- Page 3/4
- Next Page
Total obligations have gone from $13.1B at year end 2022 to $14.5B at June 30 2023. While $1.4B is a 'lot' we also note that cash grew $500M in the same period, and total cash is $15.7B, more than total debt. Thus, we would not consider debt high at all here in the big picture. Also, the balance sheet movements largely reflect a massive amount ($9B) of share buybacks in the past year. With near $7B in free cash flow annually, we would consider the balance sheet exceptionally strong.
Unlock Premium - Try 5i Free
Diversification:
A concentrated portfolio is one way to build high wealth, but it is also a way to surely go broke if things don’t work out as expected.
Many dividend investors learned a hard lesson last year when nearly every dividend stock declined at the same time as interest rates soared. Technology investors are used to getting crushed every so often as tech stocks tend to be highly correlated. Investors who loaded up on real estate when interest rates were near zero are now getting a very painful lesson in how lack of diversification can hurt.
It is commonly known that diversification reduces risks, but investors still forget. We’ve seen investors with six bank stocks who think that’s diversification (hint, it’s not.)
Unlock Premium - Try 5i Free
There are many knuckleheads who expect the U.S. Fed's Jay Powell to give a massive all-clear buy signal to the stock market. Gimme a break. That won't happen until inflation stops for six months--and we are far from that happening. No, the Fed hasn't beaten inflation yet. Mortgage rates are still high, the housing supply and labour market are still tight. Inflation stands at 4%. Pundits like hedge fund managers are out of touch with everyday (rising) prices that impact typical working people. Powell will raise rates until those prices come down, even if there are lots of layoffs (though prefers not to). He's doing this because hot inflation is more painful than layoffs.
Rising interest rates have hurt the housing sector. This includes TREX. He's long liked this company for its fine products. It's had a great year until early August. Since that peak, it's fallen over 15%. They had a great investors day a week ago and forecast a superb second half of 2023. When the Fed stops hiking interest rates, TREX will spike.
They just finished a $3.25 billion share buyback and will start a $2 billion one. They've retired 7.6% of their shares so far this year. All told they will reduce shares by 13.5%, the 3rd-biggest buyback on the S&P 500. If you feel interest rates will continue to rise, Dupont is too risk; Dupont has some cyclicality because it's exposed to autos. Overall, he likes Dupont.
They suppled boring data to the boring insurance industry, but he likes boring. They've bought back 7.3% of its shares this year. Also, its lifetime chart is sharply higher. They sold their non-core business (selling data to energy companies) to become a pure data insurance company. Good. That sale paid for the buyback. They report lots of capital to shareholders.
Are buying back 8.5% of its shares this year, but also investing in their business for the long term. This shows confidence. Also, he likes their new rewards program which operates across several of its businesses. Also, its trades at under 9x 2024's PE, half that of competitor Booking Holdings.
FC is a relatively small mortgage lender. The stock is cheap at 10X earnings, and it mostly trades for its 9.4% yield. The dividend has not been raised for at least 10 years, but it does pay fairly regular small special dividends annually. There has been esssentially no growth in per share earnings in 15 years, and its business is very closely tied to housing, rates, and the economy. With this, and with its small size, it should be consider higher-risk income, certainly. We do not really see any red flags other than these risks, but we would prefer to see growth. Competitive pressures have increased, and a recession or 'higher for longer' rates would not help the stock much. The stock has declined about 30% over the past decade. This has been offset by the dividend, but the stock could still drift lower, lowering net gains on the dividend.
Unlock Premium - Try 5i Free