Situation: Because of an exploding global population, higher expectations for living standards, and global warming, the future will bring shortages of many kinds particularly as regards acreage of land under cultivation and availability of fresh water for population centers and crops.
In years past, food production kept up with population growth mainly because of improvements in technology. And it may be that newer technologies will see more widespread use, such as conversion of sewage into potable water (click here to read related story) and genetic conversion of seeds for crops (click here for a related story). But for investors, it is better to hedge that bet by learning more about agriculture-related companies that could be added to your investment portfolio. The attached Table is a list of companies that participate in the agricultural economy, pay a dividend, and are listed on a major US stock exchange. In some columns of the Table, you will notice data that is highlighted in red. This is to indicate “let the buyer beware.”
The 30 companies listed in the accompanying Table do not give a broad overview of agriculture. There are missing elements because the majority of farm production in the US is now carried out by farmer-owned co-operatives. Many have names that are familiar to grocery shoppers: Ocean Spray, Florida’s Natural, Sunkist, Land O’ Lakes, Tillamook. When added together, the 100 largest co-ops have combined annual revenues of more than $200 Billion. Over the coming year, one of the goals of our ITR blog is to present more discussions on agricultural and commodity-related companies that have a focus on food production or participate in the agricultural economy. We’ll start by gleaning more information about the companies that have become established well enough to pay a dividend.
Bottom Line: Hundreds of millions of people living in developing countries have experienced major improvements in their standard of living and are now interested in a greater availability of healthy foods. They can earn enough to pay for these products but can the planet provide enough?
Post questions and comments in the box below or send email to: irv.mcquarrie@InvestTuneRetire.com
Sunday, April 8
Sunday, April 1
Week 39 - Master List Update - 1st Quarter 2012
Situation: The stock market is now fully valued but future projections of growth appear cloudy on the horizon. China is trying to deflate an overheated economy, Europe is full into a recession with 3 Eurozone countries at or near default (Greece, Portugal, Italy). And while emerging markets hope to pull out from a terrible year (down 20% in 2011), they can’t do so if the US, Europe, and China aren’t growing. The US appears to be continuing in the pattern of the last two years of grow for the first six months followed by a rough patch. In this week’s blog, we are updating the ITR Master List (Week 27). In this report, no companies have been removed but 4 more have been added: Microsoft (MSFT), CH Robinson Worldwide (CHRW), Canadian National Railway (CNI), and Wisconsin Electric (WEC).
The companies comprising the ITR Master List meet 6 criteria as we’ve explained in earlier blogs (see Week 27):
a) S&P stock rating of A- or better, associated with low or medium risk (i.e., A-/M or better);
b) S&P bond rating of BBB+ or better (i.e., 3 steps above “junk bond” rating);
c) dividend payout as high (or higher) than the S&P 500 Index’s pay line (currently 2%);
d) dividend payout that increased every year for at least 9 yrs;
e) Long-term (LT) debt accounts for no more than 45% of total capitalization;
f) Free Cash Flow (FCF) is at least 1.5X the dividend payout for the most recent fiscal year.
In the attached Table, note that the regulated electric utilities (NEE & WEC) have too much LT debt and insufficient FCF/div, and therefore are highlighted in red. But these problems are not germane to our company analysis because a state government (Florida and Wisconsin, respectively) guarantees debts and revenues.
If you’re a disciplined DRIP investor, you can start a DRIP at any point using “dollar cost averaging”; it is not necessary to wait and “buy low”. This is because dollar-cost averaging buys fewer shares when the stock price is high but then buys more shares when the price is low (discussed in Week 6). We categorize companies as “temporarily safe” or “relatively safe” for dollar-cost averaging over 10 yrs (see Week 31). “Temporarily safe” means we can’t find any clear evidence that a company will continue doing well in the next economic downturn. In other words, it’s tangible book value (TBV) probably won’t keep chugging higher. If the attached Table contains an XXX in column “K”, that company has been given a grade of “pass” for what we have dubbed The Buffett Buy Analysis (BBA in Week 30). By this we mean the company has a “durable competitive advantage” and is projected to grow core earnings at 8+% over the next 10 yrs. We feel that makes it “relatively safe” for the long haul. So if you choose 6 DRIPs from this Master List, you’ll sleep more comfortably in the future if at least 3 are “relatively safe”.
Bottom Line: We expect the world’s financial markets will spend the next 10 yrs “climbing a wall of worry”. While the US has 4% of the world’s population it accounts for an amazing 40% of the world’s GDP. Ten yrs from now, it is projected that the US will have 3% of the world’s population and account for less than 25% of its GDP. Our first quarterly update for the 2012 Master List includes many companies that have strong international sales and can be expected to reward the investor with continued growth of dividends during this difficult transition.
Post questions and comments in the box below or send email to: irv.mcquarrie@InvestTuneRetire.com
The companies comprising the ITR Master List meet 6 criteria as we’ve explained in earlier blogs (see Week 27):
a) S&P stock rating of A- or better, associated with low or medium risk (i.e., A-/M or better);
b) S&P bond rating of BBB+ or better (i.e., 3 steps above “junk bond” rating);
c) dividend payout as high (or higher) than the S&P 500 Index’s pay line (currently 2%);
d) dividend payout that increased every year for at least 9 yrs;
e) Long-term (LT) debt accounts for no more than 45% of total capitalization;
f) Free Cash Flow (FCF) is at least 1.5X the dividend payout for the most recent fiscal year.
In the attached Table, note that the regulated electric utilities (NEE & WEC) have too much LT debt and insufficient FCF/div, and therefore are highlighted in red. But these problems are not germane to our company analysis because a state government (Florida and Wisconsin, respectively) guarantees debts and revenues.
If you’re a disciplined DRIP investor, you can start a DRIP at any point using “dollar cost averaging”; it is not necessary to wait and “buy low”. This is because dollar-cost averaging buys fewer shares when the stock price is high but then buys more shares when the price is low (discussed in Week 6). We categorize companies as “temporarily safe” or “relatively safe” for dollar-cost averaging over 10 yrs (see Week 31). “Temporarily safe” means we can’t find any clear evidence that a company will continue doing well in the next economic downturn. In other words, it’s tangible book value (TBV) probably won’t keep chugging higher. If the attached Table contains an XXX in column “K”, that company has been given a grade of “pass” for what we have dubbed The Buffett Buy Analysis (BBA in Week 30). By this we mean the company has a “durable competitive advantage” and is projected to grow core earnings at 8+% over the next 10 yrs. We feel that makes it “relatively safe” for the long haul. So if you choose 6 DRIPs from this Master List, you’ll sleep more comfortably in the future if at least 3 are “relatively safe”.
Bottom Line: We expect the world’s financial markets will spend the next 10 yrs “climbing a wall of worry”. While the US has 4% of the world’s population it accounts for an amazing 40% of the world’s GDP. Ten yrs from now, it is projected that the US will have 3% of the world’s population and account for less than 25% of its GDP. Our first quarterly update for the 2012 Master List includes many companies that have strong international sales and can be expected to reward the investor with continued growth of dividends during this difficult transition.
Post questions and comments in the box below or send email to: irv.mcquarrie@InvestTuneRetire.com
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