Valuentum Exclusive Analysis for the Discerning Investor

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Dec 1, 2020

Walking Through the Calculation of the Dividend Cushion Ratio
Image shown: An image found on page 2 of Valuentum's Dividend Report on Kimberly-Clark. The 'Dividend Cushion Ratio Deconstruction,' shown in the image, reveals the numerator and denominator of the Dividend Cushion ratio. At the core, the larger the numerator (or the healthier a company's balance sheet and future free cash flow generation) relative to the denominator (or a company's future expected cash dividend obligations), the more durable the dividend. In the context of the Dividend Cushion ratio, KimberlyClark's numerator is larger than its denominator suggesting strong dividend coverage in the future. The 'Dividend Cushion Ratio Deconstruction' image puts sources of free cash flow in the context of financial obligations next to expected cash dividend payments over the next 5 years on a side-by-side comparison. Because the Dividend Cushion ratio and many of its components are forward-looking, our dividend evaluation may change upon subsequent updates as future forecasts are altered to reflect new information.We believe the Dividend Cushion ratio is one of the most helpful tools an income or dividend growth investor can use in conjunction with qualitative dividend analysis. The ratio is one-of-a-kind in that it is both free-cash-flow based, considers balance sheet health, and is forward looking. Since its development in 2012, we estimate its efficacy at ~90% in helping to forewarn readers of impending dividend cuts. For companies where Valuentum reports are available, the Dividend Cushion ratio can be found in a stock's Dividend Report or in the table on the company's stock landing page. We use Kimberly-Clark as an example of how we calculate the Dividend Cushion ratio and how useful it is for investors of all types.

Nov 2, 2020

ICYMI -- Dividend Growth Strategies Struggle
Image: A large cap growth ETF (orange) has significantly outperformed an ETF tied to a dividend growth strategy, the SPDR S&P Dividend ETF (SDY), which mirrors the total return performance of the S&P High Yield Dividend Aristocrats Index. To no surprise to many members, several dividend growth strategies have faced tremendous pressure during 2020. The Journal recently wrote a piece on the topic, but from our perspective, the problem with many dividend growth strategies is that they tend to be balance-sheet agnostic and pay little attention to traditional free cash flow expectations, focusing only on the yield itself, sometimes dismissing future fundamentals in favor of historical growth trends and the inferior EPS-based dividend payout ratio. In many dividend-targeted ETFs, for example, it may not matter to the index creator whether a firm has $10 billion in net debt or $10 billion in net cash; as long as management has a track record of raising the dividend in the past, it is included. To us, however, there is a world of difference between a company that has a huge net cash position and a huge net debt position. The more excess cash on the balance sheet a dividend payer has, for example, the more secure its payout. In some cases, entities held in high-yielding ETFs don't even cover their dividends or distributions with traditional free cash flow generation, despite having ominous net debt loads. A look at the high-yielding ALPS Alerian MLP ETF, for example, shows a number of entities that are buried under a mountain of debt and are generating meager free cash flow relative to expected distributions. The lofty yield on that ETF should therefore be viewed with a very cautious eye. If the yield weren't at risk for a big cut, the market would bid up the stock, and down the yield would go. In no way should you believe that you can sleep well at night holding stocks yielding north of 10% when the current 10-year Treasury is well below 1%. The market is just not that inefficient. A dividend growth strategy can never be a passive one either. Only through constant attention to the balance sheet (net cash) and future free cash flow expectations can investors truly sleep well at night. At Valuentum, we do the balance sheet and cash flow work and summarize it succinctly in a key ratio called the Dividend Cushion ratio.

Sep 3, 2020

3 Lessons in Portfolio Management Over 10 Years
Image Source: http://www.epictop10.com/. "When I left as director in the equity and credit department at Morningstar in 2011, I thought I knew a whole heck of a lot about investing. I felt like I was one in the top 5-10 in the world as it relates to the category of practical knowledge of enterprise valuation (maybe include Koller at McKinsey, Mauboussin at Counterpoint, and Damadoran at Stern on this list). After all, I oversaw the valuation infrastructure of a department that used the process extensively, and the firm was among just a few that used enterprise valuation systematically. Then, at Valuentum, our small team would go on to build/update 20,000+ more enterprise valuation models. There can always be someone else out there, of course, but I don't think anybody has worked within the DCF model as much as I have across so many different companies. That said, through the past near-10 years managing Valuentum's simulated newsletter portfolios, I've also learned a number of things to become an even better portfolio manager." -- Brian Nelson, CFA

Sep 3, 2020

Update: Frequently Asked Questions About Valuentum Securities, Inc.
Valuentum (val∙u∙n∙tum) [val-yoo-en-tuh-m] Securities Inc. is an independent investment research publisher, offering premium equity reports and dividend reports, as well as commentary across all sectors/companies, a Best Ideas Newsletter (spanning market caps, asset classes), a Dividend Growth Newsletter, modeling tools/products, and more. Independence and integrity remain our core, and we strive to be a champion of the investor. Valuentum is based in the Chicagoland area. Valuentum is not a money manager, broker, or financial advisor. Valuentum is a publisher of financial information. We address a number of questions from both subscribers and visitors to our site.

Sep 1, 2020

Valuentum Website Overview
Overview of the key features of www.valuentum.com (03:55). Valuentum (val∙u∙n∙tum) [val-yoo-en-tuh-m] Securities Inc. is an independent investment research publisher, offering premium equity reports, dividend reports, and ETF reports, as well as commentary across all sectors/companies, a Best Ideas Newsletter (spanning market caps, asset classes), a Dividend Growth Newsletter, modeling tools/products, and more. Independence and integrity remain our core, and we strive to be a champion of the investor. Valuentum is based in the Chicagoland area. Valuentum is not a money manager, broker, or financial advisor. Valuentum is a publisher of financial information.

Aug 27, 2020

Earnings Brief: NTAP, URBN, HPE, SJM, MDT
Image Source: Valuentum. Pantry stuffing was prevalent during the second quarter, and mall-based retail is holding up better than some had expected. Cloud-based services companies continue to experience breakneck growth, and medical procedure volumes are picking up as we learn more and more about COVID-19.

Aug 23, 2020

Latest Stock Report Updates
Valuentum members have access to our 16-page stock reports, Valuentum Buying Index ratings, Dividend Cushion ratios, fair value estimates and ranges, dividend reports and more. Not a member? Subscribe today. The first 14 days are free.

Jul 24, 2020

Dividend Increases/Decreases for the Week Ending July 24
Let's take a look at companies that raised/lowered their dividend this week.

Jul 18, 2020

Our Reports on Stocks in the Food Products (Small/Mid-Cap) Industry
We've reallocated our resources to cover more recession-resistant stocks.

Jun 23, 2020

Kroger Fighting for Market Share in the Online US Grocery Business
Image Source: The Kroger Company – Fiscal 2019 Annual Report. On June 18, The Kroger released its first quarter fiscal 2020 earnings (period ended May 23, 2020) that beat both top- and bottom-line estimates. Comparable store sales (excluding fuel) grew by 19% year-over-year as consumers flocked to its various grocery stores and supermarkets (under brands such as Fred Meyer, Fry’s Marketplace, Pick ‘n Save, and others) to stock up on consumer staples products as the coronavirus (‘COVID-19’) spread across North America. Kroger’s digital sales surged 92% year-over-year last fiscal quarter as curbside and home delivery options have become increasingly popular during the pandemic. Shares of KR yield ~2.0% and are trading in the upper bound of our fair value estimate range as of this writing.