Tale of Three Once and Future Dividend Providers, April 1996 to present

Investor return can come from appreciation, or dividends.  Microsoft (MSFT 31) announced this week the quarterly dividend will be raised to .23/quarter, going ex-dividend November 13.  It yields 3%.

I thought this would be interesting to compare to GE as classic growth stock, and Altria as a “high dividend payer” from the same approximate time.

If you’re even vaguely familiar with the market you’ll know MO & its descendants are going to come out ahead on total dividends, but what about total appreciation as well?


Microsoft paid a $3 special dividend in 2004, and has paid a dividend since 2003, starting at a humble .08 for the year.   In the fiscal 4th quarter of 2004, the dividend went quarterly at .08.   The dividend is unlikely to triple in the next eight years — for one thing the payout ratio has gone up.

It will have paid a total of $7.02 in dividends.  For those long term holders, this means if you bought in April 1996 congratulations you’ve just (before taxes) recouped your investment — of then a maturing company ten years after its IPO.   (This was a full two years after I made the worst investing decision of my life, selling the little America Online because Microsoft was coming to get it.)

Chart forMicrosoft Corporation (MSFT)

The classically safe large cap growth stock, GE, traded at 14.4 in April 1996 (now a humble 22, but probably a touch undervalued.)

GE has had their ups and downs of dividends, cutting it notably to .10/quarter in the financial crisis.  From the summer of 1996 you would have had $11.57 of dividends from GE (Genworth shares appear not to have been spun out to GE shareholders, but had some dividends they did.)

Chart forGeneral Electric Company (GE)


Phillip Morris a.k.a. Altria is the classic dividend stand out.  You would have made your $34.6 investment back in Altria dividends alone, $35.06 since the summer of 1996, but there is also Kraft and Phillip Morris International which were spun out in 2007 and 2008 respectively.

Each MO share got .692 of a share of KFT which has generated $6.51 of dividends, for $4.51/share.

Each MO share got 1 Phillip Morris International PMI share, which has delivered $11.35 of dividends.

$50.92 in total dividends of MO and its two major spin offs in the same time.

Chart forAltria Group Inc. (MO)

Chart  for Kraft Foods Inc. (KFT)

Chart forPhilip Morris International, Inc. (PM)

For total return calculation purposes you’re still ahead with Microsoft, but barely.

You’d have approximately $150 per share from that $34 investment, 440% price appreciation that is nearly identical to Microsoft’s, with higher dividend return!

I did hold MO, PM and KFT in a retirement account — to avoid the dividend taxation for a number of years, and reluctantly (and foolishly) sold to go into TBT instead.  Is the next MO…MO and its heirs?  Buy and hold is tough for me to stomach but when the right stock is found the results are spectacular.  MO was the classic poster boy for Jeremy Siegel’s The Future for Investors and it has held since the books’ publication.

Yield-hungry investors have piled into stocks like MO and PM and I think I will wait for a drop to get back in.


Interactive Brokers’ Mobile App Lightens Up

Interactive Brokers for the professional investor is hands down the best brokerage option, but the emphasis on account security, through requiring custom alphanumeric security codes for every login is a little tedious.  These numbers match a physical card, custom made for you.

You can waive this but then they profess no liability for hacked accounts in the event you do.  A software update in the last few days allows the mobile app to have “read only” access to your real time quotes now.  This psychologically might have the effect of me trading more given the ease of checking now.  It removes the last obstacle to making this a seamless mobile trading experience.   Nice job IB.

Lessons for Big Retail from The Great A&P and the Struggle for Small Business in America

Marc Levinson has a good history of one what probably should be characterized as the first dominant grocery retailer in America, the Great Atlantic & Pacific Tea company, or as ever more frequently known, the great A&P.   Histories of retail often benefit from the abundant number of records kept and A&P is no exception save for a mysterious void of corporate records from the 1920s.  This is an unfortunate loss whose vacuum is filled more by minuate of political response to A&P, most notably in the person of Congressman Wright Patton.  The more juicy loan  made by John Hartford under apparent pressure to Elliot Roosevelt is comparatively unexplored!

Continue reading

LULU to become a Downward Facing Dog?

I am looking into where a short short entry point is on Lululemon Athletica (LULU, $77).  There is motivation aplenty.  Competition from Gap’s Athleta?  Patents on pants?  Rising inventory?  Color Bleeding?  Who is John Galt?  Landmark Forum participation (see the correction obviously added after some legal notice)? One can over-react to errata but I’ll hone in on other details the website has spacing errors after periods:

 The training program was such a success that the lululemon people have created a life for themselves that most people could only dream of.lululemon is a company where dreams come to fruition.

Notifications about particular stores include information that the Walnut Creek, California store will in fact be open on July 4th.  Congratulations.  For a company whose prime value is brand identity these scratches on the fender do reduce the value of the car.

Chart forLululemon Athletica Inc. (LULU)

A small position probably could be had now with a stop over the spring highs…will look more closely in following days.  I feel bad to have missed the (first big?) decline in Deckers DECK 45, whose story has some eerie parallels with LULU

Chart forDeckers Outdoor Corp. (DECK)

LULU is a sloppy company, poorly managed, riding a fashion craze and about to hit severe price competition.  SHORT!  Namaste.

POSITION UPDATE: Soybeans vindicated today, only commodities position now.  Bought some ZNGA outright as it heads into a ferocious short squeeze.  Out of ANF.

Notes on Ray Dalio on Global Financial Situation

Ray Dalio addressing the Council on Foreign Relations, interviewed by Maria Bartiromo:

History repeats itself in the cause-effect relationship machine of history, how do deleveragings work?  Thinks of 80-82/Latin American debt crisis when he sees the market today.  Credit cycle described: three positive effects of lower interest rates — lowering debt service costs, items cheaper to buy on credit and increasing net present value of cash flowing assets (which produces wealth which allows more borrowing.)  But debt can’t rise faster than income forever; then de-leveraging happens which is painful.  Depression is the phase of de-leveraging when austerity and debt restructuring happens.   Austerity, write downs, printing of money: two deflationary one inflationary — a balance between them is a beautiful de-leveraging.

Problems with VAR: borrow short lend long fine until volatility changes.

How he sees Europe: different countries so different dynamics between central banks and different fiscal policies.  Facing $2 trillion losses he estimates on the debt that exists (ECB debt?)  Solve this from either Germans & other northern europeans but that will fall short.   Could try austerity and debt write downs, but that’s a depression: a la 1933 Roosevelt.   Or print money.  Does the Euro look different in a year?  50-50 Greece leaves the Euro  in a year.  Classic lost decade similar to Latin America’s.  Big de-leveragings is a test of the character of the people (but social questions are emerging.)  Right now, Japan has total debt to GDP of 500%, Government debt of 275%.

Should we be worried about the debt here then knowing that the buyer (China) could have alternatives?  Dalio hedged this answer.  Can’t have a bad downturn due to social consequences; can’t have another 2008.

Stock market up 4% and major bull market after Nixon took dollar off gold (Dalio was on NYSE Floor in 1971.)  Mexico default 1982 (Dow 777) was the low of the market; market printing 1933 — all bottoms of the stock market.  China accounts for 1/3rd of growth globally since 2008.  More deflation than inflation risk short term, reverse longer term (five years+)

Is Gold a constraint on Fed printing?  Gold is a currency, but not effective for large scale funds.  But he owns gold (got audience laughter.)  Maria asks “how much exposure then as an asset class?”  Ray says you need a strategic asset allocation mix overall…Most people shouldn’t do this.  Cited website (presumably this?  Registration requires) for how to balance risk.  Slow absolute reduction in debt to GDP ratio in the US with positive growth right now and that’s good.  Not worried about imminent explosion in US — look at Japan.

No answer on risks in shooting war in Iran; would not buy oil right now.  “so many positions in so many markets” but no view on oil.  Movement towards reform coming in China but as always there will be tensions.  Will contribute to volatility.   Biggest worry is lack of broad expertise in monetary policy which could make us hit an air pocket.

Lazy Data Sets and Technology Dividends

Bloomberg reported and Barron’s amplified a very weakly corroborated story that technology stocks underperform when they begin to pay dividends.   Timothy Ghriskey of the Solaris Group among others claims it’s “probably not a good thing.”  The proof of this?

Apple Inc., Dell Inc. (DELL) and SAIC Inc. (SAI) are among the 13 companies in the S&P 500 that have initiated a quarterly payout this year, according to data from S&P. Dell dropped 11 percent and SAIC slumped 6.9 percent since announcing the decision, while Apple is up 13 percent.


Investors who bought Microsoft after the world’s biggest software maker started paying 8 cents a share in 2003 would have been better off owning its competitors. The Redmond, Washington- based company rose 5.9 percent that year, compared with a 47 percent surge for S&P 500 computer stocks. Technology companies that don’t pay a regular dividend make up seven of the 10 biggest gains in the industry since January 2003.

Ten years sounds like a long time in the course of things but this particular ten year period comes after:

a) a significant change in 2002 in the tax treatment of dividends, lowering the rate to 15% at the federal level: this ironically may have made some companies give out more in dividends than they should (see: Citibank!)

b) the largest run up in the history of technology stocks followed by a two year shake out when nearly every non-dividend paying technology stock dropped by 90%+.  A tweak of the window of study to fifteen years would generate tremendously different results.  Nearly _any_ 10 year period would produce dramatically different results.

c) Microsoft announced a $3 special dividend in 2004, characterized by Rick Sherlund, the famed Goldman Sachs software analyst as “breathtaking.”  So besides the fact from the second quote MSFT’s peers were coming off lower lows this alone was a 10% return.  The theory of risk-adjusted returns has some flaws, most notably how one calculates risk but if you were to look at risk-adjusted returns with this special dividend in mind the results were almost certainly different from what is described.

Dividend paying “tech stocks” including IBM, Texas Instruments, and the like almost certainly outperformed non dividend paying stocks; it is the tech companies that _cut_ their dividend (Kodak, Xerox, etc.) which is probably the more reliable forward-looking indicator.

It’s true dividend paying tech stocks are in a different phase of their corporate lives, and are no longer as high growing (read: capital intense.)  But high growth famously comes at a price for technology stocks.  Investor return?  That’s another matter.  In Jeremy Siegel’s “The Future for Investors” he writes about stock returns up to 2003 (p. 126):

From 1871 through 2003, 97 percent of the total after-infaltion accumulation from stocks comes from re-investing dividends.  Only 3 percent comes from capital gains.

Technology companies do really stupid things with large cash piles; even small tech startups lose discipline when they get their Series A wires in.  That technology companies return capital as large cap growth companies should be expected and should be demanded.  If you can find the 5 successful hypergrowth tech companies out of the 100 or so possible by all means skip the MSFT dividend.


ANF: Gary Smith v. BusinessWeek

Abercrombie & Fitch has plenty of problems both managerially and in its sector to be an interesting long term investment.  But it is a volatile one, and perhaps set for a small technical run here, according to Gary Smith of Fox Business.

His argument is very Peter Lynchish, seeing lots of kids in the malls at his local ANF.  I’m not sure I’d look for it to climb to 50 but somewhere in the mid 40s seems probable, and I’ve set my alert accordingly.

For the opposing view, and perhaps the Businessweek-as-contrarian indicator, there was a negative piece about the secular trends for ANF in Businessweek last month.


My Frequently Traded Commodity Margins in September 2012

The major grains are all denominated with 5,000 bushels per contract which leads to pretty similar % margins:

Corn about $40,000 for 2781, 7%

Wheat $45,000 for 3767,  8.4%

Soybeans $85000 for 5616, 6.6%

(Bonds are 100k per contract at par, so price *100k to get current size:)

10 Year Treasury $133,000 for 2049, 1.5% (!!)

30 Year Treasury $149,000 for 3915, 2.6%

S&P is 250* index price or $357000 for 21875, 6.1%

Nasdaq 100 is 100*index, $282000 for 12500, 4.4%

Russell 2000 is 100*index, $82000 for 7500, 9.1%

Gold 100 * price, $170,000 for 9113, 5.3%

Copper 25,000*price $90,000 for 5508, 6.1%

Euro is 125000 euros for $156,000 for 4050, 2.5%

Crude Oil 1000 barrels, $96000 for 6886, 7.1%

A notable outlier is Cotton for 50,000*price $37000 for 7500, 20% — a legacy of the 2010 runup?



Commodity Response to Jobs Report and Barry Sternlicht on Bloomberg

Soberlook.com had a thorough review of price movements on September 7, including the notable divergence between the 30 and 10 year treasury responses and makes me consider whether ZB is the better short than ZN (the former has lower leverage).


Barry Sternlicht of Starwood Capital was interviewed on Bloomberg:


Just got a construction loan on a multifamily property at 2.5%.  You have to have big margins of safety, looking for high cash yields up front.  Investments being made with a notion of what interest rates will be in years (Blackstone BLK 14.19 is not a real estate bet but an interest rate bet), but Fed commitment to lower rates reduces the urgency to invest now.   Toll Brothers getting “free money.”   (TOL at 33 now) Over 10 billion in loans for Starwood itself now and 1000 lenders.  Fed definitely inducing bad behavior, people including his mom chasing yield.

Just bought a billion dollars of malls.  “Death of the mall greatly exaggerated”  Hard goods already migrated to the web.  Clothing less so?  Taxing the internet is coming, congress will “wake up.” Have to vote for Mitt.

NB: I’ve bought Blackstone in the past; maybe a great investment but you must be  true believer to go through the separate tax paperwork

Notes from Hank Greenberg’s Guest Lecture at Yale in 2010

Notes and quotes from Robert Shiller’s Econ 252: Financial Markets, guest lectured by Hank Greenberg


Corporate Culture:

“You have to surround yourself with people, who share the same values, the same aspirations that you do. You have to have a team that works hand in glove, and we did. The senior management of AIG was like a band of brothers. We saw things alike. We work well together. I mean, there wasn’t ever a palace revolution, anything like that. It was a great organization.”

“But we also had some basic principles. We would never, never be involved in a bribe. Anybody in our company that got involved in anything like that would be fired instantly. We understood what the Foreign Corrupt Practices Act meant, before they even had such a Corrupt Foreign Practices Act.”

“Our overseas people, we had what we called an MOP, Mobile Overseas Personnel. It was like our own state department. You can be working in Nigeria today as a manager, and then six months later you might be in Singapore, or some other country. And so, you have to be mobile, and you have to be prepared to move, and not be reluctant because of one thing or another. And becoming an MOP was a very high honor. Everybody couldn’t get that designation. You had to earn it. And it was a great group of people.”

“Nobody could earn more than $1 million in salary. I put that rule in. Two, nobody would have a contract. You stayed in AIG because you loved it, and you didn’t have to have a contract. And I refused a contract any number of times. But you got bonuses based on performance, and performance was fairly rigid. We tried to grow our business close to 15% a year, and for many, many years we achieved that growth.”

“At the end of every two years, if we hit the goals that we had established, they’d have a certain number of AIG shares [I think he means CV Starr shares here] set aside for them that they would get at retirement. So, it was golden handcuffs. If you left the company, you left behind the shares that were set-aside for you. And these were worth an awful lot of money. Very few people left the company. I can assure you that it was a great incentive to stay. The people we wanted to stay are the ones that got allocated shares obviously. It cost AIG nothing. The public shareholders of AIG had no cost allocated to that, so the shareholders of AIG benefited from that, and, obviously, the company overall benefited because they did so well. So, it was a great organization.”

Getting AIG into China:

“China, it took me from 1975, the first time I visited China, to 1992, to get the first life insurance license ever granted to a foreign company. Moreover, while other foreign companies afterwards could only get a license where they could only own 49%, we owned 100%. And to date, still, it’s the only foreign company in China, a life insurance company,that owns 100% of the company. It wasn’t easy. As I say, it took from ’75 to ’92. And I visited China every year, a couple of times a year, to make that happen. But we did a lot of things for China. At the same time, we helped China. I lobbied very hard for China’s entry into WTO, which was very important for our country and for China, and really for the world.”

Reasons for the Bubble:

Clinton admin pushing home ownership via Fannie/Freddie, “whether you could afford it or not”, increasing leverage to 40x from normal 5, and creation of products [abstracted from reality.]

Also criticized Robert Rubin as Treasury Secretary: “That was, strangely enough, during the Clinton administration, the Treasury Department, then run by Bob Rubin, turned down the question of having an exchange and regulating credit default swaps.”

Spitzer & the AIG board

“…On the other hand, when Spitzer threatened the company, many of them just folded. Not Carla Hills and not Bill Cohen, but many others.”  I remember Ken Langone coming to AIG’s defense and John Whitehead (in two editorials, April 22, 2005 and December 22, 2005) but the mention of these two board members is intriguing.

On Goldman and others v. AIG in the crisis Greenberg gives a nudge to the vampire squid theory of history:

[In addition, consider that Rubin was also ex-Goldman] “Goldman Sachs and Morgan Stanley, both of which were going to have a problem, were given a bank holding company license. That gave them access to the Fed window, and they could borrow money at virtually no costs at all, practically. The Hartford Insurance Company, here in Hartford, a medium-sized company, was also given a bank holding company license. And AIG was denied one. So, AIG was left to really find a solution. So, they went to the Fed, the New York Fed, which I had chaired, incidentally, for about seven years before. So, I knew the people in the Fed quite well.

They borrowed $85 billion from the New York Fed at 14.5% interest. And the Fed took 79.9% of the equity of the company. So, they essentially nationalized the company. Now, the money that AIG got, the $85 billion, at these terms, which is outrageous, they then had to pay the CDOs that you couldn’t tell what the real price was, because there was no price discovery. You could have negotiated the value of those at about 40 to 60 cents on the dollar, but the Fed made them pay 100 cents on the dollar.

So, AIG borrowed the money, paid Goldman Sachs and others 100 cents on the dollar, and had to pay that money back to the Fed. So, things began to unravel very quickly after that.

…The real story of what happened has not been printed yet. After all, it’s very common knowledge that Paulson, who was then Treasury Secretary, was surrounded by Goldman Sachs people. I’m not making that up. That happens to be a fact. And so, how objective were they in what they were deciding to do and not to?”

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