Investing - dennis mccain

Hope for the Second Half

6/28/2015

There's hope for the second half of 2015 despite the mediocre move the DJIA made in the first half of the year. In fact the first and second halves of the year are rarely coordinated. You just have to look at last year to see that the first half of that year didn't restrict the stock market's move in the second half. That could happen this year too.

In 2013 the market closed at 16,576.66 and by the end of the first half the market stood at 16,978.02 for a mediocre rise of just 401.36 points or 2.42%. During the second half the market advanced another 845.05 points or 5.09% to finish the year at 17,823.07.

In fact, last year I was lamenting that…

"The first half of the year is just about over already and it has been a mediocre year by just about any measurement, but dividend growth investors have been doing rather well. That's mainly because dividend growth investors accentuate the dividend rather than the capital gains. They know that over time they've accumulated stock in great companies that pay great growing dividends. They're not dependent on an increase in the price of a stock to pay their bills."

"As long as the company increases revenues, earnings and dividends, it really doesn't matter which way the traders temporarily push the markets. In the long run, revenues, earnings and dividends win every time."

You can read more from that article by clicking here or you can peruse the INDEX for the article titled "Half Time" dated 28 June 2014 and many more articles of interest.

This year the market has risen 123.61 points in the first six months, which is the result of the market moving sideways since around the first of March. Fortunately these lateral movements don't last forever and if they've persisted for awhile they tend to have an extended run coming out of them. Hopefully that will happen in the second half.

In the meantime it's nice to know that many Dividend Growth Investors did better than simple Growth Investors. Most dividend growth investors, and many income investors, did a lot better than the Growth Investors simply by doing nothing other than sitting back and quietly collecting their dividends. So if you're one of those investors that invests solely for capital gains, I truly do wish you the very best in the second half. You've put in a lot of effort during the first half for very little return so far this year.

You may want to rethink your current strategy and consider dividend growth investing.

Finding Value in Pullbacks

6/26/2015

These four companies are four of the most well known companies in America today. Each one is on the list of Dividend Aristocrats because each one has been increasing their dividend for at least the last of 25 years. And that's no small feat for any company listed on the exchanges.

Each of these companies have seen several expansions and contractions in the economy over the years that affected their sales and profits yet each of them continued to increase their dividends each and every year. For me that is a huge plus when deciding on whether or not to accumulate shares of the companies. This is done despite the fact that during some years revenues and earnings can be quite volatile. The result is that dividends are often increased by distributing an increasing proportion of the company's earnings. This can be seen in the changing payout ratios in various annual reports.

When the fundamentals of a company change from year to year, or quarter to quarter, the price of the stock is affected too. Smart investors realize this and take advantage of these changes and buy more shares during pullbacks in stock prices. The four stocks below have all pulled back since the beginning of the year for their own reasons. Chevron Corp and ExxonMobil Corp have fallen simply because of the falling price of oil. Proctor and Gamble is going through a reorganization and jettisoning dozens of their product lines. Walmart is under intense competition from other retailers as well as a persistently bad economy affecting their customers more than usual.

Chevron Corporation engages in petroleum, chemicals, and power and energy operations worldwide. The company operates in two segments, Upstream and Downstream. The Upstream segment is involved in the exploration, development, and production of crude oil and natural gas; processing, liquefaction, transportation, and regasification associated with liquefied natural gas; transportation of crude oil through pipelines; and transportation, storage, and marketing of natural gas, as well as holds interest in a gas-to-liquids plant. The Downstream segment engages in refining crude oil into petroleum products; marketing crude oil and refined products; transporting crude oil and refined products through pipeline, marine vessel, motor equipment, and rail car; and manufacturing and marketing commodity petrochemicals and fuel and lubricant additives, as well as plastics for industrial uses. Chevron Corporation is also involved in the cash management and debt financing activities; insurance operations; real estate activities; power and energy services; and technology businesses. The company was formerly known as ChevronTexaco Corporation and changed its name to Chevron Corporation in 2005. Chevron Corporation was founded in 1879 and is headquartered in San Ramon, California.
(Summary) (Company) (Daily Chart)

25 June 2015
Price $98.34
1yr Target $113.00
Analysts 19
1yr Cap Gain 14.90%
Dividend $4.28
Yield 4.35%
1yr Tot Return 19.25%

1yr EarnGR -8.57%
3yr EarnGR -8.88%
5yr EarnGR 14.11%
1yr DivGR 7.00%
3yr DivGR 10.29%
5yr DivGR 9.73%

Market Cap $184.93 Bil
Beta 1.15
EPS (ttm) $9.14
Payout Ratio 46.82%
EPS next yr $6.27
P/E 10.76
PEG ---
Forward P/E 15.68
Debt/Equity 0.22
ROA 6.50%
ROE 11.10%
ROI 6.40%
Sales $181.50 Bil
Income $17.30 Bil
Profit Margin 9.53%

Exxon Mobil Corporation explores for and produces crude oil and natural gas in the United States, Canada/South America, Europe, Africa, Asia, and Australia/Oceania. It also manufactures and markets commodity petrochemicals, including olefins, aromatics, polyethylene and polypropylene plastics, and specialty products; and transports and sells crude oil, natural gas, and petroleum products. Exxon Mobil Corporation was formerly known as Exxon Corporation and changed its name to Exxon Mobil Corporation in November, 1999. Exxon Mobil Corporation was founded in 1870 and is headquartered in Irving, Texas.
(Summary) (Company) (Daily Chart)

25 June 2015
Price $83.93
1yr Target $93.67
Analysts 18
1yr Cap Gain 11.60%
Dividend $2.92
Yield 3.47%
1yr Tot Return 15.07%

1yr EarnGR 3.12%
3yr EarnGR -3.33%
5yr EarnGR 13.81%
1yr DivGR 9.52%
3yr DivGR 13.50%
5yr DivGR 10.43%

Market Cap $350.92 Bil
Beta 0.85
EPS (ttm) $6.66
Payout Ratio 43.84%
EPS next yr $5.35
P/E 12.60
PEG ---
Forward P/E 15.69
Debt/Equity 0.19
ROA 8.10%
ROE 16.00%
ROI 7.90%
Sales $357.10 Bil
Income $28.36 Bil
Profit Margin 7.94%

The Procter & Gamble Company manufactures and sells branded consumer packaged goods. The company operates through five segments: Beauty; Grooming; Health Care; Fabric Care and Home Care; and Baby, Feminine and Family Care. The Beauty segment offers antiperspirants and deodorants, cosmetics, personal cleansing, skin care, hair care and color, prestige, and professional salon products under the Head & Shoulders, Olay, Pantene, SK-II, and Wella brand names. The Grooming segment provides blades and razors, epilators, pre- and post-shave products, and electronic hair removal devices under the Braun, Fusion, Gillette, Mach3, and Prestobarba brand names. The Health Care segment offers toothbrush, toothpaste, and other oral care products; and gastrointestinal, rapid diagnostics, respiratory, vitamins/minerals/supplements, and other personal health care products. This segment markets its products under the Crest, Oral-B, and Vicks brand names. The Fabric Care and Home Care segment provides laundry additives, fabric enhancers, and laundry detergents; air care, dish care, and surface care products; batteries; and professional products. This segment sells its products under the Ariel, Dawn, Downy, Duracell, Febreze, Gain, and Tide brand names. The Baby, Feminine and Family Care segment offers feminine care and adult incontinence products; baby wipes, diapers, and pants; paper towels, tissues, and toilet papers under the Always, Bounty, Charmin, and Pampers brand names. The company markets its products through mass merchandisers, grocery stores, membership club stores, drug stores, department stores, salons, high-frequency stores, and e-commerce in approximately 180 countries worldwide. The Procter & Gamble Company was founded in 1837 and is headquartered in Cincinnati, Ohio.
(Summary) (Company) (Daily Chart)

25 June 2015
Price $79.39
1yr Target $88.06
Analysts 17
1yr Cap Gain 10.92%
Dividend $2.65
Yield 3.33%
1yr Tot Return 14.25%

1yr EarnGR 3.88%
3yr EarnGR 0.66%
5yr EarnGR -1.21%
1yr DivGR 7.32%
3yr DivGR 7.32%
5yr DivGR 8.18%

Market Cap $215.39 Bil
Beta 0.47
EPS (ttm) $3.37
Payout Ratio 78.63%
EPS next yr $4.18
P/E 23.56
PEG 3.50
Forward P/E 18.99
Debt/Equity 0.53
ROA 6.40%
ROE 13.70%
ROI 11.70%
Sales $78.11 Bil
Income $9.60 Bil
Profit Margin 12.29%

Wal-Mart Stores, Inc. operates retail stores in various formats worldwide. The company operates through three segments: Walmart U.S., Walmart International, and Sam’s Club. It operates discount stores, supermarkets, supercenters, hypermarkets, warehouse clubs, cash and carry stores, home improvement stores, specialty electronics stores, restaurants, apparel stores, drug stores, and convenience stores, as well as retail Websites, such as walmart.com and samsclub.com. The company’s stores offer meat, produce, deli, bakery, dairy, frozen foods, alcoholic and nonalcoholic beverages, and floral and dry grocery; health and beauty aids, baby products, household chemicals, paper goods, and pet supplies; electronics, toys, cameras and supplies, photo processing services, cellular phones, cellular service plan contracts and prepaid services, movies, music, video games, and books; and pharmacy, optical, over-the-counter drugs, and clinical services. Its merchandise also include stationery, automotive accessories, hardware and paint, sporting goods, fabrics and crafts, and seasonal merchandise; apparel for women, girls, men, boys, and infants, as well as shoes, jewelry, and accessories; and home furnishings, housewares and small appliances, bedding, home décor, outdoor living, and horticulture products. The company also provides financial services and related products, including money orders, prepaid cards, wire transfers, money transfers, check cashing, and bill payment. In addition, it offers brand name merchandise, including hardgoods, softgoods, and selected private-label items, such as Member’s Mark and its own proprietary brands, such as Daily Chef and Simply Right. Further, the company operates banks that provide consumer financing programs. It operates approximately 11,000 stores under 72 banners in 27 countries; and e-commerce websites in 11 countries. The company was founded in 1945 and is headquartered in Bentonville, Arkansas.
(Summary) (Company) (Daily Chart)

25 June 2015
Price $71.86
1yr Target $80.50
Analysts 22
1yr Cap Gain 12.02%
Dividend $1.96
Yield 2.72%
1yr Tot Return 14.74%

1yr EarnGR 3.48%
3yr EarnGR 3.72%
5yr EarnGR 6.36%
1yr DivGR 2.08%
3yr DivGR 7.14%
5yr DivGR 10.12%

Market Cap $231.43 Bil
Beta 0.42
EPS (ttm) $4.89
Payout Ratio 40.08%
EPS next yr $5.01
P/E 14.70
PEG 3.39
Forward P/E 14.35
Debt/Equity 0.66
ROA 9.70%
ROE 25.00%
ROI 14.60%
Sales $485.52 Bil
Income $15.84 Bil
Profit Margin 3.26%

My Perspective

It may be true that the world really has changed this time around and that these companies will never be the same, but I doubt it. These four companies have been great companies in the past, they've dealt with significant changes in the economy and they've not only survived, but flourished. And I believe they'll once again become great companies in the future. It is simply their present situation that is causing them temporary troubles. I believe these companies will solve these short term problems in the near future.

As a Dividend Growth Investor these are the kind of situations I constantly look for when doing my research. They present unique situations that I can often take advantage of. These four companies are currently paying outstanding dividends. The dividend yield is higher than normal simply because the stocks have pulled back in price. And even though I already own shares in each of these companies, I intend to double up my efforts and accumulate even more shares. Smart investors buy great companies like these to hold for years and years, and allow the dividends to be reinvested.

When great companies goes on sale and dividend yields head higher, I like to accumulate those shares. I believe these four companies are now on sale.

The Railroads Are Turning Up

6/24/2015

A lot has been said and written recently about the pressure being put on the stock prices of the railroad companies, and most of it is anecdotal. We all know that shipments of coal are down because of increased regulations and falling natural gas prices, and until recently there's been a lot of interest in renewable energy. That interest has obviously waned with the fall in oil prices in the last year.

Now rail shipments of oil are down because the low price of oil is forcing many of the oil fracking companies to cap off their wells and wait for higher prices to return. But all that may be turning around.

If you're a pure fundamentalist then you've probably come to the conclusion to stay away from these companies until the fundamentals begin to turn up. In fact that's probably the only real way to know that the railroad business has improved. But some investors begin to anticipate a recovery and start to buy the shares ahead of the improving fundamentals.

Sometimes they're right and sometimes they're wrong. That's why they often buy small positions and add to those positions as additional information becomes available. On price charts that's often seen as a bottoming as the fundamental sellers are offset by the technical buyers. As the number of sellers decreases and the number of buyers increases, the stock price begins to rise. It's simple supply and demand in action.

Normally I wouldn't get too excited by any one individual company bottoming but when I see a whole industry beginning to bottom and start to turn up even though the fundamentals haven't yet improved, then I suspect somebody knows something that I don't. Smarter investors than me are buying into an industry and I tend follow their lead and start a small position. And then I actively monitor the charts.

Below you will see the charts of three major US railroads and two Canadian railroads. The Union Pacific, Norfolk Southern and Kansas City Southern Railroads are all US railroads and they are beginning to turn up nicely, confirming that this industry is likely improving and that the fundamentals will probably start improving in the next six months. If this is not readily evident on the price chart alone, notice that the MACD and the MACD Histogram are leveling out and turning up. Notice also that the Stochastics are beginning to turn up and pierce through the twenty line. Finally the RSI is flirting with the oversold territory and also beginning to turn up. That's a lot of confirmation.

Union Pacific Corp

Norfolk Southern Corp

Kansas City Southern Corp

Additional confirmation can also be seen on the price charts of the Canadian National and Canadian Pacific Railroads, as can be seen below. It really looks like from these charts that confirmation is coming in from both sides of the border. That's always a good sign.

Canadian National Rail Co

Canadian Pacific Railway

My Perspective

I believe that this is one of those situations where the technicals may be out front of the fundamentals and that this may be one of those opportunities to own some great companies at some great prices. I already own shares in some of these companies and I intend to use this opportunity to load up on even more of these shares in anticipation that these securities are heading higher over the next six months.

I may be wrong and getting in too early, but even if this isn't the bottom I believe it's at least near the bottom. And since I like to buy great companies that grow their dividends over time when they are relatively inexpensive to buy, and then hold those companies for years, I think I'm probably making a good decision. Wish me luck!

Rayonier

6/22/2015

Rayonier, Inc. engages in the sale and development of real estate and timberland management, as well as in the production and sale of cellulose fibers in the United States, New Zealand, and Australia. The company operates in four segments: Timber, Real Estate, Performance Fibers, and Wood Products. Timber segment owns, leases, or manages timberlands and sells standing timber at auction to third parties, as well as sells delivered logs. Real Estate segment sells medium and large tracts of land with infrastructure. This segment holds development and rural properties primarily in the southeast United States. Performance Fibers segment manufactures cellulose specialties that are used principally in acetate textile fibers, cigarette filters, rigid packaging, LCD screens, photographic film, impact-resistant plastics, high-tenacity rayon yarn, pharmaceuticals, cosmetics, detergents, food casings, and food products; and absorbent materials that are used in disposable baby diapers, feminine hygiene products, incontinence pads, convalescent bed pads, industrial towels and wipes, and nonwoven fabrics. Wood Products segment primarily manufactures and sells dimension lumber used for residential and industrial construction applications. In addition, Rayonier involves in trading and exporting logs, lumber, and wood panel products. As of December 31, 2005, it owned, leased, or managed approximately 2.5 million acres of timberland and real estate. The company has a joint venture with RREEF Infrastructure to own and manage timber lands in New Zealand. Rayonier has elected to be treated as a real estate investment trust (REIT) for federal income tax purposes and would not be subject to federal income tax on its REIT income that it distributes to its shareholders. The company, formerly known as Rainier Pulp & Paper Company, was founded in 1926. Rayonier is headquartered in Jacksonville, Florida. (Summary) (Company) (Daily Chart)

Rayonier is a leading timberland real estate investment trust (“REIT”) with assets located in some of the most productive timber growing regions in the U.S. and New Zealand. Their business is to invest in timberlands and then actively manage those assets to provide both current income and attractive long-term value. As of December 31, 2014 they owned, leased or managed approximately 2.7 million acres of timberlands located in the U.S. South (1.9 million acres), U.S. Pacific Northwest (372,000 acres) and New Zealand (451,000 gross acres, or 309,000 net plantable acres). In addition, they engage in the trading of logs from New Zealand and Australia to Pacific Rim markets to support their New Zealand export operations. They also attempt to increase the value of their land by pursuing higher and better use (“HBU”) land sales opportunities.

The company is different from other publicly-traded timberland REITs in that they have invested exclusively in timberlands and do not own any pulp, paper or wood products manufacturing assets, which were spun off in 2014. Rayonier is the largest publicly traded “pure-play” timberland REIT, which provides their investors with a focused, large-scale timberland investment alternative without taking on the risks inherent in directly owning forest product manufacturing assets.

The company's geographically diverse timberland holdings are located in those core softwood producing regions of the U.S. South, Pacific Northwest and New Zealand. But their most significant timberland holdings are strategically located in the U.S. South, in close proximity to a variety of established pulp, paper and wood products manufacturing facilities, which provide a steady source of competitive demand for both pulpwood and higher-value sawtimber products.

Rayonier conducts a log trading operation in New Zealand that serves timberland owners in New Zealand and Australia by providing access to key export markets in China, South Korea and India. This operation provides the company with superior market intelligence and economies of scale, both of which add value to their New Zealand timber portfolio. It also contributes to the Company’s earnings and cash flows while requiring minimal investment.

The company also owns approximately 200,000 acres of timberlands located in the vicinity of I-95 north of Daytona Beach, FL, and south of Savannah, GA, with approximately 39,000 acres that have land use entitlements and are well positioned to capture higher sales values per acre when real estate markets begin to strengthen. These properties provide the company with opportunities to selectively add value to their portfolio through additional land use entitlements and infrastructure improvements, which management believes will allow them to periodically sell parcels of such land at favorable valuations relative to timberland values through one of their taxable REIT subsidiaries.

The company has HBU properties throughout the South with strong premiums to timberland values. They maintain a detailed land classification analysis of their holdings which allows them to identify the highest value of their lands and then capitalize on land use opportunities.

Land Holdings

Southern Timber. As of December 31, 2014, the company's Southern timberlands acreage consisted of approximately 1.9 million acres (including approximately 273,000 acres of leased lands) located in Alabama, Arkansas, Florida, Georgia, Louisiana, Mississippi, Oklahoma, Tennessee and Texas. Approximately two-thirds of this land supports intensively managed plantations of predominantly loblolly and slash pine. The other one-third of this land is too wet to support pine plantations, but supports productive natural stands primarily consisting of a variety of hardwood species. In the Southern region, rotation ages range from 21 to 28 years for pine plantations and from 35 to 60 years for natural hardwood stands. Key consumers of our timber include pulp, paper, wood products and biomass facilities.

Pacific Northwest Timber. As of December 31, 2014, the company's Pacific Northwest timberlands consisted of approximately 372,000 acres located in the state of Washington, of which approximately 286,000 acres were designated as productive acres, meaning land that is capable of growing merchantable timber and where the harvesting of timber is not constrained by physical, environmental or regulatory restrictions. These timberlands primarily comprise second and third rotation western hemlock and Douglas-fir, as well as a small amount of of other softwood species, such as western red cedar. A small percentage also consists of natural hardwood stands of predominantly red alder. In the Pacific Northwest, rotation ages range from 35 to 50 years. The company's product mix in the Pacific Northwest is heavily weighted to saw timber, which is sold to domestic wood products facilities as well as into exports markets primarily serving the Pacific Rim.

New Zealand Timber. As of December 31, 2014, the company's New Zealand timberlands consisted of approximately 451,000 acres (including approximately 266,000 acres of leased lands), of which approximately 309,000 acres (including approximately 174,000 acres of leased lands) were designated as productive or plantation acres, meaning land that is capable of growing merchantable timber and where the harvesting of timber is not constrained by physical, environmental or regulatory restrictions. The leased acres are generally leased through long-term arrangements including Crown Forest Licenses (“CFLs”), forestry rights and other leases. Rayonier’s wholly owned subsidiary, Rayonier New Zealand Limited (“RNZ”) serves as the manager of the New Zealand JV timberlands. Our New Zealand timberlands serve a domestic sawmilling market and also export logs to Pacific Rim markets.

My Perspective

For those who have read a few of the articles on this website, you've probably noticed that I've been interested in companies that invest in both farmland and timberland for quite some time. Recently Rayonier spun off all its interests in the pulp and paper business and is now a pure timberland based company. And that's the kind of company I'm interested in. In addition, the majority of Rayonier's timberland is based in the US South. I personally believe the best opportunities for making money in timberland are located in the south.

Similar to the analysis and conclusion in the articles "Betting On The Farm", "Tree Farms are Farms Too", and "The Other Timber Companies", I am completely convinced that any investment in Rayonier has to be entered into as a long term investment. And by long term I mean years, not months. Anyone with a shorter term horizon will most likely become disillusioned and/or disappointed in the short term. That said, this may just be one of the best investments of the decade if executed correctly (a big if!). Rayonier traditionally increases in value at a rate similar to the inflation rate so it's a great preserver of purchasing power over time, much like gold is. In addition, as population encroaches on today's timberland, the value of the land increases almost exponentially as its use in converted into lots for homes, businesses, golf courses, etc. And while an investor waits for the value of the land (stock) to increase, Rayonier is throwing off a very generous dividend.

Based on the information above, I have already initiated a position in Rayonier and will add to that position over the next few months. I intend to use the dividends distributed by this company to reinvest back into additional shares and then to let that position grow naturally over time. In the years ahead I'm hoping to look back on this investment and smile. A lot!

USD Partners

6/17/2015

Some of my favorite investments involve oil. Some of my other favorite investments include the railroads. When I find a company that pays a large dividend, well, that's just very appealing to me. And companies that have the potential to produce a nice estimated growth potential really get my attention. So when I find a company that has all four attributes and is headquartered in Houston, I'm intrigued enough to start a position in this company and see where it goes. This company and this market obviously has a lot of potential and as that potential is realized I will be significantly adding to that position over time.

Hardisty Terminal, Alberta Canada

USD Partners LP acquires, develops, and operates energy-related rail terminals and other midstream infrastructure assets and businesses in the United States and Canada. The company operates through two segments, Terminalling Services and Fleet Services. The Terminalling Services segment owns and operates Hardisty rail terminal, an origination terminal that loads various grades of crude oil in Alberta, Canada; San Antonio rail terminal, a unit train-capable destination terminal that transloads ethanol in Texas, the United States; and West Colton rail terminal, a unit train-capable ethanol rail terminal in California, the United States. The Fleet Services segment provides railcar services. As of December 31, 2014, it operated a fleet of 3,099 railcars. USD Partners GP LLC is the general partner of USD Partners LP. The company is headquartered in Houston, Texas. USD Partners LP is a subsidiary of USD Group LLC. (Summary) (Company) (Daily Chart)

Below is a schematic of the organizational structure of the company. Notice that USD Group LLC is the general partner while USD Partners are the limited partners.

USD Partners Organizational Structure

Business Segments (from the Company's Annual Report)

Terminal Operations

1. Hardisty Rail Terminal. Our Hardisty rail terminal is an origination terminal that commenced operations on June 30, 2014 and loads various grades of Canadian crude oil received from Alberta’s Crude Oil Basin through the Hardisty hub. The Hardisty hub is one of the major crude oil supply centers in North America and is an origination point for export pipelines to the United States. The Hardisty rail terminal can load up to two 120-railcar unit trains per day and consists of a fixed loading rack with 30 railcar loading positions, a unit train staging area and loop tracks capable of holding five unit trains simultaneously. This facility is also equipped with an onsite vapor management system that allows our customers to minimize hydrocarbon loss while improving safety during the loading process. Our Hardisty rail terminal is designed to receive inbound deliveries of crude oil directly through a pipeline connected to the Hardisty storage terminal owned by Gibson Energy Inc. ("Gibson"). Gibson, one of the largest independent midstream companies in Canada, has 5.5 MMbbls of storage in Hardisty and has access to most of the major pipeline systems in the Hardisty hub. Gibson has announced that it is constructing an additional 1.6 MMbbls of storage capacity at its Hardisty terminal, 0.5 MMbbls of which is expected to be in service by the end of 2015, with the remaining 1.1 MMbbls of capacity available by late 2016. The direct pipeline connection, in addition to the terminal location, provides our Hardisty rail terminal with efficient access to the major producers in the region. Our Hardisty rail terminal is connected to Canadian Pacific Railroad’s North Main Line, a high capacity line with the ability to connect to all the key refining markets in North America.

We have a facilities connection agreement with Gibson under which Gibson operates and maintains a 24-inch diameter pipeline and related facilities connecting Gibson’s storage terminal with our Hardisty rail terminal, which we operate and maintain. Gibson is responsible for transporting product through the pipeline to our Hardisty rail terminal. The Gibson storage terminal is the exclusive means by which our Hardisty rail terminal can receive crude oil. Subject to certain limited exceptions regarding manifest train facilities, this pipeline to our Hardisty rail terminal is also the exclusive means by which crude oil from Gibson’s storage terminal may be transported by rail. All revenues associated with the pipeline and our Hardisty rail terminal are split between us and Gibson based on a predetermined formula. The facilities connection agreement also gives Gibson a right of first refusal in the event of a sale of our Hardisty rail terminal to a third party. The agreement has a 20-year term and will expire unless renewed. Our and Gibson’s obligations under this facilities connection agreement may be suspended in the case of a force majeure event. Additionally, the agreement may be terminated by the non-defaulting party in case of specified events of default.

Substantially all of the capacity at our Hardisty rail terminal is contracted under multi-year, take-or-pay terminal services agreements with seven customers. Approximately 83% of our Hardisty rail terminal’s utilization is contracted with subsidiaries of five investment grade companies that include major integrated oil companies, refiners and marketers. Each of the terminal services agreements with our Hardisty rail terminal customers has an initial contract term of five years. The initial terms of these agreements commenced between June 30, 2014 and October 1, 2014. Six of the seven Hardisty rail terminal service agreements have automatic one-year renewal provisions and will terminate only if written notice is given by either party within a specified time period before the end of the initial term or a renewal term. The seventh agreement will renew upon written agreement at least six months prior to the end of the initial term or the then current renewal term. Each of our terminal services agreements contain annual inflation-based rate escalators based upon the consumer price index of either Canada or Alberta. If a force majeure event occurs, a customer’s obligation to pay us may be suspended, in which case the length of the contract term will be extended by the same duration as the force majeure event. We will not be liable for any losses of crude oil handled at our Hardisty rail terminal unless due to our negligence.

Under the terminal services agreements we have entered into with customers of our Hardisty rail terminal, our customers are obligated to pay the greater of a minimum monthly commitment fee or a throughput fee based on the actual volume of crude oil loaded at our Hardisty rail terminal. If a customer loads fewer unit trains or barrels than its maximum allotted amount in any given month, that customer will receive a credit for up to six months, which may be used to offset fees on throughput volumes in excess of its minimum monthly commitments in future periods, to the extent capacity is available for the excess volume.

2. San Antonio Rail Terminal. Our San Antonio rail terminal, completed in April 2010, is a unit train-capable destination terminal that transloads ethanol received by rail from Midwestern producers onto trucks to meet local ethanol demand in San Antonio and Austin, Texas. Our San Antonio rail terminal is located within five miles of San Antonio’s gasoline blending terminals and is the only ethanol rail terminal within a 20-mile radius. Due to corrosion concerns unique to biofuels such as ethanol, the long-haul transportation of biofuels by multi-product pipelines is less efficient and less economical than transportation by rail. We believe these transportation concerns, combined with the proximity of our San Antonio rail terminal to local demand markets, strategically positions our San Antonio rail terminal to benefit from anticipated changes in environmental and gasoline blending regulations that are expected to make the role of ethanol more pervasive in the market for transportation fuel.

The San Antonio rail terminal can transload up to 20,000 bpd, of ethanol with 20 railcar offloading positions and three truck loading positions. The facility receives inbound deliveries exclusively by rail on Union Pacific Railroad’s high speed line. We have entered into a terminal services agreement with a subsidiary of an investment grade company for our San Antonio rail terminal pursuant to which our customer pays us per gallon fees based on the amount of ethanol offloaded at the terminal. The San Antonio terminal services agreement was originally scheduled to expire in August 2015. On January 22, 2015, we entered into an amendment with our customer at our San Antonio rail terminal whereby the service agreement will automatically extend for two additional 18 month terms unless the customer provides written notice six months prior to the end of a term. The customer did not provide notice to terminate the agreement, and the term of the agreement now extends to February 2017. The current agreement entitles the customer to 100% of the terminal’s capacity, subject to our right to seek additional customers if minimum volume usage thresholds are not met. Our customer has consistently met its minimum utilization requirements since the inception of the agreement.

3. West Colton Rail Terminal. Our West Colton rail terminal, completed in November 2009, is a unit train-capable destination terminal that transloads ethanol received by rail from regional and other producers onto trucks to meet local ethanol demand in the greater San Bernardino and Riverside County-Inland Empire region of Southern California. Our West Colton rail terminal is located less than one mile from gasoline blending terminals that supply the greater San Bernardino and Riverside County-Inland Empire region and is the only ethanol rail terminal within a ten-mile radius. Additionally, like our San Antonio rail terminal, our West Colton rail terminal is strategically positioned to benefit from any increases in the utilization of ethanol in the market for transportation fuel.

The West Colton rail terminal can transload up to 13,000 bpd of ethanol with 20 railcar offloading positions and three truck loading positions. The facility receives inbound deliveries exclusively by rail from Union Pacific Railroad’s high speed line. After receipt at our West Colton rail terminal, ethanol is then transported to end users by truck. We have been operating under a terminal services agreement at West Colton with a subsidiary of an investment grade company since July 2009, which is terminable at any time by either party. Under this agreement, we receive a per gallon fee based on the amount of ethanol offloaded at the rail terminal. We are currently in the process of seeking permits to construct an approximately one-mile pipeline directly from our West Colton rail terminal to Kinder Morgan Inc.’s gasoline blending terminals, which, if approved and constructed, may result in additional long-term volume commitments and cash flows.

The Rail Terminal Assets

Fleet Services

We provide fleet services for a railcar fleet consisting of approximately 3,099 active railcars as of December 31, 2014, with an additional 650 expected to be available for service in the first half of 2015. We do not own any railcars. Affiliates of USD lease 3,096 of the railcars in our fleet from third parties, including the additional 650 railcars expected to be available for service in the first half of 2015. We directly lease 653 railcars from third parties. We have entered into master fleet services agreements with a number of our rail terminal customers for the use of the 653 railcars in our fleet that we lease directly. We have also entered into services agreements with affiliates of USD for the provision of fleet services with respect to the 3,096 railcars that they lease from third parties. These agreements are on a take-or-pay basis for periods ranging from five to nine years, with a weighted-average remaining life of 6.5 years for agreements dedicated to customers of our Hardisty rail terminal. In the aggregate, our master fleet services agreements have a weighted-average life of 5.2 years. Under our master fleet services agreements with our customers and the services agreements with affiliates of USD, we provide customers with railcar- specific fleet services associated with the transportation of crude oil, which may include, among other things, the provision of relevant administrative and billing services, the maintenance of railcars in accordance with standard industry practice and applicable law, the management and tracking of the movement of railcars, the regulatory and administrative reporting and compliance as required in connection with the movement of railcars, and the negotiation for and sourcing of railcars. We typically charge our customers, including affiliates of USD, monthly fees per railcar that include a component for railcar use (in the case of our directly-leased railcar fleet) and a component for fleet services. Our master fleet services agreements and the services agreements with affiliates of USD will expire unless notice to renew is provided by our customers, including affiliates of USD. Approximately 66% of our current railcar fleet is dedicated to customers of our terminals. The remaining 34% of the railcar fleet is dedicated to a customer of terminals belonging to subsidiaries previously sold by our predecessor. We believe our ability to provide access to railcars provides an incentive to customers that do not otherwise have access to high-quality railcars to secure terminalling capacity at our facilities. We expect that the longer terms typical of fleet services agreements will also incentivize our customers to extend their initial terminal services agreements with us.

Approximately 70% of our railcars currently in service were constructed in 2013 and 2014. The average age of our fleet currently in service is approximately four years as compared with the estimated 50-year life associated with these types of railcars. We have partnered with leaders in the railcar supply industry, such as CIT Rail, Union Tank Car Company, Trinity Industries and others. We believe that our relationships with these industry leaders enable us to obtain railcar market insight and to procure railcars on more advantageous terms, with shorter lead times than our competitors. Our current railcars are designed to a DOT-111 railcar standard and are built to carry between 28,000 to 31,800 gallons of bulk liquid volume. Nearly 98% of our railcar fleet is currently permitted to transport crude oil in the United States and Canada. The remaining 2% of our fleet is impacted by Railworthiness Directive, Notice NO. 1 , issued by the U.S. Department of Transportation ("DOT") on March 13, 2015. This directive prohibits any railcar equipped with certain McKenzie UNNR Valves to be loaded and offered for transportation. We are currently coordinating with the railcar suppliers and our customers to repair the affected railcars, the costs of which are the obligations of our railcar suppliers or our customers. Nearly 80% of our railcars are equipped with the most recent safety enhancements including thicker, more puncture-resistant tank shells, extra protective head shields and greater top fittings protection.

As of December 31, 2014, our railcar fleet consisted of a mix of 2,108 coiled and insulated ("C&I") railcars (inclusive of 650 C&I railcars which are currently in production and scheduled for delivery in the first half of 2015), and 1,641 non-coiled, non-insulated railcars. Our C&I railcars can reheat heavy viscous crude oil grades, reducing the need to blend these heavier crude grades with diluents. Additionally, we have the option to procure another 425 new C&I railcars scheduled for delivery in late 2015.

CatchMark Timber Trust

6/15/2015

I've always been fascinated by the concepts of money and time and nowhere are they so completely connected as they are in the production of crops and timber. So it's no wonder that I've always been interested in farmland and timberland. I've accumulated positions in the past in several companies that invest in farmland and timberland and recently I've started a position in CatchMark Timber Trust. I expect we will have a very long relationship.

CatchMark Timber Trust Inc (CTT) is a self-administered and self-managed real estate investment trust (REIT). From their inception in 2007 through October 24, 2013, CTT operated as an externally advised REIT under the guidance of Wells Timberland Management Organization, LLC ("Wells TIMO"), a subsidiary of Wells Real Estate Funds, Inc. ("Wells REF"). On October 25, 2013, CTT terminated their advisory agreement with Wells REF and became self-managed. At the same time they also entered into a transition service agreement with Wells REF and its subsidiaries which ended on June 30, 2014.
(Summary) (Company) (Daily Chart)

CTT engages in the ownership, management, acquisition, and disposition of timberland properties located within the United States. The focus of their business is to invest in timberlands and then actively manage those assets to provide both current income and attractive long-term returns to their investors. They generate recurring income and cash flow from the harvest and sale of timber, as well as from non-timber related revenue sources, such as recreational leases. They also periodically generate income and cash flow from the sale of higher-and-better use, or HBU, properties.

HBU properties are timberland properties that have a higher-value use beyond growing timber, such as properties that can be sold for development, conservation, recreational or other rural purposes at prices in excess of traditional timberland values. They also expect to realize additional long-term returns from the potential appreciation in value of the timberlands as well as from the potential biological growth of the standing timber inventory in excess of their normal timber harvest. For each of the three years ended December 31, 2014, 2013 and 2012, revenues from timber sales, timberland sales, and non-timber related sources, as a percentage of total revenue, is listed in the table below:

On April 11, 2014, CTT purchased 36,320 acres of timberland located in Southeast Georgia and East Texas (the "Waycross-Panola Properties") for approximately $73.7 million. The acquisition of Waycross-Panola Properties added an estimated 1,202,000 tons of merchantable timber, comprising 81% pine plantations by acreage and 63% saw timber by tons, and increased the share of higher value chip-n-saw and saw timber in our product mix. In connection with the Waycross-Panola Acquisition, CTT assumed a pulpwood supply agreement which allows a third-party mill to harvest and purchase between 153,000 tons to 230,000 tons of pulpwood on the Waycross property over six years.

On October 2, 2014, CTT purchased 17,910 acres of timberland located in Southern Georgia and Northern Florida (the “Satilla River Timberlands”) for approximately $34.3 million. The Satilla River Timberlands contain an estimated 757,000 tons of merchantable timber, comprising 65% pine plantations by acreage and 52% sawtimber by tons.

Also on October 2, 2014, CTT purchased 37,660 acres of timberland located primarily in Middle Georgia (the “Oglethorpe Timberlands”) for approximately $76.4 million. The Oglethorpe Timberlands contain an estimated 1,691,000 tons of merchantable timber, comprising 77% pine plantations by acreage and 53% sawtimber by tons.

On October 30, 2014, CTT purchases 21,010 acres of timberland located in Southwest Louisiana (the “Beauregard Timberlands”) for approximately $38.0 million. The Beauregard Timberlands contain an estimated 825,000 tons of merchantable timber, comprising of 77% pine plantations by acreage and 72% sawtimber by tons.

As of December 31, 2014, CTT owned interests in approximately 393,300 acres of timberland, consisting of 364,700 acres held in fee-simple interests, or our fee timberlands, and 28,600 acres held in leasehold interests, or our leased timberlands.

"Agriculture is not crop production as popular belief holds - it's the production of food and fiber from the world's land and waters. Without agriculture it is not possible to have a city, stock market, banks, university, church or army. Agriculture is the foundation of civilization and any stable economy."

Allan Savory, ecologist, farmer, environmentalist.

Business and Growth Strategies

CatchMark's purpose is to produce long-term cash flow and value growth from carefully managing their timberland, participating in the current ongoing timber product price recovery, acquiring additional land, and implementing the following business and growth strategies:

Actively Manage Their Timberlands for Long-Term Results. CTT actively manages their timberlands to maximize long-term returns to achieve an optimum balance among biological timber growth, current harvest cash flow, and responsible environmental stewardship. They also expect to continue making additional investments in forest technology, including improved seedlings, in order to increase the sustainable yield of their timberlands over the long-term.

Maximize Profitability on Timber Sales. CTT actively manages their log merchandising efforts and stumpage sales with the goal of achieving the highest available price for timber products. CTT competes with other timberland owners on the basis of the quality of the logs, the prices of the logs, their reputation as a reliable supplier and their ability to meet customer specifications.

Pursue Attractive Timberland Acquisitions. CTT expects to selectively pursue additional timberland acquisition opportunities and they have an expectation that over the next several years they expect there will be a robust supply of attractive timberlands available for sale in the U.S. South and U.S. Pacific Northwest. CTT has stated that they may also enter into additional fiber supply agreements with respect to any acquired properties in order to ensure a steady source of demand for their incremental timber production.

Opportunistically Sell HBU Lands. CTT continuously assesses any potential alternative uses of their timberlands for purposes that may be of more value for development, conservation, recreational or other rural purposes than for growing timber. CTT intends to capitalize on the value of their timberland by opportunistically monetizing HBU timberlands. Some of their existing timberlands are near several major population centers (Houston, Texas; Columbus, Georgia; Atlanta, Georgia; Montgomery, Alabama; Jacksonville, Florida; and Tallahassee, Florida) and that provides the company with opportunities to periodically sell parcels of our land at higher valuations. The company expects to sell 1% to 2% of their timberland acreage annually and to pursue other land entitlements on certain properties in order to realize higher long-term values on those properties.

Practice Sound Environmental Stewardship. CTT's timberlands are third-party audited and certified in accordance with the 2010-2014 SFI (sustainable forest initiative) standard. SFI standards promote sustainable forest management through recognized core principles, including measures to protect water quality, biodiversity, wildlife habitat and at-risk species. Their timberlands are further managed to meet or exceed all state regulations through the implementation of best management practices as well as internal policies designed to ensure compliance.

"Ultimately, the only wealth that can sustain any community, economy or nation is derived from the photosynthetic process - green plants growing on regenerating soil."

Allan Savory, ecologist, farmer, environmentalist.

Properties

As of December 31, 2014, CatchMark Timberland Trust owned interests in approximately 393,300 acres of timberland, consisting of approximately 364,700 acres of fee timberlands, and approximately 28,600 acres of leased timberlands. The leased timberlands include approximately 20,500 acres under one long-term lease expiring in 2022, which is referred to as the long-term contract or LTC lease, and approximately 8,100 acres are under multiple, single-rotation leases expiring between 2015 and 2019, which is referred to as the private land management or PLM leases. As of December 31, 2014, CTT controlled timberlands contained acreage comprised of approximately 74% pine stands and 26% hardwood stands located in Alabama, Florida, Georgia, Louisiana, and Texas. Below is a list of acreage by state.

As of December 31, 2014, timber inventory consisted of an estimated 14.9 million tons of merchantable inventory with the following components:

Conclusion

Similar to the analysis and conclusion in the articles "Betting On The Farm", "Tree Farms are Farms Too", and "The Other Timber Companies", I am completely convinced that any investment in CatchMark Timberland Trust has to be entered into as a long term investment. And by long term I mean years, not months. Anyone with a shorter term horizon will most likely become disillusioned and/or disappointed in the short term. That said, this may just be one of the best investments of the decade if executed correctly (a big if!). Timberland traditionally increases in value at a rate similar to the inflation rate so it's a great preserver of purchasing power over time, much like gold is. In addition, as population encroaches on today's timberland, the value of the land increases almost exponentially as its use in converted into lots for homes, businesses, golf courses, etc. And while an investor waits for the value of the land (stock) to increase, CatchMark is throwing off a very generous dividend.

Based on the information above, I have already initiated a position in CatchMark Timberland Trust and will add to that position over the next few weeks. I will also monitor the stock in other timber companies with the intent to also start positions in those companies as appropriate. I intend to invest in many of these farm and timberland companies as excess funds become available and then simply hold these stocks for years. I'll also use the dividends distributed by these companies to reinvest back into additional shares of these companies and then let those positions grow naturally over time. In the years ahead I'm hoping to look back on these investments and smile. A lot!

Fridays are Expiration Days

6/12/2015

One of the many reasons I like watching the markets on Fridays is it's option expiration day for many of the options I've sold. And since I like to sell options a lot more than I like to buy options, it's the day I find out if my positions are being exercised and if I am buying or selling stock.

If I've sold cash secured puts and they're in the money at the close on Friday, then I'm buying stock. If I've sold covered calls and they're in the money at the close on Friday, then I'm selling stock. And if they're out of the money on Friday, I'm a happy guy because I'm going to keep all that premium money. But what I'm not doing 99% of the time is buying the option back. That's not the direction I want money traveling.

If I'm the new owner of stock because someone "put" shares to me I'm usually looking to sell a covered call the following Monday morning. If I've lost shares because someone has called the shares I own, then I'm looking to sell cash secured puts the following Monday.

I would prefer the options expire worthless on Friday afternoon but I'm prepared to execute the above processes, as necessary. It's worth the exercise to generate the extra options income which supplements the income I receive from dividends because it's often double or triple the amount normally received from the dividends alone. By reinvesting the money those options provide along with the dividends I receive, I can build up stock positions faster than by using just the dividends. And it's building up my wealth just that much faster.

My favorite options are any options that expire in one week because the steepest decline in the premium occurs during that last week before expiration. Those one week options also limit my exposure to the inherent volatility of the underlying security by limiting my risk exposure to only one week. Finally those one week options will allow me to sell options closer to the actual price of the security and obtain the maximum deteriorating premium. It's all about deteriorating premium for me.

In cases where the premium is basically nonexistent for one week options, my next favorite option are those options that have two weeks left before expiration (my third favorite are those options with three week left before expiration). My preferred strategy is to sell options with strike prices as close to the current price to maximize the premium and options with very close expiration dates to minimize my exposure. And then to sell those options over and over and over again.

The New Normal in Oil

6/11/2015

There's a new normal in the price of oil these days and the oil companies are adjusting to that new normal as quickly as possible or they're going to disappear. That new normal seems to be sixty dollars per barrel. As any investor in upstream oil operations already knows, if the company they're invested in can't produce oil for less than sixty dollars per barrel, their investments are losing money. As any investor in downstream oil operations already knows, their costs are going down but this isn't going to last forever.

Demand is down and supply is up in the world for one simple reason - hydraulic fracking. This technological innovation has rejuvenated old wells and made whole new areas of the world energy producers while at the same time the old areas are reaching their maximum ability to supply any more oil. The markets know that it's only a matter of time before world demand increases, supplies become tighter, and prices rise once again.

Today Saudi Arabia, the world's largest oil supplier, needs oil to sell at $70 per barrel just to pay their citizens not to overthrow the Saudi government. The Russians need at least $90 per barrel oil just to pay their bills and keep their citizens from electing a new government. The hydraulic frackers, on the other hand, need only $60 per barrel oil to be profitable and make America self-sufficient. I believe that oil is going to stay in the mid $60 range for a long time and the Saudis and the Russian governments are in trouble.

Below is a chart of the price of crude oil over approximately the last year. As everyone knows, oil was well over $100 per barrel just one year ago. Since then it fell to a level in the low $40 per barrel and now is finding equilibrium near $60 per barrel. This level is becoming the new normal and oil companies are quickly adjusting.

Click to Enlarge

The small upstream oil producers that grew too fast and took on too much debt based upon $100 oil are now in trouble and are being bought out by smarter companies with less debt and smarter management. Downstream oil refiners who have been enjoying lower costs from the falling price of oil are now faced with, and adjusting to, a rising price of oil that's putting pressure on earnings. The midstream oil companies are suddenly finding themselves with pipelines that are operating at maximum capacity but find themselves under increased competition simply because their pipelines connect older sources of energy and not the new sources that are being discovered every day. Midstream operations are now loosing a huge portion of their business to the rails and the trucking industry.

What's left? The multinationals and they're not immune either. These companies have huge inventories of known oil deposits and as the price of oil falls, so does the value of their inventory. This obviously affects their market capitalization. But those investors that invest in the energy business know that this is a cyclical sector of the overall economy. This sector rises and falls with the world's economy, government policies, wars, and OPEC's attempt to manipulate the price of oil.

A contrarian investor recognizes all of this and takes advantage of these types of situations by buying the "best of breed" companies that are temporarily out of favor. Two such companies in the oil industry are ExxonMobil and Chevron. ExxonMobil has fallen from above $101 per share to the mid $80s and its dividend is approaching 3.5%. Chevron has fallen from $130 per share to where it is today near $100 per share while its dividend has increased to near 4.25%. These are incredible numbers for two distinguished Dividend Aristocrats with long histories of growing their dividends.

While there is never a guarantee that prices won't go lower, these companies are now at significant discounts to what they were just a few months ago. Personally I'm taking advantage of this situation to load up on these shares. I believe I'm accumulating some excellent companies with excellent records of increasing their dividend and I'm buying these shares at a very reasonable price.

Exxon Mobil Corporation explores for and produces crude oil and natural gas in the United States, Canada/South America, Europe, Africa, Asia, and Australia/Oceania. It also manufactures and markets commodity petrochemicals, including olefins, aromatics, polyethylene and polypropylene plastics, and specialty products; and transports and sells crude oil, natural gas, and petroleum products. Exxon Mobil Corporation was formerly known as Exxon Corporation and changed its name to Exxon Mobil Corporation in November, 1999. Exxon Mobil Corporation was founded in 1870 and is headquartered in Irving, Texas.
(Summary) (Company ) (Daily Chart)

7 June 2015
Price $84.28
1yr Target $92.35
Analysts 17
1yr Cap Gain 9.57%
Dividend $2.92
Yield 3.46%
1yr Tot Return 13.03%

1yr EarnGR 3.12%
3yr EarnGR -3.33%
5yr EarnGR 13.81%
1yr DivGR 9.52%
3yr DivGR 13.50%
5yr DivGR 10.43%

Market Cap $352.38 Bil
Beta 0.85
EPS (ttm) $6.66
Payout Ratio 43.84%
EPS next yr $5.35
P/E 12.65
PEG ---
Forward P/E 15.76
Debt/Equity 0.19
ROA 8.10%
ROE 16.00%
ROI 7.90%
Sales $357.10 Bil
Income $28.36 Bil
Profit Margin 7.94%

Chevron Corporation engages in the petroleum, chemicals, and power and energy operations worldwide. The company operates in two segments, Upstream and Downstream. The Upstream segment is involved in the exploration, development, and production of crude oil and natural gas; processing, liquefaction, transportation, and regasification associated with liquefied natural gas; transportation of crude oil through pipelines; and transportation, storage, and marketing of natural gas, as well as holds interest in a gas-to-liquids plant. The Downstream segment engages in refining crude oil into petroleum products; marketing crude oil and refined products; transporting crude oil and refined products through pipeline, marine vessel, motor equipment, and rail car; and manufacturing and marketing commodity petrochemicals and fuel and lubricant additives, as well as plastics for industrial uses. Chevron Corporation is also involved in the cash management and debt financing activities; insurance operations; real estate activities; power and energy services; and technology businesses. The company was formerly known as ChevronTexaco Corporation and changed its name to Chevron Corporation in 2005. Chevron Corporation was founded in 1879 and is headquartered in San Ramon, California.
(Summary) (Company) (Daily Chart)

7 June 2015
Price $101.59
1yr Target $113.21
Analysts 19
1yr Cap Gain 11.43%
Dividend $4.28
Yield 4.21%
1yr Tot Return 15.64%

1yr EarnGR -8.57%
3yr EarnGR -8.88%
5yr EarnGR 14.11%
1yr DivGR 7.00%
3yr DivGR 11.46%
5yr DivGR 10.14%

Market Cap $191.04 Bil
Beta 1.15
EPS (ttm) $9.14
Payout Ratio 46.82%
EPS next yr $6.26
P/E 11.11
PEG ---
Forward P/E 16.24
Debt/Equity 0.22
ROA 6.50%
ROE 11.10%
ROI 6.40%
Sales $181.50 Bil
Income $17.30 Bil
Profit Margin 9.53%

Cola Companies One Year Later

6/9/2015

It's been a year since I compared the three main cola companies so I thought it was about time to look at them once again. It's always interesting to look at the fundamentals of companies from time to time to gauge the extent of just how much they've improved or deteriorated. As you can see below, the information is rather revealing. It's an important lesson to do these kinds of comparisons every so often so that investors have perspective on their investments.

Comparing The Coca-Cola Company, Pepsico, and the Dr Pepper Snapple Group can be a difficult challenge. While these three companies are often referred to as the "Big Three" soft drink companies, any comparison must include both an understanding of each company's product mix as well as the area of product distribution. The Coca-Cola Company is by far the largest world wide distributor of nonalcoholic soft drinks among any of the three soft drink companies. Pepsico, while the second largest distributor of soft drinks in the world, makes a large potion of it profits from its snack food business. In fact, the snack food portion of its business is now growing faster than the soft drink portion of the business. Finally the Dr Pepper Snapple Group is a pure soft drink company and is a tough competitor for Coca-Cola but its distribution is limited to North America and its product line is dominated by carbonated soft drinks.

The Coca-Cola Company, a beverage company, engages in the manufacture, marketing, and sale of nonalcoholic beverages worldwide. The company primarily offers sparkling beverages and still beverages. Its sparkling beverages include nonalcoholic ready-to-drink beverages with carbonation, such as carbonated energy drinks, and carbonated waters and flavored waters. The company’s still beverages comprise nonalcoholic beverages without carbonation, including noncarbonated waters, flavored and enhanced waters, noncarbonated energy drinks, juices and juice drinks, ready-to-drink teas and coffees, and sports drinks. It also provides flavoring ingredients, sweeteners, powders for purified water products, beverage ingredients, and fountain syrups. The Coca-Cola Company sells its products primarily under the Coca-Cola, Diet Coke, Coca-Cola Light, Coca-Cola Zero, Sprite, Fanta, Minute Maid, Powerade, Aquarius, Dasani, Glacéau Vitaminwater, Georgia, Simply, Del Valle, Ayataka, and I Lohas brand names. The company offers its beverage products through a network of company-owned or controlled bottling and distribution operators, as well as through independently owned bottling partners, distributors, wholesalers, and retailers. The Coca-Cola Company was founded in 1886 and is headquartered in Atlanta, Georgia.
(Summary) (Company) (Daily Chart)

11 June 2014
Price $40.87
1yr Target $44.59
Analysts 20
1yr Cap Gain 9.10%
Dividend $1.22
Yield 2.98%
1yr Tot Return 12.08%

3yr EarnGR -9.02%
5yr EarnGR 8.90%

3yr DivGR 8.28%
5yr DivGR 8.06%
Payout Ratio 65%

Beta .48
EPS (ttm) $1.88
EPS next yr $2.24
P/E 21.85
PEG 3.26

Debt/Equity 1.18
ROA 9.40%
ROE 26.00%

7 June 2015
Price $40.10
1yr Target $44.82
Analysts 17
1yr Cap Gain 11.77%
Dividend $1.32
Yield 3.29%
1yr Tot Return 15.06%

1yr EarnGR -15.79%
3yr EarnGR -4.68%
5yr EarnGR 4.56%
1yr DivGR 8.92%
3yr DivGR 8.98%
5yr DivGR 8.27%
Payout Ratio 83.54%

Market Cap $174.78
Beta 0.51
EPS (ttm) $1.58
EPS next yr $2.13
P/E 25.38
PEG 5.25
Forward P/E 18.86
Debt/Equity 1.47
ROA 7.50%
ROE 22.20%
ROI 10.40%
Sales $46.13 Bil
Income $7.04 Bil
Profit Margin 15.26%

PepsiCo, Inc. operates as a food and beverage company worldwide. The company’s PepsiCo Americas Foods division offers Lay’s and Ruffles potato chips, Doritos and Tostitos tortilla chips, Cheetos cheese flavored snacks, branded dips, and Fritos corn and Santitas tortilla chips; Quaker oatmeal, Aunt Jemima mixes and syrups, Quaker Chewy granola bars, Quaker grits, Cap’n Crunch cereal, Life cereal, and Quaker rice cakes; Rice-A-Roni, Near East, and Pasta Roni side dishes; Quaker-brand cereals and snacks; and snack foods under Marias Gamesa, Cheetos, Doritos, Ruffles, Emperador, Saladitas, Elma Chips, Rosquinhas Mabel, Sabritas, and Tostitos brands. Its PepsiCo Americas Beverages division provides beverage concentrates, fountain syrups, and finished goods under Pepsi, Mountain Dew, Gatorade, Diet Pepsi, Aquafina, 7UP, Diet Mountain Dew, Tropicana Pure Premium, Sierra Mist, and Mirinda brands; and ready-to-drink tea and coffee products. The company’s PepsiCo Europe division offers snacks under Lay’s, Walkers, Doritos, Cheetos, and Ruffles brands, as well as Quaker-brand cereals and snacks; beverage concentrates, fountain syrups, and finished goods under Pepsi, Pepsi Max, 7UP, Diet Pepsi, and Tropicana brands; ready-to-drink tea products; and dairy products under Domik v Derevne, Chudo, and Agusha brands. Its PepsiCo Asia, Middle East, and Africa division provides snack foods under Lay’s, Chipsy, Kurkure, Doritos, Cheetos, and Smith’s brands; cereals and snacks under the Quaker name; beverage concentrates, fountain syrups, and finished goods under Pepsi, Mirinda, 7UP, Mountain Dew, Aquafina, and Tropicana brands; and ready-to-drink tea products. The company serves wholesale and foodservice distributors, grocery and convenience stores, mass merchandisers, membership stores, and authorized independent bottlers through direct-store-delivery systems, customer warehouses, and distributor networks. PepsiCo, Inc. was founded in 1898 and is headquartered in Purchase, New York.
(Summary) (Company) (Daily Chart)

11 June 2014
Price $87.78
1yr Target $93.17
Analysts 18
1yr Cap Gain 6.14%
Dividend $2.62
Yield 2.98%
1yr Tot Return 9.12%

3yr EarnGR 3.34%
5yr EarnGR 6.11%

3yr DivGR 5.76%
5yr DivGR 6.30%
Payout Ratio 59%

Beta .39
EPS (ttm) $4.42
EPS next yr $4.89
P/E 20.00
PEG 2.78

Debt/Equity 1.41
ROA 8.90%
ROE 29.90%

7 June 2015
Price $93.05
1yr Target $106.15
Analysts 20
1yr Cap Gain 14.07%
Dividend $2.81
Yield 3.01%
1yr Tot Return 17.08%

1yr EarnGR -1.16%
3yr EarnGR 1.92%
5yr EarnGR 2.52%
1yr DivGR 12.94%
3yr DivGR 7.71%
5yr DivGR 7.40%
Payout Ratio 65.50%

Market Cap $137.35 Bil
Beta 0.43
EPS (ttm) $4.29
EPS next yr $4.89
P/E 21.69
PEG 3.41
Forward P/E 19.02
Debt/Equity 1.91
ROA 8.60%
ROE 32.60%
ROI 15.90%
Sales $66.28 Bil
Income $6.51 Bil
Profit Margin 9.82%

Dr Pepper Snapple Group, Inc. operates as a brand owner, manufacturer, and distributor of non-alcoholic beverages in the United States, Canada, Mexico, and the Caribbean. The company operates in three segments: Beverage Concentrates, Packaged Beverages, and Latin America Beverages. It offers a portfolio of flavored (non-cola) carbonated soft drinks (CSDs) and non-carbonated beverages (NCBs), including ready-to-drink teas, juices, juice drinks, mixers, and water. The company’s brand portfolio includes CSD brands, such as Dr Pepper, Canada Dry, 7UP, Squirt, Crush, A&W, Peñafiel, Sunkist soda, Schweppes, and Sun Drop; and NCB brands comprising Snapple, Hawaiian Punch, Mott’s, Clamato, Mr & Mrs T mixers, and Rose’s. It sells its products primarily to bottlers, distributors, and retailers. Dr Pepper Snapple Group, Inc. was incorporated in 2007 and is headquartered in Plano, Texas.
(Summary) (Company) (Daily Chart)

11 June 2014
Price $58.22
1yr Target $56.66
Analysts 14
1yr Cap Gain -2.68%
Dividend $1.64
Yield 2.81%
1yr Tot Return 0.13%

3yr EarnGR 11.88%
5yr EarnGR N/A

3yr DivGR 18.88%
5yr DivGR N/A
Payout Ratio 50%

Beta .15
EPS (ttm) $3.32
EPS next yr $3.68
P/E 17.60
PEG 2.44

Debt/Equity 1.20
ROA 8.10%
ROE 29.50%

7 June 2015
Price $73.86
1yr Target $82.11
Analysts 17
1yr Cap Gain 11.16%
Dividend $1.92
Yield 2.60%
1yr Tot Return 13.76%

1yr EarnGR 20.00%
3yr EarnGR 9.02%
5yr EarnGR 10.40%
1yr DivGR 7.89%
3yr DivGR 10.55%
5yr DivGR 22.27%
Payout Ratio 53.48%

Market Cap $14.16 Bil
Beta 0.12
EPS (ttm) $3.59
EPS next yr $4.20
P/E 20.57
PEG 2.67
Forward P/E 17.59
Debt/Equity 1.18
ROA 8.50%
ROE 30.80%
ROI 16.60%
Sales $6.17 Bil
Income $705.00 Mil
Profit Margin 11.42%

My Perspective

It's apparent that all three of these companies have been struggling to increase or even maintain their sales and earnings while simultaneously maintaining their string of dividend increases. They've been able to do this by allowing the payout ratio to increase over time. Obviously this can't continue forever but it appears from the data above that the fundamentals are improving. Depending on how fast sales and profits recover will determine if dividends will be affected or simply the payout ratio.

I believe all three of these companies are investment worthy as long as the investor understands exactly what he's investing in because these really are three different and distinct companies. I currently own shares of The Coca Cola Company but based on the above I may scale back my buys until the company shows better increases in their earnings. Instead I will begin to shift those funds into investments in Pepsico and Dr Pepper.

A Look at Ford and GM

6/7/2015

Just a few years ago things were so bad in the US auto industry that the federal government offered to bail out the Big Three automakers. General Motors and Chrysler took the offer from the US Government but Ford Motor Company decided not to take the bail out. At the time Ford was telling the world that the company was strong enough to survive the downturn on its own without any assistance. That was the clue to buy Ford.

Today I thought it would be a good idea to look at the Big Two US automakers - Ford and GM (Chrysler has since been sold off to Fiat) and see what their fundamentals look like. I've been a holder of Ford stock for awhile and it has seemed obvious to me in the past that with all the problems, recalls and associated law suits General Motors has had with its cars, it would be better to avoid that company all together. But that was then and this is now. Based on the information below General Motors may just be worth another look.

Ford Motor Company manufactures and distributes automobiles worldwide. The company operates through two sectors, Automotive and Financial Services. The Automotive sector develops, manufactures, distributes, and services vehicles, parts, and accessories. It offers vehicles primarily under the Ford and Lincoln brand names. This sector markets and sells its products through distributors and dealers, as well as through dealerships to fleet customers. The Financial Services sector offers various automotive financing products to and through automotive dealers. It provides financing products, including retail installment sale contracts for new and used vehicles; and direct financing leases for new vehicles to retail customers, governments, and rental car companies. This sector also offers wholesale loans to dealers to finance the purchase of vehicle inventory. The company was founded in 1903 and is based in Dearborn, Michigan.
(Summary) (Company) (Daily Chart)

Click to Enlarge

7 June 2015
Price $14.78
1yr Target $17.29
Analysts 17
1yr Cap Gain 16.98%
Dividend $0.60
Yield 4.05%
1yr Tot Return 21.03%

Market Cap $58.76 Bil
Beta 1.57
EPS (ttm) $0.78
EPS Next Year $1.88

EPS Next 5 Years 17.27%
Payout Ratio 76.92%
P/E 18.95
PEG 1.10
Forward P/E 7.85

Debt/Equity 4.92
ROA 1.50%
ROE 12.20%
ROI 1.50%

General Motors Company designs, builds, and sells cars, crossovers, trucks, and automobile parts worldwide. It operates through GM North America, GM Europe, GM International Operations, GM South America, and GM Financial segments. The company markets its vehicles primarily under the Buick, Cadillac, Chevrolet, GMC, Opel, Holden, Vauxhall, Alpheon, Baojun, Jiefang, and Wuling brand names. It also sells cars and trucks to dealers for consumer retail sales, as well as to fleet customers, including daily rental car companies, commercial fleet customers, leasing companies, and governments. In addition, the company offers connected safety, security and mobility solutions, and information technology services. The company, through its subsidiary, General Motors Financial Company, Inc., provides automotive financing services. General Motors Company was founded in 1897 and is based in Detroit, Michigan.
(Summary) (Company) (Daily Chart)

7 June 2015
Price $35.12
1yr Target $42.18
Analysts 17
1yr Cap Gain 20.10%
Dividend $1.44
Yield 4.10%
1yr Tot Return 24.20%

Market Cap $56.45 Bil
Beta 1.73
EPS (ttm) $2.15
EPS Next Year $5.10

EPS Next 5 Years 18.16%
Payout Ratio 66.97
P/E 16.33
PEG 0.90
Forward P/E 6.88

Debt/Equity 1.33
ROA 2.00%
ROE 9.60%
ROI 1.80%

Click to Enlarge

Conclusion

These two companies appear to be fundamentally strong yet technically weak at this point in time. I like the yields in excess of 4% and the one year estimated total returns of over 20% on each of these companies. These are definitely the kinds of numbers I love to see when researching companies. I also like estimated 5 year earnings per share in the high teens, P/E ratios below 20, PEGs near 1, and forward P/Es in the single digits. The only downside here is the debt to equity ratio which is above 1 for both companies but quite high for Ford.

These two companies are also critical to the US economy because there are so many different ancillary businesses that feed into the automotive manufacturing industry that make up the overall economy. But Ford and General Motors are also dependent upon the success of the overall US economy. When the economy is doing well and people are employed, they tend to trade in their old cars for new ones. And when people buy cars, the economy tends to be in good shape. It's a win-win situation. But unfortunately the opposite is also true. When the economy is not doing well, people tend to hold on to their cars longer. And that's not good for these automakers. That's what makes this entire industry so cyclical.

Fundamentally these two companies look like they would be great candidates for accumulation but technically it appears that their prices haven't quite bottomed yet. My plan is to closely monitor the price charts of both of these two companies and then accumulate a significant position in both using in-the-money cash secured puts as soon as the charts tell me that the shares of these companies are about to turn up.

Author

I am an Individual Investor with specific interest in long term growth and then enhancing my returns with income from dividends and derivatives. I don't recommend stocks to anyone (it's a good way to lose friends) and no one reading this should misinterpret my blog as a recommendation for any type of investment. I am writing this solely for myself and my kids.

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