Cabot Dividend’s “TODAY ONLY:Get My No. 1 Income Stock Free”

By Travis Johnson, Stock Gumshoe, February 5, 2015

“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.

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.


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27 Comments on "Cabot Dividend’s “TODAY ONLY:Get My No. 1 Income Stock Free”"

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joan_in_houston
Irregular
26
joan_in_houston

No serious or experienced investor is EVER going to be attracted to dramatic and self-serving headlines such as this.

Patricia
Member
686
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… Read more »
Deborah Flynn
Guest
0
Deborah Flynn

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.

Fabian
Guest
0
Fabian

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.

Dave
Guest
0
Dave

I agree about Cabot. Straight shooters.

Myron Martin
Guest
0
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… Read more »
Patricia
Member
686
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… Read more »
Patricia
Member
686

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!

mary
Irregular
678
mary

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.

Patricia
Member
686
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… Read more »
Kris Tuttle
Guest
0

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.

FcFrag
Guest
0
FcFrag

Omnicom is one of the stocks in the AAII Dividend Investing portfolio.
If it ever gets reasonably cheap I’m in – but not now.

Joan White
Guest
0
Joan White

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.

john
Guest
0
john

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

vivian lewis
Guest
0
vivian lewis

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.

Ed Doan
Guest
0
Ed Doan
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… Read more »
Georgie
Guest
0
Georgie

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

Patricia
Member
686

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?

arch1
Irregular
7417
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… Read more »
Patricia
Member
686

Hi Frank – I love this one, you had me at “false teeth” but then it got even better!

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