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There's a Bizarre Hoax Circulating on Facebook. Here's Why it's Spreading Like Wildfire
October 8, 2018 12:01 am|Comments (0)

Are you on Facebook? If you are, you’ve most likely received a repetitive, canned note (or 100) from your friends/family that is driving you into a fit of rage. If you haven’t, consider yourself lucky. However, there’s indeed an irritating hoax going around that has grabbed some serious attention. Here’s what the message says: 

Hi….I actually got another friend request from you yesterday…which I ignored so you may want to check your account. Hold your finger on the message until the forward button appears…then hit forward and all the people you want to forward too….I had to do the people individually. Good Luck! 

Spoiler: there’s no ‘clone’ account. This is just a hoax, so delete the message and be worry-free that an account or second-degree account is compromised. 

We’re all familiar with this level of chain-like-mail, but what makes this time so different? The obvious answer could be any of the following: 

  • It’s coming from friends & family — so you can trust it
  • There’s clear instruction on what to do
  • It doesn’t contain a link
  • You’re doing it through Messenger (it’s more novel), vs. a status update

However, it goes deeper than that.

We need to remember that Facebook has its fair share of ‘bad press’ (yes, there is such a thing) the past couple years, stemming from the Cambridge Analytica scandal which affected 87 million accounts. Then, all 2.2 billion Facebook users received a notice in an effort to inform them on how to protect their information. Add to this that on September 28th, hackers exploited a flaw which resulted in compromised data for 50 million accounts. Yikes. 

And what do you get when you mix that all together?

A user constantly on high-alert due to the endless loop of security & privacy concerns

The decision to forward is almost an irrational one–and an innate reaction to Facebook’s shaky history and hyper-recent exploitation. All of that creates an uncomfortable level of ‘unknown’ when it comes to privacy and, at the end of the day, your friends & family are really just trying to help inform of a potential concern. 

So, the next time you receive one of these messages, maybe take a deep breath and if you feel like a good Samaritan, let them know that they don’t need to forward the message out to anyone else–the clones aren’t here (yet).

Published on: Oct 7, 2018

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What Separates Millionaire Entrepreneurs From The Rest Of Us? Hint: It's Not What You Think
July 7, 2018 6:37 am|Comments (0)

At the end of the day, who doesn’t love a shortcut?

But there’s a trap in this approach that most people don’t realize.

Simply copying their strategies and tactics alone won’t work. You need to first understand the mindset behind what they do.

I’ll tell you, I see people making this mistake all the time. They discover that the big dog of their industry generates 80% of leads using Facebook ads. So guess what they do? They copy their ads and expect it to work.

After spending a few hundred bucks and not seeing any results, they turn their ads down and never touch it again. “I always knew that Facebook ads don’t work for my audience.” Seriously?

What those folks don’t understand is that the guys who made it work for them have a completely different mindset. They focus on learning and experiment with several different variations until they find the one that works.

You see what I mean? It all comes back to your mindset.

Now, I’ve recently interviewed several multimillion-dollar business owners in my podcast, and I sat down with my team to analyze how these successful entrepreneurs think differently.

Here are three key mindsets that you can copy:

1.  Put all your eggs into one basket

The average entrepreneur tends to struggle with what’s known as Shiny Object Syndrome. They try to do everything at once — we’re talking multiple product lines, income streams, and business opportunities.

Millionaires, on the other hand, put all their eggs in one basket. They give the current project they’re working on their 100% — no ifs, ands, or buts.

I’m not going to lie – I fell prey to the Shiny Object Syndrome back when I first started my company, too. I thought that the best way of making money was to sell whatever my clients needed — as long as they were willing to pay, I was willing to do the job.

One day, I was talking to a successful business owner, and he told me to stop running around like a headless chicken and to focus my attention on a single project. I took his advice, and my revenue shot through the roof.

2. Look for the root of your problems

Here’s another way in which successful entrepreneurs think differently…

They look past the superficial and focus on the root of their problems — this helps them solve their problems with ease.

When I encounter a problem, for example, I like to use the 5 Whys technique to identify the underlying issue. This is pretty simple; all you need to do is to ask “Why?” 5 times.

Say you’re not hitting your quarterly revenue target.

Why? Because you don’t have enough sales.

Why? Because you don’t have enough leads.

Why? Because the marketing team hasn’t generated enough leads.

Why? Because the marketing team is unaware that more leads are required.

Why? Because there’s a lack of communication between sales and marketing.

Bingo — you’ve now gotten to the root of your problem.

3. Progress over perfection

Last but not least, the average entrepreneur aims for perfection over progress, and they feel as though everything has to be in place before they make a decision.

On the other hand, successful entrepreneurs are comfortable with moving a project forward even when the conditions aren’t perfect. They’d rather try and fail (and learn something in the process), rather than not give it a shot.

One of our coaching clients, unfortunately, is one of those guys who’s trapped by his own need for perfection. He’s making 7 figures per year, which is a great start — but because he’s obsessed with getting things perfect, he’s become his own bottleneck. This guy’s business has since stagnated, and unless he changes his mindset, he won’t be able to grow.

As entrepreneurs, we typically look for tangible solutions that we can implement immediately. But keep this in mind: at the end of the day, it’s how you implement these strategies and work past your challenges that determines if you succeed or not. Remember, it’s all about the mindset.

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General Electric: Finally, It's Over
April 23, 2018 6:11 pm|Comments (0)


Image Source

So far, the word “unpredictable” seems to be one of the most-used descriptive choices when characterizing the events of 2018. And, broadly speaking, this appears to be an accurate term. Just a few months ago, if you were to suggest that the NASDAQ would be seeing “flash crash” activity while General Electric (NYSE:GE) was forming a long-term bottom in a multi-year decline, you might have been laughed out of the room. But this appears to be where we are, given the market’s positive reaction to GE’s April 20th announcements and the generalized lack of certainty in almost every aspect of this current financial environment. We have been saying that the stock declines below $ 13 per share would be the worst of it for holders of GE and we maintain this view in light of the company’s recent strategic moves. We are long GE with a bullish stance on the stock as a long-term hold for portfolio strategies.

Chart: CNN Money

Many analysts have argued that there are fundamental earnings problems within the company itself. But, since this is the most “mega” of the “mega-conglomerates” it is critical to assess the trends over at least three years before drawing any drastic conclusions. The earnings performance at GE has been erratic since 2015. But the revenue side of the equation has been much more stable over the same period.

This implies that GE’s problems are internal (fixable) rather than external (not fixable). This is good news, as long as the company is able to reduce operations and focus on the businesses. Currently, jet engines, power plants, and healthcare machines are GE’s biggest money-makers – and we would prefer to see more of the company’s attention (and resources) focused on streamlining these segments.

Earnings Trend Chart: Yahoo Finance

On the other side of the ledger, the power, oil, and gas markets are still presenting major challenges for General Electric, with revenue in those segments showing significant weakness in Q1. Operating losses in the power unit were lower by 38%, but the company has said that improvements have been made in service operation and cost execution for the segment. Operating losses in oil and gas fell by 30%. Other negatives were seen in the GE Capital unit, as it continues with its weaker trends.

For the first quarter, net losses came in at 14 cents per share (roughly in-line with last year’s performance for the period). On a continuing basis, net incomes came in at 4 cents per share (a solid increase from the in the 1 cent per share seen a year ago). On an adjusted basis, the company posted earnings of 16 cents per share (well above analyst estimates calling for 11 cents per share). Total revenues for the quarter gained by 7% (to $ 28.66 billion against expectations of $ 27.45 billion). In the accompanying statement, Flannery highlighted the fact that margins, industrial earnings, and free cash flows are all gaining on an annualized basis – and this is all good news for dividend investors.

What really matters here is the strategic direction, and the willingness within those in management to cut the fat and become a more modern company. There are still very real questions with respect to whether or not Flannery & Co. will be able to address those needs. But we do know that many of the correct moves have already been made. This includes the decisions to sell NBC, Universal Studios, and its real estate portfolio.

These were areas where the company could not reasonably hope to compete, and sacrifices needed to be made in order to preserve as much of the dividend as possible. Another example of a strategic move in the “right” direction was deal to sell GE’s appliance division for $ 5.6 billion. GE is still in recovery-mode, and this is the short-term outlook that should define the long-term outlook for quite some time.

GE Chart Analysis: Dividend-Investments.com

The key point here is that the word “recovery” implies gradual strengthening. In market terms, that equates to positive price movement, and we view GE as a long-term hold with an attractive yield offering for investors. GE cut industrial structural costs by $ 805 million, and they expect to beat prior goals to reduce costs by $ 2 billion for all of 2018. This is strong evidence of progress, and it has not yet been reflected in share prices.

Shorter-term, we have seen some upside and this is an indication that the market is liking what it sees (so far, at least). Since aviation, healthcare, and transportation divisions all experienced double-digit profit growth, these moves should be viewed as valid. Prior resistance under $ 14 should now be expected to act as price support and we believe that a long-term bottom has likely formed at $ 12.80.

What is your position on GE? We look forward to reading your comments. Stay tuned to Dividend Investors and receive our next alerts by clicking the “Follow” button at the top of the page.

Disclosure: I am/we are long GE.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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Southwest's Apology to Passengers on Flight 1380 Is Brilliant, and It's Not Just the Cash. Here's Why
April 21, 2018 6:05 pm|Comments (0)

For the passengers who survived the emergency landing on Southwest Flight 1380 this week, on which Jennifer Riordan died, the flight must have been a horrifying experience. 

The pilot and copilot have had been hailed as heroes, and Southwest CEO Gary Kelly was praise for the fast apology and condolence statement he offered via video. But you can imagine that the airline might want to continue to respond to the affected passengers quickly.

Apparently, it has. Even as the federal investigation into the incident continues, Southwest reportedly sent letters with personal apologies and quick compensation to passengers from Flight 1380 just a day after the emergency.

Obviously, any big company that faced a debacle like this needs to do something similar and quick.  Many do, but only in exchange for people offering to drop all claims against the company (more on whether that’s happening here, in a second).

But there’s something interesting in how Southwest handled the issue–a combination of what they offered, and how they worded the apology letter, as reported, signed by Kelly:

We value you as our customer and hope you will allow us another opportunity to restore your confidence in Southwest as the airline you can count on for your travel needs. … In this spirit, we are sending you a check in the amount of $ 5,000 to cover any of your immediate financial needs.

As a tangible gesture of our heartfelt sincerity, we are also sending you a $ 1,000 travel voucher…

Our primary focus and commitment is to assist you in every way possible.

What leaps out at me is, oddly, the smallest financial part of the compensation: the $ 1,000 travel voucher. (Although, it’s funny: psychologically people sometimes put a higher subjective value on a tangible thing valued at a certain amount, then they do on cash.)

Even in the wake of tragedy, Southwest is taking steps to try to keep these customers–as customers. 

As some commenters have pointed out, while the uncontained engine failure aboard flight 1380 was terrifying for passengers, and resulted in loss of life and injury, it’s by no means the first time a flight suffered a similar catastrophe and ultimately landed.

Commercial airlines like a 737 are designed to be able to fly with one of the engines disabled, and professional aircrew train and drill on what to do in this kind of situation. The emergency was deftly handled by Captain Tammie Jo Shults and first officer Darren Ellisor.

Part of why this story was so widely reported however, is that passengers were immediately sharing it on social media. One passenger famously paid $ 8 for inflight WiFi even while he thought the plane was going to crash, so that he could broadcast on Facebook Live what was happening and say a farewell to friends and family.

So, connect this to the travel vouchers. Beyond taking a step toward repairing the relationship with these passengers, what better PR result could Southwest hope for than some positive travel experiences and social media posts from one of them, as a result? 

I wouldn’t expect Southwest to articulate this rationale; that would actually undercut it. And, I do have a couple of other questions about how this all works, for which I’ve reached out to Southwest for answers. I’ll update this post when I hear back.

For example, I would assume that the family of the passenger who died on the flight, Jennifer Riordan, would be treated differently, and maybe also the seven passengers who reportedly were injured. 

There’s also the question of whether these are really just goodwill payments, or a way to quickly settle 100 or more potential claims against the airline. If it’s the more traditional, transactional legal strategy of just trying to settle claims quickly, then that undercuts a lot of this.

However, I’m judging based on the experience of one passenger, Eric Zilbert of Davis, California, that this might not be the case. Zilbert reportedly checked with a lawyer before accepting the compensation,” to make sure I didn’t preclude anything.” Based on the lawyer’s advice, went ahead and did so.

Of course, this doesn’t mean every passenger is happy with the gesture. For example, Marty Martinez of Dallas, the passenger who became famous after he livestreamed the emergency landing over Facebook Live, said he’s not satisfied.

“I didn’t feel any sort of sincerity in the email whatsoever, and the $ 6,000 total that they gave to each passenger I don’t think comes even remotely close to the price that many of us will have to pay for a lifetime.”

Even so, Southwest sort of got what they’d probably like to see in his case, anyway: a tangible demonstration that despite the experience aboard Flight 1380, he’s willing to fly with the airline again.

The proof? He gave his quote to an Associated Press reporter, the account said, “as he prepared to board a Southwest flight from New York.”

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The Dirty Secret of California's Cannabis: It's Dirty
February 2, 2018 6:43 pm|Comments (0)

This is a story about marijuana that begins in a drawer of dead birds. In the specimen collections of the California Academy of Sciences, curator Jack Dumbacher picks up a barred owl—so named for the stripes than run across its chest—and strokes its feathers. It looks like a healthy enough bird, sure, but something nefarious once lurked in its liver: anticoagulant rodenticide, which causes rats to bleed out, and inevitably accumulates in apex predators like owls. The origin of the poison? Likely an illegal cannabis grow operation in the wilds of Northern California.

Wired

“It’s a mess out there,” says Dumbacher. “And it costs taxpayers millions of dollars to clean up the sites.”

Marijuana doesn’t just suddenly appear on the shelves of a dispensary, or the pocket of a dealer. Someone’s gotta grow it, and in Northern California, that often means rogue farmers squatting on public lands, tainting the ecosystem with pesticides and other chemicals, then harvesting their goods and leaving behind what is essentially a mini superfund site. Plenty of growers run legit, organic operations—but cannabis can be a dirty, dirty game.

Morgan Heim/BioGraphic/California Academy of Sciences

Morgan Heim/BioGraphic/California Academy of Sciences

As cannabis use goes recreational in California, producers are facing a reckoning: They’ll either have to clean up their act, or get out of the legal market. Until the federal prohibition on marijuana ends, growers here can skip the legit marketplace and ship to black markets in the many states where the drug is still illegal. That’s bad news for public health, and even worse news for the wildlife of California.

If you’re buying cannabis in the United States, there’s up to a 75 percent chance that it grew somewhere in California. In Humboldt County alone, as many as 15,000 private grows churn out marijuana. Of those 15,000 farms, 2,300 have applied for permits, and of those just 91 actually have the permits.

Researchers reckon that 15 to 20 percent of private grows here are using rodenticide, trying to avoid damage from rats chewing through irrigation lines and plants. Worse, though, are the growers who hike into rugged public lands and set up grow operations. Virtually all of them are using rodenticide. “At very high doses the rodenticides is meant to kill by basically stopping coagulation of blood,” says Dumbacher. “So what happens is if you get a bruise or a cut it you would you would literally bleed out because it won’t coagulate.”

And what’s bad for the rats can’t be good for the barred owl. How the poison might affect these predators isn’t immediately clear, but researchers think it may weaken them.

Scientists are used to seeing rodenticides in owl livers—but usually, those animals are picking off rats in urban areas. Not so for these samples. “When we actually looked at the data, it turned out that some of the owls that were exposed were from remote areas parts of the forest that don’t have even roads near them,” says Dumbacher. When researchers took a look at satellite images of these areas, they were able to pick out illegal grow operations and make the connection: Rodenticides from marijuana cultivation are probably moving up the food chain.

The havoc that growers are wreaking in Northern California is worryingly similar to the environmental bedlam of the past. “We can’t just take exactly the same historical approach that California did with the Gold Rush,” says Mourad Gabriel, executive director of the Integral Ecology Research Center and lead author of the study with Dumbacher. It was a massive inundation of illegal gold and mining operations that tore the landscape to pieces. “150 years down the road, we are still dealing with it.”

And Northern California’s problems have the potential to become your problem if you’re buying marijuana in a state where it’s still illegal. “We have data clearly demonstrating the plant material is contaminated, not just with one or two but a plethora of different types of pesticides that should not be used on any consumable product,” says Gabriel. “And we find it on levels that are potentially a threat to humans as well.”

Lab Rats

Across from an old cookie factory in Oakland, California sits a lab that couldn’t look more nondescript. It’s called CW Analytical, and it’s in the business of testing marijuana for a range of nasties, both natural and synthetic. Technicians in lab coats shuffle about, dissolving cannabis in solution, while in a little room up front a man behind a desk consults clients.

Morgan Heim/BioGraphic/California Academy of Sciences

Running this place is a goateed Alabama native named Robert Martin. For a decade he’s risked the ire of the feds to ensure that the medical marijuana sold in California dispensaries is clean and safe. But in the age of recreational cannabis, the state has given him a new list of enemies to test for. If you’re worried about consuming grow chemicals like the owls are doing, it’s scientists like Martin who have your back.

“We’re trying to do it in legitimate ways, not painting our face or putting flowers in our hair,” says Martin. “We’re here to show another face of the industry.” Clinical. Empirical.

Labs like these—the Association of Commercial Cannabis Laboratories, which Martin heads, counts two dozen members—are where marijuana comes to pass the test or face destruction. Martin’s team is looking for two main things: microbiological contaminants and chemical residues. “Microbiological contaminants could come in the form of bacteria or fungi, depending on what kind of situation your cannabis has seen,” says Martin. (Bad drying or curing habits on the part of the growers can lead to the growth of Aspergillus mold, for instance.) “Or on the other side, the chemical residues can be pesticides, herbicides, things like that.”

The biological bit is pretty straightforward. Technicians add a cannabis sample to solution, then spread it on plates that go into incubators. “What we find is of all the flowers that come through, about 12 to 13 percent will come back with a high level of aerobic bacteria and about 13 to 14 percent will come back with a high level of fungi and yeast and mold,” says laboratory manager Emily Savage.

With chemical contaminants it gets a bit trickier. To test for these, the lab run the cannabis through a machine called a mass spectrometer, which isolates the component parts of the sample. This catches common chemicals like myclobutanil, which growers use to kill fungi.

Starting July 1 of this year, distributors and (legal) cultivators have to put their product through testing for heavy metals and bacteria like E. coli and chemicals like acephate (a general use insecticide). That’s important for average consumers but especially medical marijuana patients with compromised health. One group of researchers has even warned that smoking or vaping tainted marijuana could lead to fatal infections for some patients, as pathogens are taken deep into the lungs.

“This is why we have to end prohibition and regulate and legalize cannabis, so that we can develop the standards that everybody must meet,” says Andrew DeAngelo, director of operations of the Harborside dispensary in Oakland.

After testing, a lab like CW has to report their results to the state, whose guidelines may dictate that the crop be destroyed. If everything checks out, the marijuana is cleared for sale in a dispensary. “That gives the public confidence that these supply chains are clean for them and healthy for them,” says DeAngelo.

That safety comes at a price, though. To fund the oversight of recreational marijuana, California is imposing combined taxes of perhaps 50 percent. “They’re too high,” says DeAngelo. He’s worried that the fees will push users back into the black market, where plants don’t have to hew to the same strict safety standards. “This shop should be a lot fuller than it is right now.”

And the black market gets us right back to the mess we started off in. Illegal cultivation is bad for consumers and bad for the environment. The only real solution? The end of prohibition. At the very least, the owls would appreciate it.

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Apple Supercycle, It's Happening
January 26, 2018 6:02 pm|Comments (0)

Today another SA contributor, Mark Hibben, published a really interesting method for backing into Apple’s (NASDAQ:AAPL) total iPhone sales for the December 2017 quarter. His method involves looking at the projected product mix numbers recently published by the Consumer Intelligence Research Partners, LLC (CIRP). Please read Mark’s insightful article for his original analysis, but I will sum it up quickly here.

Let’s Prognosticate

CIRP is a Chicago-based analytics company that conducts consumer surveys in the United States as basis for their findings. To compile their data, they have conducted a survey of 500 U.S. Apple customers who purchased an iPhone, iPad, or a Mac in the US in the October to December 2017 period. Here is the product mix that CIRP suggests for the US customers of the iPhone brand.

(Chart of iPhone product mix from CIRP Report.)

From the report, CIRP finds that the new iPhones 8/8 Plus, and X account for 61% of total US iPhone sales in the quarter, with iPhone 8 models accounting for 41%, and iPhone X for 20% of sales. This gives us a good idea of the potential product mix for the different iPhone models, but what about the magnitude of the actual sales?

Canalys, an analytics company, has recently come out with one of the more conservative prognostications for the total iPhone X sales for the December 2017 quarter, at 29 million worldwide units. Many people looked at this number as a disappointment considering that many have expected a 40 million plus super cycle.

But let’s take the 29 million units projection at its face value and see how much that would mean in total iPhone sales. Remember Apple is no longer a one phone per year, or even a two phone per year, company. Currently, Apple has a total of eight different models for sale, all commanding premium pricing. If we assume that Apple has sold 29 million units of iPhone X and that represents 20% of all iPhones sold that would mean that Apple has sold a total of 145 million iPhones in the last quarter! How is that for a super cycle?

Okay, but I know what your criticism is going to be. The report above is based on a survey of only 500 U.S.-based customers. Can that really be representative of the rest of the world? How accurate is it in general?

Well, let’s look at data compiled by Flurry Analytics. Flurry Analytics is an analytics company that allows app developers to install Analytics code into their apps and collect all kinds of customer data, including the make and model of the phone, engagement time, etc. Similar to Google Analytics for the Web. Flurry is used by over 1 million mobile apps and has insight into 2.1 billion devices worldwide. So their data should be pretty reliable.

Flurry published a report based on the data they’ve acquired during the week leading to Christmas 2017. Here’s new phone activations broken down by percentages for the top 10 most popular iPhone models activated during that time period.

(iPhone Product Mix Chart from Flurry Analytics.)

The above product mix projections are based on data collected worldwide and should be representative of the total worldwide product mix. Based on the data above, if we assume that Canalys is right about their 29 million iPhone X estimate, that would mean that Apple has sold 197 million iPhones during the last quarter (Q1 2018)! That would be a super cycle indeed!

197 million units is probably a stretch, and we will find out the real numbers next Thursday. However, these calculations also mean that even if iPhone X prognostications by companies such as Canalys are off by as much as 50% and in fact, iPhone X has performed “abysmally” and only shifted 15 million units, that would still leave Apple with over 102 million total iPhones sold in the last quarter.

Given that in 2016 Apple moved 78 million iPhones in the same quarter, we are looking at at least a 30% YoY unit shipment growth. Combine that with greater profits from the X line, still industry-leading profits from the older 6, 6S, SE, and 7 lines, for which the tooling and R&D has already been long since paid for, and we end up with a potential for a very profitable quarter indeed.

Another interesting insight from the Flurry report is the device activations by brand in the week leading up to Christmas 2017.

(Brand popularity chart from Flurry Analytics.)

As you can see Apple has dominated the Christmas season, with Samsung (OTC:SSNLF) trailing behind. This is an important takeaway to remember. Apple is no longer a one device company. They now have a wide selection of phones targeting almost every demographic (except perhaps the very low end of the market). They are also a leading laptop manufacturer, sell a ton of headphones and other accessories and have an aggressively growing services market. And that doesn’t even include their recent aggressive push into the self-driving automotive space and their upcoming home speaker business.

Investor Takeaway

At the time of publication, AAPL is trading for around $ 171 being pushed down by a flurry of bearish reports, which are all too common right before the Apple earnings announcement. Many analysts have cited the 29 million iPhone X units as the reason why AAPL is going to do horribly this quarter.

But above, we’ve seen that 29 million iPhone Xs, given the projected product mix, would mean simply amazing sales for Apple. If you are already long Apple, this is a good position to hold. And if you are looking to initiate a position, recent weakness due to earnings anxiety may offer a good entry point. Our personal conservative price target for the end of 2018 is $ 205.

Disclosure: I am/we are long AAPL.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Editor’s Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.

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It's Finally Time To Buy This Dividend King
January 25, 2018 6:02 pm|Comments (0)

Source: imgflip

2017 saw the largest number of US retail store closings in history, which the media has dubbed the “retail apocalypse”. However, in reality, rumors of traditional retail’s demise are greatly exaggerated.

Source: Hoya Capital Real Estate

In fact, traditional retail sales have been growing around 2% a year since 2005, right alongside the overall US economy. Better yet? In 2017, a strengthening economy meant that brick & mortar retail growth actually accelerated. This is why, despite over 10,000 total store closings, the number of US retail stores actually increased by over 4,000.

Source: Hoya Capital Real Estate

In addition, shopping center REITs as a whole have continued to post slow but steady same-store net operating income or NOI growth throughout this so called “apocalypse”.

Source: Hoya Capital Real Estate

The bottom line is that shopping center REITs, like all real estate, are made up of both high, medium, and low quality names. This means that there continue to be Grade A industry leaders with world class management, strong balance sheets, and strong growth prospects.

Let’s take a look at Federal Realty Investment Trust (FRT), which is not just the gold standard in its industry, but arguably one of the best REITs you can own period.

More importantly, thanks to the recent sell-off in REITs, Federal Realty is now trading at some of the most attractive valuations in years. That means that this is likely a great time to add the only REIT dividend king to your diversified high-yield dividend portfolio.

The Undisputed King Of Shopping Center REITs

Source: FRT Investor Presentation

Federal Realty Investment Trust may not be a massive REIT, but since its founding in 1962 (making it one of the oldest REITs in the world), it has proven an exceptional ability to make investors rich. It’s done so thanks to its exemplary management team, led by CEO Donald Wood, who took over the top spot in 2002 after serving for four years as COO and CFO.

Specifically, FRT has focused on quality over quantity, being highly selective about only purchasing or developing shopping centers in the nation’s premier property markets. Today, it owns 104 centers making up 24.1 million feet of leasable square footage leased to over 2,800 tenants.

Source: FRT Investor Presentation

Federal Realty’s centers are located in very high density and very affluent areas, which is why it enjoys the industry’s best average rent per square foot by far.

Source: FRT Investor Presentation

The REIT is also highly diversified by both industry subcategory, as well as tenants, with no customer making up more than 2.9% of annual rent.

Source: FRT Investor Presentation, Earning Supplement

Federal Realty’s focus on top-tier shopping centers located in prime locations also means it has consistently enjoyed the industry’s top lease spreads. This means that FRT is able to obtain higher rents anytime it signs a new lease, whether with a new tenant (if an old one has failed or left) or when renegotiating expiring leases.

Source: FRT Investor Presentation

In the most recent quarter, Federal Realty’s lease spread came in at a very healthy 14%, with 400,000 square feet of space leased at an average rental rate of $ 38.24 per square foot.

This helped it to achieve same-store YOY operating income growth of 2.6%, 4.4% when including redeveloped properties. And speaking of redeveloped properties, this is the key to the REIT’s strong growth prospects going forward.

That’s because in recent years FRT has been investing into non retail properties, such as offices, hotels, and apartments (it owns over 2,052 rental units).

Source: FRT Investor Presentation

In the coming years, management says it wants 20% of rent to come from non retail properties. Not only will this provide greater diversification but because the hotels, offices, and apartments are located on top or near its shopping centers, they help to further drive higher traffic that benefits its tenants. That, in turn, means continued strong leasing spreads.

But wait it gets better. Federal Realty’s plans to invest more heavily into non retail means it has a much larger growth market to target in the future, about $ 4 billion over the next 15 years. The cash yields on these investments are usually about 7% to 8% which is much higher than traditional shopping centers (6.3% cash yield historically).

This brings us to another major competitive advantage, FRT’s industry-leading low cost of capital. This ensures strong AFFO yield spreads (cash yield minus cost of capital) on all its investments.

Approximate AFFO Weighted Average Cost Of Capital 2.9%
Historical AFFO Cash Yield On Invested Capital 6.3%
Approximate AFFO Yield Spread 3.4%


Sources: management guidance, FastGraphs, Morningstar

The low cost of capital is thanks largely to two things. First, the REIT has been very conservative with debt, which is why it has one of the highest investment grade credit ratings in all of REITdom (more on this later).

Second, Federal Realty’s track record of successfully adapting to challenging and constantly shifting industry conditions is literally the best in the business. That’s both in terms of growing its funds from operation or FFO (operating cash flow) per share far faster than lower quality rivals, as well as being the only dividend king REIT in the world.

Source: FRT Investor Presentation

Basically, Federal Realty Investment Trust is the bluest of REIT blue chips and the ultimate sleep well at night (SWAN) stock. The disciplined and very shareholder friendly corporate culture has proven to be incredibly resilient which is why the REIT rightfully trades at a substantial premium to its lower quality rivals (more on this in a moment).

However, that premium helps to ensure low costs of equity which allows management to, in concert with retained cash flow and modest amounts of low cost debt, ensure it has ample low cost liquidity with which to grow.

In fact, today FRT’s liquidity (remaining borrowing power + cash) stands at $ 781 million, which is enough to fund about three years worth of its planned investments.

Combined with its existing redevelopment pipeline, as well as its ongoing opportunistic acquisitions, Federal Realty is likely to remain one of the fastest growing shopping center REITs in America.

Shopping Center REIT FFO Growth Projections

Source: Brad Thomas

Or to put another way, Federal Realty is perfectly positioned to take advantage of America’s accelerating economy and rising consumer spending which bodes well for its long-term dividend growth prospects.

Dividend Profile: Excellent Income Growth And Risk-Adjusted Return Potential

REIT Yield 2017 FFO Payout Ratio 10 Year Projected Dividend Growth 10 Year Potential Annual Total Return 5 Year Beta Risk Adjusted Potential Total Returns
Federal Realty Investment Trust 3.2% 67% 5% to 7% 8.2% to 10.2% 0.337 24.3% to 30.3%
S&P 500 1.7% 50% 6.2% 7.9% 1.0 7.9%


Sources: management guidance, GuruFocus, FastGraphs, yCharts, CSImarketing, multpl.com

Ultimately, REIT investing is all about the dividend. That means that investors need to pay particular attention to the dividend profile which is composed of three parts: yield, dividend safety, and long-term growth prospects.

As one might expect from a dividend king, Federal Realty offers a very safe payout courtesy of one of the industry’s lowest FFO payout ratios. But of course, there’s more to dividend safety than just a low payout ratio. One also needs to make sure that a REIT isn’t drowning in debt.

REIT Forward Net Debt/EBITDA EBITDA/Interest Fixed Charge Coverage Ratio Debt/Capital S&P Credit Rating
Federal Realty Investment Trust 5.4 5.5 4.1 56% A-
Industry Average 5.8 3.4 NA 62% NA


Sources: FRT Investor presentation, earnings supplement, Morningstar, CSImarketing, FastGraphs

Fortunately, Federal Realty always takes a long-term approach to business, which means a highly conservative balance sheet. That includes below average leverage ratio, a very strong fixed charge coverage ratio, and an interest coverage ratio that’s much greater than its peers. The REIT also has the lowest amount of variable rate debt (1%) in the industry.

That leads to one of the strongest investment grade credit ratings of any REIT in America, which is what helps to ensure: very low cost of capital, a high cash yield spread on new investments, and strong long-term growth.

Better yet? Like most REITs, Federal Realty is a low volatility stock. In fact, over the past five years, it’s been 66.3% less volatile than the S&P 500. This makes it an excellent choice for low risk investors, such as retirees.

All told, Federal Realty’s long-term dividend growth potential of 5% to 7% means that it should be capable of about 9.2% annual total returns. That may not seem very exciting, but you need to keep two things in mind. First, given the overheated valuations of the S&P 500 today, FRT should be able to beat the market over the next decade. And given its status as one of the highest quality REITs in the world, as well as its low volatility, this means it offers far superior risk-adjusted total return potential.

In addition, this Grade A industry leader, which is rarely on sale, is now trading at the most appealing valuation in about four years.

Valuation: Still Not Cheap But Worth Buying At Fair Value

Chart
FRT Total Return Price data by YCharts

REITs have had a rough year, basically returning nothing while the red hot S&P 500 has gone parabolic. Federal Realty meanwhile has done far worse. However, while some might see that as a sign to stay away, I view it as a potentially good buying opportunity.

REIT P/AFFO Historical P/AFFO Yield Historical Yield
Federal Realty Investment Trust 21.1 19.2 3.2% 3.0%
Industry Median 11.0 NA 5.3% NA


Sources: Hoya Capital Real Estate, FastGraphs, GuruFocus

Now it’s important to keep in mind that on a price/FFO basis, FRT is nowhere near “cheap”. After all, it is still trading at a huge premium to its peers, as well as higher than its historical norm.

However, as a dividend focused investor, I generally like to compare a stock’s yield to its historical norm, and here things look a lot better. Specifically, Federal Realty’s yield is now slightly above its 13-year median and compared to its five-year average yield, it looks like a potentially good buying opportunity.

Source: Simply Safe Dividends

Of course, backwards looking valuation metrics can only tell us so much. After all, profits and dividends come from the future. This is why I like to use a long-term discounted dividend model to estimate a stock’s fair value based on the net present value of its future payouts.

Forward Dividend 10 Year Projected Dividend Growth Terminal Growth Rate Fair Value Estimate Dividend Growth Baked Into Current Share Price Discount To Fair Value
$ 4.00 5% (conservative case) 3% $ 106.74 4.5% -17%
6% (likely case) 4% $ 123.11 -1%
7% (bullish case) 5% $ 146.69 15%


Sources: FastGraphs, GuruFocus

I use a 9.1% discount rate because since 1871 this is what a low cost S&P 500 ETF would have generated, net of expenses. Thus I consider this the opportunity cost of money.

However, because any discounted cash flow model requires estimating the smoothed out future growth rates, there is a large amount of inherent uncertainty associated with this approach. This is why I use a variety of what I consider to be realistic growth models, preferably based on long-term management guidance. In this case, FRT expects to grow FFO/share at 5% to 7.25% a year over the long-term.

When we run the figures, we find that indeed Federal Realty doesn’t appear undervalued. Based on my best estimate of its most likely growth scenario. In fact, I estimate that the stock is pretty much at fair value right now.

However, under the Warren Buffett principle of “better to buy a wonderful company at a fair price than a fair company at a wonderful price”, purchasing FRT is still potentially a good idea. That is assuming you understand the risks associated with the stock, especially the realities of its interest rate sensitivity.

Risks To Consider

There are three risks I think are worth considering before buying Federal Realty Investment Trust.

First, while the REIT does have excellent diversification of its rent in terms of tenants, it is worth noting that some of its largest customers are indeed struggling.

For example, The Gap (GPS), and Ascena Retail Group (ASNA) have been struggling in recent years not just with declining sales in weak stores but with an overall decline in their brands. Similarly, LA Fitness, while e-Commerce proof, is facing increased competition from smaller boutique gyms.

Now keep in mind that none of these tenants represent a substantial amount of rent, so FRT’s dividend safety isn’t likely to be put at risk even if they were to fail entirely. However, in the event of continued decline, it could take some time for management to find new tenants to replace them which could result in short-term FFO/share growth weakness that could hurt the short-term dividend growth rate and share price.

Another potential risk to keep in mind is that Federal Realty isn’t a large enough REIT to fully fund its various growth endeavors. For example, its redevelopment pipeline largely represents joint ventures and partnerships with other developers that means that there is a risk that some of its projects might end up being delayed or even canceled if some of its partners fall upon hard financial times.

Finally, we can’t forget that diversifying into non retail properties can be a double-edged sword. That’s because FRT has the most experience in traditional retail, and developing office, hotel, and apartment real estate is not exactly in management’s wheelhouse.

And since real estate development is a highly complex and localized endeavor, there is no guarantee that FRT will be able to finish its projects on time or on budget. That might mean it fails to hit its 7% to 8% cash yield targets on its redevelopment pipeline which could result in FFO/share growth missing its long-term targets.

What about interest rates? That’s certainly one of the biggest things that REIT investors worry about which is understandable given that REITs can, at times, be highly interest rate sensitive.

Source: Hoya Capital Real Estate

Usually, there is an inverse relationship between a REIT’s beta to the S&P 500 (volatility relative to the market) and beta to a REITs’ yield compared to 10-year Treasury yields.

This is because a REIT’s beta (to the stock market) generally is lower the longer the leases are. This makes intuitive sense since the longer the leases the more stable the cash flow that funds the dividends.

However, longer leases also mean slightly higher inflation risk. That’s because, while rental escalators generally have inflation baked into their formulas, the exact formula is fixed until a new lease is signed or an existing one renegotiated.

The good news is that FRT’s 8.2-year weighted average remaining lease duration is not that large, which explains why its beta to yield is slightly below the industry average.

Source: Hoya Capital Real Estate

Keep in mind that beta to yield (interest rate sensitivity) is cyclical. This means that short-term price sensitive investors, such as those that retiring soon and plan to use the 4% rule, need to understand that there is a real risk of potentially losing money in any REIT if long-term rates spike and you are forced to sell at the bottom.

But don’t let that scare you away from REITs entirely because historically, commercial real estate has been an excellent long-term income and wealth compounder.

That’s because REIT interest rate sensitivity is both cyclical and mean reverting. That means that over the past 45 years, the actual correlation between REIT total returns and 10-Year yields (proxy for long-term rates) is effectively zero (actually slightly positive).

Sources: NAREIT, St. Louis Fed

Note that the R Squared of 0.02, which indicates that since 1972, 10-Year Treasury yields have explained just 2% of REIT total returns. Basically, this means that, over a long enough period of time, REIT investors should not worry about rates at all. That’s because they are largely irrelevant to long-term total returns.

For example, since 1972, equity REITs have increased in value 85% of the time only suffering 7 down years in the past 45 years.

This includes times where interest rates hit all-time highs (10-year Treasury Yield 16% in September 1981). In fact, here’s how equity REITs did as a sector between 1972 and 1990. This was during the fastest period of interest rates in US history as well as a period of steadily declining Treasury yields.

Year 10-Year Yield (Start Of The Year) Equity REIT Total Return
1972 6.09% 8.0%
1973 6.54% -15.5%
1974 7.0% -21.4%
1975 7.53% 19.3%
1976 7.80% 47.6%
1977 7.4% 22.4%
1978 7.94% 10.3%
1979 8.95% 35.9%
1980 11.13% 24.4%
1981 12.68% 6.0%
1982 14.14% 21.6%
1983 10.8% 30.6%
1984 11.67% 20.9%
1985 11.17% 19.1%
1986 9.08% 19.2%
1987 7.18% -3.6%
1988 8.26% 13.5%
1989 9.01% 8.8%
1990 8.43% -15.4%


Source: NAREIT, St. Louis Federal Reserve

In fact, since 1972, equity REITs have handily beaten the S&P 500, on both an absolute and inflation-adjusted basis.

Asset Type 45 Year Annual Total Return 45 Year Inflation Adjusted Annual Total Return Growth Of $ 10,000 In Inflation Adjusted Dollars
Equity REITs 12.8% 6.4% $ 409,583
S&P 500 10.6% 8.6% $ 163,070


Sources: NAREIT, Moneychimp.com

How is that possible? Because the current narrative that “REITs are bond alternatives” is incorrect. Bonds are fixed coupon assets, whose value is purely derived from: remaining duration, the coupon payment, and current interest rates (usually inflation expectation driven).

Equity REITs, on the other hand, are growing organizations whose management adapts over time to varying industry and economic challenges to keep its property base, cash flow, and dividends growing.

But what about costs of capital? If rates are high, then debt is expensive, and so REITs can’t grow profitably, right? Actually not true, because if rates are very high then cap rates are low and so cash yields on new acquisitions are also higher.

In addition, REITs match their debt duration to their lease duration, thus minimizing cash flow (and profit) sensitivity to interest rates.

Source: FRT Investor Presentation

For example, 99% of Federal Realty’s debt is fixed, and over the past three years, it’s managed to both refinance at lower rates. More importantly, the REIT has refinanced for longer bond duration than its weighted average remaining lease duration of 8.2 years.

Or to put it another way, FRT makes sure that the spread between cash yield on invested capital and its cost of capital is fixed. This ensures that its profitability on new investments is constant, no matter what rates are doing.

What happens after the bonds mature though and interest rates are much higher? Well, that’s where people fail to appreciate the beauty of REITs; specifically that REITs are good inflation hedges.

This is because interest rates are usually high when the economy is strong and thus, inflation is usually higher. REITs are able to thus offset rising inflation via higher rents.

Basically, when FRT’s bonds do mature if interest rates are significantly higher than they were when the bond was sold, the new rental rate it can obtain on the property it purchased with the debt will rise as well. Thus, the cash yield spread on invested capital remains highly stable over time.

This explains both how REITs in general, and Federal Realty in particular, have been able to so consistently compound investor wealth over time; in all manner of economic and interest rate conditions.

Source: NAREIT, Index = 100 in 1972

Bottom Line: Federal Realty Investment Trust Is The Ultimate SWAN REIT And Potentially Worth Buying Today

Please don’t get me wrong, I’m not saying the Federal Realty Investment Trust is necessarily a screaming bargain right now. Nor am I predicting that this is the bottom for this REIT or any other. After all, no one can predict short-term stock prices and it’s certainly possible that FRT and REITs, in general, might have a bad year if interest rates rise sharply.

However, knowing that interest rates are NOT a threat to REITs in the long-term, what I ultimately care about is buying the top quality and time-tested names in a growing industry. That means dividend stocks with: strong balance sheets, growing cash flows and dividends, and a proven ability to adapt over time to grow in any economic, interest rate and political environment.

Federal Realty Investment Trust is unquestionably a Grade A SWAN stock that offers all of these features. And with the price now at fair value (something that’s rare for a stock of its caliber in an overheated market), I have no qualms about recommending it to anyone looking for a highly safe and steadily growing income stream.

In fact, should FRT remain at current prices (or fall) in the coming weeks, I plan to add it to my own high-yield retirement portfolio.

———————————————————————————–

Studies show that most investors have underperformed the stock market by about 80% over the past 20 years due to a large number of mistakes, including market timing, improper portfolio structure, and poor stock selection.

Investor In the Family And Seeking Alpha are proud to bring you the 2018 Do It Yourself Investing Summit from Jan. 22nd to Jan. 26th. This summit brings together 21 of Seeking Alpha’s top investing minds (including yours truly) to highlight numerous priceless: investing principles, as well as ideas and tips about the market, economy and individual stocks for 2018.

I hope you’ll join us for this can’t-miss event and gain access to this treasure trove of knowledge that can ultimately save you a lot of: time, money, and can help you to achieve your financial dreams.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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'This Is Not a Drill.' Thank God The False Alarm Missile Warning in Hawaii Happened on a Weekend, But It's a Warning for the Entire Country
January 14, 2018 6:00 am|Comments (0)

Virtually the entire state of Hawaii was in a panic Saturday, after the state emergency management agency warned that a ballistic missile was “INBOUND,” and that people should “SEEK IMMEDIATE SHELTER.”

“THIS IS NOT A DRILL,” said the message, complete with ALL CAPS. It was delivered all over. Words can’t do justice. Scroll down and you’ll see video.

Oh, but it was all a very big mistake. 

If there is any bright side, maybe it’s that it all happened on a Saturday. No commuters, no school kids separated from their families–no financial markets, so the stock market didn’t crash. (Weekend or not, thank God the United States didn’t launch any kind of retaliatory attack.)

Take a look at the Twitter embeds below, showing a little bit about what it was like to live through this. (If the embeds don’t show, click through to the links.)

1. Robotic radio warning of “incoming ballistic missile.” 

2. Broadcasting live on Periscope at the exact moment.

Captured live.

3. What it looked like on a phone.

Imagine getting this alert–with no way of knowing it was a false alarm.

4. What it looked like if you were watching television in Hawaii.

This is terrifying.”

5. Human reaction.

“My mom and sister were crying. It was a false alarm, but betting a lot of people are shaken.”

6. More human reaction.

“In one moment our lives changed completely, yes it was false, yes we’re alive. But this ruined me. My babies are 5 and 2months old they have their whole life ahead of them and here I sat with them in my arms saying sorry I tried to protect you the best I could.”

7. Live from the airport.

“My friend and ABC newsreader @JulianBAbbott was at Honolulu airport when the missile alert text message was sent out across #Hawaii. He’s about to board now but this is what he told me about what unfolded. *thread*”

8. This golfer who decided he’d die on the fairway.

Worth watching. “My father will live and die golfing.” #missile #hawaii

9. Sorry about that. 

From U.S. Pacific Command: “…no ballistic missile threat to #Hawaii. Earlier message was sent in error and was a false alarm.

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How to Effectively Adjust Your Game Plan–Before It's Too Late
November 10, 2017 12:01 am|Comments (0)

“Your game plan is only good for the first six minutes of the game… the rest is about adjustments.”  -Roy Williams

North Carolina’s basketball coach Roy Williams is a modern version of college basketball coaching royalty. Since he took over the team in 2003, North Carolina has won three National Championships, with the latest in 2017. Coach Williams understands and thrives on the ability to adapt in a game. 

His team did just that for its title game win against the No. 1 team in the country Gonzaga in 2017. The No. 2 Tarheels gave up 13 early points to Josh Perkins, but after making some halftime adjustments, they held Perkins scoreless in the second half. Williams’ team had the mindset and training to be in the position to receive the game plan and then make adjustments for the win. 

Adjustments are quicker to happen in sports than in business because there is urgency for everyone involved. The game clock ticks down in everyone’s view, and the scoreboard constantly displays the results. The consequences are immediate. Knowing this supplies enough motivation for making adjustments efficiently and swiftly. 

In business, there is no game clock. Oftentimes, a false sense of security exists because the product or result is not always immediately evident. The tendency is to think, “We have time to fix this.”

The highly successful know that very small adjustments can have a big impact–if you make them early enough in the game. Many people struggle to know when an adjustment is even necessary.

Adjustments are needed when:

  • The competition is improving faster than you.
  • You are not in the lead. 
  • Momentum has shifted away from you.

Once it is recognized that an adjustment is needed, the following 3 steps lead to it being implanted effectively:

  1. Decide on Your One Thing. One of the biggest mistakes people make is trying to implement too much at one. Doing too much will almost always result in zero sustainable positive change whatsoever. People just flat out can’t make focused change on more than one thing at a time. This is the way we are wired, and not respecting this is a losing battle. Never underestimate the impact that one small adjustment might make. To determine your “One Thing,” first determine what two or three things you or your team are already doing well. Don’t skip this step. Failure to recognize the positive often results in adjustments that are reactive and ineffective. Next, ask yourself, “What is one thing I need to improve?” 
  2. Attack, Attack, Attack. Whatever the adjustment, approach it with the “attack” mentality. Move on this action aggressively, and don’t second-guess yourself. 
  1. Evaluate. In business and in sports, the bottom-line comes down to results. Measurable results. With all adjustments, there must be a unit of measure. If not, it becomes impossible to measure the effectiveness of the change, and future decisions on adjustments become very difficult. Most think there must be some complex system for measuring impact and outcome, and that is just not true. In fact, like with most things, the more simple the better. This is yet another reason for only adjusting one thing at a time–it becomes much more difficult to measure impact when more than one variable is being manipulated at a time. 

The highly successful know the necessity of establishing a path, but they are ready to attack needed adjustments. Remember, never underestimate the impact that implementing one small adjustment can make. Don’t wait until the forth quarter to make the changes to your game plan necessary for the win.

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