Question:
Would Waste Management Inc. (NYSE: WM) be a good choice for a dividend income stock? Also, what are your opinions on Vulcan Materials Co. (NYSE: VMC) and Nucor Corp. (NYSE: NUE)?
Answer:
Waste Management is not the same company it used to be. It had terrible troubles a while back, but it has come around. The company provides waste management services including collection, transfer, recycling, resource recovery and disposal services, and operates waste-to-energy facilities. The company’s debt-to-capitalization is high at 52%, but they pay a 3.5% dividend that seems to be covered by cash flow by two to three times. The stock’s P/E is 17.89, which is expensive in our opinion. Their future focus is on recycling and energy production from methane gas, so the company looks to be doing pretty well in these niche areas. We think it will continue to do well, but they will be affected by commodity prices in the market.
Nucor Corp manufactures steel products. They have a pretty big market share, but the steel industry has been through a huge recession and pricing power has been non existent. The two largest markets for steel products in the United States are the automobile and construction industries. The company also has some international competition. The stock pays a 3.7% dividend yield and their margins have fallen. We would be hesitant to buy the stock, but if you own it we suggest holding. As the construction industries recuperate, this stock should as well.
We like Vulcan Materials, but it fell out of our financial strength criteria. The company provides construction aggregates—basically they turn big rocks into little rocks. With its ties to the construction industry, we think that the infrastructure projects in the nation will be a boon to the company. They have 35-years worth of supply. Additionally, 74% of the population growth in the nation is in states where they have plants. The company’s revenue mix is split evenly between public and private sector construction, making for an attractive mix. We like Vulcan Materials and wish we could own them.
Question:
In the late 1990s into early 2000s, Ireland was used as an example of stupendous growth because of their economic policies of low taxes. Now their debt is projected to be 23% of their gross domestic product? What happened?
Answer:
True, for a long time, Ireland had the largest and fastest growing GDPs in the world. They were technologically advanced and exported the most software for several years. In 2009 they were the biggest source of U.S. foreign direct investment, totaling more than Brazil, Russia, India and China combined.
Ireland had a huge property bubble that as a percentage of GDP was significantly larger than ours. They have had to nationalize their banks because of it. Initially it looked as if the bailout worked, but banks had hidden debt and there was a lot of speculation on agricultural land. Now, it also looks like they still need to put $30 billion more into their bailout, which is about 12% of their GDP. Ireland experienced our housing problem, but magnified again and again. Their national bailout only increased their debt. We feel it would be at least five years before their economy turns around. They have several systematic problems right now that will take time to fix. They experienced high immigration at one time, so there were a lot of residences built that are empty now. Their capacity utilization is down. In comparison, our economy is more resilient, robust and diversified than theirs. We do not think people will rush back to Ireland.
Question:
Are we going into a trade war with China?
Answer:
In a vote Wednesday, the House of Representatives gave the Obama administration expanded rights to impose tariffs on nearly all Chinese imports to the United States. Almost immediately, China devalued the Yuan.
We are not saying it is different this time. China could easily have civil unrest because the distribution of wealth between the rich and the poor is much more lopsided than ours. Financially, they are going about this differently than Japan. Keep in mind, China is also in a similar fight with Japan, the second largest economy in the world.
Financially, China is in the right for not succumbing to the pressures that we are putting on them. How can we say to them, “You better appreciate your currency,” and follow with, “Please buy our bonds.” Truth is China is our creditor.
However, there is a saying, “If you owe the bank $10,000 the bank owns you, but if you owe the bank $100 million, you own the bank.” China needs to maintain our relationship as we buy their exports. It is a conundrum.
We feel a country should not be cut off from raw supplies. No nation will benefit from a trade war. We believe it will ultimately be avoided.
Disclosures
This article is meant to provide valuable background information on particular investments, NOT a recommendation to buy. The investments referenced within this article may currently be traded by Henssler Financial. All material presented is compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed. The contents are intended for general information purposes only. Information provided should not be the sole basis in making any decisions and is not intended to replace the advice of a qualified professional, such as a tax consultant, insurance adviser or attorney. Although this material is designed to provide accurate and authoritative information with respect to the subject matter, it may not apply in all situations. Readers are urged to consult with their adviser concerning specific situations and questions. This is not to be construed as an offer to buy or sell any financial instruments. It is not our intention to state, indicate or imply in any manner that current or past results are indicative of future profitability or expectations. As with all investments, there are associated inherent risks. Please obtain and review all financial material carefully before investing. Henssler is not licensed to offer or sell insurance products, and this overview is not to be construed as an offer to purchase any insurance products.
