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The York Water Company: 200 Years Of Dividends, But Shares Are Expensive

York continues to be an excellent dividend payer with a great history. It recently raised its dividend by 4%. The shares look fairly expensive at these levels. In January of 2015, I originally wrote about The York Water Company (NASDAQ: YORW ). In that article, I highlighted its record setting dividend paying history as well as its more recent dividend growth history. While the company continues to be an extremely strong and reliable dividend payer, its shares are looking pricey right now. Before getting to the shares, let’s take a look at the dividend again. With its most recent raise of 4% in November, the dividend now stands at $0.622 annually. This makes the forward yield about 2.37%. This is extremely low for a utility in the first place. However, let’s give some credit where credit is due. This declaration was York’s 580th consecutive dividend declaration. Their consecutive streak of paying dividends has now hit 200 years. In the press release , the company also claims that this is believed to be the longest record of consecutive dividends in America. The streak is just downright impressive. On the other hand, “consecutive years” is a lot different than “consecutive years of growth.” But… the company has one of these streaks as well. This most recent increase bumps its current dividend growth streak to 19 years. YORW Dividend data by YCharts While the dividend growth rate has not been necessarily stellar over the past few years, it has been a lot better than nothing. The 5-year DGR is roughly 3.6%. While it has maintained this growth, it is also keeping a relatively safe payout ratio. With trailing earnings of 98 cents, the current payout ratio is about 63%. I believe considering the majority of its business is regulated and extremely defensive in nature that this is a prudent payout. While the dividend is looking solid as ever, the shares are not. Shares are up almost 35% from 52-week lows. This run up has obviously pushed the yield to a very low level historically. Its 5-year average yield is 2.84%. The point here is that while the dividend is attractive there is not a particular reason for the yield to be so low. YORW PS Ratio (TTM) data by YCharts Fundamentally, shares haven’t seen these high levels since 2006-2007. And as I said, there just doesn’t seem to be a good reason for it. Sales for 2015 are supposed to finish up 2.8% higher than last year. Next year’s sales are expected to be 3.5% higher. Earnings are expected to be up 6.4%. These aren’t bad numbers. They just aren’t all that great and certainly don’t justify such high fundamentals. Trading at roughly a little more than 26 times both trailing earnings as well as forward earnings things don’t look any better when we look at the shares from an earnings basis. This P/E is actually higher than comparable peers such as Middlesex (NASDAQ: MSEX ) and Aqua America (NYSE: WTR ) as well. Don’t get me wrong, I do believe that these water utilities should trade with a nice premium. The name of the game here is consistency. These businesses don’t falter much, even in bad times, and there are massive barriers to entry. However, I strongly believe the market has priced in too much of a premium currently and pushed these shares into overvalued territory. YORW data by YCharts In conclusion, York has been a solid dividend payer for 200 years now. It is immensely impressive that not only has the company never broken that streak but also tagged along a dividend growth streak of 19 years. With the most recent raise, the dividend is looking very good, but the shares are not. These levels are fundamentally way too high and have no real forward catalysts to justify it. The shares are far too expensive to be a buyer at these levels in my opinion.

Why I Will Likely Be A Buyer Of High Yield In 2016

The yield in junk bonds has been steadily rising as the price of the bonds in the underlying portfolio have been falling. The biggest concern in this fixed-income sector has been the decoupling from U.S. equity markets. From a psychological standpoint it seems like we have gone from complacency to extreme fear in a hurry. By now you have probably read everything about the death of high yield bonds, the investor lockup at Third Avenue, and the risk that these “junky” assets pose to exchange-traded funds. Believe me, the financial media is just getting started slicing and dicing this thing up. Everyone loves to sink their teeth into an investment that is tanking. It makes for great headlines and offers a curiously similar effect as gliding by an accident on the freeway. Despite our best intentions, we all slow down to take a peek. As an avid watcher and owner of ETFs , I have been closely monitoring the price action of the iShares iBoxx High Yield Corporate Bond ETF (NYSEARCA: HYG ) and the SPDR Barclays High Yield Bond ETF (NYSEARCA: JNK ) this year. These two ETFs represent the lions share of the below-investment grade fixed-income space, with combined assets of $25 billion. HYG is now down nearly 10% from its 2015 high and currently sports a 30-day SEC yield of 7.20%. That yield has been steadily rising as the price of the bonds in the underlying portfolio have been falling. The biggest concern in this fixed-income sector has been the decoupling from U.S. equity markets. The SPDR S&P 500 Trust ETF (NYSEARCA: SPY ) is 5% off its high and still in the middle of its 52-week trading range, while high yield bonds continue to make new lows. That is uncharacteristic of the typical correlation between these two asset classes and has many wondering if stocks are going to follow lower or junk bonds will ultimately rebound. You would probably be hard pressed to find anyone admitting to owning these investments at this stage of the game. However, there are literally millions of investors who own some form of junk bonds. That may be through direct exposure in a fund such as HYG or indirectly through diversified corporate funds, aggregate indexes, bank loans, or a multi-asset fund structure. It’s become an ubiquitous part of the chase for yield over the last several years and far more common than most investors understand. From a psychological standpoint it seems like we have gone from complacency to extreme fear in a hurry. HYG peaked in April, yet the accelerated nature of the sharp sell off in the last six weeks has investors whipped up into a frenzy. This is the inner monologue that I imagine has taken place in many heads this year: HYG down 2% – “Bit of a sell-off here. Time to add to my holdings.” HYG down 4% – “Spreads are so juicy at these levels. I’ll nibble on a little more” HYG down 6% – “Well this turned ugly quickly. Maybe I bit off more than I can chew.” HYG down 8% – “Get me the hell out. Cash is king.” HYG down 9% – “Haha, who would be dumb enough to still hold this stuff? Glad I sold down here. Now I’m safe”‘ HYG down 10% – “Wow, look at it still cratering. Maybe I should go short….” That last one made me cringe as I saw several probing articles and social media anecdotes pointing out funds that short junk bonds last week. They certainly do exist, although if you are asking about them at this stage of the game, you are probably a little late to that trade. That’s just my personal opinion – things can always get worse, and we may still face a high volume capitulation event before a true bottom is formed. There are two important points that should be understood at this juncture: This whole thing is probably not as bad as everyone has made it out to be. The “bubble has burst” or “high yield is dead” is likely driven more by headline artists than true investors in this space. We see the same type of sentiment and conviction when stocks go through a 10% corrective event. It’s always the end of the world and yet somehow it’s not. The same psychological cycle of greed and fear that we are accustomed to in stocks is going to take place in this fixed-income sector as well. It will seem cataclysmic and disastrous until it reaches a point where everyone who is going to has sold. That will be the inflection point that will ultimately create a sustainable bottom and drive prices higher. It may be in the form of a V-shaped reversal or a more rounded consolidation that takes months to stabilize and swing higher. No one knows for sure when that inflection point may be. However, I’m closely watching technical indicators such as prior support levels, volume, sentiment, high yield spreads, and other key variables. These will be the pieces to the puzzle that give us some indication that junk bonds have turned the corner. Rather than getting overly bearish at this juncture, I’m viewing the sell off as a long-term tactical opportunity. The key is knowing how this sector fits within the context of your diversified income portfolio and sizing your exposure correctly to your risk tolerance . My plan is to purchase an income-generating asset class at attractive levels relative to other bond alternatives. That’s likely a contrarian view right now, but in 2016 it may look quite different. For now, I’m keeping my powder dry and my eyes open. I suggest that other serious income investors do the same and consider scaling into any new positions slowly over time. This will allow you the flexibility to size your holdings appropriately and use time or price to your advantage.

Peter Lynch Drops The Bomb: Don’t Just ‘Invest In What You Know’

Summary The idea of “invest in what you know” is misunderstood. Using the products of a company doesn’t preclude you from doing more work. The financial implications must be understood before you can say that you “understand” the company. If you are an expert in an industry, use this knowledge as an edge to help you spot opportunities earlier than anyone else. Invest in what you know, but only if you truly “know”. I recently came across an article on Peter Lynch on WSJ where he clarified what he really meant by his trade mark saying of “invest in what you know.” If you are not familiar with Peter Lynch, here’s a brief introduction. He was the iconic manager of Fidelity’s Magellan Fund between 1977 and 1990. Turing his tenure, he averaged an annual return of 29.2% . Keep in mind that the Magellan Fund was not a special hedge fund of some sorts, it was a plain vanilla mutual fund. So despite a lack of more sophisticated financial instruments at his disposal, Peter Lynch was still able to churn out extremely impressive returns. What was his secret? His investing philosophy is commonly (mis)quoted as “invest in what you know.” Don’t Just Invest In What You Know Peter Lynch’s investment philosophy was lauded by the investment industry and his influence even extended to small-time investors. Speaking from personal experience (some of which I’m sure you can relate to as well), amateur investors often believe in their stock picks because they “know what they are buying.” But do they really understand the company? For example, how many of your friends own Facebook (NASDAQ: FB ) but have no idea how to read a balance sheet or an income statement? How many people buy Exxon (NYSE: XOM ) just because they use its gasoline? During the interview, Peter Lynch stated: “I’ve never said, ‘If you go to a mall, see a Starbucks (NASDAQ: SBUX ) and say it’s good coffee, you should call Fidelity brokerage and buy the stock.'” Similarly, just because you enjoy using Twitter (NYSE: TWTR ) or Facebook, it doesn’t mean that those are good stocks to buy. During the post-recession bull market, those who bought into the popular stocks made a lot of money, further perpetuating this false idea that “invest in what you know” is all that is needed to be a great stock picker. Unfortunately, just because you “know” the company, it doesn’t mean that you don’t have to do the hard work. For every stock that I own in the V20 Portfolio (which you can learn more about here ), I do thorough research before investing even a penny. With the market awash in “easy money” these days, particularly with the surge of FANG [Facebook, Amazon (NASDAQ: AMZN ), Netflix (NASDAQ: NFLX ), Google (NASDAQ: GOOG ) (NASDAQ: GOOGL )] investing, getting rich quickly has never been more simple. While those who rode the gravy train have made a lot of money (at least on paper), the end result does not necessarily indicate that they made the right decision initially. Stocks can only go up or down, much like how a ball can only land on red or black in a fair game of roulette. I think we can all agree that gamblers who claim that they “beat the system” by winning at the game of roulette are certainly delusional. Yet the success of FANG investing is celebrated. In Peter Lynch’s words, “People buy a stock and they know nothing about it. That’s gambling and it’s not good.” What he means by “know nothing” is that investors use the products and services, but know nothing about their financial impact. Next time ask your friend what Facebook’s ARPU is, or what Starbucks is earning on a cup of coffee, and more likely than not, their look of bewilderment will betray their “knowledge” about the company. And this is a dangerous thing. What Peter Lynch Really Meant To Say Was… … That you should use your specialized knowledge of a certain industry to augment your analysis. If you operate oil rigs, you understand the core operations of the industry better than anyone outside of the industry , and this gives you a unique edge. But this doesn’t preclude you from doing actual work. Can the company pay off its debt in time? How profitable is the backlog? Is the management selling off assets just before the industry swings back to a boom phase? These are all questions that you likely cannot gain from your typical work without you putting in extra effort. With metal prices reaching multi-year lows, Peter Lynch gave a specific example. He said, “If you’re in the steel industry and it ever turns around, you’ll see it before I do.” That person can then use this knowledge to predict the company’s revenue, earnings, cash flows, etc., and spot an opportunity before anyone else. How I Apply Peter Lynch’s Philosophy Funnily enough, Peter Lynch doesn’t specialize in any specific industry. Where he lacks in real industry experience, he makes up for it with intense research. Similarly, I am not what you call an aviation expert (or even a fan), and I am invested in Spirit Airlines (NASDAQ: SAVE ). I’m not a subprime borrower and I’m invested in Conn’s (NASDAQ: CONN ). I don’t use VoIP phones (in fact I use Skype) and I’m invested in MagicJack (NASDAQ: CALL ). I have confidence in these stocks not because I particularly enjoy their products (for the above cases I’m not even a user), but because after thorough research, I concluded that these stocks were attractive enough at the prices that I bought them at. Ironically, I don’t invest in a lot of things that I do use every day. I’m the owner of multiple HP products yet I don’t own any HP shares. I use Google all the time and I never bought a single share. I don’t own these stocks because I know that just because I’m a user, it doesn’t make me anymore “in the know” than Joe across the street. In addition, the prices that these stocks were trading at were simply not very attractive to me. Notice how this is the polar opposite of “invest in what you know at any price” kind of mentality that is so prevalent in today’s markets. Takeaway It may be quite shocking to hear that “invest in what you know” isn’t all that you need to be a good investor, but I hope that this article clarifies what Peter Lynch really meant to say. Now one thing I want to make clear is that I don’t mean to discourage you from investing in what you know, it’s just that the threshold of “knowing” is a lot higher than what everyone thinks it is. Thankfully, Seeking Alpha has a wealth of information available for you to discover. From small caps all the way to mega caps, there is an expert covering virtually any stock that you can think off. I encourage everyone to read some of the analysis on their favorite stocks, and I’m sure that you will discover something new. From “not knowing,” you can slowly build up your knowledge, and be confident enough to say that you truly “invest in what you know”. Why Follow Me I personally invest a ton of time researching every single company that is in the V20 Portfolio (+43% YTD). It’s not a model portfolio, it’s a real money portfolio where you can see the real impact of portfolio decisions and their long-term consequences . Investing is straight forward (though not easy) if you know where to look. If you are looking for a place to find some ideas that could complement your own portfolio, you can click the ” follow ” button and be updated with my latest insights.