Valuentum Exclusive Analysis for the Discerning Investor

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Sep 20, 2023

ICYMI: Questions for Valuentum’s Brian Nelson
Valuentum's President Brian Nelson, CFA, answers your questions.

Sep 6, 2023

Latest Report Updates Reveal Tremendous Dividend Strength at Walmart
Our latest report updates showcased one very big observation, and that was the tremendous dividend strength of Walmart. The big box retailer’s Dividend Cushion ratio is rock-solid, and improved inventory management has worked wonders on operating cash flow this year, driving it to $18.2 billion during the six months ended July 31 from $9.24 billion in the same period a year ago, all the while organized retail theft remains a huge industry-wide problem. Though shares of Walmart are widely followed and are fairly valued on the basis of our discounted cash-flow process, we stand in awe of the company’s resurgence in free cash flow generation and believe that the firm offers a nice foundation to the markets. Walmart is on a short list of entities that we’d be looking to add to the Dividend Growth Newsletter portfolio at the right price, near the lower end of our updated fair value estimate range.

Aug 3, 2023

Not Expecting Much From Consumer Staples Stocks
Image: Kellogg is representative of many consumer staples stocks that have considerable net debt positions. Image Source: Kellogg’s second-quarter press release. Though consumer staples equities have shown tremendous resilience in the face of adversity and their dividend yields can make sense in certain portfolios, the group is overflowing with net debt positions, meager long-term growth prospects, and free cash flow generation that is largely absorbed by growing per-share dividend liabilities. On the other hand, big cap tech and large cap growth have tremendous net cash positions and substantial future expected free cash flow generation, paving the way for what could be considerable long-term return potential. As with the last decade, we expect cash-based sources of intrinsic value to prevail, and for that, we continue to point to big cap tech and large cap growth as areas for consideration.

Jul 11, 2023

An Important Measure of Leverage for Dividend-Growth and Income-Oriented Shareholders, One That Is Dividend-Adjusted
As more and more investors rely on company dividends for income, dividends, in our view, have become more debt-like commitments in nature, especially from the perspective of dividend-growth or income-oriented shareholders. Years ago, we rolled out a measure of financial leverage that considers both the company’s debt and the present value of its future expected cash dividend obligations, which, in the eyes of die-hard dividend-growth or income-oriented shareholders, may be implicitly assumed to be debt-like commitments in substance. We think this leverage ratio can be used in conjunction with the Dividend Cushion ratio to gain additional insight into the dividend-paying financial health of an entity.

Jul 4, 2023

How Much More Will Consumers Pay for McCormick Spices?
Image: Pricing growth remains the story at McCormick, but for how long? Image Source: McCormick. Just how much further McCormick will push pricing initiatives remains to be seen, but we think investor caution is in order. The stock is already trading at 33x current fiscal year adjusted earnings, and its shares have yet to return to the peak levels reached during 2020. We wonder if there may be troubling times ahead. Our fair value estimate stands at $73 per share, well below where shares are currently trading.

May 30, 2023

Paper: Value and Momentum Within Stocks, Too
Abstract: This paper strives to advance the field of finance in four ways: 1) it extends the theory of the “The Arithmetic of Active Management” to the investor level; 2) it addresses certain data problems of factor-based methods, namely with respect to value and book-to-market ratios, while introducing price-to-fair-value ratios in a factor-based approach; 3) it may lay the foundation for academic literature regarding the Valuentum, the value-timing, and ultra-momentum factors; and 4) it walks through the potential relative outperformance that may be harvested at the intersection of relevant, unique and compensated factors within individual stocks.

Apr 12, 2023

Fed Winning the Fight Against Inflation, Food-at-Home Prices Easing
Image: CPI-U, not seasonally adjusted. The 12-month percent change in the pace of inflation for all items has fallen from north of 9% in June 2022 to 5% in March 2023. Image Source: BLS. The Bureau of Labor Statistics (BLS) released the Consumer Price Index for All Urban Consumers (CPI-U) on April 12, and it showed that the Fed is winning its fight against inflation. The CPI-U rose just 0.1% in March on a seasonally adjusted basis, down 0.3 percentage points from the increase in February. During the past 12 months, the all-items index has advanced 5.0% before any seasonal adjustments, a level that is still higher than the Fed’s long-term target, but not one indicative of runaway inflation or a worsening of the strain on consumer budgets. Though the news is but one data point that will influence the Fed’s rate decision next meeting, we’re viewing the news positively.

Apr 1, 2023

General Mills Experiencing Tremendous Pricing Power, Positive Elasticities
Image Source: Mike Mozart. Cereal maker General Mills continues to flex its pricing power. The company’s third-quarter results for its fiscal 2023, released March 23, showed a company that is raising prices almost at will and driving tremendous adjusted operating profit expansion, while organic pound volume remains essentially flat. The company continues to optimize its revenue model as it forgoes volume expansion in favor of pricing growth, and we would expect further price increases across its product line-up for some time. With adjusted operating profit surging, price elasticities remain in its favor, much to the detriment of the cash-strapped consumer, which can only expect more food-at-home inflation. Shares of General Mills yield ~2.5% at the time of this writing.

Mar 24, 2023

How the Payment of a Dividend Impacts Intrinsic Value Estimation
"Dividends are a transfer of cash to the shareholders that the shareholders already owned."In this purely educational article, using historical data from 3M, let’s walk through the mechanics of how the payment of a dividend impacts the intrinsic value of a company. The takeaways may be somewhat counterintuitive but are nonetheless very important for members to understand.

Mar 23, 2023

The Dividend Cushion Ratio: Unadjusted Is Less Subjective, Adjusted Is More Subjective
Image Source: Mike Lawrence. Question: I'm a subscriber. I'm looking at your Dividend Report for Enterprise Product Partners. It says your Valuentum Adjusted Dividend Cushion ratio for EPD is 1.8 (a ratio that includes future expected proceeds from capital raising endeavors in the coming years), but several lines below it says the Unadjusted Dividend Cushion ratio, which is your regular normal ratio (a ratio that does not include future expected proceeds from capital raising endeavors in the coming years), is 0.22. Please explain the difference between the two ratios, and what is considered a good ratio for the Unadjusted Dividend Cushion ratio, what is an excellent score, what is neutral and what is poor? Also, how much relative importance should I give to each ratio? Also, further down in the section on Unadjusted Dividend Cushion, the chart of EPD has a large negative number in the blue bar, and your text says: "Generally speaking, the greater the 'blue bar' to the right is in the positive, the more durable a company's dividend, and the greater the 'blue bar' to the right is in the negative, the less durable a company's dividend." So that means that EPD's dividend isn't durable, yet your report earlier says that EPD's Dividend Safety rating is GOOD. Can you elaborate?