PM / MO Merger?!

[fenders53]

That sounds like a rational enough decision divmenow.  I think they trade very similar long-term.  Just don't ask me to define long-term lol.  This is going to have some twists and turns.  All things US tobacco are going to have to get FDA approved when this is over.  JUUL will do that.  Proving your product is much safer that cigarettes seems like a low hurdle.

[crimsonghost747]

(09-25-2019, 09:36 AM)fenders53 Wrote: Proving your product is much safer that cigarettes seems like a low hurdle.

Claiming it is much safer based on things like what is in the product, that is a low hurdle. In fact that is what e-cig people have been saying all the time.
Actually proving it takes several decades at a minimum. 

This doesn't only apply to cigarettes, it applies to pretty much everything. To have actual reliable data on health effects, you need a study that spans decades. Now obviously this is not a requirement for the regulatory side, otherwise anything from food products to medicine would take several decades of studies before it could be sold. (and it would be hard to do those studies without real consumers) I have no doubt they can figure out the regulatory side.

Public opinion is another matter, and ultimately the one that decides how this thing ends.

[fenders53]

No disagreement  Dragon.  I've argued your side of this often here.  I don't even know for sure what got me invested in this knife catching party.  I mostly blame Kerim and Divmenow lol.  Just kidding, greed sucked me into the stupid high dividend.  I still think that, and covered calls saves me in a few years.  It's been a wild ride.  I actually got called out of shares in the 50's.  I am very upside down on my initial few purchases now.  I won't be surprised if MO never hits 80 again in my lifetime.  I'm skeptical it's a true DGI stock going forward. For me, it's a current income play with an outside shot of a decent spike off the oversold lows. I am just going to have to hope Guru is right and this thing pops to 50 some month soon.  That is far from a sure bet.  What they need is stability in the biz and SP for a quarter or two.  That will draw in the crowd for the div you can't find anywhere else in a blue chip.  US utilities are an example.  Paying a 25 PE is pure insanity for a Ute, but fools buy every single dip because you get "safe" double CD rates now, right up until you get smoked on your capital investment.

[Kerim]

With the merger scuttled, for now anyway, I think the next couple of earnings announcements are going to dictate the amount of short-term pain. Reading the tea leaves of today's press release, I'm guessing -- guessing -- that full-year 2019 "real" earnings per share will be right about $3.50. (I ignore the nonsense adjusted EPS numbers they provide -- you can't pay dividends with adjusted earnings -- although I do think it is notable that they tightened the full-year guidance by *increasing* the lower end of the range.)

If $3.50 or thereabouts turns out to be the case, we're looking at a payout ratio of pretty close to, but not quite, 100 percent. I'd consider this a neutral / status quo / ongoing uncertainty case where the price just drifts around current levels, maybe drifting downward. If Q3 earnings are weak (especially in combination with continued negative headlines about JUUL, then low to mid $30s wouldn't surprise me. If Q3 earnings suggest anything north of $3.50 for the year, however, then I'd guess that the price would start to move up as folks calm down and pile in for the incredible yield.

Again, given today's updated guidance, I'm still pretty comfortable that we're looking at either the neutral or positive short-term path. (Actually, I'm leaning more toward the positive path, but don't want to set myself up for too much disappointment!) But as usual, my crystal ball is still in the shop, so all of these guesses are worth what you paid for them.

Longer term, I'm still very comfortable that this is an excellent entry point. This is still a huge company that generates a lot of cash. MO's payout ratio was 95 percent as recently as 2011. They'll navigate the regulatory and litigation issues with JUUL, perhaps even ending up owning the whole company or a majority of it. (And as I've said before, today's prices are reasonable even if they have to write off JUUL entirely.) They still have a lot of pricing power in their core products, and are planning around significant and accelerating decreases in old fashioned smoking rates.

I said I'd buy more in the $30s, and at this moment it is down to $39.50. Maybe I'll go see what I can get for selling a put or two...

Edited to add: Yeah, I wouldn't bet on big dividend raises the next year or two. They kind of got ahead of themselves with the two large raises in 2018. But unless earnings really crater, I'm confident they'll continue with small raises on schedule to maintain the streak.

[crimsonghost747]

The bigger issue than div to EPS is the cash flow payout ratio. Last I checked it was significantly over 100%, maybe around 125%, for the first half of this year. That is obviously not sustainable, and while for a short term it will be ok, they have to turn it around sooner rather than later. I wouldn't be surprised to see a large dividend cut coming in the next few years. (and I do not consider that a bad thing, sometimes the company needs to focus on things other than the dividend)

[Binary]

(09-25-2019, 01:07 PM)crimsonghost747 Wrote: The bigger issue than div to EPS is the cash flow payout ratio. Last I checked it was significantly over 100%, maybe around 125%, for the first half of this year. That is obviously not sustainable, and while for a short term it will be ok, they have to turn it around sooner rather than later. I wouldn't be surprised to see a large dividend cut coming in the next few years. (and I do not consider that a bad thing, sometimes the company needs to focus on things other than the dividend)

Might that payout be because of the Juul acquisition?

[crimsonghost747]

(09-25-2019, 01:47 PM)Binary Wrote:

(09-25-2019, 01:07 PM)crimsonghost747 Wrote: The bigger issue than div to EPS is the cash flow payout ratio. Last I checked it was significantly over 100%, maybe around 125%, for the first half of this year. That is obviously not sustainable, and while for a short term it will be ok, they have to turn it around sooner rather than later. I wouldn't be surprised to see a large dividend cut coming in the next few years. (and I do not consider that a bad thing, sometimes the company needs to focus on things other than the dividend)

Might that payout be because of the Juul acquisition?

No. This is cash from operating activities compared with cash used in payment of dividend.
Acquisitions are not part of operating activities, instead they are reported under cash from investing activities.

[fenders53]

Good post Kerim. I found a little comfort in that lol. I'm sure a lot of people are sick of my Debbie Downer talk by now. I come to this forum because for the most part it's not a cheer leading team. Way too much of that on S.A. and I don't find it useful.

I do hope they don't cut the dividend. Not because 50 cents a share would be some crushing blow, but the market would over-react and we'd see $30. I get it though, all too often div cuts beget more div cuts. If I had immediately just sold every stock that ever cut the div, I'd be better off overall, even bailing right after the news took the SP down. I think MO will fight hard to raise a penny if that's what it takes to stay on the list.

[Binary]

(09-25-2019, 02:22 PM)crimsonghost747 Wrote:

(09-25-2019, 01:47 PM)Binary Wrote:

(09-25-2019, 01:07 PM)crimsonghost747 Wrote: The bigger issue than div to EPS is the cash flow payout ratio. Last I checked it was significantly over 100%, maybe around 125%, for the first half of this year. That is obviously not sustainable, and while for a short term it will be ok, they have to turn it around sooner rather than later. I wouldn't be surprised to see a large dividend cut coming in the next few years. (and I do not consider that a bad thing, sometimes the company needs to focus on things other than the dividend)

Might that payout be because of the Juul acquisition?

No. This is cash from operating activities compared with cash used in payment of dividend.
Acquisitions are not part of operating activities, instead they are reported under cash from investing activities.

So I'm looking at Morningstar. TTM numbers say free cash flow is 6.688B USD, dividend was 5.831B USD. That is an 87% payout ratio, quite normal for this company as I see it.

[crimsonghost747]

(09-26-2019, 03:13 AM)Binary Wrote:

(09-25-2019, 02:22 PM)crimsonghost747 Wrote:

(09-25-2019, 01:47 PM)Binary Wrote:

(09-25-2019, 01:07 PM)crimsonghost747 Wrote: The bigger issue than div to EPS is the cash flow payout ratio. Last I checked it was significantly over 100%, maybe around 125%, for the first half of this year. That is obviously not sustainable, and while for a short term it will be ok, they have to turn it around sooner rather than later. I wouldn't be surprised to see a large dividend cut coming in the next few years. (and I do not consider that a bad thing, sometimes the company needs to focus on things other than the dividend)

Might that payout be because of the Juul acquisition?

No. This is cash from operating activities compared with cash used in payment of dividend.
Acquisitions are not part of operating activities, instead they are reported under cash from investing activities.

So I'm looking at Morningstar. TTM numbers say free cash flow is 6.688B USD, dividend was 5.831B USD. That is an 87% payout ratio, quite normal for this company as I see it.

Yeah I guess it depends on how you look at it.
I'm looking at the first 6 months of 2019. Cash from operations 2.4 billion, dividends paid 3 billion.

Looking at the 5 year cash from operations data, I would guess there is some sort of a non-recurring inflow that has happened in 2018 as it's significantly higher than any of the previous years and looks to be significantly higher than 2019.

[kblake]

In regards to MO

They invested in JUUL which isn't even FDA approved. Right there is a red flag. I wont touch this stock.

At least with PM they have a product in place called IQOS. This has big potential now that JUUL will most likely be banned unless used as a prescription. .

MO has nothing left. Slowing cigarette sales and a bad investment in JUUL and CRON as a wait and see. The dividend could be cut as well. I see another KHC on our hands.

[fenders53]

(09-26-2019, 09:27 AM)kblake Wrote: In regards to MO

They invested in JUUL which isn't even FDA approved. Right there is a red flag. I wont touch this stock.

At least with PM they have a product in place called IQOS. This has big potential now that JUUL will most likely be banned unless used as a prescription. .

MO has nothing left. Slowing cigarette sales and a bad investment in JUUL and CRON as a wait and see. The dividend could be cut as well. I see another KHC on our hands.

Timing of acquisitions was definitely off in retrospect, but the books say this isn't anything like KHC incompetency.  Nowhere near that yet IMO.