The Dividend Cafe - The DC Today - Wednesday, February 15, 2023

Episode Date: February 15, 2023

Today's Link - https://bahnsen.co/3xqUhJS ASK DAVID “If valuation matters at the time of purchase, why would it not matter at the time of reinvestment of dividends from that same company purchased?” ~ Steve The simple answer is – it does, and if we felt a company’s valuation was so excessive that we didn’t want dividends reinvested in that company, why would we want to own the company at all? So the question about reinvestment always answers itself. If a dividend shouldn’t be reinvested in the company issuing it, it shouldn’t be owned at all. We apply the SAME criteria to holding a stock that we do buying it – that is, valuation sensitivity and risk/reward prudence. Now, why would we potentially reject a stock at $225/share, buy it at $150/share, and then still keep it when it is back above $200/share? Is it a matter of just liking it differently now versus when it was first at $225? Less subjectively than that, the entry yield was likely different, the free cash flow projections were likely different, the buffer of safety was different, management forecasts of dividend growth were likely different, and where the company or economic cycle stood was likely different. So criteria always include different inputs and points of emphasis and focus at different times and therefore at different prices. A company can be at 20x earnings and $100/share, and then 10x earnings and $200/share. Valuation, not price, always and forever. But along with valuation are Free Cash Flow, growth rates, dividend yield, capex expectations, and much more. Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Welcome to the DC Today, your daily market synopsis of the Dividend Cafe, brought to you every Monday through Thursday to bring you up-to-date information and perspective on financial markets. Well, hello and welcome to the Wednesday edition of DC Today. We are over the halfway point of this week, and it was another odd day in markets. I want to give you a little breakdown and a couple comments on some of the economic data that has come through. First and foremost, just in terms of what happened today in the markets, the Dow closed up 39 points, but it had been down about not quite 250. And so around halfway through the day, it sort of hit a lower point and then rebounded off of that, then kind of zigged and zagged in the last hour and a half and closed near the high of the day.

Like I said, up just about 40 points. But from its low of the day up nearly 300. The S&P was up 0.28 percent and the Nasdaq was up almost 1 percent, not quite. So continued rally and all that stuff. The 10-year, the yield went up four and a half basis points to 3.8 percent. And the top sectors today were communication services and consumer discretionary, both up exactly 1.16%. Energy was the worst performing sector, down 1.78%. Crude oil itself closed still at 78.5%. And so we're talking about down 0.7%. So in terms of some of the inputs today into markets, the retail sales were up 3% in January, far more than expected, almost double. Now, that includes things like

grocery and gas stations and whatnot. And so core retail sales, where you take out some of that food, beverage and energy, were up 1.7 percent of the month, which was still about 70 percent better than the 1 percent that had been expected. The main thing that I don't know what to say about is that department stores were exponentially higher. Their percentage month-over-month growth was massive, and I don't have the foggiest idea why that may have been. But it certainly was a very strong retail number, and some might call it a non-recessionary retail sales number. Industrial production was unchanged in January, and that's not good.

We were expecting about a 0.5% rebound, and it had been down quite a bit in the December month that reported in January. This is the January month reporting in February. And on a last three-month basis, the annualized drop in industrial production is 6%. So that's all quite sizable. Then, as I read maybe my third report on the day about this industrial production number, I see that utilities were down 9.9% on the month in January, a very disproportionate drop and well over 100% contributor to the monthly number. So then you say, OK, well, this is basically the worst month for utilities output since the Great Depression.

What's going on here? And it kind of makes the rest of the data look a lot better. And it really just has to do with there was heavy utilities output in December in what was a very cold weather month. And then January was a significantly warmer month. And there was a lot less output on the utility side of things across the country in January than there was December. Sort of an anomaly. It's not anything I would extract any economic optimism from, but it does cause us to reinterpret some of the other numbers in industrial production. Homebuilder sentiment picked up a little bit in January. It's still below the baseline 50. It's

nothing to write home about. Prospective buyer traffic remains quite low. But some of the current conditions and future outlook expectations did improve, which is positive for the homebuilders. That's kind of the summary. There's a few economic data points that came out today. Reasonably boring day in markets, but to the upside. And following up with how we responded with the consumer price index number yesterday. I think everyone kind of knows where we are in the market right now. I did get asked a question in the Ask David today that I thought is useful for better understanding on our equity process, equity management, buy and sell discipline considerations.

And so I direct you to the DCToday.com to read that. discipline considerations. And so I direct you to the dctoday.com to read that. And other than that, we will be back tomorrow with yet another DC Today. And of course, on Friday, I will have the Dividend Cafe for you with a special edition dedicated to more discussion of the state of the energy sector. Thank you for listening to, watching, and reading the DC Today. Thank you. is as to the accuracy or completeness of the data and other information, or for statements or errors contained in or omissions from the obtained data and information referenced herein. The data and information are provided as of the date referenced. Such data and information are subject to change without notice. This document was created for informational purposes only.

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