FUNNY MONEY: Things are so bad that McDonald’s is now selling the Quarter Ouncer and Motel Six no longer leaves the light on for you.
On March 11, 2009 I wrote:
“Risk Is Grossly Overpriced & Other Subjects
“Warren Buffett had the worst year in Berkshire-Hathaway's history in 2008, and we didn't do too badly ourselves. It could have been ever so much worse if we'd stuck with the financials. Buffett still owns a lot of them. We don't own any.
“In the so-called ‘risk-protection’ marketplace, which is often akin to an insane asylum run by the inmates, the supposed risk in owning Berkshire Hathaway is being priced higher than Vietnam. For General Electric, the equivalent is Russia. If this isn't purely just nuts, then we don't know what is. But these are odd times in many ways, and there are more than enough nuts to go around. Which is probably one reason so many world-class, market-dominating America’s Finest Companies® are selling at or below bargain-basement levels.
“Despite the intended bailouts, handouts, lendouts, giveaways (all of which we believe to be unconstitutional), whatever you desire to call them, pouring out of Washington, clearly things are getting better if you can look at the BIG picture with a jeweler's eye.”
Almost exactly one year ago on March 13, Berkshire Hathaway lost its AAA credit rating from Fitch Ratings, the last financial company to hold that distinction. (Moody’s cut it in April 2009 and S&P cut Berkshire from AAA to AA+ on February 4, 2010.) Thirteen days later on March 26, Nouriel “Dr. Doom” Roubini of NYU said stocks would drop sharply as banks went belly up. The day before he said that, the Dow stood at 7,749.81 while the S&P 500 was at 813.88. Those indices today are up respectively 36.2% and 39.9%. The Baker’s Dozen is up 44.4%.
We didn’t pay any attention to Roubini (and a host of other gloom-and-doomers) and hope you didn’t either. In fact, we were extraordinarily bullish because there were so many bargains lying around all over the place.
There aren’t nearly so many “bargains” today as there were then. But on the other hand, there are more than enough attractive ones to go around. The Baker’s Dozen is but 13 of them. For the record the Baker’s Dozen Portfolio is up 67% since that March 11, 2009 writing.
Baker’s Dozen Updates
CenturyLink (CTL), one of the highest yielding stocks in the S&P 500, again raised the annual dividend to the new rate of $2.90 from $2.80. This year marks the 37th of higher payouts, one of the finest records of any public company.
Enterprise Products Partners (EPD), including results of last year’s TEPPCO acquisition, earned a record $0.60 in last year’s final quarter and for the year earned $1.73 compared to $1.84 in 2008. The annual dividend was again increased to the new rate of $2.24, the 22nd consecutive quarterly increase and the 31st since going public in 1994. The dividend was covered 1.5 times by distributable cash flow, and that kind of margin should continue we believe.
3M (MMM) had a Q4 sales increase of 11% with EPS soaring 69% to $1.30. For the year, EPS fell to $4.52, down 8.5% from 2008. Although 2009 started off weakly, the year kept getting better and better according to management, so much so that the company hiked the annual dividend to $2.10, the 52nd consecutive annual increase.
Since inception in 1974, when Nucor (NUE) got its start, the Nucor Foundation has awarded more than $52 million in scholarships to 10,500 students at more than 1,300 colleges. CEO Dan DiMicco stated, “We are very proud of the financial support we have provided to students over the last 36 years. We look forward to continuing to support our nation’s students, particularly during these difficult economic times. A well-educated workforce is a vital component of our economic recovery.”
Sonoco Products (SON) achieved record quarterly and full-year operating profits. For the year, EPS were $1.50, off slightly from 2008’s $1.63. The company enjoyed record productivity and got the gross profit margin to the highest level in four years. For 2010 Sonoco expects EPS to be between $2.00 and $2.15, up from $1.95 to $2.05 which was their December 4th projection.
United Technologies (UTX) reported EPS of $4.12 for 2009 and projected an increase of 7-13% for 2010. CEO Louis Chenevert said, “Relentless focus on costs across the business contributed to strong margin expansion in the [final] quarter. Strong working capital performance led full year cash flow from operations less capital expenditures to be 118 of net income, including $1.3 billion of global pension contributions. We expect our usual standard of cash flow from operations less capital expenditures equal to or exceeding net income in 2010. Our acquisition placeholder is $3 billion including the GE Security transaction, and share repurchase is expected to be $1.5 billion.” On February 8th, directors hiked the annual dividend 10.4% to $1.70. This will be the 17th year in a row of a higher payout.
Bill Staton, America's Money Coach®, began his investment career as a securities analyst with Interstate Securities (now part of Wachovia Securities) in 1971. In 1986, he founded The Staton Institute® Inc. (www.statoninstitute.com), helping thousands increase their wealth with a commonsense value approach to investing. A frequent speaker on investing and economic issues, Staton has been profiled or quoted in the Wall Street Journal, New York Times, U.S. News and World Report, Barron’s, BusinessWeek, and Money magazine. He is the author of five books on investing and has an MBA in finance from the Wharton School at the University of Pennsylvania.
His latest book Double Your Money in America’s Finest Companies®: The Unbeatable Power of Rising Dividends is the first installment in our new Almanac Investor book series. For the past 18 years Staton has produced his directory of America’s Finest Companies®. In Double Your Money, Bill Staton’s entire simple, do-it-yourself AFC system is revealed and explained with clear step-by-step instructions, including the entire current listing of all of America’s Finest Companies®. The 19th 2010 edition is now available electronically from Wiley at www.wiley.com/buy/9780470547960.
Mr. Staton may buy or sell at any time securities mentioned. Positions his or other accounts he manages take may change at any time. Under no circumstances does the information he provides represent a recommendation to buy or sell any security and it in no way constitutes a solicitation for any transaction. Past performance is no guarantee of future results. At press time the Hirsch Organization, its officers or employees were not clients of Staton Financial Advisors, LLC and had no positions in stocks mentioned in this article.
** 1. The Baker’s Dozen Guided Portfolio® (the “Portfolio”) is a “model” portfolio consisting of the shares of 13 different companies selected from The Staton Institute’s® annual investment directory, America’s Finest Companies® (“AFC”). 2. A theoretical initial investment of $1,000 was made on June 18, 2000 into each of 13 AFC companies. More than 30 positions have been sold and replaced since that date (roughly one-third turnover per year), but there are always and only 13 AFC companies in the Portfolio. The Portfolio is also always 100% invested in stocks. 3. The Portfolio is not indicative of any actual managed or unmanaged portfolio. It is fairly frequently altered to replace the proceeds from the sale of all shares of one company with the purchase of shares in another. 4. “Price” denotes the closing price on the principal exchange for an indicated stock as of the most recent trading date. “Shares” denotes the number of shares of each company that were purchased to establish the Portfolio’s static position in that company. “Market Value” denotes the number of shares purchased multiplied by current price. “Yield” denotes the current annual dividend per share for an indicated stock divided by the stock’s current price. “% Fair Value” denotes the percentage which the market value represents compared with The Staton Institute’s® current proprietary estimate of the intrinsic worth of each Portfolio holding. 5. Cumulative and annual total-return figures indicated above the Portfolio listing reflect appreciation or depreciation of Market Value for, respectively, the entire Portfolio since inception and as annualized. The same convention is followed regarding cumulative and annual returns for the S&P 500, Dow Jones industrial average (“DJIA”) and NASDAQ Composite Index (“NASDAQ”). Returns for these indices are shown for comparative purposes since they are believed to be representative of the broad U.S. exchange and over-the-counter markets in which shares of AFC issues are traded. Reported results are not audited. 6. Compound annualized returns reflect deductions, computed as of January 1 of each year from inception of the Model through the date of issuance of the current Newsletter, of 1% of the Model’s overall Market Value as published in the Newsletter at the date closest to or on January 1 of each year. This roughly simulates the advisory fees that an account managed by Staton Financial Advisors, LLC, The Staton Institute’s affiliate, would have borne throughout the entire performance period. This results in an understatement of performance insofar as fees for an entire year are treated as having been removed from the Model Portfolio at the beginning of each year rather than at quarterly intervals throughout the year. Compound annualized returns do not reflect deduction of asset-based fees charged by broker-dealer custodians which SFA is instructed, by its clients, to exclusively utilize when executing market trading transactions in these accounts. 7. Stated returns for the Portfolio reflect the quarterly reinvestment of dividends. Returns for the comparative market indices exclude dividends. Typically, at the end of each quarter, the theoretical dividends collected during the prior three months are used to buy additional shares of the one or two Portfolio holdings that are most underweighted, by market value, as compared with all other current Portfolio holdings. The reinvestment of dividends, the ability to direct transactions, and keeping the various holdings somewhat balanced by relative market value is the only “management” which The Institute accords to the Portfolio. 8. The Portfolio is offered as a service of The Staton Institute® for whatever use its subscribers may wish to make of it. Subscribers are cautioned to note that past performance of the Portfolio is no indication of future results. Moreover, the performance records of model portfolios are subject to additional, inherent limitations because such portfolios do not reflect the results of actual recommendations or trading, nor the impact that material economic and market factors might have had on decision-making if a client’s assets were actually being managed. 9. Under no circumstances should the reader understand that The Baker’s Dozen Guided Portfolio® is indicative of the performance that has or may be expected to be achieved from the separate account management services offered by Staton Financial Advisors, LLC (“SFA”). SFA accounts are managed in a manner which reflects significant differences from the constraints of the Portfolio. SFA accounts also bear advisory fees payable to SFA as well as fees payable to broker custodians which, especially over time, have an impact upon actual account performance.
