• Introduction: The Dividend Disparity
  • Crash Cushions
  • Fundamentals
  • Conclusions & Exhibit

Introduction: The Dividend Disparity

These are heady days for the beneficiaries of central bank infusions, government stimulus, and the high hopes of a growing legion of day-traders. For certain firms, no valuation is too high, no future forecast of cash-flows is too distant, and capital appreciation is the name of the game. Numerous readers with market-beating track records have reported various stories about the sudden and unexpected investing prowess of their recently Robin-Hood enabled children. Kailash believes that the old-fashioned business of making money buying profitable firms at reasonable prices will eventually reassert its primacy over the frenetic trading gains making headlines today.

By using simple criteria, this paper seeks to show that the exuberance in certain stocks and sectors today is creating remarkable opportunities that eclipse those seen at the peak of the internet bubble. The intersection of a decade of near-zero rates with a global health pandemic has both revealed and accelerated well documented fiscal malfeasance among many American corporations. As seen here, data from the St. Louis Fed shows that non-financial corporate debt relative to GDP has soared to new highs. An investigation by Forbes published in May noted that over the decade, 455 non-financial companies in the S&P500 added some $2.5 trillion in debt to their balance sheets. The article notes that “In the last two months alone no fewer than 392 companies have issued $617 billion in bonds and notes, piling on still more debt that they may not be able to pay back.”1

For those interested in finding firms with terrific businesses backing material cash yields with robust balance sheets, Kailash would like to highlight an anomaly available in US equity markets today. Using the stringent criteria described in our recent work on Dividends, Kailash finds that despite today’s yield famine, the payouts offered by some of the most profitable and prudent firms are at record spreads to bond yields.

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  1. As a reminder for our Financial Advisors: our models are available on a continuous basis, and most have been in production for over a decade.  If you are looking for simple, concentrated, low turnover, and tax efficient model portfolios we would like to talk with you.  KCR also offers a wide range of easy-to-use but sophisticated tools.  Our toolkits can help identify mispriced stocks with the best and worst risk/reward characteristics, estimate a stock’s duration and warn you when a company is engaging in low-quality accounting. Over the last 12 years, KCR has built and offers time-tested and class-leading products built by experienced and proven money managers for fixed to low prices.
  2. Kailash Capital’s sister company, L2 Asset Management, runs market neutral, long/short, large-cap, and mid-cap long-only portfolios with a value and quality bias.  L2 employs a highly disciplined investment process characterized by moderate concentration, low turnover, high tax efficiency, and low fees. While nobody can predict the future, we believe the recent resurgence in risk-adjusted returns seen across all products is the beginning of what may be a long period where speculation is punished, and prudence and patience rewarded.
The topics discussed in this article are aimed at seasoned professionals, as such, we have included some extra reading for anyone seeking out more information related to the topics above.

  1. Click the following to read more about stock based compensation, best stocks to grow 

Disclaimer

The information, data, analyses, and opinions presented herein (a) do not constitute investment advice, (b) are provided solely for informational purposes and therefore are not, individually or collectively, an offer to buy or sell a security, (c) are not warranted to be correct, complete or accurate, and (d) are subject to change without notice. Kailash Capital, LLC and its affiliates (collectively, “Kailash Capital”) shall not be responsible for any trading decisions, damages or other losses resulting from, or related to, the information, data, analyses or opinions or their use. The information herein may not be reproduced or retransmitted in any manner without the prior written consent of Kailash Capital. In preparing the information, data, analyses, and opinions presented herein, Kailash Capital has obtained data, statistics, and information from sources it believes to be reliable. Kailash Capital, however, does not perform an audit or seeks independent verification of any of the data, statistics, and information it receives. Kailash Capital and its affiliates do not provide tax, legal, or accounting advice. This material has been prepared for informational purposes only and is not intended to provide, and should not be relied on for tax, legal, or accounting advice. You should consult your tax, legal, and accounting advisors before engaging in any transaction. © 2021 Kailash Capital, LLC – All rights reserved.

Nothing herein shall limit or restrict the right of affiliates of Kailash Capital, LLC to perform investment management or advisory services for any other persons or entities. Furthermore, nothing herein shall limit or restrict affiliates of Kailash Capital, LLC from buying, selling or trading securities or other investments for their own accounts or for the accounts of their clients. Affiliates of Kailash Capital, LLC may at any time have, acquire, increase, decrease or dispose of the securities or other investments referenced in this publication. Kailash Capital, LLC shall have no obligation to recommend securities or investments in this publication as result of its affiliates’ investment activities for their own accounts or for the accounts of their clients.

July 2, 2020 |

Categories: White Papers

July 2, 2020

Categories: White Papers

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