TFSA – Tax Free Savings Account

As I’m sure you have probably heard the recently released budget contains a proposed “Tax Free Savings Account”. This proposed account will allow individuals to contribute up to $5000 annually into an account that can accumulate interest, capital gains and dividend tax free. As there is already a lot of information circulating regarding these new accounts I won’t try to rehash it all but instead provide you some links to sites that you may be interested in:

-How to Profit from a Tax Free Savings Account (click here)

-TFSA Bonanza (click here)

-The Tax-Free Savings Account (TFSA) – A Creative Financial Approach (click here)

-Federal Budget 2008: Tax Free Savings Account (click here)

-Benefits of Tax Free Savings Account (click here)

-Tax Free Savings Account (click here)

-Juggling the Mortgage, RRSP’s and TFSA’s (click here)

-Tax-Free Savings Account (click here)

Citigroup - C

"Citigroup is organized into four major business groups: Global Consumer; Markets and Banking (M&B); GlobalWealth Management; and Alternative Investments. The Citigroup Global Consumer business includes banking services, credit cards, loans and insurance. The M&B business is in about 100 countries and advises companies, governments, and institutional investors on the best way to realize their strategic objectives. The GlobalWealth Management division at Citigroup is comprised of The Citigroup Private Bank, Smith Barney (private wealth management), and Citigroup Investment Research,and serves both private and institutional clients.”

Here are my reasons for averaging down:
-As a general rule I’ve found that the best time to buy large multinational blue chips is when everyone else hates them.
-Currently 45% of their revenue is generated outside of the United States and their current focus is to increase this number to 60%.
-They have the world’s largest credit card operation.
-In my opinion they are extremely well positioned to expand their international operations.
-Management is aggressively working to rebuild their capital base.
-The potential exists to unlock some value if Citi is broken up into separate entities.
-I believe long term this franchise will be a survivor

PE – 34.3
Estimated 2007 PE – 8.9X
Estimated 2008 PE – 6.8X
Current dividend yield – 5.13%
Price/Book – 1.1X

Other Facts:
-S&P recently downgraded them from 5 stars (strong buy ) to 3 stars (hold). However, they have a 12 month $35 price target
-Argus recently reduced their 1 year target price to $35 from $55 but are maintaining a buy rating.

Calculated Fair Value:
I’ve calculated the fail value of C (based on current information) to be approximately $32.81. My estimate is a little more conservative than both S&P and Argus however, from it’s current price there is a 31% upside.

As I mentioned in yesterday’s post, I initiated a half position in C last November and a bought another quarter position last week. I will continue to watch the developments on this name and am not opposed to initiating another quarter position in the future.

(Disclaimer: I currently own shares of C. However,I’m not your boss or your spouse so do you own research and make your opinions on when to buy or sell. Nothing I say should be bastardized or construed in any way to be advice.)

Citigroup – C

I'm currently travelling so this post will be short.

Last Friday I added about a quarter position to my Citigroup holding. I continue to like Citi for the same reasons as I did when I originally initiated a position in November. Tomorrow I’ll provide a full analysis of C as well as the new fair price that I’ve calculated.

Johnson & Johnson - (JNJ)

“Johnson & Johnson is engaged in the manufacture and sale of a broad range of products in the health care field in many countries of the world. The company's worldwide business is divided into three segments: Consumer; Pharmaceutical; and Professional.”

Dividend Yield: 2.64%
Dividend Yield 5yr Avg: 1.9 %
ROE levels of above 21% for the past 10 years
Current P/E– 17.3
Projected 2008 P/E –14.3
Projected 2009 P/E – 13.6
4 Star rating from S&P - $74 one year target
Argus rates it a buy with a $75 one year target

Other information:
-44 years of consistent dividend growth.
-3 year average dividend growth rate: 14%
-5 year average dividend growth rate: 15.5%
-5 year average dividend payout ratio: 40%
-Dividends issued to shareowners every quarter since 1944.
-Dividend raised each year for 44 consecutive years.
-Sales have increased each year for 73 consecutive years.
-Double digit Earnings increases for 21 consecutive years.
-44% of sales outside of North America

Calculated Fair Value:
The fair price I calculated for this stock is $67.

(Disclaimer: I currently own shares of JNJ. However, I am not a financial advisor. Please do your own research and make your opinions on when to buy or sell. Nothing I say should be bastardized or construed in any way to be advice.)

Sub Prime Explained

Here's a funny little cartoon series that actually does a good job explaining the subprime mess. It’s definitely worth the read.

http://docs.google.com/TeamPresent?docid=ddp4zq7n_0cdjsr4fn&skipauth=true&pli=1

3M - MMM

Today I’d like to take a look at this member of the “Broad Dividend Achievers”.

“3M Company is a diversified technology company with leading positions in consumer and office; display and graphics; electronics and telecommunications; health care; industrial; safety, security and protection services; transportation and other businesses. They are an integrated enterprise characterized by substantial intercompany cooperation in research, manufacturing and marketing of products.”

They trade under the symbol MMM on the New York Stock Exchange and are included in the following indexes Dow Jones Composite, Dow Jones Industrial, S&P 100, S&P 500 and S&P 1500 Super Comp.

-Current P/E – 14.5X
-2008 Estimated PE – 14.7X
-2009 Estimated PE – 13.3X
-ROE – 37.74%
-Current Yield – 2.36%
-5 Year Average Yield – 2%
-Current Payout Ratio – 33.5%
-5 Year Historical Payout Ratio – 39%
-3 year dividend growth rate – 10.02%
-5 year dividend growth rate – 10%

Other Facts:
-Dividend History: Paid quarterly since 1916
-60% of their revenues now come from outside the US
-Increased the quarterly every year for the last 50 years.
-Have a long history of innovation
-S&P Rating: 3 stars, Hold, $85 target price (5.4% upside)
-Argus Rating: Buy, $105 target price (30% upside)

Calculated Fair Value:
The fair price I calculated for this stock is $85.62. This is virtually identical to the target calculated by the analysts at S&P. This represents a 5.2% discount to the current price of $79.52.

(Disclaimer: I have a position in MMM but am not a financial advisor. Please do your own research and make your opinions on when to buy or sell. Nothing I say should be bastardized or construed in any way to be advice.)

3M – Increases Dividend

On Feb 11th, 3M announced a 4.2% increase in their quarterly dividend, making 2008 the 50th consecutive year that the company has increased their dividend. Although, the dividend increase is only marginally above the rate of inflation their payout ratio has slowly been coming down. The 5 year average payout ratio is approximately 39% while their current payout ratio is about 33.5%. The Moneygardener has suggested on his blog that perhaps the paltry dividend increases are a result of 3M bulking up for future acquisitions and I certainly agree that’s a probable option. However, another reason for the small dividend increase could simply be that management is taking a cautious approach. I’m speculating that the management at 3M is like most of the large and small players in the market, just waiting to see what happens to U.S economy. Will there be a recession? If so how bad will it be? Although, 60% of 3M’s revenue now comes from outside the U.S they are still very closely tied to the U.S economy and are often used as a barometer for the overall health of the U.S economy.

As an investor in 3M I like to see management taking a cautious approach. Personally, I would rather a small dividend increase in uncertain markets than a large dividend increase that could become unsustainable if global markets start to erode.

(Disclaimer: I currently own shares of MMM. However, I am not a financial advisor. Please do your own research and make your opinions on when to buy or sell. Nothing I say should be bastardized or construed in any way to be advice.)