Each Friday I highlight the Carnivals I participated in over the past week, along with any notable articles that I came across. For those readers not familiar with carnivals, it's where personal finance bloggers submit their best articles of the week with one blog serving as the host. The entries are separated into various categories such as Investing, Credit, Debt, Budgeting, Frugality, Wealth Building, Money Management, Financial Planning, Insurance, Taxes, The Economy, Real Estate, et. al.
Below are the carnivals that I participated in this week, along with a link to my article:
The weekly Investing Carnival is supported by the members of The Div-Net network. The carnival's focus is on Value Investing, Dividend Investing and Long-term Buy-and-Hold Investing, as well as categories for real estate, commodities and other alternative investments. To participate please submit your article here no later than 5:00 PM ET each Sunday. The Carnival will post every Tuesday.
Articles I enjoyed reading included (in no particular order):
The DIV-Net Featured Articles
Articles From DIV-Net Members
The Wealth, Money & Life Network Featured Articles
Other Articles
There are some really good articles there, please take time and read a few of them.
(Photo: Sachin Ghodke)
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Smith & Wesson immediately means something to a person familiar with firearms. In much the same way, the phrase Graham and Dodd carries a lot of weight with value investors. David LeFevre Dodd, the lessor known of the two, was born in 1895. He was an educator and close colleague of Benjamin Graham at the Columbia Business School.
The 1929 stock market crash almost wiped out Graham. The crash inspired Graham to search for a more conservative, safer way to invest. Graham agreed to teach with the stipulation that someone take notes. David Dodd a young instructor at Columbia volunteered to be that someone. Those notes served as the basis for the 1934 book Security Analysis, which is considered the first book on value investing and is the longest running investment text ever published.
In the late 1950's value investing was pushed aside for modern portfolio theory (MPT) championed by academics at The University of Chicago. MPT makes use of quantitative analysis. Where value investing sees securities as priced correctly, under-priced, or over-priced, MPT proponents insist that under the efficient market hypothesis a stock price is always correctly priced. This teaching was so prevalent between 1965-1990 that Warren Buffett quipped, "You couldn't advance in a finance department in this country unless you taught that the world was flat."
Shortly after Dodd's death in 1988, Bruce Greenwald, a professor at Columbia took up the Value Investing banner. He found the overwhelming success of Value investors nearly impossible to dismiss. Just as reliable data was solidifying the arguments for Value Investing, MPT was showing some flaws. In 1994, Greenwald overhauled and relaunched the Value Investing curriculum at Columbia. Today, Value Investing enjoys broad appeal among academicians and investors around the world.
At the age of 93, David Dodd died on September 18, 1988 of respiratory failure. At the time of his death, Security Analysis, the book he coauthored with Graham had sold over 250,000 copies.
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If you are a dividend investor, last weeks melt-down provided a great opportunity for buying dividend stocks. As the price goes down, the yield goes up. Many companies continued to increase their dividends giving investors something to be happy about. Below are several companies that increased their dividends last week:
After running these companies through my [D4L-PreScreen.xls] model none of them warranted additional consideration. MDT was the closest with a NPV of MMA Differential of $1,338.
At the time of this writing, I did not own any of the aforementioned stocks.
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MMM earned one Star in this section for 3.) above. It has paid a cash dividend to shareholders every year since 1916 and has increased its quarterly cash dividend payments for 50 consecutive years. MMM earned no Stars in this section, and had one Star deducted for a negative NPV MMA Diff. In effect, if you invested equal amounts in a MMA earning of an average of 4.61% for 20 years and MMM stock with a dividend yield of 2.88% and growing at 4.2% annually, you would have $1,556 less in MMM stock per $1,000 invested. Other: MMM is a member of the S&P 500, is an Achiever and an Aristocrat. S&P noted that historically the company provides stable earnings and dividends. MMM enjoys a leading position in many of the end markets that it serves, a strong balance sheet with a relatively low amount of debt, and free cash flow that has averaged about 95% of net income over the past 10 years. Conclusion: MMM earned a Star in the Fair Value section, earned a net zero Stars in the Dividend Analytical Data section and earned no Stars in the Dividend Income vs. MMA section for a net total of 1 Star. This rates MMM as a 1 Star-Very Weak stock. 
Linked here is a PDF copy of my analysis of 3M Co (MMM) (alt.1, alt.2). Below are some highlights from the above linked analysis:
Company Description: 3M Co. is a diversified technology company with a presence in various businesses, including industrial & transportation, healthcare, display & graphics, consumer & office, safety, security & protection services, and electro and communications.
Fair Value: I consider four calculations of fair value, see page 2 of the linked PDF for a detailed description:
MMM is trading at a discount to all except 4.) above. If I exclude the high and low valuation, and average the remaining two valuations, MMM is trading at a 19.3% discount. A Star is added since MMM is trading at a fair value.
Dividend Analytical Data: In this section I consider five factors, see page 2 of the linked PDF for a detailed description:
Dividend Income vs. MMA: Why would you assume the equity risk and invest in a dividend stock if you could earn a better return in a much less risky money market account (MMA)? This section compares the earning ability of this stock with a high yield MMA. Two items are considered in this section, see page 2 of the linked PDF for a detailed description:
Using my [D4L-PreScreen.xls] model I determined the dividend growth rate would have to average 9.8% for MMM to generate a NPV of MMA Differential of $3,000 that I look for from a company that is both an Achiever and an Aristocrat. With the current dividend and an estimated growth rate of 4.2%, the share price would have to be $44.54 before I would consider initiating a position in MMM.
Disclaimer: Material presented here is for informational purposes only. The above quantitative stock analysis, including the Star rating, is mechanically calculated and is based on historical information. The analysis assumes the stock will perform in the future as it has in the past. This is generally never true. Before buying or selling any stock you should do your own research and reach your own conclusion. See my Disclaimer for more information.
Full Disclosure: At the time of this writing, I do not own shares of MMM (0.0% of my Income Portfolio).
What are your thoughts on MMM?
Recent Stock Analyses:
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CINF earned one Star in this section for 3.) above. It has paid a cash dividend to shareholders every year since 1954 and has increased its quarterly cash dividend payments for 48 consecutive years. CINF earned two Stars in this section. The NPV MMA Diff of $14,964 is well above the level I look for. With a current yield of 5.98%, CINF exceeds the 4.61% long-term average MMA rate. Other: CINF is a member of the S&P 500, is an Achiever and an Aristocrat. S&P believes the company is a conservative underwriter with sound risk and capital management policies. CINF has improved its underwriting, investment results and profitability in recent years. However, CINF will face price competition in its core markets. CINF also has among the lowest rates of return on equity in its peer group. If industry consolidation activity increases, CINF could be viewed as a takeover candidate.
Linked here is a PDF copy of my analysis of Cincinnati Financial Corp (CINF) (alt.1, alt.2). Below are some highlights from the above linked analysis:
Company Description: This insurance holding company markets primarily property and casualty coverage; it also conducts life insurance and asset management operations.
Fair Value: I consider four calculations of fair value, see page 2 of the linked PDF for a detailed description:
CINF is trading at a discount to all the above. If I exclude the high and low valuation, and average the remaining two valuations, CINF is trading at a 50.9% discount. A Star is added since CINF is trading at a fair value.
Dividend Analytical Data: In this section I consider five factors, see page 2 of the linked PDF for a detailed description:
Dividend Income vs. MMA: Why would you assume the equity risk and invest in a dividend stock if you could earn a better return in a much less risky money market account (MMA)? This section compares the earning ability of this stock with a high yield MMA. Two items are considered in this section, see page 2 of the linked PDF for a detailed description:
Conclusion: CINF earned a Star in the Fair Value section, earned one Star in the Dividend Analytical Data section and earned two Stars in the Dividend Income vs. MMA section for a net total of 4 Stars. This rates CINF as a 4 Star-Buy.
Using my [D4L-PreScreen.xls] model I determined the dividend growth rate could approach zero and CINF would still generate a NPV of MMA Differential close to the $3,000 that I look for from a company that is both an Achiever and an Aristocrat. Given the recent melt-down in the financial sector, most financials that have not cut their dividend are quantitatively grading out as Buy or Strong-Buy. Though interesting, CINF hasn't shown me enough to initiate a position in it.
Disclaimer: Material presented here is for informational purposes only. The above quantitative stock analysis, including the Star rating, is mechanically calculated and is based on historical information. The analysis assumes the stock will perform in the future as it has in the past. This is generally never true. Before buying or selling any stock you should do your own research and reach your own conclusion. See my Disclaimer for more information.
Full Disclosure: At the time of this writing, I do not own shares of CINF (0.0% of my Income Portfolio).
What are your thoughts on CINF?
Recent Stock Analyses:
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It is with great pleasure that I, and our collective membership announce the debut of The Dividend Investing and Value Network (DIV-Net). Dividends4Life is proud to be a Founding Member of this new investing network focusing on dividend investing, value investing and a long-term buy and hold philosophy. The authors of The DIV-Net want this network to be the premier destination for readers interested in a variety of investing insight, stock analysis and perspectives that might otherwise be found fragmented across the web.
The DIV-Net is a unique network providing exclusive, original and unpublished content daily from a growing membership containing the best authors in the field. Seven Core Members are responsible for maintaining and administering The DIV-Net site and the DIV-Net network.
Our Core Members include:
We believe strongly in the virtues of dividend investing, value investing and a long-term buy and hold philosophy. Thus, we didl not want limit DIV-Net to just seven Core Members. In our aim to include as many bloggers interested in our core focus we created an Associate Membership. Associate Members are eligible to submit original unpublished articles to The DIV-Net, access to use DIV-Net's content on their site, participate in the aggregated feed and a site listing on The DIV-Net's Associates page.
Our Associate Members include:
In addition, DIV-Net sponsors a weekly carnival titled "Investing Carnival." The carnival's focus is on Value Investing, Dividend Investing and Long-term Buy-and-Hold Investing, as well as categories for real estate, commodities and other alternative investments. We welcome your relevant articles. To participate please submit your article here no later than 5:00 PM ET each Sunday. The Carnival will post every Tuesday. If you are interested in hosting, please e-mail dividendgrowthinvestor [AT] gmail [DOT] com.
At The DIV-Net we are dedicated to providing the best independent and original dividend, value, and buy-and-hold investing content available on the web. We strive to bring these views together in one community focused on the highest quality membership of authors available. It is our hope that publishing, reading, following, and participating in The DIV-Net will pay long-term dividends for all involved.
Join us at The DIV-Net, and see what all the excitement is about!
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To preserve the comparability, I do not like to make a lot of changes to my stock analysis template. However, I have identified a couple that I have considered and determined that they are worthy of being made. They are as follows:
Graham Number: In calculating the Graham Number I have traditionally used a trailing twelve months (TTM) EPS. it was suggested by some that I move to a trailing 36 months to mitigate the effect of any unusual item (positive or negative) over the last 12 months. A trailing 36 months would involve a lot of manual tracking. I have instead decided to err on the conservative side and use a minimum of the TTM or the last three full-year years average. Since I use tangible book value, my calculation of the Graham number is already more conservative than most. If a stock is selling below my version of the Graham Number it is a strong indication that it is undervalued.
NPV MMA Diff: In the past, I have made statement like "GE's NPV MMA Diff is less than the $10,000 I prefer. However, since GE is a Blue-Chip company with a long track record of success, I am comfortable with its NPV MMA Diff of $5,862." To bring a degree of consistency and order, I felt this needed to be quantified. Previously, a Star was awarded if the NPV MMA Diff was greater than $10,000. Now the $10,000 is lowered by $2,500 if the company is a member of the Broad Dividend Achievers™ (increased its annual regular dividend payments for the last 10 or more consecutive years). The $10,000 target is lowered an additional $5,000 if the company is a member of the S&P 500 Dividend Aristocrats (increased dividends every year for at least 25 consecutive years). Thus, a company that is both an Achiever and an Aristocrat, will only have to have a NPV MMA Diff of $3,000 to earn a Star. In effect this change is risk adjusting the target NPV MMA Diff. It will be higher for more risky companies and lower for those with a proven track record.
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