I’ve made a few position changes lately, mainly on the “income” side:
I’ve been reducing exposure to tobacco stocks over the past few months and have now totally sold the rest of Altria (MO). Tobacco stocks tend to be high yielders, like telecom and utilities, making the dividend payout, sustainability and growth rate very important factors. The problem I see is mainly with the US tobacco companies as fewer people here in the US are smoking every year. Sales volumes and revenues have been declining while most of the growth in Earnings per Share (EPS) has been driven from share repurchases. With the dividend yield now around 4.5% and payout ratio over 90% (the percentage of net profits each year paid-out to shareholders as dividends), I think the company will be hard-pressed to raise the dividend very much moving forward. In my view, the stock is very similar to a bond at this point and I prefer rising income over fixed income.
Altria (MO) – 1 year
I’ve been reducing the size of consumer product stocks like General Mills, Colgate Palmolive, Unilever and Pepsi. I’m not necessarily concerned about any company specific issues but rather the correlation between these stocks which has increased quite a bit over the past two years. A high correlation means that the stocks tend to move lock-step with one another, which isn’t good from a diversification standpoint. I’ve been using the weakness lately to shift the money into Diageo (DEO), a London-based liquor conglomerate which owns brands like Smirnoff Vodka and Johnnie Walker whiskey. Alcohol is virtually a non-cyclical business influenced more by long-term industry trends, and the spirits business has seen very strong growth over the past few years. This means that Diageo’s stock tends to have a very low correlation to a lot of the other companies we own which should help to reduce overall portfolio volatility.
Diageo (DEO) – 1 year
Last night another restructuring was announced by a company we own on the “income” side of portfolios. Kinder Morgan Inc. (KMI) is consolidating with its three publicly traded subsidiaries – Kinder Morgan Energy Partners (KMP), Kinder Morgan Management (KMR) and El Paso Pipeline Partners (EPB). This transaction will lower Kinder Morgan’s cost of capital and help fuel future growth. The Chairman and CEO, Richard Kinder, is the largest shareholder of Kinder Morgan and only pays himself an annual salary of $1. This is once again evidence of the importance of investing in good management teams that know how to create value and are also invested in the company. I plan on retaining the position in KMI.
Kinder Morgan Inc. (KMI) – 1 year
Lastly, as a “growth” investment, I just started buying a position in GasLog (GLOG), an owner/operator of liquefied natural gas carriers based in Monaco. With the US energy boom pumping out tons of natural gas, I think we’re seeing an important shift in its uses and dependence globally. I also think we’ll see Congress move forward with approving additional liquefied natural gas export projects. Europe is in desperate need because they’re so heavily dependent on Russian natural gas right now, of which 50% is shipped via pipeline through Ukraine… This could be huge for GasLog if they’re able to gain contracts in the years ahead with US exporters looking to ship to Europe. They’re also boosting the size of their fleet with new ships set to be finished over the next few years and hold an impressive backlog of 39% of available contracted days already booked through 2026! I have to give a shout-out to my friend Scott for the heads up on the company!
GasLog (GLOG) – 1 year
Thanks for following!
-Nick
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