Archive for April, 2013

Apple Blended Debt Cost is 1.81%

Tuesday, April 30th, 2013

Apple borrowed $17 billion today in various maturity tranches, some floating rate and some fixed rate.  The offering was oversubscribed by about 3 times.

It was the largest bond offering in history.

The current blended rate for their debt is 181 basis points, and consists of these floating rate and fixed rate tranches:



25 High Quality Dividend Growth Stocks With Highest Expected Year Ahead Total Return

Monday, April 22nd, 2013

We seek consistent, persistent dividend growth opportunities among high quality stocks. As part of our continuing search, we did this simple filter today to identify a field of stocks within which to look more deeply. This article shares the output of that filter, which you may find saves you time in your own opportunity search.

Different investors will come to different conclusions about which stocks are attractive and which are unattractive. At a minimum momentum oriented investors will find those stocks that have not moved much or that are well below their highs to be unattractive. Conversely, value investors may be attracted to some stocks that momentum investors would shun.

Here is what we required of companies:

  • S&P earnings and dividend quality A+, A, A- or B+
  • dividend yield >= 2.03 (the SPY yield)
  • 5-yr dividend growth rate >= 0
  • dividend paid and increased each year for at least 5 years

There were 164 companies that passed that test.

We then estimated a plausible year ahead total return by calculating the percentage price change required to reach the consensus year ahead average target price, and adding to that the current yield. No growth in the dividend was assumed in that summation.

Based on that calculation, the 25 stocks with the highest year ahead total return expectation are as follows (listed from highest to lowest):

(JCS) Communications Systems
(WEYS) Weyco Group Inc.
(MPR) Met-Pro Corporation
(CAT) Caterpillar Inc.
(ACU) Acme United Corp.
(PBI) Pitney Bowes Inc.
(OXY) Occidental Petrol
(RBCAA) Republic Bancorp
(NRP) Natural Resources
(DGAS) Delta Natural Gas
(NUS) Nu Skin Enterpris
(MDP) Meredith Corp.
(R) Ryder System Inc
(AFL) AFLAC Incorporate
(RBA) Ritchie Bros. Auctioneers
(CHRW) C.H. Robinson Worldwide
(DE) Deere & Company
(ABM) ABM Industries
(SJW) SJW Corporation
(HCSG) Healthcare Services
(CR) Crane Company
(EMR) Emerson Electric
(ADI) Analog Devices
(MCHP) Microchip Technology

This is a view of those 25 stocks showing their quality ratings, current yield, 5-year dividend growth rate, the percentage price change to reach the target price, the expected total return, and also the percentage distance of the current (2013-04-19) price from the trailing intra-day highs for 3 months, 1 year, 3 years, and 5 years:

(click to enlarge)


The full spreadsheet of the information for the 164 names that passed the filters is available at this link to those who join our opt-in email list to receive occasional commentaries.

Dramatic Shifts in Equity Fund Money Flows

Saturday, April 20th, 2013

We’ve been tracking the differential flows between US domestic and international or global equity mutual funds since 2002 with Investment Company Institute Data.  The shifts since the 2008 crash have been dramatic, as shown in this chart:

(click to enlarge)


Mutual funds are probably overwhelmingly retail investor dominated, and are the principle 401-k vehicle.  They still have many times more assets than ETFs.

The chart shows reversal from adding assets from the stock market bottom in 2003 through 2007 to wholesale exit in 2008.

In 2009 and 2010, there was a mixed bag of comparatively minor net asset growth and shrinkage.  In 2011 and 2012, investors were once again exiting equities, but  at an even faster rate than during the crash of 2008.

However, 2013 in the first two months shows a huge turnabout, with larger inflows to US funds than all years except 2003 and 2004 at the beginning of the last bull phase.  Levels of investment in non-US or global funds recently are at levels we have not seen in the past 13 years.

[One potential data artifact is that 2013 is the annualization of 2 months of data, compared to true full year data for prior periods]

Interestingly, even though US stocks are outperforming the rest of the world, retail investors are putting over twice as much net new money into non-US or global funds as into US equity funds; while at the same time US stocks are rising and most other stocks are falling.

Are retail investors misinformed? Or, are they seeking to buy international markets when they are down in a “buy-low, sell-high” effort?



Feeling Suspicious of S&P 500 Rally

Tuesday, April 9th, 2013

Yes, the S&P 500 is in rally mode — new highs and all that, but it is not a comfortable rally.  Something is definitely not right.  There a several other market indexes that provide indications suggesting the S&P 500 rally does not have good legs.

In a stock rally you might expect these things to happen, but they are not:

  • Small-cap stocks tend to lead the large-cap stocks
  • Consumer cyclical stocks tend to lead the consumer staples stocks
  • High volatility stocks tend to lead the low volatility stocks
  • Growth stocks tend to lead the value stocks
  • The Broad index tends to lead the high yield index.

Instead of more aggressive stocks leading this rally, we have more defensive stocks leading.  It is a bit hard to imagine a rally going on long and far on the back of defensive stocks.  It could happen, I suppose, but that’s not the way it is usually done; and that is a reasonable basis for caution.

So here is the year-to-date rally.  It is up nicely so far in this percentage performance chart.

But, here are the non-confirming charts we listed above.  Each is a ratio of the performance of one index to the other.  To confirm the rally, you would expect the charts to be trending up.  A down trending chart is a negative divergence that is some cause for caution.  These are all trending down or the uptrend has recently been broken.

Russell 2000 Small-Cap / S&P 500 Large-cap

S&P 500 Consumer Cyclicals / S&P 500 Consumer Staples

S&P 500 High Volatility (Beta) / S&P 500 Low Volatility

S&P 500 Growth Stocks / S&P 500 Value Stocks

 S&P 1500 Index / S&P 1500 High Yield Dividend Aristocrats

There is also no confirmation from key countries such as Germany (EWG), China (GXC) and Brazil (EWZ).  Japan (EWJ) is rallying, but only on enthusiasm for an all-in/last-ditch efforts at stimulation.

We would feel a lot more confident in this S&P 500 rally if the small-cap stocks, growth stocks, high volatility stocks and cyclical stocks were in the lead, but they are not.