Money Show 2014 - Kelley Wright

This presentation was the first one I attended on the second day of the World Money Show convention. Kelley Wright's presentation was called "Quality, Value and Dividends: The Three Keys to Building Great Portfolios".

This company only invests in stocks. They feel that a stock's real total return is equal to its capital gains, its dividends and its dividend growth. Kelley Wright feels that at some point interest rates are going to rise and then we will have disinflation (that is lower inflation) or deflation. This is natural when asset bubbles bursts. The excesses must be wrung out of the economy. The Fed tried to drown inflation with enough liquidity however prices are going down, like oil prices. This is not inflation.

To Kelley Wright, it is all about the return on investment.

• The sole purpose of investing is to build a pool of capital and a stream of income from that capital.
• Capital growth and income can only be achieved by Return on Investment (ROI).
• The most basic measurement of ROI is the cash dividend.
• The cash dividend and dividend growth is unique to stocks.
• A rising dividend trend is a predictor of price appreciation.

In the US there are more than 15,000 publicly companies, but not all are worthy of consideration. The question is: How do you separate the good from the bad and the ugly? This company looks for Blue Chip stocks. They feel that these stocks should have the following characteristics.

• Dividend increases five times in last 12 yrs.
• S&P Quality ranking in the "A" category.
• At least 5,000,000 shares outstanding.
• At least 80 institutional investors.
• At least 25 years of uninterrupted dividends.
• Earnings improved in at least seven of last 12 yrs.

They buy when the price is low and then they need someone to help raise the price. That is where institutions come in to help. If a company has 25 years of uninterrupted dividends, it means the company has stayed relevant to their customers for 25 years. This would be a highly competent company. The business cycle usually runs for 12 years so that is why they have 12 year requirements.

Through filters they whittle 1500 companies down to 350 and then to 260. This is a more manageable number of handle. They have a price/value strategy. Price is what you pay, value is what you receive. Price on its own means nothing. A stocks' dividend, dividend-yield and dividend trend are the primary measures of its value.

There are two paths to ROI. Every investor who has purchased a stock has believed that stock would be sold for a profit. ROI based only on capital appreciation is difficult to achieve on a consistent basis. The cash dividend is the only ROI path that offers any degree of certainty.

Why Dividends Are So Important?

• The cash dividend is a company policy.
• Dividends are the result of earnings.
• Rising dividends indicate rising earnings.
• Dividend increases reflects management's confidence for future earnings.
• A rising dividend trend is a predictor for a rising stock price.
• Dividends provide a floor of safety beneath a stock's price.

Sometimes earnings are down, but a company raises its dividend. This could be because it has confidence in their ability to earn in the future. Also, a company's stock price will fluctuate between ranges of high and low dividend yields.

Say a company's overvalued dividend yield is 1.6% and undervalued dividend yield is 3%. You should sell when the dividend yield is near the dividend yield of 1.6% and buy when the dividend yield is near the 3% dividend yield.

Stocks are divided into 9 sections of:

• Consumer Discretionary
• Consumer Staples
• Energy
• Financials
• Health Care
• Industrials
• Materials
• Technology
• Utilities

There is an ETF called SPDR (NYSE-SPY) that covers the whole S&P 500 index stocks. You can also buy ETF's for each of the 9 sectors. If you buy stocks, you need to buy 3 to 4 companies in each sector. There is currently a phenomenal opportunity to buy energy companies. Some have current yields at 3%. These you should buy and hold for a while. If you can get Johnson and Johnson (NYSE-JNJ) at a good price, go for it.

Charles Dow said "To know value is to know the meaning of the market".

They have been looking lately at the Canadian market. So far only Canadian Banks can meet their criteria. They want companies to have Dividend Payout Ratios of 50% earnings or less. Companies need money to grow and to withstand recessions. He thinks that WR Berkley (NYSE-WRB) is an early Warren Buffet company.

The company's web site is called IQ Trends.

On my other blog I am today writing about TransForce Inc. (TSX-TFI, OTC-TFIFF) ... continue ...

This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. I do research for my own edification and I am willing to share. I write what I think and I may or may not be correct.

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