Questions/concerns on company specific issues, ETF's/Mutual Funds/Closed End Funds/BDC's/Bond funds

[Redrum]

I do not want my investment blog post to become a discussion site for single equity investment commentary so I have created this thread for single equity holding matters.

PFE - Pfizer is one of the companies held in our Dividend Investment Portfolio. This company was mentioned as having an excessive debt. Here is the concern as posted: "Take Pfizer for instance. Large company weighting in at $213 Billions. On the plus side their debt risk is not as critical as with the smaller companies but when you look at the overall picture it isn't inspiring:

Earnings forecasts point to -15% drops year after year over the next 3 years.
Debt to equity ratio is at a whooping 80%
Debt to equity has consistently increased over the last 5 years from 47%
Erratic dividends payment."

First we have 48 holdings in our investment accounts with only about 3.5% we consider speculative. Our holding of PFE accounts for 1.1% of our holdings so risk can effectively be mitigated by position size. Now here is why we (my wife and I) are unconcerned about the financial strength of PFE. I have about 15 points I analyze but I will limit these to 10 when I am going into a specific stock analysis.

1) PFE only paid out 47% of earnings for the dividends paid in the last 12 months.
2) PFE free cash payout ratio for the past 12 months was a slight concern at 73% Unlike earnings, free cash flow measures the amount of cash a firm generates after reinvesting. It can be volatile, but the safest companies regularly cover their dividends with free cash flow which PFE easily did.
3) PFE earned $3.04 a share in the last 12 months and paid out $1.44 in dividends.
4) PFE is 73.1% institutionally held which is very good as for example a similar company BMY - Bristol-Myers is only 59.8% institutionally held.
5) PFE is followed by 9 analysts with 4 haveing PFE as a buy with a current price target of $41.45 and PFE is currently selling at $38.63.
6) PFE has a MP (see signature block for explanation) $37.50 which is not far below the current selling price.
7) SSD (see signature line for explanation) rates PFE at 75 - Safe.
8) PFE MP score (see signature line for explanation) is $37.50 which is close to it's current price.
9) PFE has not cut it's dividend in 10 years and my analysis page only goes back 20 years and PFE has paid a dividend every year in those 20. PFE did have to cut its dividend during the Great Recession. At the low in 2010 PFE was paying about what it was paying in 2004. PFE's current dividend is now above the point it was paying when it had to cut it during the recession.
10) PFE's Net Debt to EBITDA is at 2.28 years. This indicates how many years of EBITDA (a proxy for cash flow) a company would need to pay off all its debt, net of cash on hand. If leverage rises too high, a company might cut its dividend to free up cash flow for debt reduction.

[Redrum]

DBCooper and I had a chat last night that I believe is interesting enough to copy into this thread. Both of the equities we were discussing are what I consider "speculative" but with today's drop they could be of interest as MINOR holdings in retirement accounts that are structured as dividend paying based.

"Actually this would be a good post for the new thread I started for specific eqities. EQM is a speculative position at .5% of our investment accounts. The share dilution was due to a required nearly 50% new dividend issuance. EQM's payout ratio spiked following its move to eliminate incentive distribution rights in February 2019. While this simplification transaction was necessary to reduce its cost of capital and ultimately provide more financial flexibility in the long term, the firm had to issue a substantial number of new units to fund the deal, causing its distributable cash flow per share to nearly get chopped in half. If EQM and it's JV partners are successful in getting the Mountain Valley pipeline finished by June of 2020 the dividend is likely safe as the pipeline is fully "booked" for 20 years. There are two options to finishing it with one being a land swap to get a piece to cross the Appalacian trail and the other is a more costly option to buy land to reroute all on private lands but that option would potentially add cost and time and result in some dividend restructuring. Unless the environmental lawsuits sink the battleship - long term EQM should be fine. We only add tiny bits to EQM as if it does get the pipeline done by mid 2020 it will become a lot more valued.

PACW is what I consider speculative and pretty much in line with EQM. During the financial crisis, PACW's revenue plummeted -99.9%, recording much worse performance than most businesses and indicating that the company is probably very sensitive to the economy. As a result, the company ultimately had to cut its dividend and does not appear to be recession-proof. In addition to slashing its dividend, PACW's stock plunged -82% during the Great Recession while the S&P 500 lost 55% from peak to trough between 2007 and 2009. Unless PACW's risk profile is much better today, this stock does not seem appropriate for risk-averse investors.

PACW has a SSD score of 32. The three banks we do hold are CM with a score of 91; KEY with a score of 67 and WFC with a score of 79."

[DBCooper]

Are you sure you are looking at the correct numbers for PACW? I can't find that -99.9% revenue drop.

For past performance I'm looking at their quarterly reporting of the previous Trailing Twelve Month average (TTM) that is the measurement of revenues over the last 12 months previous to the quarter reporting.

2008-03-31 $0.36B
2008-06-30 $0.34B
2008-09-30 $0.33B
2008-12-31 $0.31B
2009-03-31 $0.30B
2009-06-30 $0.29B
2009-09-30 $0.35B
2009-12-31 $0.38B
2010-03-31 $0.40B
....
Today $1.38B


If at any point their revenues dropped by -99.9% it sounds like a fluke that wasn't even able to affect their short term (12 months) revenues.

You mention that going into a recession it doesn't look like a good stock. I'll argue that from a value methodology it looks like an excellent stock I wouldn't mind riding, if dividends were my thing. Before the 2008 recession PACW share price reached $60 in June 2016, on a quarter billion revenue (the real estate market bubble inflating the living crap out of banking). Today the share price stands at $37.82 with revenues of $1.38 billion. PACW is now a well run company with x5.5 times the revenue it had way back then, but with a share price that is 60% of its pre-resession levels. It took this long for this level of value (PE, PEG, Book, Et-al) to materialize.

The reasons why they are so fairly valued are fairly straightforward. The entire banking industry seems to have a bit of recession pricing already baked into it. They have maintained handsome profits but continue to lag the (overheated?) market as a whole. In addition a bit of diminishing revenues projected at -4.7% over the next few years has depressed PACW valuation. Their current yield is still healthy, projected to become 67% of profits vs. 63% today, so it is well covered by said profits. High yields are not free but on this case the pristine valance sheet, low debt, sustainable profits, and current valuation makes it a sensible choice.

EQM is not on the same league by a very very long shot. Borrowing money to pay dividends is one of the most horrific things a company can do. very little else says "this thing we are doing is not sustainable" like that. They do have one quality property which is not enough to support an extremely cash intensive line of work. If a bunch of things don't go exactly like they need them to go they will have to bite the bullet and lower dividends, at which point the share price would go on a free fall.

Again; the only way they can pay dividends, which should come from profits, is to borrow the money so they can give it to the shareholders. On an industry that needs a lot of money. Think about that for a second.

[Redrum]

I am not here to argue. My source is SSD.

Here is what they post for 2009 to present.

A healthy business grows its total sales over the long term. After all, a larger revenue base is often key to driving sustainable long-term earnings growth. We prefer companies with fairly steady and moderately rising sales. This source only goes back 10 years in "hard data" and here is their assessment.
2009 - .10 B
2010 - .08 B
2011 - .27 B
2012 - .31 B
2013 - .31 B
2014 - .69 B
2015 - .86 B
2016 - 1.01 B
2017 - 1.04 B
2018 - 1.14 B

The other issue is in 2009 the shares outstanding was 31.9 M.
In 2019 the count is 124 M.

This is my source and if yours differs I simply do not have the time to reconcile the difference as I own ONE share. If you are comfortable with your analysis I certainly will not dispute it.

[DBCooper]

Please don't take it as an argument. I think cross pollination is great specially because of the different ways we look at things. I started this conversation over PM to avoid that impression Heck I don't own a single share of either But I like analyzing companies and I welcome the opportunity to be exposed to a different perspective.

Do you have a link? I'm still not seeing those numbers. Here is what I use for long term charts. TTM numbers and quarterly revenues:

https://www.macrotrends.net/stocks/c...ancorp/revenue

According to this source the revenue for the 4 quarters in 2009 was $.376 billion, not the $.1 billion your source quotes. I would like to know which one is wrong, or if we are looking at different kinds of numbers. Also most of that lack of growth was in the middle of a recession, a rather unfair standard. Even after that they have managed to grow revenue 11.4x fold since 2008, not a small feat.

There is a bit of a trap in focusing too much on the year to year growth of revenue. Two companies, ones has twice the revenue growth but its PE ratio is three times as much, twice as high as its industry. The slower growing company whose growth is on par with its industry but its PE is 40% bellow its industry may end up being the better value when it comes to return on capital.

I'm also not seeing your earlier statement "revenue plummeted -99.9%, recording much worse performance than most businesses and indicating that the company is probably very sensitive to the economy. "

On my part I did screw up by not looking at the shares outstanding and ended up doing that apples to hand grenade comparison. I did do the checkup for valuation and sustainability of current dividend and those look very healthy. Not perfect but then it would be reflected on the share price and I wouldn't be looking at it from a value perspective.

[Redrum]

DBCooper - You can go to SSD for a two week free trial and see how they present their analysis. SSD is one of the two equity analysis services I pay for.....

[t00nces2]

On 12/16/ 2020 we sold 200 shares of T to lock in Capital gains losses, at $30.40. T closed today at $28.69, 5.7% lower than when we sold. If T drops further on Monday we will consider rebuying the shares we sold. It has been over 30 days so we will no have any "wash sale" issues.

Any chance you could explain the "wash sale" aspect of your reply any better than duckduckgo did?

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Any chance you could explain the "wash sale" aspect of your reply any better than duckduckgo did?

A wash sale is a sale of a security at a loss and repurchase of the same or substantially identical security shortly before or after (within 30 days). Losses from such sales are not tax deductible in most cases under the Internal Revenue Code in the United States. Wash sales in a regular brokerage account are even applied if you buy the same equity in an IRA, a Roth IRA or even in accounts in your wife (or husband's) name!

[Kickabuck]

Thanks for the info again, it's yielding 4.39%, IMO there are better plays in your pocketbook.

My question to you is: Do your morals come into play when investing? As an example, you have recommended, and I believe hold a position in T (AT&T). As a disclaimer I subscribe to their cell service. (for now)

Does their political stance sway your investment ideas? I find it hard to invest in a company that goes against what I believe in, T is a prime example...I won't go into detail regarding their fundamental movements, but I support very few of them.

Bottom line: Is it all about the money, or does your conscious come into play?

[Redrum]

Thanks for the info again, it's yielding 4.39%, IMO there are better plays in your pocketbook.

My question to you is: Do your morals come into play when investing? As an example, you have recommended, and I believe hold a position in T (AT&T). As a disclaimer I subscribe to their cell service. (for now)

Does their political stance sway your investment ideas? I find it hard to invest in a company that goes against what I believe in, T is a prime example...I won't go into detail regarding their fundamental movements, but I support very few of them.

Bottom line: Is it all about the money, or does your conscious come into play?

That is a loaded question with so many potential aspects that could apply to many equities. At what point would it become impossible to invest into about any equity? Banking? Credit cards? Gambling? Oil? Cannabis? Smoking? Alcohol? Nuclear? Dams with electric generation? Fishing? Political affiliation or beliefs? Country of production or harvest? CO2, taxation, lawsuits, aquifers, pesticide use, GMO's, monetary policy, mine reclamation, coal ash storage, etc, etc.....

So, I choose not to try and answer as it quickly becomes a problematic post and I specifically avoid that sort of postings on any site. I will say factually I have no clue about any T "issues" and I will not go looking for them unless you are thinking about 5G conspiracy theories linking COVID-19 with 5G, with a focus on Australia and the United States.