Description
“Free” does not necessarily mean what you think it does. Neither does “Today Only” … not if you’re wandering in woods that are infested with marketing copywriters.
In this case, “Free” means “Free with-subscription-to-my-paid-newsletter-for-$100″… and I don’t know what “Today” means, but I first saw the ad from Chloe Lutts Jensen at Cabot yesterday and, well, the “deal” is still available today. So I guess “Today” means “the day you’re looking at it, not the day I published it.”
Regardless, what we’re looking for here is the solution to the teaser they throw into the ad to pique your interest — what is their “No. 1 Income Stock”, and is it worth investing in? I can answer the first part of that, and perhaps share some opinion on the second part, we’ll just dig into the clues and get started.
(By the way, on another front from the same publisher we’ve also had a bunch of readers asking about the “Top Stock of the Month” pitch from Cabot that’s been circulating, about a leader in lithium battery technology … so, TODAY ONLY, I can share that answer with you in this FREE article… and yes, it’s the same pitch they were making back in September).
But back to our income stock — who is it? Here’s the first part of the tease:
“Rock Solid Income and Capital Growth You Can Depend On
“Over the past five years, our No. 1 pick has handed investors 20% annual average returns while also handing them a safe and sane 2.6% dividend, for a total return of 104%. As a result, a $10,000 investment here would now be worth over $20,000.
“We see these kinds of total returns continuing for the next five years.”
Pretty reasonable pitch for an income stock — doubling in five years and a current yield about 50% higher than the S&P… nothing too wild or dramatic, but enough to get your attention.
And how about some details that we can feed into the Mighty, Mighty Thinkolator to get an actual answer? Chloe obliges:
“The company has paid dividends since 1990, has never cut or suspended the dividend, and has increased the dividend every year since 2010.
“… over the past five years, the company has boosted the dividend by an average of 27% per year….
“Free cash flow per share grew 35% in 2013 and 14% in 2012, and although revenue growth has been uneven over the past year, analysts expect overall EPS growth of 9.6% this year and 9.3% next year.
“The company’s current payout ratio of 44% should provide support for continued dividend increases in at least the high single-digit percentage range going forward.”
So we can probably get a name for you from that, but given the squishiness of some of these numbers we might not be 100% right… which is why I’m so pleased that we got a few more clues:
“This $21 billion company [is]… an advertising juggernaut that’s generating $15 billion in annual sales and is growing its quarterly earnings at an incredible 24%!”
Which is enough, for sure, to give us certainty that the Thinkolator’s answer is correct: This is Omnicom Group (OMC), the giant advertising agency conglomerate.
Omnicom has been around for a long time, and is built on three core advertising agencies (including BBDO and DDB) who merged in the mid-1980s to form the group, which has since expanded, sucked in more agencies and services, and is now second in size only to WPP (though Publicis and the Interpublic Group are also very large competitors — Omnicom and Publicis tried to merge last year, but it fell through).
They have indeed raised the dividend very aggressively in recent years on the back of strong earnings growth, helping the stock to double in the last five years and maintain, yes, a pretty healthy payout ratio (it is in the 40-50% range, where it has mostly been since they resumed dividend growth in 2010).
They actually paid dividends before 1990, too, according to their financials, but they were paltry — they raised it a few times over the years, but not routinely every year as so many companies like to do (and as so many dividend growth investors like to see), until 2010 when they started bumping it more sharply as we emerged from the financial crisis… the payout was 60 cents a year in 2009, before the hiking began, and is at $2 a year now and will likely, it seems, be lifted again at some point in the next couple quarters. Likewise, the trailing earnings per share has gone from about $2.50 four years ago to $4.20 today.
The 1990s were spectacular for Omnicom as it grew during the heady internet days, but more recently, for the last 15 years or so, it has more or less done as well as the S&P 500 — though with a lot more volatility — and, as with the S&P, close to half of that performance has come from dividends. So it might not sound like a staid, stable stock, and it’s certainly had some wild moves over the years, but over time it’s done as well as the market and, usually, slightly better. Free cash flow is not terribly impressive over time, so I’m not sure why they focused on that in the ad — free cash flow per share for Omnicom is about the same as it was five and ten years ago — but earnings growth has been good, so that has continued to drive the stock higher.
I don’t know a lot about the dynamics in this industry (For whatever reason I’ve found it more appealing to own the ad networks, like Google and Facebook, rather than the ad services agencies like WPP, IPG or OMC), but it is interesting that Interpublic (IPG), which is about half the size, has a considerably lower return on equity and a similar dividend payout ratio and yield, but has much higher earnings growth last quarter and trades at a PE of 25, versus 18 for OMC. Both are growing, IPG much less steadily but (on average) faster.
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I haven’t read up on the current prospects for any of the big advertising/PR/marketing services agencies, but they are generally economically sensitive so they’ve all done pretty well over the past five years (and badly for stretches before that, like in 2008-2009 and the early 2000s), and the best of them have all combined into the current four big holding companies who seem pretty set now — after Omnicom/Publicis failed last year, it’s a little hard to imagine any of the other goliaths merging.
They’re profitable, they pay a decent and growing dividend, they’re likely to continue to be quite cyclical, and they aren’t cheap at current prices — kind of sounds similar to lots of other stocks you’re looking at, I’m guessing. If Omnicom appeals to you, or if you delight in Interpublic or WPP or any of the others (or Facebook or Google or Twitter, for that matter), or think they all stink, let us know why with a comment below.
No serious or experienced investor is EVER going to be attracted to dramatic and self-serving headlines such as this.
Not sure that’s who they’re looking for 🙂
Anyone dumb enough to gove the $100 for that get rich quick mentality beginner?
That’s true, but what about the completely inexperienced investor? Many can’t recognize hype at all, and for those of us who always could, there is still sometimes a little curiosity. The thought that first led me to Gumshoe was this: “If this stock eventually returns even a small percentage of what is being claimed, it would be worthwhile, I wonder if there’s any way to find out what it is and get an honest analysis …”
I wonder how much money Travis & Dr. KSS have saved people over the years who might otherwise have taken a chance on the hype and the outright scams. So, people might come here for the solution to a specific mystery, but then they stay for the solid value investing advice, the humor, and the fun of seeing the scammers taken down on a regular basis. Not to mention that sometimes the stock being touted really is a very good one. I’ve done very well swing trading UEC, without worrying about my money being stranded if it stays down for a while – all the data I’ve seen indicates it’s headed way up in the long run.
I totally agree. They make me laugh then I hit travis. Why pay for silly advice when the best is knowing what they are teasing and deciding for yourself.
Omnicom, that’s it. And I’m a subscriber and I think it’s a good letter. It’s well diversified, no shills and frills. And Cabot is the only publisher I know of that doesn’t automatically renew your subscription for your convenience only, of course. The current yield on cost of all recos is 3.8%, so it’s conservative.
I agree about Cabot. Straight shooters.
Patricia is right on the money. Identifying stocks that have good management, are well financed and good long term prospects and buying them when they are unloved, unwanted and CHEAP is a prime way to do well in the market. A recent example I can cite is a stock I made a lot of money on in 09-10 (in fact a 10 bagger) I sold near the top @ over $20.
I bought it again the end of Dec. @ $5.45 (major sell off of precious metals) and within 3 weeks it was over $8.00. Another smack down sent it back down to just over $6. so certainly it was a good candidate for swing trading, the risk you take is if you sell successfully at an interim high and are betting on a pullback to buy back in, one of these times it will just keep on running when the sector comes back into favour. That being said, anytime you can make $2.00 per share in a month after trading expenses is a great experience.
Regardless, this a great company with inspired leadership, (Keith Neumeyer) leading a solid company with great assets I predict will be back over $20. within 2 years. If you have the smarts to “swing trade” stocks like this, go for it, but with a solid company like this you can do well with “buy and hold” as well.
Hi Myron, I’ve been hungry for you to show up and offer info like this!! This weekend I was going to post a discuss topic titled “Swing trading with a golden safety net.” About exactly what you’re talking about. But I’m a newbie unlikely to get much response or participation. Are you feeling well enough to start a new thread based on your post here? I know there are others like me who would love that, because we see that quality mining stocks and precious metal funds are a great place to be right now due to economic conditions and likely trends.
Myron: I feel like an idiot. I didn’t know you have your own website, only just noticed/discovered that a highlighted name is a link. However, I can’t tell at all how long it’s been since you updated it. Are the listed core holdings current? I remember seeing a post that you’d had health issues recently and that’s why you hadn’t been commenting on this site. So please let me know if your own site is out of date so I can keep that in mind as I read through it – thanks!
Patricia, I am interested in your column….will be looking for it. I’ll be working this weekend but will check Monday am and see if you went ahead with your idea.
Mary, I’m putting this off until next weekend, had a death in the family. The only reason I checked this site at all the last couple of days was to see if Myron responded to me here… I’m concerned, financially, about the family this man (my half-brother) left behind – he passed away too young. So my interest in good investments is made more urgent, not suspended, by the loss. I’ll still be making a couple of trades in the coming week but since Myron’s not around, I won’t be looking in again here until next weekend.
I guess he is having health issues and will not be starting the thread himself as I’d hoped – plus he specializes in junior mining stocks which can be very risky and have not done well the last few years overall, so require a lot of analytic expertise I don’t have. I’ve been swing trading stocks and ETFs that look very solid long term to me: pretty much everything in the Sprott “family” like SGDM, PSLV, PHYS, SCPZF, SPOXF. Also solid uranium stocks like UEC and URA – I’m convinced that uranium will pull out of its bottom this or next year and then do very well. For geopolitical reasons, I think the energy independence that nuclear power allows will eventually trump concerns over safety issues – plus incredible advances have been made in that regard, new technology has made the new plants very safe and that will only continue to improve.
The basis for my thinking (and Myron’s – check his website) though is that we are headed for some very bad economic times due to massive public and private debt, and the terrible fiscal and monetary policies which they keep doubling down on. Huge defaults are coming, including what will be either the sudden, or very gradual, default of U.S. debt via inflation (which is always the main reason central banks try to brainwash the public into thinking some inflation is a good thing). So if we do start up a discussion thread on this the participation will probably be very limited because most of the “gummies” don’t seem very interested in discussing these possibilities. The folks on the biotech thread are brilliant, but being brilliant in your field or being a brilliant investor, while paying little attention to global economics, makes no sense to me. It’s a little like counting cards in a casino while ignoring tornado warnings in the area – you know you have the skill to win big. But you’d better have somewhere ready to get to in case that tornado hits your casino – either directly and violently, or more slowly as a levee failure a la Katrina. I think always keeping a percentage of your money in precious metals (at least 10%) keeps you on higher, safer ground.
It’s not very exciting but my friends and I all added some BP to our IRAs a few weeks back for the circa 6% yield and an eventual stabilization/rebound in energy prices. So far so good.
Omnicom is one of the stocks in the AAII Dividend Investing portfolio.
If it ever gets reasonably cheap I’m in – but not now.
And they will give a prompt (circa one week to ten daze) refund when a subscriber does not care for what he/she has purchased.
Why would I buy a $75 stock not really going up much down the road with a 2.5% Div..
It’s a solid CO. but there are so many lower stocks with higher Dividends and more growth
actually I and many newsletters trade with the lutz group because they publish notes about our picks. Of course it is grubby but it is also free. they read us; we read them. having said that I suppose I am prejudiced but they are far from as nasty about signing you up, giving refunds, and renewing only when given permission compared to others. I think that means they are aiming at a more sophisticated subscriber who is also a more sophisticated investor.
Hmmm, they all stink. I am sure somebody made money on them, but I have an issue about investing in companies that don’t really make anything or have a real product. Facebook and twitter are fads and will be replaced by something else that social network addicts will quickly adopt as the new thing. The ad business in general is fickle and we are besieged with ads now from everywhere so are somewhat forced to ignore them. Of course the are other mysteries like Amazon that has appreciated like a rocket and never made a dime. I would put a very small stop on it if I owned it., but that’s just me. Solid companies that pay dividends miss an earning forcast by a penny or two are punished immediately. I seems that if you don’t expect a profit in the first place it works to your benefit. At least the one promoted makes a profit and pays a dividend, which is a positive, but it still has no real product. I am probably a lone cry in the wilderness, but for what was spent on ads in the Superbowl, I thought the majority were lame or even worse than not advertising at all. If that is the future of the ad community, I would sell anything involved in it immediately. I fear bitcoins might be a better long term bet than your ad company question. Maybe that’s the real problem. Nobody wants a boring stock that does well over time, but they look for a quick appreciating stock and the odds are against them. You would have far better luck at a casino. The long term investor in solid companies will beat finding the next super star every time, but investors seem to want it now and have no patience to wait. I really enjoy your site and maybe you are trying to teach people that there isn’t a golden goose suddenly found by a group and ignored by rest of the world. Keep up the good work.
Ed
I don’t know how you define a “product”, but that position will have you missing out on a lot of stocks whose primary business is in services (not just marketing and advertising, of course, many people in the broad “services” category sell a more discrete and arguably more physical “service” even if they don’t make something). Services account for at least 2/3 of the economy in most developed countries, something like 80% in the US.
Dividends – LINN
Hey, Travis, I really enjoy all of your articles, so please don’t take my comments as a slam. I still believe that one of our problems today is that we have become a service economy rather than a manufacturing economy. I guess I define products as something farmed, mined, or manufactured from parts. I don’t consider retail as a product as they only sell other peoples products and that sector is in trouble. I think the only service stock I own is STB, a student transportation bus company just because they have a somewhat captive market that is unlikely to suddenly become unnecessary. My comment was really on social media and things that only get revenue from ads and the add industry in general. I don’t see how it is possible to compare those companies with anyone as they are relatively new and subject to the whims of the younger generation that drops a fad and adopts another one at a moments notice. My personal feeling is that ads have now saturated their market and we have learned to tune them out or ignore them. I am now 70 and can remember when ads were a necessary evil in early TV and radio and quite infrequent from todays standards. I am an EE with a lifetime career in computers or parts thereof and find the use of them today somewhat sad. Meaningful social interaction is best face to face and not tweeting to the person next to you. You founded your site because of the teases by financial services and how little they really do for an investor even if we pay for the service and it is fun to read each week. ED
Who is this “Patricia”? …Trying to muscle in and usurp Travis.?
Her comments on a daily basis is getting quite annoying and really long winded and boring to read on a regular basis. Travis has a brilliant service …just leave him to give us accurate and precise info. on the requested Topics……please
I like seeing the comments from lots of different readers, as long as they’re not offensive. Patricia’s welcome to share her thoughts, as are you. Most people don’t read the comments on any of our articles, but I think those who do often get a richer experience.
I Love Gumshoe, and also get a lot from the comments. If I don’t want to read it, I don’t. Thanks Travis for keeping the comments.
Georgie, thanks for a much needed laugh. The idea that anyone could muscle in and usurp Travis even if they wanted to – ha. You do have a point in that one of my posts above looks long-winded, I guess you didn’t notice it was a direct response to Mary who was interested in my thinking, so I laid it out for her since I knew I’d be gone a little while due to that death in the family… which by the way makes the timing of your post a little questionable don’t you think?
Patricia Glad you ate back & awaiting further posts from you.
frank BTW are you knowledgeable about bar bets? here is an oldie;
Sour Sam th non smiling bartender was approached by Bet Me Bob who said.
I will bet you $10 that I can bite my right eye, Sam pulled a ten from the till and said you’re on. Bill popped out his right eye and gingerly bit it,,,,,as he popped it back in the socket he said I will bet you another 10 that I can bite my left eye,,,you saw me come in avoiding obstacles so you know I’m not blind, Sam said that sounds like a sucker bet but OK as he drew another ten. Bob took out his false teeth and softly nipped his left eye. OK ya bum you got me for half my wage tonite ,,drink up and get out he stormed.
Bob said I don’t want your money if you feel like that,,,I will give you better odds and a chance to get your money back plus extra,,, this 20 against another ten that you can put a shot glass at the end of the bar and I will spit and fill it. That was at least 20 feet away and Sam knew almost no one could spit that far and certainly not with accuracy so he says You are on and then you leave, Bet Me wallowed the tobacco around in his mouth and pursed his lips,,,spat and left a streak on the bar ending 10 feet short of glass.
Sam grabbed the money and smiled as he wiped the bar and said gotcha sucker,,,why did you make such a fool bet. Bob replied ,,,,,see those five guys scowling at that table??
I bet each of them $10 that I could spit on the bar and you would smile as you wiped it up. Moral Everyone has a gimmick,,, if you don’t let it get to you, you win.
Hi Frank – I love this one, you had me at “false teeth” but then it got even better!