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On Beta (Part 3 of 3)

After presenting five different methods for calculating beta in Excel, I used examples to demonstrate why beta should not be used to set expectations about future return. There are several reasons for this:

  1. Beta isn’t even reliable for estimating the historical returns on which it is based.
  2. Beta is a point estimate summarizing a multitude of data points.
  3. A stock’s beta will change in the future.
  4. Using beta for stock projections, relies first on a prediction of the market’s return – a futile task.
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Regicide [CSVI]

This past weekend I narrowed my choice for this week’s acquisition to two companies. National Fuel Gas Company [NFG] and Computer Services Inc. [CSVI]. The deciding factor turned out to be that NFG had been rising in price this year and CSVI had been struggling. I assumed CSVI would be either the same price next week or perhaps even lower. So, I decided to add NFG to the portfolio and add CSVI later.

NFG dropped about a dollar by close of today. CSVI went up 50%.

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Dividend King of the Week [NFG]

Do you remember what you were doing on June 15, 2022? We should all remember. On that day, a company from Williamsville, New York, founded in 1902, announced an increase to their dividend. They have paid a dividend for 120 consecutive years and this increase is the 52nd consecutive annual increase in the dividend. Think about that. When they began paying a dividend, the U.S. was still minting the Indian Head penny.

This week’s Dividend King operates in four business segments, one of which is Utilities. I think this might be why they’ve been misclassified as a Utility stock on TD Ameritrade. Yahoo! Finance has them correctly labeled as an Energy company. Energy companies are notorious for inconsistent earnings, because their performance is sensitive to a host of economic factors that are out of their control. It very likely explains why there is only one Energy company in the list of Dividend Kings. Only one.

Monday morning, National Fuel Gas Company [NFG] joins the Dividend King portfolio.

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On Beta (Part 2 of 3)

I thought it might be illustrative to look at two Dividend Kings with a nearly identical beta, but with very different average annual returns over the last five years (through July 2022): Lowe’s Companies Inc [LOW] and Stanley Black & Decker Inc [SWK].

Beta says both companies were 25% more volatile relative to the market, but Lowe’s vastly outperformed the market (the S&P 500 Index, indicated by the ticker GSPC) and Black & Decker grossly underperformed the market. Please take my word; including the effect of dividends, reinvested or not, would not have materially affected the magnitude of the performance difference in these two stocks. As we’ll see, there’s more to beta than meets the eye.

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Dividend King of the Week [PPG]

What do the following numbers have in common? 139, 496, 51, 62. Give up? One hundred and thirty-nine years ago, in 1883(!), Pittsburgh Plate Glass was founded by Captain John B. Ford and John Pitcairn in Pittsburgh, Pennsylvania. In 1898, it began a streak of paying quarterly dividends that persists to this day, 496 quarters later. With their dividend increase in 1971, it began a streak of increasing the dividend payout annually. On July 21, 2022, they announced a three-cent increase to their 62 cents per share quarterly dividend, marking the 51st consecutive year of increasing their dividend.

Now known as PPG Industries, Inc [PPG], it is the largest paint and coatings company in the world, with 240+ manufacturing facilities in 59 countries and operations in 75 countries. The global headquarters is still in Pittsburgh. I missed the first 50 years of this streak, but I think it’s time to get in on the action.

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On Beta (Part 1 of 3)

If you look up summary data on a given ticker symbol on a broker’s webpage or say, Yahoo! Finance, you’ll encounter various statistics on the price, price ranges, volumes, earnings, outstanding shares, dividends, etc. Here’s a look at the summary data for American States Water [AWR] on Yahoo! Finance, after trading hours on August 9, 2022.

Most of these are either self-explanatory or easily understood with context. There is one item, however, that offers no real clues as to what it is and what it says about the stock you’re looking at: Beta.

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Let Your Grass Grow

You can save money by doing nothing. Or at least by doing less. When you commit to having a yard that looks like a putting green, you’re undoubtedly spending far more money and energy than you need to. I am not a lawn expert, but I do know that outside of preparation for sporting events, there is no call for short grass. Instead, try setting your lawnmower to cut grass at the highest level and bask in the ease of maintaining a healthy lawn in the cheapest way that still satisfies your sense of aesthetics, persnickety neighbors, and HOAs.

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Yield Curve Inversion

There has been much discussion over the past few months of whether we’re heading into a recession or are already in a recession. You might be wondering why we don’t know the answer. There is an official definition, but it is subjective in nature. The Business-Cycle Dating Committee of the National Bureau of Economic Research (NBER) officially certifies and dates our business cycles. Their definition: a recession is “a significant decline in economic activity that is spread across the economy and that lasts more than a few months.” That does leave a bit to the imagination and so economists rely on various indicators.

One common rule of thumb: If the gross domestic product (GDP) declines two quarters in a row, you have a recession. The GDP has fallen two consecutive quarters. But countering that has been the pronounced uptick in our latest jobs report. And there are time lags in the reporting of most economic indicators that adds to the confusion. There is another indicator that economists and investors alike use. It is routinely described as a harbinger in articles and the news, but it is seldom explained why it is used. Those sources typically avoid showing what it looks like. It is the yield curve.

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