Archive for December, 2013

• Stryker Raises Dividend by 15.1%
  Eddy Elfenbein, December 4th, 2013 at 2:57 pm

  I love how Stryker ($SYK) consistently churns out a profit and dividend increases. Today the company announced that they’re raising their quarterly dividend by 15.1%. The payout rises from 26.5 cents to 30.5 cents per share.

  “Given our strong balance sheet and cash flow generation, we continue to expand our dividend, which has grown 26% on a compound annual basis since 2008,” said Kevin A. Lobo, President and Chief Executive Officer of Stryker. “We remain committed to pursuing acquisitions for growth while also returning capital to shareholders at meaningful levels through dividends and share buybacks.”

  Stryker’s dividend has doubled in just four years. Based on yesterday’s close, SYK yields 1.65%. The new dividend is payable on January 31 to shareholders of record on December 31.

• Morning News: December 4, 2013
  Eddy Elfenbein, December 4th, 2013 at 7:05 am

  E.U. Hits 8 Banks with 1.7 Billion Euros in Fines for Rate Rigging

  OECD Warns Riksbank Against Obsessing Over Record Debt

  Draghi Says Europe No Japan as Crisis Spurs Price Cuts

  Ireland Recoups Bank of Ireland Bailout After Preferred Sale

  Recovery Pauses in November, Euro Zone Divergence Deepens

  Wall Street Sweats Out Volcker Rule With 18% of Revenue in Play

  Out of the Doldrums, Automakers Post Strong U.S. Sales

  Cyber Monday Set Record as Shoppers Sought Online Bargains

  Sony Corp May Buy Renesas Electronics Corp Plant to Boost Sensor Production

  IDC Lowers Tablet Shipment Forecast, Citing Effect of Bigger Phones

  StanChart Set to End 10-Year Boom With 2013 Profit Drop

  Diners Not Biting on KFC’s China Revival Campaign

  Krispy Kreme Stock May Melt Further

  Roger Nusbaum: Worker to Beneficiary Ratio—Not Good

  John Hempton: Roddy Boyd and Degree of Difficulty

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• Stepan Company: 46 Straight Annual Dividend Increases
  Eddy Elfenbein, December 3rd, 2013 at 11:21 am

  Ever hear of Stepan Company ($SCL)? Don’t worry, you’re not alone.

  It’s actually a good-sized outfit; $1.4 billion in market cap and a member of the S&P 600.

  Here’s a description from Hoover’s:

  Company secrets aside, makers of laundry detergents, shampoos, toothpaste, and other personal care products can come clean with Stepan Company. Surfactants, the company’s largest sector by far, are chemicals most commonly used as cleaning agents used in consumer products like detergents, toothpastes, and cosmetics. Stepan’s surfactants are also used in commercial and industrial applications ranging from emulsifiers for agricultural insecticides to agents used in oil recovery. The company also makes phthalic anhydride (an acid used in making polyester resins) and other polymers, as well as specialty chemicals for food and pharmaceutical uses.

  Sexy, no? Phthalic anhydride!

  The stock is almost completely ignored by Wall Street. Just two analysts follow it. Outside of its quarterly earnings report, Stepan generates almost no news.

  Each day, about one-quarter of one percent of Stepan’s shares are traded. Facebook’s volume is about 5% of its float.

  My point is that Stepan is about as dull as dirt, and that’s why I’m a fan (though I’m not saying I’m recommending the stock).

  But what I really like about Stepan happened two months ago when the company raised its quarterly dividend from 16 to 17 cents per share. This marks the 46th year in a row that Stepan has increased its quarterly dividend. On the company’s website, they list all the dividend increases going back to 1967. In the last 40 years, the dividend has grown by more than 40 fold.

  I love these boring companies that everyone else overlooks.

• Dividends Continue to Grow
  Eddy Elfenbein, December 3rd, 2013 at 10:43 am

  We still have a few weeks left this year, but Howard Silverblatt at S&P tells me that dividends for the S&P 500 are on pace to grow by another 3% this quarter.

  That may sound low but keep in mind that it’s on top of the huge tax-related payouts from last year’s Q4. The truth is that dividend growth has been and continues to be quite strong. Since 2010, dividends are up 53%.

  The S&P 500 looks to pay out $34.72 in dividends this year. That’s up 11% from last year. It also works out to a yield of 2.43% based on the S&P 500’s level at the start of the year.

  Here’s a look at the S&P 500 (blue line, left scale) and its dividends (red line, right scale). I’ve scaled the lines at a ratio of 50-to-1, so whenever the lines cross, the dividend yield is exactly 2%.

  

  So while it’s true that the stock market has rallied, it’s largely kept pace with dividends. In fact, the dividend yield has been close to 2% for more than a decade (except for during the worst period of the bear market).

  But the chart shows the dramatic difference between today’s market and the stock bubble from 14 years ago. Back then, stocks were far, far ahead of dividends.

• Morning News: December 3, 2013
  Eddy Elfenbein, December 3rd, 2013 at 6:56 am

  Britain’s Christmas Spending Binge Leaves U.S. Trailing

  Global Shares Jittery Over U.S. Stimulus, BOJ Talk Crops Yen

  Japan Preparing $53 Billion Economic Stimulus Package This Week

  Yuan Passes Euro as Second-Most Used Trade-Finance Currency

  Obamacare’s New Goal: Stay Alive Until 2015

  US Federal Reserve Approves JPMorgan, Goldman Sachs Capital Plans

  Supreme Court Refuses Challenge By Online Retailers To N.Y. Tax Law

  Cyber Monday Clicking With More Shoppers

  Why Drone Delivery Will Be A Nightmare for Law Enforcement

  Google Joins a Heavyweight Competition in Cloud Computing

  Apple Buys Startup Topsy; Gets Rich Twitter Data

  Rio Tinto Curbs Spending in Bid to Reduce Debt

  Consumer Watchdog to Monitor Student Loan Servicers

  Roger Nusbaum: Cliff Asness’ Ten Peeves

  John Hempton: The Great Salad Oil Swindle

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• Dow Nears All-Time Inflation-Adjusted High
  Eddy Elfenbein, December 2nd, 2013 at 4:01 pm

  After nearly 14 years, the Dow Jones Industrial Average is nearing an all-time high adjusted for inflation. The thing is, it’s hard to know exactly when and where the magic mark is. The catch is that we don’t get the inflation data until about two weeks into the new month.

  

  My best estimate says that the inflation-adjusted high works out to about 16,280 right now.

• Gold Is Down to $1,218 Per Ounce
  Eddy Elfenbein, December 2nd, 2013 at 3:16 pm

  Now that the books have closed on November, we can see that it was the third-straight monthly gain for the S&P 500. The streak may continue. Historically, December has been the second-best month for stocks. The S&P 500 ended last week with its eighth-straight weekly gain. That’s the longest such streak in nearly ten years. This year also looks to be the best year for stocks since 1998. After five years, the stock market has gained an astounding $14 trillion in value.

  According to a recent survey from Bloomberg, revenue growth is expected to increase to 4.1% next year which is double this year’s growth rate. Profits are expected to rise by 10%, which means that margins are expected to continue to expand.

  But the interesting move today is in gold, which is now at its lowest level since July. Gold is down to $1,218 per ounce. The metal will almost certainly have its first losing year since 2000.

  The price of oil has also been under pressure. According to the latest numbers, the U.S. is meeting 86% of its energy needs which is the most in over a quarter of a century. If this keeps up, we’ll soon be the largest oil producer in the world.

• Cognizant to Hire 10,000 U.S. Workers
  Eddy Elfenbein, December 2nd, 2013 at 1:29 pm

  Big news from Cognizant Technology Solutions ($CTSH):

  Cognizant Technology Solutions Corp., one of the largest providers of outsourcing services, plans to hire about 10,000 U.S. workers, potentially soothing concerns that the industry is harming the domestic job market.

  The move, which President Gordon Coburn is scheduled to announce at a speech in Texas today, will increase the company’s 29,000-employee domestic workforce by about a third over the next three years. The new positions will be full-time jobs in science, technology, engineering and math — or STEM — fields.

  A legislative battle over immigration reform has put a spotlight on outsourcing providers and their effect on U.S. technology jobs. Companies such as Cognizant and Infosys Ltd. (INFO) often rely on work visas to bring in consultants from overseas, rather than hiring local workers to do the job. In October, Infosys agreed to pay a record fine to the federal government after a probe into its use of visas.

  For Cognizant, an improved U.S. economy is making it more feasible to hire full-time workers in the country, Coburn said in an interview. The company has raised its forecast for profit and sales twice this year.

  “The stabilization of the economy in the U.S. has given our clients more comfort in innovation and investing in growing their own top line,” Coburn said. “There is clearly long-term demand for skilled technology professionals here in the U.S. We are working hard to identify the talent to meet our clients’ needs.”

• The S&P 500 Vs. the CPI
  Eddy Elfenbein, December 2nd, 2013 at 12:34 pm

  Here’s a look at the S&P 500 versus the CPI. I’ve scaled the graph so the lines meet at the market’s peak in 2000.

  You can see that even after this historic rally, prices still haven’t kept pace with inflation. Sorry bears, ain’t no bubble. Now 2000, that was a bubble.

  

  The S&P 500 needs to get near 2,100 to reach a new inflation-adjusted high.

• “Buffett’s returns appear to be neither luck nor magic”
  Eddy Elfenbein, December 2nd, 2013 at 12:07 pm

  Via Counterparties comes this academic paper:

  Buffett’s Alpha
  Andrea Frazzini, David Kabiller, Lasse H. Pedersen

  NBER Working Paper No. 19681
  Issued in November 2013
  NBER Program(s): AP

  Berkshire Hathaway has realized a Sharpe ratio of 0.76, higher than any other stock or mutual fund with a history of more than 30 years, and Berkshire has a significant alpha to traditional risk factors. However, we find that the alpha becomes insignificant when controlling for exposures to Betting-Against-Beta and Quality-Minus-Junk factors. Further, we estimate that Buffett’s leverage is about 1.6-to-1 on average. Buffett’s returns appear to be neither luck nor magic, but, rather, reward for the use of leverage combined with a focus on cheap, safe, quality stocks. Decomposing Berkshires’ portfolio into ownership in publicly traded stocks versus wholly-owned private companies, we find that the former performs the best, suggesting that Buffett’s returns are more due to stock selection than to his effect on management. These results have broad implications for market efficiency and the implementability of academic factors.

  In other words, exactly what Buffett says he been doing for 50 years, works.