Just a few quick thoughts this morning. First I saw where Microsoft increased their dividend 15%. Some people are pooh-poohing the increase, but if every dividend stock I owned increased their dividend fifteen percent a year, I would be skipping and singing every day.
I was adding some analyst thoughts about refineries as I own two ( Marathon ans Holly Frontier) in my dividend portfolio. There is a fair amount of debate on whether the margin refiners make are artificially high or whether this is the new normal. I really do not know, though I do know their have been other times where refiners have boom and bust cycles. But oil and gas production is really ramping up in the good old us of a, and I do not think the refinery capacity is keeping up.
Interestingly, Warren Buffett himself has been taking an increased stake in the refining business. He owns a good chunk of psx, which was spun -off from ConocoPhillips. That got me to thinking ( always dangerous) that warren Buffett has been taking larger stakes in businesses that are more capital intensive and prone to carry additional debt than he has historically (he has always preached the benefits of float and liquidity). Has he gotten soft?
Obviously not. My thought ( and surely not original) is that ( to quote Bob Dylan) "the times are a changing". With the fed creating an avalanche of liquidity (or should that be a flood?) it has become very cheap for corporations with strong balance sheets and cash flow to borrow money. So while these firms do have debt and are capital intensive, it is the point of the business cycle where Burlington northern or psx can borrow money cheaply and cate improved returns for shareholders. Very smart Mr Buffett! Well played.
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3 comments:
If you can borrow at say 2% and use that money to buy back your own stock and the stock pays a 3.5% dividend, assuming the stock price stays steady, its almost free money. Correct?
That seems true. I think that is referred to as a carry trade. Actually there is an ad on tv that regularly recommends doing that. Margin buying makes me nervous, I am the reverse and would rather have cash in fist.
I think a large part of the reason his investing style seems to have changed is that BRK has gotten so large it takes a really big acquisition to move the needle nowadays. Also, could it be the new guys, Combs and Wexler, are taking a bigger role?
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