ATW slashed the dividend. Lesson learned?

So ATW, which I profiled not long ago, had slashed the dividend by 70% – from 25 cents to 8 cents a quarter. A similar slash happened with CRR, except that CRR had increased its dividend in 10 or so years. And I actually had some ATW in my portfolio (ouch).

So …. What did I learn?… Well, if you do want exposure in the volatile industry, stick with well-established names with proven record – e.g. XOM.

(added) P.S. Kinder Morgan just announced slashing its dividend to $.125 from $.51 cents.

 

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CRR – Major dividend cut (-70%)

Wow. Who knew it was going to happen – after raising dividends for more than 10 years, CRR announced 70% dividend cut (from 33 cents to 10 cents).

Remember, historically  dividend cutters and dividend eliminators have underperformed the market badly (Source)Dividend cutters and eliminators.

Related: Previous article

Disclaimer: this is exactly why I say that investing entails risk and that past performance is not a guarantee of future results. Always consult with your own investment advisor and/or do your own due diligence.

“529 College Plan Trap” major change – I think I know what’s happening

Some 529 plan participants just got a mailer from the plan. Now IRS allows to shift your money twice per year (as opposed to once a year). Why?… My guess is – so that they can justify taxing the withdrawals at your Federal Income tax rate. You see, prior to this year, you can only make changes to your allocations once a year, which should qualify your unqualified withdrawals (and if POTUS gets what he wants – all distributions) for a lower long-term capital gain tax. Now they will generously allow you to shift your hard-earned money twice per year, so that later no one will question the tax burden.

Good luck everybody.

P.S. My first stab at 529 trap can be found here.

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529 plan has now officially gone bad

A few days back, I pitched an idea about creating an All-Purpose-Investment-Plan in lieu of contributing to your state-sponsored 529 plan. Well, I guess the timing has been perfect… POTUS has decided to make major changes to 529 plan. You can read about the proposed change here or here. Below are the excerpt from NYTimes article (emphasis added).

“As part of his plan to simplify the tax code and help the middle class, one of the 529 plan’s most attractive benefits would be eliminated: Money could no longer be withdrawn tax-free. (The new rules would apply only to new contributions.)”

In the nutshell, the “free community college for all” is going to be paid by taxing your 529 withdrawals. In other words, Johnny is going to community college for free (as long as he maintains 2.5 GPA and shows up for classes), and Billy’s parents are paying for it…. what a great idea..

Whether or not this will pass the Senate, it’s probably a good time to reconsider the whole college savings plan. If all of your 529 plan withdrawals are going to be taxed at your Federal Income Tax rate (as opposed to much lower Long-Term capital gain tax), what incentive do you have to keep the 529 plan? It’s expensive, restrictive, and now is taxed at the highest rate upon withdrawal.

Cheers, my friends, and good luck!

CRR (Carbo Ceramics), a roller coaster stock with potential hidden value

This is rather a very volatile stock. it derives its income from selling products and services that are primarily used in the hydraulic fracturing of natural gas and oil wells. Unless you live under the rock, you are aware of the recent oil price decline:

oil price January 2015

One of the expected consequences of the oil price drop is a (somewhat sharp) decline of oil rig count (per ZeroHedge, the rig count is now lowest since 2010). At the same time, the oil and gas production is surging – oil producers are trying to make up the lost revenue with additional oil production. In return, higher production leads to even lower oil price (supply exceeds demand).

WSJ: rigs vs production

As you can imagine, the shale industry is taking a big hit – as a result, the new shale well permits decreased significantly (for example, in November the permits for new wells dropped 15 percent across 12 major shale formations as of late November). Another important thing to pay attention to is the domestic shale oil breakeven price.

shale price break-even

As you can see above, the vast majority of domestic shale producers are losing money on every single barrel they extract from the ground. As a result, some are suspending operations (while risking to default on their loans and driving up the cost of new credit), and the rest rev up the production to make up the lost revenue. Notably, some analysts suggested that energy boon and “shale oil revolution” in partiular have been driven not by technology, but by cheap credit. This makes perfect sense if you also look at the over leveraging of the energy companies (published by ZeroHedge in December 2014, Source: CapitalIQ; click to expand):

leveraged energy companies

And while you smile all the way home from the gas station, a low oil price is not necessarily a good thing for the domestic economy – you might want to read this article). With current oil price just below $50, no one really knows how low it may go and for how long it will stay there. Some oil producers prepare for the $40 oil, some suggest that $30 or even $20 (here or here) is a more realistic number. Lance Roberts of STA Wealth Management reminded last month that “the last time oil prices fell 50% from their peak was in 1985-86. Oil prices then stayed at those levels until the turn of the century” (Source).

commodity-brent-crude-oil (Chart Source)

Now this brings us to CRR which (per their website) “helps clients design, build and optimize the frac to increase production and estimated ultimate recovery, lowering finding and development cost per barrel of oil equivalent.” Current short float of CRR stock is a whopping 33% mainly due to the doom-n-gloom oil/gas shale industry and consequently – company’s ability to deliver meaningful results in the following quarters. I came across a short thesis back from the days when CRR was trading at $150 (now in low $30s) – read it here. Basically, fierce competition (mainly from China) and falling prices are claimed to be CRR’s merciless murderers.

Now lets look at the positives.

1) Officers and directors own 14.6% of the stock (ValueLine)

2) 10-year annual rates of change of Revenues, Cash Flow, Earnings, Dividends and Boom Value are 15.5-16.0% (ValueLine).

3) No debt.

CRR currently scores a PE of 10.3 (forward PE is 15), PEG 0.62, PB 0.99, PS 1.2 and healthy margins:

CRR finviz

The company is also facing lower-priced competition, but I personally doubt this is a new problem. Based on historical revenue growth, the management finds its ways to grow sales year after year (with the exception of 2008/2009). This year CRR is also releasing KRYPTOSHERE technology, “an ultra-conductive, ultra-high strength proppant technology engineered to maximize and sustain hydrocarbon flow at high closure stresses for the life of the well“.

CRR gurufocus 1

CRR gurufocus 2

Current dividend yield is 3.9% (high), payout is 30% (low), and the historical dividend increase is very impressive:

CRR dividendchannel

I don’t know much about the future. I cannot predict how oil price will change in the short- and long-term periods. But this particular company (IMO) currently presents a good opportunity to get some energy exposure. Perhaps a wait-n-see or dollar cost average approaches would be best given all the uncertainties. Next earnings are released before market on January 28th.

Other bloggers’ analyses can be found on Seeking Alpha (both bullish and bearish) and on DividendDeveloper.

Read the disclaimer and do your own analysis or consult with the professional for qualified advise.

BLK (Blackrock) – an asset manager with great historical record

Since I looked at Franklin Resources (BEN) and T Rowe Price (TROW), I have decided to look into more of their kind –  Blackrock (BLK), a 58 bln dollar asset manager. PE currently sits at 18.4. Sales are growing steadily (except for small hiccup during the last recession) at a rate of 14.99%: BLK growth BLK Sales etc BLK cashflow Current dividend yield is 2.16%, and the payout ratio is shy of 40%. 5-year dividend change is 93%. Next dividend (March 2015) will be announced in January. And, if increased by15% like the last one, the forward dividend yield is going to be 2.4% ($1.93*1.15*4/356). BLK Dividend Channel Ratios are pretty awesome, very low debt. BLK finviz

Bottom line – strong grower with great prospective, strong cashflow and great dividend growth. Good insights could be found on Seeking Alpha and DividendDeveloper.

Cheers, DiviDude. Remember to read my disclaimer and do your own due diligence before making any investments. Never trust all the stuff you get to see online. Consult with an appropriate financial professional if necessary.

TROW (T Rowe Price) – meaningful earnings growth from the dividend grower

Here comes a $22 bln financial services holding company with impressive growth and respectable dividend history – T Rowe Price (TROW). Quick look at the revenue and NI growth is below – except for 2 periods of 2001-ish and 2008-ish, the company grew sales and earnings yoy:

TROW chart

TROW growth rates

No debt and good margins (although I would expect nothing else from a company like this):

Trow finviz

With current dividend payout of 39% (low), dividend yield of 2% (pretty high) and the 5-year dividend growth is 63% (substantial), this company sure looks nice. Next quarter (March 2015), the dividend is expected to increase (currently 44 cents).

TROW dividends

Since 1995, the company absolutely killed SP500 with 17.4% average total return:

TROW vs SP500

Bottom line: good company to own for a very-very long term. The price will likely crash comes next recession (AUM tend to decrease when people are most fearful, which will impact the sales and earnings), so be prepared to buy more on the cheap if that happens. Also check T Rowe’s peer with impressive returns – BEN (Franklin Resources).

Good write-ups on the company can be found on Seeking Alpha (here, here and here), on Sure Dividend blog, and on Modern Graham.

As always, kudos to DividendChannel, GuruFocus, Vanguard and FinViz for provided data. ALWAYS do your own due diligence, never blindly trust random bloggers and consult with the financial professional for quality investment advise.

Cheers,

DiviDude