Debt & Dividend Investing Basics
A Clearly Undervalued Stock
A Stock with Rising Dividends
My Role in the Investment World
After decades of investing, I have found that the best way to
make money in the stock market is to invest in conservative
stocks for long-term holding. No market timing, no charts-just
buy blue-chip companies at low prices and wait patiently until
the stock price becomes overvalued. If you follow my "buy low and
sell high" value strategy, you too can take advantage of the
natural ebb and flow of the stock market.
If you are thinking my profits are most likely minuscule
because of my conservative style, I offer this evidence to the
contrary. Three months ago in my Cabot Wealth Advisory, I wrote
about how "Warren Buffett is the Best." Well, one of my readers
took me to task and asked: "With your investment philosophy, why
not just buy Berkshire Hathaway (BRKB) … and let Warren do the
work for you?"
Better than Warren Buffett!
My response was straightforward: "Warren Buffett's record of
performance is legendary, but upon close inspection, … my
investment record is a little better." Indeed, from 1996 through
4/1/2013 my investment models have produced a compounded annual
gain of 14.0% before dividends (about 15.4% including dividends).
The Dow Jones Industrial Average's compounded gain is 6.1% per
year during the same period, and the renowned Mr. Buffett's
return is 9.6% per year. Maybe these returns don't sound
spectacular, but if you had invested $100,000 with me at the
beginning of 1996, your holdings would have grown to $950,000
during the past 17 years.
For this Cabot Wealth Advisory, I screened the Standard &
Poor's database of 5,600 stocks to find very low risk companies
paying healthy dividends.
Low Risk Companies paying Healthy Dividends
Companies with low risk are not hard to find. First, search
for companies with little or no debt. Companies with heavy debt
loads generally produce lower earnings when interest rates rise.
Interest rates now reside at historic lows, but when rates rise,
which they inevitably will, companies with too much debt will
incur substantially higher interest expense. Buying companies
with no debt or low debt makes sense, because low-debt companies
will continue to perform well when interest rates rise.
Second, search for companies that pay dividends. A company's
ability to continually pay dividends provides concrete evidence
that the company is healthy and is performing well. Look for
companies paying dividends yielding at least 1.0%. Lower dividend
yields add less value.
Finding companies that have no long-term debt on their balance
sheets and pay dividends is easy. Standard & Poor's lists
over 2,000 companies that pay a dividend and have no debt. You
can whittle the list of 2,000 companies down to just a few:
require your choices to have high Value Line financial strength
ratings (Value Line is a financial service which offers ratings
and data) and second, choose companies with strong Standard &
Poor's earnings and dividends rankings.
20 Great Candidates to Buy
I set the bar high by requiring Value Line financial strength
ratings of A++, A+, and A, and Standard & Poor's Earnings and
Dividends rankings of A+, A, and A-. Using these two criteria and
the two parameters explained above (low debt, dividends), I came
up with 20 companies which are solid candidates to buy now. If
you would like to find out which companies made my list, just
email us at TimothyLutts@cabotwealth.com.
After perusing the list of 20 companies using the four
criteria described above, two companies stand out. Both companies
have no debt; pay dividends yielding more than 1%; boast Value
Line financial strength ratings of A or higher; and are rated A-
or higher in the Standard & Poor's Earnings and Dividends
C.H. Robinson (
is one of the largest transportation and logistics companies in
North America. The company was founded way back in 1905 and is
now headquartered in Eden Prairie, Minnesota. C.H. Robinson
provides multimodal transportation services and logistics through
a network of 250 offices in North America, South America, Europe,
Asia and Australia. The company offers several types of
transportation services, including shipping by trucks, trains,
ocean vessels and airplanes and using intermodal containers. The
company does not own expensive transportation equipment.
C.H. Robinson has contracts with 50,000 transportation
companies, including motor carriers, railroads, air freight and
ocean carriers. The company maintains the largest system of
transportation capacity in North America. In addition, C.H.
Robinson operates logistics services, such as fresh produce
transport, freight consolidation and cross-docking.
The company has demonstrated steady growth during the past 15
years with 14 increases in EPS (earnings per share) and dividend
increases in every year.
Recent acquisitions and rising costs slowed earnings growth in
2012, which caused CHRW's stock price to decline to bargain
levels. I expect cost controls and cost savings from acquisitions
to boost EPS by 19% during the next 12 months ending 3/31/14,
after rising 6% in the past 12 months. Sales will likely increase
11%, same as a year ago.
At 17.6 times my forward EPS estimate of 3.40, and with a
dividend yield of 2.3%, CHRW's stock is clearly undervalued. CHRW
shares will likely rise to my Min Sell Price of 79.25 within one
to two years.
FactSet Research Systems (
was founded in 1978 and has its main office in Norwalk,
Connecticut. The company provides global economic and financial
data to investment professionals, such as portfolio managers,
analysts and investment bankers. FactSet combines data from
hundreds of sources into a single online information library,
accessible from numerous devices using a private network.
The network provides a direct, high-speed data link between
FactSet's mainframe computers and the client's personal computer
or network. The system allows users to download, search and
analyze data in a variety of formats, including custom-designed
reports. FactSet offers data on thousands of companies around the
Sales and earnings growth has continued unabated, because
FactSet is taking market share from competitors such as
Bloomberg, Dow Jones, Morningstar and Thomson-Reuters. FactSet's
first-class customer service and unique data sets have become a
big advantage. The recent shift from bond mutual funds to stock
mutual funds could enable FDS to beat 2013 forecasts. The company
derives more than 80% of revenues from the mutual fund
Sales will likely increase 10% and EPS should rise 12% during
the next 12-month period ending 2/28/14. At 18.8 times my forward
EPS forecast of 4.83 and with a dividend yield of 1.4%, FDS
shares are a little high. The company's superior sales, earnings,
and dividend growth warrants the higher valuation. FactSet has
paid dividends since 1999 and increased its dividend more than
10% every year since 1999. I expect another hefty dividend
increase before mid-year. Buy FDS now with the expectation the
stock price will rise to 111.11 within one year.
I will continue to follow C.H. Robinson, FactSet and other
high-quality companies in my Cabot Benjamin Graham Value Letter.
In my April issue, my comprehensive analysis turned up two new
bargains that might be the best ideas I have come across in quite
some time. I hope you will become a subscriber and won't miss
Cabot Benjamin Graham Value Letter