One of the first stocks I purchased using my new found value investing philosophies was Corning (GLW). It was the perfect vehicle for value investing with a low P/E, extremely low debt, and a great balance sheet. When I discovered the company in my weekly screening process, it jumped out +99at me as a possible candidate, and as I did more investigation, it quickly became apparent that this “boring glass company” could be the right fit.
As I dug into it more, I thought this would make Benjamin Graham proud, and were the perfect vehicle for my further exploration of the principles that make value investing so great. My valuations of the company at the time of my first purchase in 2012 still hold up today and is such a great buy for long-term investors.
There a lot of great things going on with this company that we will dig into further and the continuing dividend and share buybacks have added even more value to the shareholders.
Corning can trace their beginnings to a glass factory established in 1851. Talk about longevity; they have been a leader in specialty glass for more than 165 years.
They are based out of Corning, New York and currently have approximately 40,000 people employed with them worldwide, speaking of global they have plants in 17 countries.
Continue reading “Corning: This Glass is Far From Brittle”
Dividends are the best friend an investor has. They are the gift that keeps on giving and finding a company that pays them consistently over a long period of time is a great way to build your wealth. Finding the intrinsic value of a dividend paying company is paramount to investing with a margin of safety. This helps protect our investments and grow our wealth. Using the dividend discount model is a great way to find that intrinsic value, and the use of the two-stage dividend discount model is a fantastic way to get a more precise view of that value.
Our goal is to find the approximate value of a company, not to quibble about the minor details, we must remember that valuation is an art. What one investor sees as value, another might see as a liability, it can be seen as in the eye of the beholder.
The dividend discount two-stage model is a little more involved than the Gordon Growth model that we addressed last week, but it is definitely doable on our part. We will walk through all the steps to help you calculate it on your own and give you examples to help illustrate what we are doing.
What’s the big deal with dividends, and why do we keep talking about them?
To give you an example of the power of dividends, let’s take a look at our favorite guru, Warren Buffett. Over the years Buffett has grown his wealth by investing in and buying businesses with strong competitive advantage (moat) that have traded at fair or better prices.)
His favorite company to invest in is one that pays him a dividend. Did you know that:
- Over 91% of his portfolio is invested in stocks that pay a dividend
- His top 4 holdings, which make up over half of his holdings pay a dividend yield of 2.9%
- Best of all, most of his stocks have paid a rising dividend for decades.
Continue reading “Breaking Down the Two-Stage Dividend Discount Model for Beginners”
In our quest to find the intrinsic value of stocks that we are interested in investing in, we have looked at several different types of formulas to help us determine that value. We haven’t considered the role that dividends play in these valuations, and as dividend investors, this is an important fact to factor in. Today we will discuss the dividend discount model to find the intrinsic value of dividend paying stocks.
Dividends are such an important variable to building our wealth, it is in our best interests to continue to add to our toolbox the different methods of calculating intrinsic value. The dividend discount model is simplicity itself and requires only three inputs to determine the value of a stock.
As we continue to strive to find the fair value of any stock that we wish to purchase, it is important to remember that the calculations that we do should never replace other methods of investigation, such as reading the 10-k, looking into other metrics, and doing our research.
In our efforts to narrow down our investing processes and learn more about different formulas to help us find intrinsic value, it is important to remember that we should try not to go down the rabbit hole in search of minutiae. A thought from Warren Buffett on intrinsic value.
“It’s better to be approximately right, than precisely wrong.”
That being said we should strive to be as accurate as we can, to help narrow down our errors in finding intrinsic value.
Dividend Discount Model Definition
Continue reading “Dividend Discount Model: A Simple Three Step Guide to Valuation”
“A truly great business must have an enduring “moat” that protects excellent returns on invested capital.”
–Warren Buffett, 2007 Shareholder Letter
Return on invested capital is one of the best ways to calculate whether or not a company has a moat. Finding a company with a moat that gets a great return on its invested capital makes investing easy, not that this is an easy thing to find. The reason this makes it easy is the company can grow their value over the years and you can compound along with it. Helping grow your wealth as they continue to add assets and grow their business.
The trick to finding a company that is a great allocator of capital is finding a company that has had success in the past getting a great return on invested capital. The higher the percentage the better allocators they are.
Today we are going to look further into return on invested capital. We will take a look at what it means and how to calculate it, along with examples for you to follow along.
Let’s dive in.
Definition of Return on Invested Capital
What is a return on invested capital?
“Return on invested capital (ROIC) is a profitability ratio. It measures the return that an investment generates for those who have provided capital, i.e. bondholders and stockholders. ROIC tells us how good a company is at turning capital into profits.”
“We prefer businesses that drown in cash. An example of a different business is construction equipment. You work hard all year and there is your profit sitting in the yard. We avoid businesses like that. We prefer those that can write us a check at the end of the year.”
-Charlie Munger, 2008 Berkshire Hathaway Annual Meeting
Another great thought from Charlie. I love this explanation and this is a great idea to strive for, finding a business that is conservatively financed that can write us a check every year. Better yet, would be a company that in addition to giving us a dividend would be fantastic compounders.
Continue reading “Return on Invested Capital in Two Easy Steps”