US Stock Buybacks. vs. Dividends: Which One is Bigger?

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US firms are increasingly spending more of their earnings on stock buybacks than dividend payments to shareholders. One of the main reason for this is that the tax rate on capital gains is lower than that of dividends for investors. Hence investors are content with companies buying their own stock than returning cash to them as dividends.

The chart below shows the dramatic growth in buybacks over dividends in the past few decades:

Source: Six reasons you should care about share buybacks by Duncan Lamont, Schroders

From the above article:

As the chart below shows, US companies spent around $200 billion in buybacks and around $100 billion in dividends in the year to June 2018. Compare that with around $30 billion of each 20 years earlier.

Mr.Duncan makes a few other interesting observations regarding buybacks in that piece. Readers may want to review the rest of the article.

The Top 20 Global Integrated Oil and Gas Companies 2018

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Oil prices are in a downward spiral in recent weeks. Yesterday Brent fell 7.1% for January delivery and closed at $65.47 yesterday. Just a few weeks ago pundits were predicting oil may reach over $100 a barrel soon. Since then prices have dramatically plunged.

The reasons attributed to the collapse in prices are many. Some of them are:

  • Supply is still high.
  • Global Demand may decline.
  • US inventories are rising.
  • The Iran sanctions and the reduction in supply does not have a huge impact on supply as feared. This is because some countries won exemptions and will be allowed to import Iranian oil. One of the countries included in this is Greece since the basket case in Europe is home to shipping giants.
  • Trump wants lower prices so that Americans can save at the pump and feel good to spend on other things. His tweets alone scare oil producers especially Saudi Arabia and the OPEC.
  • The weekend meeting where Saudi Arabia and Russia were expected to make big announcements ended up being a dud.

As readers of this blog may remember, oil is one of the most volatile commodities in the world. It is the most traded after foreign currency trading. Nobody knows where prices are going and why. There is always some reason that can tied to the rise or decline in prices regardless of how far the relationship is.For instance, a small pipeline explosion in places like Nigeria or Colombia have caused price spikes in the past.

Though prices are falling now, oil firms are here to stay. So the integrated oil and gas companies are well worth a look now and they deserve a place in a diversified long-term portfolio. Short-term price movements should not affect long-term investments in oil and gas stocks. With that said, investors looking to research the top oil and gas stocks, can consider the firms that made it to the popular Platts 250 rankings published each year.

The Top 20 Global Integrated Oil and Gas Companies 2018 in the Platts Top 250 are shown in the table below:

Click to enlarge

Note: The Platts Rank in column #1 is the rank of the company in the Top 250 list.

Source: Platts 250 Companies

Some of the firms from the above list that trade on the US markets include Exxon Mobil Corp (XOM)
, Total SA (TOT), Chevron Corp (CVX), Eni SpA (E), Ecopetrol SA (EC), etc.

Disclosure: Long EC

Could Australia’s Luck Run Out?

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Australia is known as the lucky country. It is rich in natural resources, has a small population and has a stable democratic government. The country hasn’t had a recent in recent years. In addition, Australia have never had bank collapses like in other developed countries such as the US in recent memory. The lucky country also came off the Global Financial Crisis of 2008-09 relatively unscathed. However Australia’s may run out with a possible recession looming in the horizon.

Below is a short note on Australia’s economy at the MoneyWeek:

“The last time Australia suffered a recession, the Soviet Union still existed and the internet did not,” The Economist points out. Around 27 years of uninterrupted growth is a record for a developed country. But how much longer can the “wonder down under” last? One of the key drivers of growth was a housing bubble that allowed people to borrow against the rising value of their houses and thus spend more than their income. Throw in mortgages and household debt increased from 45% of GDP in 1996 to an eye-watering 120% at the end of last year. The housing bubble is now hissing air, which, along with overstretched household balance sheets will reduce the impetus from consumption.

Source: Chart of the week: Australia, the wonder down under, MoneyWeek

The Australian equity market is under-performing the US market so far this year. Compared to the S&P 500’s 7.40% rise in terms of price year-to-date, the Australian All Ordinaries index is down 2.5%.

It should be noted that unlike US mortgages, Australian mortgages are recourse loans meaning the lender go after the assets of a borrower. So in some ways the housing collapse may not happen like in the U.S. However heavy dependence on resource exports to China is one of the key Achilles heel of the economy. Volatile commodity markets have also adversely impacted the financial services sector. Hence investors need to be cautious of Australia in the near future.After years of avoiding recessions the country may fall into a recession.

Related ETFs:

  • iShares MSCI Australia Index Fund (EWA)

Disclosure: No Positiosn

Knowledge is Power: FIRE, US Stock Valuations, Retirement Edition

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Before the Global Financial Crisis(GFC) of 2008-09, FIRE used to mean Financial Services, Insurance and Real Estate(FIRE) to define the US economy. FIRE sectors used to the hottest to be in. Then the FIRE burned out economy. Nowdays millennials have redefined FIRE to be Financial Independence Retire Early where people extreme measures to retire as early as 30 or 40 to escape the daily grind of crazy corporate life in the US.

Butter Cow

The Lithium Triangle: Maps

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The Lithium Triangle contains over 70% of the world’s lithium reserves. The below map shows the location of this resource-rich area:

Click to enlarge

Source: gxy.com

From The Absolute Return Letter by Niels Clemen Jensen:

Lithium can be found on all continents. China has significant reserves and so does Australia, but South America holds the biggest reserves and produces the most lithium – the majority of it in an area called the Lithium Triangle, which is where Argentina, Chile and Bolivia meet (Exhibit 3). The Lithium Triangle accounts for well over 50% of global lithium production.

 

The Lithium Triangle is known for its high quality salt flats, including Bolivia’s Salar de Uyuni, Chile’s Salar de Atacama, and Argentina’s Salar de Arizaro. The Lithium Triangle is believed to contain over 75% of existing known lithium reserves with Bolivia alone accounting for about half of global reserves.

Source: The Absolute Return Letter – Nov 2018, Absolute Return Partners