP is… Read More

With the recent decline in interest rates thanks to a strong bond market, dividend stocks are back in favor. Sectors that do well when bonds rally are setting up for a nice move higher. HCP (NYSE: HCP) is a real estate investment trust (REIT) that owns and manages health care properties. I am not big on trying to figure out what stocks will do well under the Affordable Care Act (aka Obamacare) — I’d rather look for stocks with charts that signal they are ready to go higher. With a generous 4.9% dividend yield and improving technical indicators, HCP is indeed set up for price gains.#-ad_banner-# As a group, stocks offering big dividends peaked in May when the bond market began to fall. At the time, the Fed first hinted that it was considering the tapering of its bond buying program. Utilities, REITs, housing and many consumer staples stocks headed lower as traders thought interest rates would rise. Now that tapering seems to be off the table for a few months, dividend-paying stocks have regained favor. HCP in particular bottomed in early October and has been moving higher ever since. On Oct. 3, there was a management shake-up, and the… Read More