Russ,

Thanks for the link, but I found the article with too much logic & common sense for me.

Seriously, I have just taken a trial subscription to Peters newsletter, and have found it very useful.

helmut 

I would have hoped that Josh learned his lesson from Muni Mae, and add another rule.

Don't buy a company that doesn't publish audited financial reports.

MMA recently suspended the dividend. I got rid of most of my MMAB stock but not all of it.. 

KEN2CWL:

Helmut, where do you find the area for a trial subscription? All I find is the regular yearly subscription area.  Thanks   Ken

Ken,

Believe it or not, Morningstar actually called me with a telephone solicitation and offered me a three month trial subscription.   It was not free, I believe it was about half the regular price.

If you wanted to try it out just call Morningstar sales and ask them.  I believe that if you have not subscribe in the past, they will probably give you the same offer.

Good luck! 

helmut.

Russ

Josh also wrote an article for the Spring 08 Morningstar Advisor on the same subject, going into a bit more detail on how he evaluates a company in terms of the company's ability to sustain and grow their dividend.

His views tend to lean towards the Macroeconomic side of analysis, which is fine...but its also kind of vague and hard to get ahold of...although what he says makes sense.

For me, looking at the company's ability to generate free cash flow from operations (not asset sales), and carefully tracking this, is the true measure of dividend sustainability and growth. And for C-Corp current yields, my little red flag pops up much sooner than 8%....I get worried at 5%.

But having said that, its good to see the discussion aimed at dividends rather than the usually 'income' analysis that spends most of its time talking about growth.

BruceM

I like the way Josh looks at things in general.  I appreciate that he doesn't spend a lot of time on some really higher yielding assets.  I suspect that one of the reasons is that some of these assets don't neatly conform to the kind of academic analysis that's traditional.  They are so different in their structure and financing that they can't be neatly pigeon-holed.  They often operate in cyclical environments which may result, from time to time, in a dividend reduction.  It might take a whole book just to discuss these 'different' assets that throw off a lot of cash.

Sometimes these assets float and are partially owned by Greek businessmen.

Consider:

Nordic American's NAT stock could be purchased on 1/04 for $15.05.  Since then it has paid $19.21 in dividends and could be sold today for $38.50.

Knightsbridge Tankers' VLCCF stock could be purchased on 1/04 for $12.52.  Since then it has paid $15.95 in dividends and could be sold today for $31.09.

Frontline's FRO stock could be purchased on 1/04 for $17.10.  Since then it has paid $41.05 in dividends (including spinoffs) and could be sold today for $61.05.

And my personal favorite, Eagle Dry Bulk's EGLE stock could be purchased less than three years ago at its IPO at $13.50.  Since then it has paid $5.60 in dividends and could be sold today for $34.50.

[Note: I used the Jan '04 start date because that's as far back as it was easy to get on Morningstar.]

I'm not touting shipping stocks.  Just pointing out that sometimes the real world (in this case, a corner of the high yield world) doesn't conform to the usual theories and analysis.

It's been fairly easy in the last five years to be partners with some Greeks, collect some really fat dividend checks and maybe sell off just a few shares such that you're playing with all house money.  And the dividends keep coming at a very high rate on your remaining invesmtnet.  That . . . . . is what I call a gravy train.

Regards.

Cliff

Josh fears tankers, and I think his argument is centered on moat.

The way I look at things, JP places a lot of discussion and emphasis on dividend growth, and a lot of the data associated with same is subjective.  That is, ROE might indicated a 10% dividend growth rate, but he will cut it down (conservatively I might add) for any number of subjective reasons.  JWR calls it due dilegence, but on dividend growth, not the dividend itself.

Likewise, he spends very little time, and discussion, on the quality of the dividend.

I, personally, spend ALL of my time researching the dividend itself, and very little time on it's growth characteristics.  Specifically, I am happy if the dividend history is stable.  Whenever I research stocks, I actually plot the dividend history (available from Yahoo!).

So, JP (and a lot of people) will choose a company that pays a quality 6% dividend, and sharpen their pencil to see if a 2% dividend growth rate is reasonable.  That gives them the magic 8% return that JP expects.

I will choose a company, like one of those tankers, that pays what I consider a quality 10% dividend yield, and not worry too much about any growth of that dividend.  My company will provide the 6% current dividend that I want, and an excess 4% of current dividend that I will use to grow the yield of my portfolio.  I can take a dividend cut (to 8%) and still match JP.

JP's company will provide the current 6% yield also, but must continuously grow earnings, and dividends, over the years.

I'm betting on the present, JP is betting on the come, IOW.

Finally, JP's model has no place for either debt (think high yield debt), nor for any funds.

Regarding tankers, the ONLY risk that I can't seem to put my hands around is the obvious one associated with an environmental disaster.  Specifically, what would happen if one of NATs tankers ever did the Valdez Twostep?

One the one hand, I would expect tanker owners to have maritime insurance.  On the other hand, is it enough insurance?  On the third hand, well, you get the picture.

From a financial perspective, all risks that I can identify seem reasonable, and I have discussed these on this forum previously.  Certainly to consider their 10%+ dividend yields, supporting a 6% maximum retirement withdrawal rate, less risky then an equivalent investment in another stock yielding a percent or two!

I, personally, owned both NAT and VLCCF for almost 5 years, before selling out earlier this year.  I also owned Arlington Tankers for a brief period of time.  What I did was consolidate all of my tanker money into Frontline.  The reasons were simple.

VLCCF was always strictly an owner of their fleet.  They had little to do with operations.  NAT used to be an owner/operator, but they, too, are getting out of the ops business and are concentrating on ownership.

FRO, OTOH, is de-emphasizing ownership and concentrating on tanker scheduling and ops.  They sold/spun off their fleet, and leased back individual ships on long term charter rates.  They then run those same ships on the spot market, taking on spot market risks, while expecting spot market returns.

The reason this strategy works is that FRO is the premier tanker scheduling and fleet operations outfit in the world.  Likewise, last year, whenever spot rates were down, FRO converted some of their ships to non-tanker uses, helping to match tanker supply and demands forces.

The bottom line is that the tanker market has been, and will continue to, consolidate, and FRO will end up at the high end of the food chain.

I also like the tanker market's tie to oil prices!