Follow the dividend investment decisions of a person who has no background in financial investment and wishes to take control of their financial future.

Linear Technologies (LLTC) - 31 Mar 2016 23:52

Tags: adi lltc stock_review_2016

At one time in our past we lived in a simple analog world and were content. Yet, over the last 25 years digital technologies have accelerated so much that the digital world is now an integral part of our daily lives and it is hard to imagine life without these new features.

As the world becomes more dependent on digital technology, the technology that converts analog to digital and back to analog will become a necessary staple in our everyday lives. These pieces of technology are far from being the hippest, coolest, or cutting edge technology but they are necessary and companies, such as Analog Devices (ADI), that have latched onto this market are becoming dividend growth cash cows in a growing market.

Another company that operates in this market is Linear Technologies (LLTC). LLTC currently trades just above $44 with a 2.85% dividend and has been a dividend grower for 23 years:

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Being in a growth market with an attractive dividend and significant historical growth may sound like a reasonable investment but deeper digging is required to determine if the dividend and growth rates are sustainable.

Note: The following financial analysis is based on LLTC’s 2015 annual report is compared & contrasted to their primary competitor Analog Devices (ADI) 2015 annual report.

Liquidity

LLTC ADI Advantage
Current Ratio 8.66 3.66 LLTC
Quick Ratio 7.55 3.14 LLTC
Days to Collect Receivables 44.29 49.62 LLTC
Days to Sell Inventory 102.32 127.87 LLTC
Liquid Current Assets $1.38B $3.49B ADI
Long Term Debt none $498M LLTC

Both LLTC and ADI have very strong balance sheets with lots of cash & short term investments on hand to easily handle liabilities and debt but overall LLTC has the advantage.

Profitability

LLTC ADI Advantage
3 yr Revenue Growth Rate 7.28% 14.33% ADI
Operating Expense Ratio 30% 42% LLTC
Net Income as a % of Sales 35% 20% LLTC
Return on Assets 28% 10% LLTC

Both LLTC and ADI are seeing significant revenue growth and manage costs to generate net income extremely well. But LLTC is slightly more efficient and has the advantage.

Credit Risk

LLTC ADI Advantage
Debt Ratio 0.16 0.26 LLTC
Interest Rate Coverage Ratio no debt 0.76 LLTC

Wow, both companies have little exposure to debt! LLTC with no long term debt tilts in their favor.

Future Growth

LLTC ADI Advantage
Capex to Depreciation Ratio 1.17 1.18 ADI
R&D Investment $267M $637M ADI

ADI has a clear advantage and explains why they have had the better growth rate in revenue. LLTC in previous years was spending much less than shown above but have recently dramatically increased spending. In the most recent quarter, LLTC announced an expansion of their Singapore facilities that will double their volume. With ever growing digital devices LLTC needs to follow ADI’s example with a consistent investment but the downside will be a drag on profitability & free cash so they need to find the right balance.

Shareholder Value

LLTC ADI Advantage
P/E Ratio 20 25 LLTC
Book Value per Share $6.44 $15.98 ADI
Dividend Yield 2.85% 2.83% ADI

LLTC’s 5 year P/E average is 20 so its current share price is in-line with historical share price. ADI’s 5 year P/E average is 21 so it is slightly overvalued to current prices but does have a more favorable book value.

Conclusion

LLTC is a solidly run company with great operating margins and no debt. Their dividend and future dividend growth are on solid ground and I’m expecting a growth rate from 7 to 8% annually going forward. A fair share price is $45 and anything below $43 would be a bargain. Their overall financials compare well to their biggest competitor and I do slightly favor LLTC due to operating margins but I would not be shy to buy ADI if the share price drops below $55 a share. - Comments: 0

Another Step Towards 2016 Goals - 24 Mar 2016 23:23

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My goals this year are pretty lofty and the only way to get their is to climb one step at a time.

Of my six goals there was one I had yet to start and as of this week I can change its status to working! I finally opened a Roth IRA with a $100 contribution. It is a pretty small step but important to get where I want to be.

My long term saving goal for the last 20 years has prioritized saving & investing in a taxable account first to account for any curveballs life may throw at me in pre-retirement and to save in a tax deferred account as my second priority.

Currently I am 48 years old and my strategy was to maintain this saving & investing approach until 50. With just two years to go until 50 I'm starting to prepare the next change in my strategy to make tax free & tax deferred my number 1 priority and investing in my taxable account my number 2 priority. With a Roth IRA & 401K in place I am now in position to make the flip at age 50. - Comments: 1

Weekly S&P Performance - 20 Mar 2016 12:40

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For the week, the S&P sectors continued to make gains extending its rally. A good sign was seeing industrials lead the way which may be an indicator that this rally still has gas in the tank but I would still be cautious until the financials sector starts to make better gains.

Year to date, the utilities sector has added to its astounding return reaching 12.4%. This sector is definitely in the overbought and I would caution anyone currently considering buying utility stocks.

This 5 week market rally has allowed to the market to recover all of its losses and is making your portfolio value look healthy once again (assuming you did not panic sell). Unfortunately for dividend growth investors the easy value buys have passed and to find opportunities you will have to rollup your sleeves and work a little harder to find investments that offer an attractive yield and growth rate.

Personally, this rally has slowed down my purchases. Starting in mid January I have bought at least 1 holding every week and this is the first week since that I did not buy or reinvest into a single position. It is not that there are not bargains out there, it is just that the ones that are there I am fully invested in and adding more shares would disrupt my portfolio diversification.

S&P Weekly Sector Perf S&P YTD Sector Perf
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Starting To Eliminate My Debt - 18 Mar 2016 22:46

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Getting out of debt is an incredibly hard task! If you think it is easy do not kid yourself. It is a constant uphill battle and unfortunately some never actually climb the hill to success and end up in bankruptcy.

Getting behind in debt can come in many forms. Do not be condescending by assuming everyone is in debt because of bad spending habits. Yes bad spending habits is one of the reasons but the more likely cause of debt is when a tragedy occurs like loss of a job or serious medical issues.

Debt can also be very tricky and unrelenting by slowly creeping up on you year after year and before you know it you find yourself in a tough situation. Imagine you have a small leak in your boat and you can only scoop out a gallon at a time. As you remove 1 gallon of water there is 1.1 gallons of water seeping in. At first that small 0.1 gallons of leftover water doesn’t concern you but over time that 0.1 quickly adds up to 10 gallons, then 100 gallons and you realize that your boat is starting to sink. This is how my family and I found ourselves in debt. The little bit of debt that I did not pay off at the end of each year quickly snowballed within 5 years.

The hardest part of understanding my debt was figuring out how we got there. For the most part we live fairly modest and some would even call it frugal. I never lost my job, had serious medical issues, or went out and bought big ticket items. Somehow I went from manageable debt to being behind the 8 ball but it wasn’t due to spending habits or tragedy.

Bad Timing

What has actually occurred with my debt was a convergence of several expenses all at once. From 2010 to 2016 my paycheck was going up marginally year to year but expenses, taxes and health insurance increased at a much faster rate.

Also in 2010 my home was 14 years old, many of the upgrades I made to the home those many years ago when I first bought the house started to fail and needed to be replaced. From 2010 to 2016 I was replacing at least 1 major appliance per year, it wasn’t overly expensive but the effects were cumulative. Currently my home is 20 years old so I should start to see more expensive structural repairs (like a new roof).

Finally, the last piece during this time period were my 3 children growing into teenagers. Anyone that has teens is well aware that they are more expensive. My kids have extremely high metabolisms and while having fit healthy kids is a great thing they also eat more to feed that high metabolism. My oh my can they ever eat. Also let us not forget education needs. Class trips and specials are bigger and more expensive, supplies and equipment aren’t cheap (ever buy a Ti calc for math?), and of course there is college with SAT’s, applications, and prep classes.

Mind you I am not blaming my children it just happens to that their needs happened to coincide with the other two factors and before I knew it I was in debt. The best adage that describes this situation is “death by a thousand paper cuts”.

Time to Start Digging Out

When a family needs to dig itself out of debt the hardest part is getting every single family member on board and not just Mom & Dad. The best way I got the message across was pulling all of the debt together and calculating how much in interest we were paying daily.

Sitting with my wife and children I showed them the debt but what caught their attention was how much interest we were paying daily which was $4.83 per day! That is like taking a $5 bill out of your wallet every single day and throwing it in the garbage can! Our goal for this year was to reduce our debt by 20% but I was shocked when everyone agreed to beat that and better yet to wipe out all debt in 3 years. Going forward I will sit with my family once a month and update how much we are paying in interest per day so we can see the progress. This might not sound like much but for me to see 5 people all on the same page is a huge first step. - Comments: 1

Weekly S&P Performance - 13 Mar 2016 15:28

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For the week all S&P sectors saw gains making this the fourth straight week of overall market gains with Energy & Utilities leading the way again.

Year to date, the utilities sector has jumped to a phenomenal 11.3% return. If you add in dividends, utility investors are looking at a total return of 14 to 15%. With utilities and consumer staples still leading the S&P YTD performance it makes me wonder if this is an energy speculative rally as we are still seeing money (outside of energy) still rotating into defensive stocks.

S&P Weekly Sector Perf S&P YTD Sector Perf
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New Buy HPT - 10 Mar 2016 17:40

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Market has been pricing up higher which in turn has slowed down my new buys. I have 13 buy orders in since Monday and today finally one of the orders filled; 200 shares of Hospitality Properties Trust (HPT) at $25.

HPT is a REIT specializing in Hotels and HPT is my last REIT purchase as it rounds out my REIT portfolio diversification. To date my REIT diversification now encompasses Health Care, Apartment, Commercial, Industrial, Retail, and Hotel properties. - Comments: 0

Weekly S&P Performance - 06 Mar 2016 12:14

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For the week all S&P sectors saw gains but I would add this was the strongest weekly performance for the year. How strong? Strong enough to bring 5 sectors into positive territory YTD versus only 2 sectors last week.

Anyone that has been using this time for bargain hunting is having this window rapidly close. Could this be the start of the go away in May philosophy?

S&P Weekly Sector Perf S&P YTD Sector Perf
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Small Steps Lead to Success for 2016 Goals - 05 Mar 2016 13:01

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My goals this year are pretty lofty and the only way to get their is to climb one step at a time. This week I took a couple more steps.

1. Transitioning my old 401K – The remainder of my 401K assets finally arrived into my IRA. Starting the transition to a dividend growth portfolio is now all on me and how I invest. I will spend the weekend determining which assets to buy and will place all my limit orders on Monday. I am well aware of the recent market increase and expect most orders to go unfilled in the early stage.

2. Fund 100% of daughter's first year of college – We received confirmation in the middle of the week that my daughter received a second scholarship of $7500. This latest scholarship equates to 80% of tuition costs being covered. The remaining 20% I already have covered so I have completed my first 2016 goal!

Of course we won't stop there. I made a deal with my daughter that for every additional scholarship she receives I'll give her the equivalent in cash that I would have paid. This should help with non-school items like gas & maintenance for the car as she will be commuting to school. - Comments: 2

New Buy GSK - 04 Mar 2016 18:36

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Market has been steadily going up for the last week and a lot of the bargains have disappeared but I still need some positions to diversify.

An area I have been woefully lacking in was healthcare of which I targeted Johnson & Johnson (JNJ) and GlaxoSmithKline (GSK). Luckily GSK dropped and triggered my limit order that allowed me to get 150 shares of GSK @ $38.90. Hopefully JNJ will trigger my limit order of $100 in the next couple of months and this should complete the buys I was looking for in this sector.

After healthcare the only sector I have left to diversify is Utilities. But they have had such a run-up this year I just feel that I'm overpaying for a slow growth sector. - Comments: 3


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