Off to Sea Island... AB InBev's huge earnings... Stock funds still bleeding cash... Record dividend payouts... Kudos to Curzio...
Editor's note: Our editorial team is traveling to Sea Island, Georgia today for our annual Spring Editors Conference... Each spring we gather off-site to brainstorm ways to improve our business. Expect Digests to be short this week.
We spent a lot of time discussing the merits of investing in capital-efficient businesses in last week's Digests (specifically here and here)... In particular, we highlighted quarterly earnings from some of the world's best companies, like Hershey and Coca-Cola. In each case, we showed you how these companies' strong brands allowed them to raise prices to offset inflation and improve earnings. Why do we spend so much time discussing these capital-efficient companies? We believe understanding the concept of capital efficiency is the key to getting rich in the stock market. If you invest in these companies for the long term, you will make money.
Today, we'll discuss another one of the world's best businesses (and another capital-efficient power house), Anheuser-Busch InBev.
The case for AB InBev is simple... Beer is the third-most popular drink on the planet behind tea and water. And AB InBev is the biggest beer maker in the world. The company is one of Dan's World Dominators. As Dan wrote in his May 2010 issue of Extreme Value (when he first recommended AB InBev)…
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I don't know the future of the banking system or the U.S. dollar. I don't know what the Fed will do at its next meeting. I can't tell you where interest rates will be in a year or whether the S&P 500 will be above or below its current level. Bullish as I am on gold, I can't honestly tell you where it'll be next year, either. But I'm Nostradamus when it comes to beer... |
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People the world over will drink plenty of beer next year, next decade, and next century. It'll remain the most popular of all alcoholic beverages for a long, long time. I'm certain of it. Value investors aren't supposed to make predictions, but I'm willing to stake my reputation on this one: People will not stop drinking beer, no matter what happens in the next 12 months. |
In the first quarter of 2012, a full two years since Dan's prediction, AB InBev shipped 1.8% more beverages around the world. The volume of U.S. beer sales grew 1% compared with the first quarter of last year. Global sales volume for Budweiser, one of AB InBev's three flagship brands (the others are Stella Artois and Beck's), increased 7.3% for the quarter. Earnings increased to $1.69 billion from $964 million a year earlier. And revenue increased to $9.33 billion from $9 billion.
The company's cost of sales per hectoliter (100 liters or 26.42 gallons) increased 2.8% in the quarter due largely to higher commodity costs (costs increased 1.6% in 2011). But the company was able to offset that increase by raising its prices in the fourth quarter of 2011. (The company did not disclose how much it raised prices.)
A side note from the quarterly release... AB InBev launched Bud Light Platinum at the end of January. (You may remember the commercial from the Super Bowl.) The company said the new beer "has proven to be the most successful brand launch in the U.S. alcohol industry since 2005." In just four weeks through April 1, 2012, Bud Light Platinum had captured a 1.4% share of the U.S. beer market.
Contrarians take note... With interest rates at record lows and dividend payments at record highs (more on this in a bit), investors continue pulling money from stock funds... In April alone, global investors have withdrawn a net $18.6 billion from stock funds, as of April 25 – the most in any April in at least 17 years, according to data from EPFR Global, a Massachusetts-based research firm.
Investors started taking cash out of stock funds during the crisis in 2008. Even though stocks have doubled since bottoming in March 2009, the money is still leaving. U.S. stock mutual funds had withdrawals of $121 billion in the 12 months ending March 31, according to mutual-fund research firm Morningstar. Bond funds attracted $191 billion over the same time period. We'll give these folks their record-low yields. Our money is sticking with large U.S. companies paying huge and growing dividends...
Aggregate dividend payouts for S&P 500 companies are on pace to hit a record this year. And more companies in the benchmark stock index are paying dividends than at any time since the beginning of 2000. From the Wall Street Journal…
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Following 22 dividend initiations last year and eight so far this year, 401 of the S&P 500 now pay dividends... In 1977, the earliest year for which [S&P] provided data, 473 of the 500 paid dividends, a number that fell to as low as 351 in 2001 and 2002. |
Howard Silverblatt, senior index analyst at Standard & Poor's Index Services, projects companies will spend at least $279 billion this year on dividends, up almost 16% from $241 billion in 2011 and 12.5% more than the previous record of $248 billion in 2008.
After increasing its dividend 21.3% last Wednesday, ExxonMobil is the top dividend-payer in the S&P 500 (in terms of total dollar-figure paid) with a $10.75 billion annual payout. AT&T is next with $10.44 billion. And even though Apple is a dividend "baby" – it just initiated a $2.65 quarterly dividend last month – the computer and consumer electronics giant is in third place with $9.9 billion.
If you want to stock your portfolio with high-quality companies that pay rich dividends (one of the only places we can find safe income these days), you need to read Dan's 12% Letter. His list of World Dominating Dividend Growers (WDDGs) is the perfect place to start building your income portfolio. Dan's latest pick, another WDDG, pays nearly 4%. And it's the leading company in its sector. Dan thinks you can make 32% a year with this stock. To sign up for The 12% Letter and start collecting huge income, click here...
New 52-week highs (as of 4/27/12): Gold Standard Ventures Corp (GV.V), iShares Dow Jones U.S. Home Construction Fund (ITB), PowerShares Buyback Achievers Fund (PKW), V.F. Corp. (VFC), Coca-Cola (KO), Abbott Laboratories (ABT), Hershey (HSY), Chart Industries (GTLS), Texas Pacific Land Trust (TPL), Altria Group (MO), Philip Morris International (PM), Tetra Tech (TTEK), and Teekay LNG Partners (TGP).
In today's mailbag… kudos to Frank Curzio for the hard work he's doing for Phase 1 readers... Which editors have made you money lately? Send your feedback to feedback@stansberryresearch.com.
"I have been a member of Phase 1 for a number of years and it has been very profitable for me. I have had Lupus for a few years and get infusions every six weeks. I purchased 2000 shares of HGSI when I first read the letter. A week later when I talked to my Specialist and asked him about it, he informed me that he worked on Wall Street but quit as they were idiots. He would not touch that recommendation. He said that drug is only useful for skin and liver and he didn't think he would ever use it. I didn't tell him I already bought in but now I will be glad to tell him it nearly doubled in three days.
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Regards,
Sean Goldsmith
New York, New York
April 30, 2012