U.S. Dividend Watch List: March 24, 2017

Prior Year Top Five Performance Review

In our ongoing review of the NLO Dividend Watch List, we have taken the top five stocks on our list from March 25, 2016 and have checked the performance one year later. The top five companies on that list can be seen in the table below.

Symbol Name 2015 Price 2016 Price % change
STBA S&T BanCorp. 25.26 33.61 33.1%
LLY Eli Lilly & 71.12 84.18 18.4%
AIG American International Group, Inc. 52.98 60.88 14.9%
GD General Dynamics Corp. 129.08 187.52 45.3%
WSBC WesBanco 28.70 35.79 24.7%
      Average 27.3%
         
DJI Dow Jones Industrial 17,515.73 20,596.72 17.6%
SPX S&P 500 2,035.94 2,343.98 15.1%

The average return for the top five companies from last year is 27.3% with the biggest gain coming from General Dynamics (GD). The company was trading at 14x net income last year when it appeared on the list. Fast forward to today, the stock is trading at nearly 20x net income so while net income rose only 5%, most of the gain came from multiple expansion. The worse performer was AIG (AIG) which gained 14.9% or 0.2% below the market.

U.S Dividend Watch List: March 24, 2017

The market fell 1.4% for the week and S&P 500 is approaching 2,300. We'll take a gander that a consolidation phase is occurring before any move up or down. Below list contain 26 companies on our dividend watch list. Continue reading

Musings on Real Estate

As investors, we’re firm believers in preparing for the worst case scenario.  For us, the definitive worst case scenario is found in the markets from 1921 to 1932, also known as the (period preceding) “Great” Depression.   We believe 1921 to 1932 should be examined and re-examined to understand possible risks and remedies for our current perspective on markets. 

In our recent musings, we found that the rent data from 1914 to the present at the Federal Reserve Bank of St. Louis had a minor quirk, some information was missing in the sweet spot that we’re most interested. Below is our take on the data and some minor insights.

Again, looking at the the data related to the CPI for All Urban Consumers: Rent of Primary Residence (CUUR0000SEHA) on the St. Louis Federal Reserve website, we can see monthly data ranging from 1914 to the present.  However, the data in the period from 1915 to 1940 has many gaps that obscure what happened to rental prices (when attempting to chart). 

The chart below is the maximum view of the data from 1914 to 2017.  The black boxes show, or rather don’t show, the data that is missing from the period in concern (also from 1944-1947).

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Although there is some data interspersed from 1915 to 1940, there isn’t enough to generate a graphical representation of the period.  Below is the charting of the data for Residential Rents in St. Louis covering the period from 1875 to 1944 in work from Roy Wenzlick’s Real Estate Analyst.  We’ve highlighted the period of concern in red. 

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We wanted to know how accurate Wenzlick’s St. Louis residential rents compared to the national data provided by the Federal Reserve.  To do this, we took the 1914 data set and peg the percentage change in Wenzlick’s work to the missing data at the Fed through to 1940.  The result of this is displayed below:

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In the red are the data points based on what would have happened if the starting point of December 2014 Fed data had the same rate of percentage change as Wenzlick’s graphical representation from 1914 to 1940.  In the blue we have the original data set from the Federal Reserve.  We’ve extended the available Fed data from the prior period to fill the gaps.

Interestingly,  the percentage change from peak to trough in both data sets are fairly close with Wenzlick’s data declining –34.21% and the Fed data falling –38.43%.  The January 1923 and September 1924 peaks are consistent with our previous examination of other commodities.  For example, in our “1925 to 1932: A Question for Precious Metal Investors”  article, we see a 1925 peak in precious metal stocks with the decline ending in 1932.

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As best we can tell, the gaps presented in the Federal Reserve data generally coincides with the data offered by Roy Wenzlick.  In addition, the data from both sources on the general direction of rents coincides with other commodity related declines from the period of 1923 to 1932.

The Definitive Dow Theory on Gold

Dow Theory attempts to define and identify major moves in markets referenced here as the “primary trend.”  In this piece, we will outline the price of gold according to Dow Theory.

We’re going to review and analyze the primary trend that extends from the September 2011 peak to the currently established low in the price of gold in December 2015.  We believe that this information is critical to understanding where we are and where we might be going.  This interpretation is based on the work of Charles H. Dow, co-founder of the Wall Street Journal and namesake to the longest continuous stock market indexes. 

Keep in mind that all of the analysis that follows is done in generalities so that an individual who is curious about Dow Theory can refer to the technical manual on the topic titled The Dow Theory by Robert Rhea.  However, the true heart of Dow’s theory is found in his original writing which covered the topic of earnings, dividends, effect of dilution of shares and economic outlook AND NOT lines on a chart.  Two books that cover Charles H. Dow’s work as a fundamental analyst and an adept economist are titled Dow Theory: Unplugged and Charles H. Dow: Economist, respectively.

A Look Back

It is necessary to outline the history of primary trends in the price of gold to ensure clarity of where we are coming from and where we might be now.  Below is a graph of the price history of gold with the primary trends.

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The dates for the primary trend indication are as follows:

  • December 1969 at $35.17
  • December 1974 at $188.25
  • August 1976 at $104.20
  • January 1980 at $760
  • August 1999 at $255.35
  • September 2011 at $1,895
  • December 2015 at $1,049.40

The percentage change for the primary trend indications above are as follows:

  • I: +435%
  • II: -45%
  • III: +629%
  • IV: -66%
  • V: +642%
  • VI: -45%

Dow Theory Primary Trend Analysis at VI

U.S. Dividend Watch List: March 17, 2017

The S&P 500 appears to be consolidating between 2,350 and 2,400. We will be looking to see if the bull can push above 2,400 level this week.

Although the stock market is virtually at its all-time high, the market fundamentals are comparable to last year. We observed the market multiple of 24x in September 2016 which is the same multiple we are seeing now.  One thing to note is rising interest rates during the same time frame.  The 10-year notes rose to 2.50% from 1.60%, a staggering +56% increase in rate. However, at the same time the stock market is up more than +10%.

As the saying goes, a rising tide lifts all boats.  A bull market lifts all companies and there are only 20 companies on our watch list this week. Continue reading

Canadian Dividend Watch List: March 2017

Performance Review

A review of our watch list from March 2016 resulted in the following:

  • The entire list declined –1.71% versus analyst estimated gain of +23.10%
  • The top five companies on the list lost an average of –9.62%
  • The stock estimated by analysts to perform the worst (ThompsonReuters: TRI.TO) gained +14.63%
  • The stock estimated by analysts to perform the best (Dream Office REIT: D-UN.TO) lost –5.80%

These totals compare to the +15.36 change in the Toronto Stock Exchange in the same period of time.