Recent Buy for April 12
I wanted to let you know that I added to another existing position. This is a dividend king with a 60 year track record of consecutive annual dividend increases, which sells for 15.60 times forward earnings and yields 2.75%. I expect a modest dividend increase sometime this month as well. Initially, I thought of holding on to adding money to position until the dividend increases, but I decided to buy it anyway. I would likely exhaust my investable funds by the end of April, and won't be able to add to it until May.
I believe the valuation is good, albeit there are some unknowns.
The company is in the process of spinning off one of its divisions, and there isn't a lot of guidance as to what the dividend plans for each company is going to be. I would likely take a wait and see approach, holding on to both for a few months after the spin-offs. Typically, companies with a long history of a dividend raising culture would end up splitting the dividend between the two new companies. The total dividend would be the same as pre-split - the only difference is that it would be paid from two companies, rather than one. Sometimes it does not work out that way however. Hence, the wait and see approach.
There have been some lawsuits on the horizon related to talc in baby powder. There has been some uncertainty as to whether the company would be able to shed some of this liability by placing them in a special legal entity. If that separate legal entity files for chapter 11 in a certain jurisdiction, that could potentially shield the whole company from legal liability. However, some courts have disagreed with this approach, which increases uncertainty. As we all know, markets hate uncertainty. This is one reason why the stock has gone down in price. Recently there has been some upbeat expectations that the company would be able to execute on this shielding maneuver, and place the liabilities from those lawsuits in a separate legal entity, which would then go bankrupt in Chapter 11 and thus shield the whole company from those lawsuits. I am not a lawyer, and simply trying to describe my understanding of the situation. It sounds hairy, which probably expects the valuation discount we are having today. If those lawsuits are not contained, then the valuation would turn out to be a value trap. If they are contained, then the equity may turn out to be a good value today, particularly for a long-term investor who buys and holds, while enjoying a rising stream of dividends for years down the road.
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