Long-Term Dividend Champs
Posted by Eddy Elfenbein on May 19th, 2014 at 11:22 pm

Dividend Growth Stocks lists 12 stocks that have increased their dividends for more than 50 years in a row.

The 12 stocks are:

Colgate-Palmolive ($CL), 51 years

Johnson & Johnson ($JNJ), 52 years

Coke ($KO), 52 years

Cincinnati Financial ($CINF), 54 years

Vectren ($VVC), 55 years

Procter & Gamble ($PG), 56 years

3M ($MMM), 56 years

Emerson Electric ($EMR), 58 years

Genuine Parts ($GPC), 58 years

Northwest Natural Gas ($NWN), 59 years

Diebold ($DBD), 60 years

American States Water ($AWR), 61 years

Of course, this isn’t proof of future success, but it’s darn impressive.

DirecTV is Down Today
Posted by Eddy Elfenbein on May 19th, 2014 at 11:20 am

In last night’s Flash Alert, I said to expect DirecTV ($DTV) to gap up close to $95 per share, which is AT&T’s price. Instead, DTV is lower this morning, and currently around $84.50 per share.

What’s going on? It appears that the market sees the odds for this deal closing on time as far from a sure thing. Bear in mind that both boards approved the deal unanimously. Shares of AT&T are currently off 0.8% which still places it well within the deal’s “collar.”

As usual, there are regulatory concerns and there are worries about DirecTV’s deal with the NFL for the Sunday Ticket. That shouldn’t be a problem. It’s a very lucrative contract for both sides. AT&T would be allowed to pull out of the deal if DTV and the NFL can’t reach a deal.

How Will the Fed Raise Rates?
Posted by Eddy Elfenbein on May 19th, 2014 at 11:01 am

Jon Hilsenrath has an interesting piece in today’s WSJ on what will happen when the Fed decides to raise interest rates. Traditionally, the Fed has adjusted their target for the Fed Funds rate, but as Richard Fisher, the top dog at the Dallas Fed recently said, “It is my opinion that the fed funds rate is not the right tool going forward.”

The Fed now pays interest on the reserves kept at the Fed, so that could be the new all-important rate. The hitch is that there’s now a lot of money in short-term money market funds that are outside the banking system. Here’s Hilsenrath:

To address that problem, the Fed is experimenting with another lever. It is conducting trades—called overnight reverse repurchase agreements—directly with nearly 100 money-market funds and other financial institutions. Through reverse repos the Fed pays interest to these nonbank entities.

In theory, the reverse repo rate and interest rate paid to banks on reserves could become the Fed’s new benchmark interest rates. Ms. Yellen in congressional testimony this month said both rates were part of the Fed’s tool kit.

She and others say they are confident that the Fed can tighten credit conditions when needed. But unresolved issues abound.
One worry: As Fed officials move toward a new system, trading in the fed funds market could dry up and make the fed funds rate unstable. That could unsettle $12 trillion worth of derivatives contracts called interest rate swaps that are linked to the fed funds rate, posing problems for people and institutions using these instruments to hedge or trade.

Another worry: If they make overnight reverse repo trades more appealing than bank reserves, they could drive activity in short-term lending markets away from banks and toward unregulated money funds.

Cullen Roche doesn’t think this will be a problem. I think QE will be all wrapped up by January 1, and we’ll have another six months after that until interest rates rise.

Market veterans like to laugh at the phrase “this time it’s different,” but truthfully, each time really is different.

Morning News: May 19, 2014
Posted by Eddy Elfenbein on May 19th, 2014 at 6:36 am

Thailand’s Unrest Wreaks Greater Damage Than Forecast

Vietnam Bulls Unfazed by Riots as Foreigners See Bargains

Deutsche Bank Gains Qatar as Shareholder in $11 Billion Sale

Wall of Worry Rebuilt as Nasdaq Rout Sends Cash to High

AT&T Makes Bet on Video With $48.5 Billion DirecTV Bid

AstraZeneca Rejects New Pfizer Bid

Johnson Controls to Spin Off Auto-Interiors Business

Ryanair Profits Drop For the First Time in Five Years

High-End Coffee Is About To Get More Expensive As A Fungus Decimates Latin America Crops

Vodafone Buys South African Telecom Stake from India’s Tata

Yahoo Japan Drops $3.2 Billion Plan to Buy eAccess From SoftBank

What Thomas Piketty Doesn’t Say

The Hero and the Wall St. Puppet

Jeff Miller: Weighing the Week Ahead: What Does the Bond Rally Mean for Stocks?

The Epicurean Dealmaker: Short Cuts

Be sure to follow me on Twitter.

CWS Market Review: May 18, 2014
Posted by Eddy Elfenbein on May 18th, 2014 at 8:47 pm

AT&T Buys DirecTV for $95 per Share

Great news! AT&T ($T) just announced that it’s buying DirecTV ($DTV) for $95 per share. The news broke Sunday afternoon and I wanted to send you this Flash Alert to let you know the good news.

Here are the details from the press release.

DIRECTV shareholders will receive $95.00 per share under the terms of the merger, comprised of $28.50 per share in cash and $66.50 per share in AT&T stock. The stock portion will be subject to a collar such that DIRECTV shareholders will receive 1.905 AT&T shares if AT&T stock price is below $34.90 at closing and 1.724 AT&T shares if AT&T stock price is above $38.58 at closing. If AT&T stock price at closing is between $34.90 and $38.58, DIRECTV shareholders will receive a number of shares between 1.724 and 1.905, equal to $66.50 in value.

AT&T closed Friday at $36.74 per share. On Twitter, I guessed that the deal would be two shares of AT&T plus $20 in cash for each share of DTV, so I was pretty close.

The collar is a smart move and I’m assuming it came from DTV. To make it easy for you, it’s plus or minus 5% from AT&T’s closing price on Friday. The problem with any deal transacted with stock is what happens if the acquiring company has its stock plunge. The acquired firm gets punished so some protection is a good idea. Still, I doubt the collar will go into effect.

For track record purposes, the cash portion of the deal will be assumed to be used to buy AT&T stock at the same price the stock portion of the deal goes for. In other words, AT&T will replace DTV on the Buy List. We’ll still have 20 stocks on our Buy List.

Here’s more from the press release

This purchase price implies a total equity value of $48.5 billion and a total transaction value of $67.1 billion, including DIRECTV’s net debt. This transaction implies an adjusted enterprise value multiple of 7.7 times DIRECTV’s 2014 estimated EBITDA. Post-transaction, DIRECTV shareholders will own between 14.5% and 15.8% of AT&T shares on a fully-diluted basis based on the number of AT&T shares outstanding today.

AT&T intends to finance the cash portion of the transaction through a combination of cash on hand, sale of non-core assets, committed financing facilities and opportunistic debt market transactions.

To facilitate the regulatory approval process in Latin America, AT&T intends to divest its interest in América Móvil. This includes 73 million publicly listed L shares and all of its AA shares. AT&T’s designees to the América Móvil Board of Directors will tender their resignations immediately to avoid even the appearance of any conflict.

Obviously, there are other issues ahead such as regulatory approval. Expect to see DTV gap up tomorrow, but not all the way to $95 per share. If you own DirecTV, there’s no reason to sell it now. I’m going to raise our Buy Below to $95 per share, but don’t expect to see any significant gains after tomorrow’s open. There’s no need to jump in and buy AT&T. I’ll have more to say about them once the deal is done.

– Eddy

BuzzFeed: AT&T and DirecTV to Announce Deal on Sunday
Posted by Eddy Elfenbein on May 17th, 2014 at 3:33 pm

The latest from BuzzFeed:

AT&T is on track to announce its acquisition of the satellite company DirecTV this Sunday, before markets open Monday and sooner than many observers anticipated, a source familiar with DirecTV’s plans told BuzzFeed.

“The deal is done,” the source said, adding that DirecTV CEO Mike White has already informed senior executives that the deal is finished and plans to give public confirmation Sunday.

Bloomberg and the New York Times have pegged the deal at $50 billion.

DirecTV is the largest satellite operator in the country, with about 20 million subscribers, and the deal would vastly expand the reach and leverage of AT&T negotiating for video content. The company’s U-verse digital TV service currently has fewer than 6 million subscribers.

The deal would also, and perhaps more importantly for AT&T, provide the company access to DirecTV’s cash war chest, reported at $2.6 billion in free cash flow last year. That could fund new initiatives, or new acquisitions, for AT&T.

I’m not sure how reliable a source BuzzFeed is, but it shouldn’t be too surprising. Bloomberg notes that both companies have declined comment, but their source says that a deal will be announced by Monday.

Stevie Wonder: Superstition
Posted by Eddy Elfenbein on May 16th, 2014 at 3:23 pm

Small-Caps and Currency Exchange
Posted by Eddy Elfenbein on May 16th, 2014 at 3:22 pm

Here’s an interesting chart. This shows the relative performance of small-cap stocks (the blue line which is the Russell 2000 divided by the S&P 500) along with the euro/dollar exchange rate (in black). You can see that there’s a weak but visible correlation.

The S&P 500 and Its Earnings
Posted by Eddy Elfenbein on May 16th, 2014 at 10:47 am

Here’s the S&P 500 along with its trailing operating earnings.

The black line is the S&P 500 and the gold line is the trailing operating earnings. The S&P 500 follows the left scale and the earnings are on the right. The two lines are scaled at a ratio of 16 to 1.

The future part of the earnings line is Wall Street’s consensus (you can tell how it gets smooth all of a sudden). Those estimates are almost always too high. Wall Street currently expects earnings of $120 for the S&P 500 this year, and $137 for 2015. If the index trades at 16 times next year’s earnings by the end of next year, then the S&P 500 would be at 2,200. That’s a gain of 17.5% over the next 19.5 months.

Q1 2014 Earnings Calendar
Posted by Eddy Elfenbein on May 16th, 2014 at 7:44 am

Sixteen of our 20 Buy List stocks are on a March/June/September/December reporting cycle, so we’re going to get a lot of earnings reports over the next few weeks.

Here’s an earnings calendar. Please note that the earnings dates and estimates may change.