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There is a great article in today’s Wall Street Journal regarding BHP’s decision to hold on to its cash rather than waste it on vastly increased dividends.

BHP Billiton may have brushed off the recession, but investors are now grumbling at the mining giant’s reluctance to indulge them with fatter dividends and a big share buyback. But BHP boss Marius Kloppers is right to stand his ground. With the global economic recovery far from assured, maintaining a cash cushion to protect long-term capital spending and to be able to pounce on acquisition opportunities make sense.

Despite the recession, BHP reported underlying earnings down just 6% in the six months to June 30 thanks to buoyant copper prices and record iron ore and coal output. As a result, net debt is now equivalent to a little more than a third of annualized earnings before interest, taxesl depreciation and amortization, a fraction of its nearest rivals. Yet Mr. Kloppers raised the interim dividend by just two cents to $0.42. There is no plan for more share buybacks. Nor has BHP taken advantage of industry distress to make substantial acquisitions during the downturn.

I haven’t reviewed BHP for this site yet but, in general, I don’t think it is a very good investment. The reason is not because of their lack of dividends though but rather their lack of solid sustained growth in the categories that matter:

  • Sales
  • Earnings per share
  • EBIT
  • Price per Earnings

Taking profits from the corporation to give to the owners doesn’t make a better company – it makes owners happy in the short term but it doesn’t make the company better in the long-term. While I don’t begrudge a corporation the right to pay dividends, I do think that they should only do this when they have got the rest of the company in order.  In the case of BHP, they should spend some of that cash on improvements that will make BHP a Good Company.

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I just read a great interview with Doug Kass of Seabreeze Partners.  The interview is on Benzinga.com. I thought the following quote was the most relevant as it completely agrees with my basic investing philosophy as well as the philosophy of my upcoming book.

Q: What is one paradigm that aspiring traders or investors must adhere to or understand in order to find success?

A: There are five basic tenets to investing success that I would give to any trader or investor:

  1. Stop your losses and let your profits run.
  2. Don’t use leverage.
  3. Be diversified.
  4. Always remember that it is better to lose opportunity than lose capital.
  5. Don’t forget #1!

You can read the entire interview here.

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I have heard various versions of this over the years. I am not proposing that you use this legend as a way to invest your money. In fact, quite the opposite, you should only invest best on solid analysis of the company and have some mathematically pure methods of estimating the pricing points. However, with the game today, it is fun to think about this.

I don’t know what the outcome of today’s game will truly bring. The Indianapolis Colts are one of the oldest teams in professional football as they were originally part of the NFL as the Baltimore Colts. This lineage says that they should be a NFC team but today they represent the AFC. The Saints are an expansion team and have always been in the NFC. So with the legend, they would both be considered NFC teams – so maybe the bull market is a sure thing!

I think that I know some mutual fund managers that have not predicted the market as well as this technique though!

I picked this up over at Snopes.com.  You can go there to read more about what they said.

Want to know if the bulls or bears will be rampaging through the market this year? Popular wisdom says look to the Super Bowl for the answer because a seemingly startling correlation appears to exist between who wins the big game and how the market will perform in that calendar year. According to the “Super Bowl Indicator,” a triumphant team from the old American Football League (now the American Football Conference, or AFC) foreshadows a down market, but a winner from the old NFL (now the National Football Conference, or NFC) means dust off your red cape, because the bulls are coming.

The Super Bowl Indicator (SBI) has been on the money 32 years out of 40, which represents a success rate of 80%.1 Between 1967 and 1997 it was accurate 28 times out of 31 (a better than 90% average); it then hit the skids, going 0-4 between 1998 and 2001, but rebounded by being correct 4 years out of 5 between 2002 and 2007.2

Due to league expansion, franchise moves, and conference shifts, the SBI has posed some interpretive problems in recent years as fewer and few Super Bowls pit former AFL teams against old-line NFL teams. Both the 2003 and 2004 championship games featured post-merger expansion teams (the Tampa Bay Buccaneers and Carolina Panthers) and the 2007 contest was waged between two original NFL teams (the Colts and the Bears).

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If Uncle Sam got a bigger chunk of your paycheck last year than you’d like – or if you’re dreading the big check you’ll have to write on April 15 – it might cheer you up to look forward to some new tax breaks for 2010. The IRS generally introduces tax changes as the year progresses, but some new tax breaks that have already been announced can help lower your tax bill this year (and next year).

I tend to stay away from offering too much tax advice. In general, good advice only comes with a solid conversation about your particular situation. If you do not have a tax adviser helping you, you probably should.

Investopedia details a few that you should investigate. Jump over there and read the full article but here is a quick list:

  • Homebuyer Credit
  • Earned Income Tax Credit
  • No More Limits on Roth Conversions
  • Haiti Relief Donations
  • Making Work Pay Credit
  • Homebuyer Credit

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United Parcel Service (UPS) is currently rated as a Fair Company in my analysis.  The numbers are excellent in certain areas of their operations but their P/E compared to their peers is lower than it should be.  Also, they could stand better growth in Sales as well as better employee productivity.

However, the company is better than many companies and I would never ridicule anyone for owning its stock. I just think there are better companies on the market.

UPS just posted very good returns. If they continue this pace and fix a few other portions of their business, then they will be a Good Company very soon.  The following is from Business First:

United Parcel Service Inc.’s fourth-quarter net income rose 198 percent behind a strong performance from its international package business.

Atlanta-based UPS (NYSE: UPS) said fourth-quarter net income rose to $757 million from $254 million a year earlier. Earnings per share increased to 75 cents from 25 cents during the same period.

UPS’s earnings in the fourth quarter of 2008 included a $548 million goodwill impairment charge in the UPS Freight unit and a $27 million impairment charge in its European package operations.

Fourth-quarter revenue declined 2.5 percent, to $12.4 billion from $12.7 billion. Revenue in UPS’s international package business increased 5.8 percent, to $2.8 billion from $2.7 billion. Revenue in the domestic package operations fell 5.5 percent, to $7.6 billion from $8 billion. Revenue in UPS’s supply chain and freight division fell 1.8 percent, to $2 billion from $2.1 billion.

A consensus of financial analysts polled by Thomson Financial Network had predicted earnings of 74 cents per share on revenue of $12.3 billion.

UPS, which operates its largest international air cargo sorting hub, Worldport, at Louisville International Airport, had an average daily shipping volume of 17.3 million packages per day in the fourth quarter, unchanged from the year-earlier period.

Domestic volume declined to an average of 14.9 million packages per day from 15.1 million packages a year earlier. International volume during the same period increased to 2.4 million packages per day from 2.2 million.

UPS ended 2009 with $2.1 billion in cash and short-term investments.

“UPS ended 2009 on a high note by leveraging network changes implemented throughout the year and executing flawlessly during the peak holiday shipping period,” UPS chairman and CEO Scott Davis said in a news release.

“The company demonstrated its ability to manage effectively in changing market conditions,” he said. “UPS has emerged from the worst recession in decades leaner, more focused and better positioned to take advantage of global trade.”

For the full year, UPS reported net income of $2.2 billion, or $2.14 per share, compared with $3 billion, or $2.94 per share, a year earlier.

Revenue declined to $45.3 billion from $51.5 billion.

For the full year, UPS delivered 3.8 billion packages, an average of 15.1 million per day, down from 15.5 million per day in 2008, according to the release.

UPS predicted full-year 2010 earnings in the range of $2.70 to $3.05 per share.

“Economic forecasts indicate gradual improvement as 2010 unfolds,” UPS Chief Financial Officer Kurt Kuehn said in the release. “The first quarter will be the most challenging of the year for UPS with profitability only slightly better than last year.”