Archive for May 2018

Revisiting Bad Dividend Advice

A little over two years ago I commented on an article recommending people buy Frontier Communications because it had a high dividend yield of 9.6%. I explained that choosing a stock simply because it has a high yield is a bad idea. I wrote that “dividend growth investing”  (or DGI) is a subset of “dividend investing”, and why it was better than simply chasing yield. I also outlined the general criteria that DGI investors use to select stocks. Even though I put most of my money into dividend ETFs, I still think DGI is the way to go and is a good method for selecting stocks. I think that what has happened to Frontier Communications over the past two years shows that.

First off: They are no longer paying their dividend on their common stock. Their last dividend was announced on October 17, 2017, and paid on December 15, 2017. According to their press release page, the only dividend since then was on their preferred stock. I think we can ignore this for a few reasons:

  1. The October 17, 2017 announcement was for both common and preferred stock.
  2. Most people (and institutional investors) buy more common stock than preferred stock.
  3. The article I was responding to in 2016 did not mention preferred stock, so I assume they were talking about common stock.

They started paying dividends in 1972 to 1998, with a few cuts along the way. Then, a telecommunications company stopped paying dividends during the dot-com boom. They resumed in 2004. There were a few dividend raises, but not enough to meet even a DGI threshold of 5 years, which is the lowest I have seen from any DGI investor. But there were more freezes and cuts than raises. They also had a reverse split in 2017, which is never a good sign. If you look waaaaaay at the bottom, there is a row for 2018 that says “Dividend omitted.” I admit, I did not see the row for 2018 at first. Probably because they put it at the bottom out of order.

Here is their dividend data from their web site:

Year Div In Cents
Total dividends in 2017 3.441667
Total dividends in 2016: 6.30
Total dividends in 2015: 6.30
Total dividends in 2014: 6.00
Total dividends in 2013: 6.00
Total dividends in 2012: 6.00
Total dividends in 2011: 11.25
Total dividends in 2010: 13.125
Total dividends in 2009: 15.00
Total dividends in 2008: 15.00
Total dividends in 2007: 15.00
Total dividends in 2006: 15.00
Total dividends in 2005: 15.00
Total dividends in 2004: 37.50

If you were hoping to get bailed out by capital gains (never a good idea), you were disappointed there too. On February 1, 2016, the stock was around $70. It peaked at $84 in April, 2016. It hit $70 in August, 2016, and just kept dropping. Now it is at about $7.69. Granted, I always say that price alone is not important, but a drop from $84 to $7 is bad. But I think the DGI criteria are a good signal of the health of a company. A lot of people invest based on price, and they think that a fall in price is a problem. The reality is that a fall in price is the result of underlying problems.

The drop in price would not be a surprise if you looked at their cash flow statements. According to Morningstar, here is their net income from their cash flow statements for the past 10 quarters:

Quarter Profit or (Loss) in Millions
2015-12 (103)
2016-03 (186)
2016-06 (27)
2016-09 (80)
2016-12 (80)
2017-03 (75)
2017-06 (662)
2017-09 (38)
2017-12 (1029)
2018-03 20

So in 2018, they made $20 million, after spending two years losing $2.2 billion. Good times.

A lot of indexers might look at this company and point to it as an example of why dividend investing is a bad idea. People need to realize that DGI investors do not simply chase yield. DGI investors look at the cash flow, the payout ratio and the dividend history. Using the DGI criteria is not a guarantee, but it increases the odds of success. You cannot just point to an individual stock and say to someone, “If you put money in that stock, you would have lost all of it! Therefore, your style does not work!” That objection assumes that a DGI investor would have put money into a bad stock, like Frontier Communications. I think for Frontier, using DGI criteria would have saved an investor from disaster.

Big Jim likes sustainable cash flow.

“DGI” can refer to “dividend growth investing” or “dividend growth investor”, and yes, sometimes I write “DGI investor”, which could be redundant.

Image from Memgenerator, assumed allowed under Fair Use. I have no idea if the misspelling of “advice” is intentional.

Thoughts On Assange

Recently, some on the internet were upset that the Ecuadorian embassy in London cut off Assange’s internet access. A lot of “freedom crusaders” went nuts. We would all live in tyranny if Assange was cut off from the internet.

First off, why do some people think that being a jerk makes them a freedom fighter? Or that “freedom” means that the rest of the world should roll over and give them what they want?

Ecuador made him a citizen in December, 2017. Even still, that does not give him carte blanche. He has a history of trying to get into parts of the embassy that are off-limits to him, yet he thinks that he can just go where he wants. Do any American citizens think they can just walk into an American embassy and start making demands?

He is a guest of Ecuador. He is there as long as they tolerate him. When you are accused of crimes by multiple countries and still wanted by the country that you are in (the UK wants to talk to him about skipping bail) and you have a reputation for sticking your nose in other countries’ elections and claiming objectivity while only telling one side of the story, maybe you should avoid angering your hosts. Shut up and do not make waves. Why should they put up with any shenanigans?

I do not think he is too bright. He said he did not want to go to trial in Sweden because he was afraid the US would extradite him. Why couldn’t the US just extradite him from the UK? He was in prison for about a week and had to wear an electronic bracelet. I do not understand why he was not afraid of the US trying to start extradition procedures while he was in the UK. I think the US is a closer ally to the UK than Sweden. And if he was so afraid of the US getting him by illegal means, again I do not understand why they could not just grab him any time they wanted.

And if he is such a brave fighter for freedom, then why not face the music in the US? Either you are willing to fight for your beliefs or you are not.

He did a Reddit AMA, but posted answers on Twitter. And dodged a lot of questions.

I think one reason that Assange got asylum is because former President Rafael Correa wanted to stick it to the West. At least a bit. It doesn’t matter whether the people in charge are right or left; a lot of small countries do not like the big countries pushing them around. So while Assange thinks he is sticking it to the man, another government is using him as their pawn. 0wned.

A few weeks ago I looked at some of Wikileaks’ tweets over the past year. There were not too many about Russia. I suppose that it is possible that nobody in Russia sends them documents, but I find it hard to believe that nobody in a country with a president-for-life is unhappy with the status quo. Like the XX Committee, I think he is working for Russia (also see here).

They did have a few tweets about Saudi Arabia. A few about Europe. A lot about the US. A lot about elections being fixed, yet nothing about Putin, who seems to run with no opposition. They cannot seem to decide if Trump is dismantling the “deep state” or continuing it. They do not seem to be eager to see Trump’s tax returns.

A lot of glibertarian dudebros have had internet drives to pay for Assange’s defense. Are any of them willing to pay some of the extra costs that Ecuador has incurred because of Assange? One estimate is that he is costing Ecuador $60,000/month. The per capita GDP of the US is about $60,000/year. In the UK it is $30,000/year. In Ecuador it is $11,000/year. People in rich countries like the USA ask questions like, “Why are we letting people starve when we have money to build all these weapons?” I wonder what questions people ask about Assange in a country that has one-sixth the money. Assange isn’t really willing to pay the price for his beliefs, but he has no problem letting a third-world country foot his bills. Let’s find someone else to stick up for freedom.

Big Jim does not like self-centered glibertarian dudebros. Or dudbros.

La Virgen alada del Apocalípsis (“Winged Virgin of the Apocalypse“) by Miguel de Santiago (17th century), assumed allowed under Fair Use.

Thoughts On Saudi Arabia

Recently, Saudi “reformer” Crown Prince Mohammad bin Salman began remaking the country in his image. Recently he detained some members of the royal family, government workers and businessmen in an “anti-corruption” purge.

First off, if the guy fighting corruption is the same guy who is running the country because his dad gave it to him, then you have to explain how you define “corruption”.

Many of the detained were close to the previous king, Abdullah. So one effect of this “anti-corruption” purge is to make MBS stronger. It looks like MBS got help from Jared Kushner in identifying political enemies (see links here, here and here). Perhaps “corrupt” means “not doing what Pretty Boy wants.” Two powerful families cracking down on enemies sounds like corruption to me.

I think it’s kind of ironic that a lot of the detainees got out by paying fines. Granted, people pay fines instead of going to trial in a lot of countries, but paying money to get out of a corruption charges sounds kind of like corruption.

One of the detained was Al-Waleed bin Talal, who just coincidentally has been critical of Donald Trump. To be honest, I always thought AWbT was a bit odd. He always claimed he made his fortune without his family giving him any favors. That may be true, but I think “on my own” for a member of royalty doesn’t mean the same thing it does for me.

Another thing that was weird was his obsession with being listed on Forbes’ list of billionaires. If you want people to invest in you, show them financial statements for Kingdom Holding Company.

That said, detaining AWbT seemed like an odd thing to do. MbS says he wants Saudi Arabia to be more open and equal, and give women more rights. AWbT has pushed for gender equality for a long time and hired the first female pilot. MbS says he wants Saudi Arabia to be less dependent on oil. Kingdom Holding Company’s “Investments” page lists the following categories:

  • Finance Services & Investments
  • Real Estate
  • Hotels
  • Aviation
  • Petrochemicals
  • Entertainment
  • Private Equity & International Investments
  • Health Care
  • Education
  • Consumer and Retail
  • Social Media and Technology.

Granted, “Petrochemicals” is in there, but it looks like AWbT knows about diversification. Isn’t that what MbS says he wants?

A lot of Westerners who worked with AWbT were afraid to come to his defense because they did not want to anger the Saudi government. Well played, MbS.

I want stability in the world, but is MbS the man for the job? Is anyone in the Saudi royal family up to the task? An article in The Intercept goes over the differences between Iran and Saudi Arabia. Depsite having fewer resources and allies, Iran is more successful at accomplishing its goals than Saudi Arabia, which is odd given that SA has more money, more oil, and the cachet of having Mecca and Medina. The article points out that maybe the Iranians are just smarter than the Saudis.

Let’s not forget that it is not Iran that is funding the radicalization of Sunnis the world over; it is Saudi Arabia. It is not Shiites bombing Sufi tombs in Pakistan; it is extremists being fed Wahabbi doctrine. The Iranians might not be wack jobs if the West had left their elected prime minister in place.

Big Jim doesn’t like religious extremists.

Section from a Qur’an, Iraq or Turkey, second half of 13th century, available at The Metropolitan Museum of Art, assumed allowed under Fair Use.

2018-05-16 Blog Title

Today’s title is: Emotional Support Goat.

Someone at work said that a few airlines are no longer allowing people to bring bugs, spiders, snakes or birds onto planes as “emotional support animals”. I know there are people with actual disabilities, but I think a lot people out there are taking advantage of the rules. If your dog barks, or your animal goes wandering around, then you are just a jerk trying to take advantage of the rules. And ruining things for people who really do need animals.

I once saw a guy bring a dog into the grocery store. What is wrong with people that they think everybody has to roll over for them? (See what I did there?)

Plus, my mom is allergic to most dogs. Why should she have to put up with a dog because you are too weak-minded to travel without Fee-fee? Some people have very bad allergic reactions. Don’t they have rights too? Amazingly, ten or so years ago people were able to fly without needing Mr Fluffygums to keep them safe.

I think I need to bring along Helga, my emotional support Swedish contortionist and supermodel. She helps me feel good.

Someone at work thought that “Emotional Support Goat” would be a good band name. Someone else thought it would be a good DJ name, but I think “DJ Goat” is enough.

Big Jim likes the Swedish ladies.

“A Pastoral Idyll” by Louis Léopold Robert  (13 May 1794 – 20 March 1835), assumed allowed under Fair Use.

2018-04 Dividend Income Report

Here is the dividend income report for April, 2018.

The monthly dividend income came out to $50.88. The yearly income total for 2018 through the end of the month was $1276.89.

The income for April, 2017 was $324.66, and the yearly income for 2017 through the end of April was $1814.94.

Once again, the only income came from bond funds. The stock ETFs only pay on “C” months. So far the twelve-month moving average is still doing okay.

Note: January, April, July and October are the “A” months. February, May, August and November are “B” months. March, June, September and December are the “C” months. I got this terminology from David Fish, maker of the great monthly Dividend Champion spreadsheet. If you want to invest directly in dividend growth companies, you should get his spreadsheet every month.

Here is a table with the year-to-date amounts, the monthly amounts, and the three- and twelve-month moving averages for each April from 2011 through 2018:

Month YTD Amount 3MMA 12MMA
2018-04 $1276.89 $50.88 $405.77 $583.24
2017-04 $1814.94 $324.66 $532.02 $522.40
2016-04 $1622.67 $270.38 $461.86 $471.14
2015-04 $1441.12 $261.30 $409.21 $395.68
2014-04 $1130.58 $196.43 $323.64 $303.18
2013-04 $898.59 $179.23 $262.82 $289.40
2012-04 $1010.82 $218.56 $274.05 $271.21
2011-04 $848.29 $203.10 $216.30 $179.46

Here are the stocks and the income amounts for April, 2018:

  • Vanguard Total Bond Market ETF: $36.45
  • Vanguard Total Bond Market ETF: $3.86 (Capital Gains)
  • Vanguard Total International Bond: $10.57

Capri mit Blick auf Santa Serafina, by Johann Wilhelm Schirmer (5 September 1807 – 11 September 1863), assumed allowed under Fair Use.

Buddhist Valentines

Some Buddhist valentines:

  • Your absence is the cause of my suffering
  • Let’s be impermanent together
  • You turn the wheel of my heart
  • I’d like to enter your stream sometime
  • You make cessation less appealing
  • Let’s add “Right Lovin'” to the Noble Path

On a side note, it seems like a LOT of the women in Buddhist groups have (or have had) some serious addiction problems. Kind of like women in general.

 

Standing Buddha, ca. 3rd–4th century Pakistan (ancient region of Gandhara) at the Metropolitan Museum, assumed allowed under Fair Use.