Realty Income Corp. Has A Mission

By Rich Erwin on January 17, 2012

Rich Erwin, Founder, President and Chief Investment Officer of IAM.Realty Income (symbol: O) has a simpler business definition than any company I’ve studied over the past 39 years.  Its mission:  To Provide Dependable Monthly Dividends.  Yup, that’s all it’s been doing since 1969.

Today the company is a mid-sized organization with a market capitalization of $4.6 billion.  I guess I should clarify that.  Its market value is mid-sized but it operates with less than 80 employees. It makes you wonder how a company with $420 million in rental income can do well with such a lean staff.  It’s because they have a simple business strategy to back up their mission.

Realty Income owns 2,600 commercial properties in 49 states which it leases to more than 100 tenants.  In many cases, these businesses previously owned their buildings but decided they had better ways to deploy their cash than invest it in real estate.  Enter Realty Income.  They purchase the property and lease it back to the business operator on a long-term (15-20 year) net lease.  Under such an arrangement, the tenant pays operating expenses and sends its rent check to the new owner.

Realty keeps it simple in other ways.  They always buy properties with cash – no messing with mortgages.  Their strong balance sheet allows them to access banking institutions and the capital markets for funding.  If they have to move quickly to purchase a property, they borrow on short-term lines of credit.  After they own the real estate they turn around and fund it long-term by issuing new bonds and additional stock.

Careful property selection has led to better than 95% occupancy during the company’s entire existence.  The stability of this cash flow has allowed management to consistently reward its stakeholders.  Dividends have been increased annually since the corporation’s founding.  Because rents are paid monthly, company leaders decided they could pass that cash flow along to shareholders on the same schedule.  Management frequently refers to Realty Income as “the monthly dividend company”.

We are often told in life to just keep it simple. There is beauty in simplicity. One of IAM’s S.E.L.E.C.T companies, Realty Income Corporation, is good example of how a simple approach to business can be beneficial to shareholders.They also do a great job of communicating the company’s value proposition on their website — realtyincome.com.  Take a visit – and be sure not to miss the videos!

This investment takes the form of a real estate investment trust (REIT).  The REIT structure allows it to pass along income free of corporate income tax.  There are other tax considerations that may be best reviewed with a tax professional before investing.

Now here comes the good part.  The company’s dividend currently yields 5.0%.  Its payout amount has been slightly increased in more than 50 consecutive quarters.  Some of the company’s investors look at this investment as a substitute for lower-paying bonds and certificates of deposit. We view it as a conservative selection, with excellent qualities, above-average income, and the potential for modest capital appreciation.

With a company like this it’s easy to judge whether they stay true to their mission because it’s so clear.  We only wish all corporations would be so transparent in explaining their core values.

For other related Insights please see “Dividend Stocks – The Power of Compounding” and “Do Bonds Still Serve a Purpose in Investment Portfolios?”

Important Consumer Disclosure

This newsletter is limited to the dissemination of general information pertaining to Investors Asset Management, Inc.’s (“IAM”) investment advisory services and general economic market conditions.  This communication contains general information that is not suitable for everyone.  The information contained herein should not be construed as personalized investment advice, and should not be considered as a solicitation to buy or sell any security or engage in a particular investment strategy.  Information presented herein is subject to change without notice and should not be considered as a solicitation to buy or sell any security.  Past performance is no guarantee of future results, and there is no guarantee that the views and opinions expressed in this newsletter will come to pass. Individual client needs, asset allocations, and investment strategies differ based on a variety of factors.

The Select List represents all of IAM’s recommendations as of December 27, 2011.  Realty Income appears on IAM’s Select List of securities that the firm recommends. A list of all recommendations made by IAM within the immediately preceding one year is available upon request at no charge.  IAM is under no obligation to hold any equity position for any time period, and the recommendations on the Select List are subject to change at any time without notice.  The Select List should not be considered as personalized investment advice, and the securities information contained therein should not be construed as an endorsement, solicitation, or recommendation to purchase or sell any security.  Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment on the Select List, or any recommendations in the future, will be profitable.

IAM is an SEC registered investment adviser with its principal place of business in the State of Texas.  IAM and its representatives are in compliance with the current registration and notice filing requirements imposed upon registered investment advisers by those states in which IAM maintains clients.  IAM may only transact business in those states in which it is noticed filed, or qualifies for an exemption or exclusion from notice filing requirements.  Any subsequent, direct communication by IAM with a prospective client shall be conducted by a representative that is either registered or qualifies for an exemption or exclusion from registration in the state where the prospective client resides.  For information pertaining to the registration status of IAM, please contact IAM or refer to the Investment Adviser Public Disclosure web site (www.adviserinfo.sec.gov).  For additional information about IAM, including fees and services, send for our disclosure brochure as set forth on Form ADV using the contact information herein.

Investors Asset Management, Inc. ­ 5000 Legacy Drive, Plano, TX 75024 ­ www.iaminvest.com ­ 972-985-7162

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Do Bonds Still Serve A Purpose In Investment Portfolios?

By Rich Erwin on January 3, 2012

Rich Erwin, Founder, President and Chief Investment Officer of IAM.Yes, they do.  However, it’s getting harder and harder to embrace them for return.  Instead, they serve a purpose as a counterbalance to equities.  Historically, bonds have frequently risen when stocks have declined, and vice versa.  They’ve also been less volatile than stocks.  Finally, they generate reliable income.

During the Financial Crisis when stocks plummeted, investment grade bonds under IAM’s management declined much less.  This provided a benefit to investors with meaningful allocations to bonds as it reduced their portfolio losses.  Simple mathematics tells us it’s easier to recover from a 20% retreat than from a 30%-40% decline.  Of course, declines of this size are not common, but if they happen only once or twice when you’re no longer in the workforce the results can be devastating.

Fixed income instruments, such as bonds, are typically given greater representation in portfolios as people age.  The reason is it’s harder to recover from a significant loss in your 60s than it is in your 30s.  Also, retirees need to replace the income they previously generated as salary with investment income in order to maintain a comfortable lifestyle.  Younger investors with a desire to preserve capital may also benefit from this diversification.

Unfortunately, right now bonds aren’t doing too well as income generators.  If you were to focus on just the highest quality securities, U.S. Treasury notes and bonds, you’d quickly learn their income production is currently limited.  Five-year and ten-year notes presently yield only 0.86% and 1.88%, respectively.  Meanwhile, the Standard & Poor’s 500 stock index yields 2.15%.  This is a significant reversal from what we’ve seen over the past four decades.

Do Bonds Still Serve A Purpose In Investment Portfolios?This income divergence between stocks and U.S. Treasury securities might indicate that bonds are too popular at the moment and equities are cheap.  You must also take into account that fixed income is in fact “fixed.” Yields on U.S. Treasuries currently owned by investors will not rise over the next 5 and 10 year periods, while a number of high quality equities increase their dividends on an annual basis.

But this isn’t about whether stocks appear to be a better value than fixed income instruments.  It’s about how you achieve the safety and reduced volatility afforded by bonds in a low interest rate environment.

So let’s talk about which bonds might still be worth buying.  At Investors Asset Management, IAM, we are currently focusing on intermediate-term issues maturing in 3-7 years.  Our worry about longer dated bonds is the volatility they could incur if inflation increases and interest rates rise.  In my own experience, I saw bonds decline significantly when interest rates rose in the early 1970s.  I quickly learned that a 30-year bond can fall at a double-digit pace if interest rates surge.

Why is this?  Think about it.  Why would anyone want a 30-year U.S. Treasury bond currently yielding 2.9% if interest rates return to 5.0%, a level we’ve seen fairly recently?  What price would they be willing to pay for a low yielding security with many years left until maturity?  It certainly would be well below the purchase price.

That’s less of an issue with intermediate term bonds because you know they are going to come due at their face amount within a reasonable timeframe.  I’m not saying they won’t decline.  I’m telling you they will usually decline less and will mature in a few years.  Then you may be able to reinvest in securities with better interest rates.

Earlier on, I indicated five-year U.S. Treasury notes are paying only 0.86%.  We are not buying those securities today.  Our focus is on investment grade corporate bonds.  These are issues with a Baa3 or BBB- rating or higher.  We study the companies to reach a point at which we feel comfortable they will pay off their debt at maturity.  In late December we purchased issues maturing in about 3, 5, and 6 years with yields of 2.37%, 3.03%, and 3.71%, respectively.  They’re not spectacular, but they significantly exceed Treasury yields.  Municipal bonds also appear relatively attractive at the present time.

The percentage of a portfolio we allocate to bonds is determined by a client’s risk profile, a discussion of his or her comfort level, and the relative attractiveness of securities at the time.  Typically we come up with an allocation of 25% to 45% for someone in retirement.  That range is generally lower for clients born in later decades.  Of course, each individual is unique and IAM’s wealth managers work with you to determine which allocation is right for you.  Then we document it in an Investment Policy Statement and review that document on a regular basis.

In conclusion, bonds do still serve a purpose for many investors as anchors to their portfolio.  They generally provide relative stability and income, even when conditions become volatile.  We can’t say we’re excited about their trading levels, but it is possible to secure issues that pay income well above that offered by money market funds and certificates of deposit.

We hope this little primer on bonds is helpful to you and welcome any follow-up questions you might have.  Our Investment Team spends many hours searching out suitable securities and is happy to help anyone you might refer to us who is in search of income but wants to make sure it’s done in a SELECT manner.

Important Consumer Disclosure

This newsletter is limited to the dissemination of general information pertaining to Investors Asset Management, Inc.’s (“IAM”) investment advisory services and general economic market conditions.  This communication contains general information that is not suitable for everyone.  The information contained herein should not be construed as personalized investment advice, and should not be considered as a solicitation to buy or sell any security or engage in a particular investment strategy.  Information presented herein is subject to change without notice and should not be considered as a solicitation to buy or sell any security.  Past performance is no guarantee of future results, and there is no guarantee that the views and opinions expressed in this newsletter will come to pass. Individual client needs, asset allocations, and investment strategies differ based on a variety of factors.

IAM is an SEC registered investment adviser with its principal place of business in the State of Texas.  IAM and its representatives are in compliance with the current registration and notice filing requirements imposed upon registered investment advisers by those states in which IAM maintains clients.  IAM may only transact business in those states in which it is noticed filed, or qualifies for an exemption or exclusion from notice filing requirements.  Any subsequent, direct communication by IAM with a prospective client shall be conducted by a representative that is either registered or qualifies for an exemption or exclusion from registration in the state where the prospective client resides.  For information pertaining to the registration status of IAM, please contact IAM or refer to the Investment Adviser Public Disclosure web site (www.adviserinfo.sec.gov).  For additional information about IAM, including fees and services, send for our disclosure brochure as set forth on Form ADV using the contact information herein.

Investors Asset Management, Inc. ­ 5000 Legacy Drive, Plano, TX 75024 ­ www.iaminvest.com ­ 972-985-7162

 

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“The Mouse is (Still) in the House” — Why We Still Like Disney

By Leanne DeVey on December 20, 2011

Investment Analyst/Portfolio Manager Leanne DeVey joined the IAM team in 2008. We’ve previously written about Disney (“To Infinity and Beyond!” A Look at Disney as an Investment) and feel this is a company which continues to have terrific results and SELECT qualities.  You may be aware that Disney has diversified global operations in five media/entertainment segments: media networks (46% of fiscal year end revenues), theme parks and resorts (28%), studio entertainment (16%), consumer products/merchandise licensing (7%) and interactive media (2%).  Disney’s strong results are demonstrated by their fiscal fourth quarter diluted earnings per share which showed a 34.8% increase over the prior year quarter.

In a tough economy, how did Disney achieve this?  Disney’s consumer products/merchandise licensing, media networks and theme parks and resorts segments led the way with respective 21%, 20% and 18% operating income increases over last year.  Higher merchandise licensing revenues from the “Cars 2” movie and from Marvel characters accounted for the increase in the consumer products segment.  Media networks increased revenues due to higher advertising revenue and growth of ESPN and over 100 Disney Channels.  Theme parks and resorts had increased guest spending at domestic parks and resorts which resulted in the income increase over last year.  Now, before we get too deep into these numbers, let’s step back and take a look at Disney’s approach.

Strong leadership is one of the SELECT qualities we look for in companies and Disney has it.  Robert Iger, President and CEO of Disney, has been at the helm since October 2005.  His strategic thinking and team building, along with smart acquisitions, have positioned Disney well.  In a CEO spotlight article appearing in the 12/05/11 issue of Barron’s, Iger is quoted as saying “We believed that in a world that is more and more competitive… the value of quality brands was going to rise because of the sea of choice.  The need for speed means people will gravitate to things they know have value.”  With Disney, there are five easily identifiable brands: Disney, ABC, ESPN, Pixar and Marvel.  With this branding, Disney is now benefitting by globalizing entertainment.  Did you know Disney produced a version of the popular movie “High School Musical” in India, using local actors?

In the media/entertainment industry, Disney is also forward thinking.  They were the first company to provide video content for the iPod.   (Iger was named to Apple’s board of directors this November.)  Disney was also an original partner in the online content portal Hulu.  As more and more customers change their viewing methods, digital TV distribution, internet and pay-per-view transmissions will have to change to meet the demand.   Disney doesn’t shy away from technological advances.  This is evidenced by their $7.4 billion purchase of Pixar Studios in 2006.  To quote Iger “Pixar is the most important thing that has happened to this company in the past six years.” He states “the technology and innovation Pixar brought with it, the talent, success, brand value and bottom-line effect, have been far greater than what we paid.”

Let’s leave you with one parting thought about Disney (with apologies to Kermit the frog, appearing in the newest Disney movie “The Muppets”).  It IS easy “being green.”  Disney was ranked 23rd in Newsweek Magazine’s 2011 Green Rankings.

Important Consumer Disclosure

This newsletter is limited to the dissemination of general information pertaining to Investors Asset Management, Inc.’s (“IAM”) investment advisory services and general economic market conditions.  This communication contains general information that is not suitable for everyone.  The information contained herein should not be construed as personalized investment advice, and should not be considered as a solicitation to buy or sell any security or engage in a particular investment strategy.  Information presented herein is subject to change without notice and should not be considered as a solicitation to buy or sell any security.  Past performance is no guarantee of future results, and there is no guarantee that the views and opinions expressed in this newsletter will come to pass. Individual client needs, asset allocations, and investment strategies differ based on a variety of factors.

The Select List represents all of IAM’s recommendations as of August 15, 2011.  Disney appears on IAM’s Select List of securities that the firm recommends. A list of all recommendations made by IAM within the immediately preceding one year is available upon request at no charge.  IAM is under no obligation to hold any equity position for any time period, and the recommendations on the Select List are subject to change at any time without notice.  The Select List should not be considered as personalized investment advice, and the securities information contained therein should not be construed as an endorsement, solicitation, or recommendation to purchase or sell any security.  Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment on the Select List, or any recommendations in the future, will be profitable.

IAM is an SEC registered investment adviser with its principal place of business in the State of Texas.  IAM and its representatives are in compliance with the current registration and notice filing requirements imposed upon registered investment advisers by those states in which IAM maintains clients.  IAM may only transact business in those states in which it is noticed filed, or qualifies for an exemption or exclusion from notice filing requirements.  Any subsequent, direct communication by IAM with a prospective client shall be conducted by a representative that is either registered or qualifies for an exemption or exclusion from registration in the state where the prospective client resides.  For information pertaining to the registration status of IAM, please contact IAM or refer to the Investment Adviser Public Disclosure web site (www.adviserinfo.sec.gov).  For additional information about IAM, including fees and services, send for our disclosure brochure as set forth on Form ADV using the contact information herein.

Investors Asset Management, Inc. ­ 5000 Legacy Drive, Plano, TX 75024 ­ www.iaminvest.com ­ 972-985-7162

 

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Don’t Follow the Crowd – Let It Follow You

By Rich Erwin on December 5, 2011

Rich Erwin, Founder, President and Chief Investment Officer of IAM.We’re often told by clients that they chose IAM because of our expertise in individual securities.  They indicate a preference for well chosen, ethical companies over a broad mutual fund portfolio mimicking an index or one acquiring shares regardless of company operating practices.  Unfortunately, very few firms follow this approach because they view it as too time consuming or they lack expertise in security analysis.

This has been our only approach since IAM’s founding in 1983.  We realize it sounds good but we need to execute well to make it work.  Our results for growth, balanced, and income accounts are available on our website.

What I’m going to share with you today is one of the secrets to our stock selection methodology.  We move quickly to stay ahead of the crowd.  You may have heard in recent times that Warren Buffett purchased Burlington Northern and initiated a large position in IBM, two of his largest buys ever.  Well, IAM was in both stocks long before Warren stepped in.

Everyone nowadays seems to be touting dividend stocks.  IAM published an audio CD in September 2002 emphasizing the merits of high quality companies with better than average dividend payouts.  We also wrote about a recent hot topic — cloud computing –early in its evolution (May 2009 – Are There Profits In The Clouds?).

We don’t always succeed, but try very hard to get a jump on bigger players in our industry.  Why?  Because they’re the ones that move the markets.

As we look at the current environment, two industries appear to be rising from the ashes – autos and homebuilding.  In most past economic cycles those industries led the recovery.  Can you suppose why?  It’s because the majority of recessions are caused by tight monetary policy (higher interest rates) that limits purchases of high ticket items.  This time around it has been exactly the opposite.  Interest rates are low because people have overspent and need to pay down debt.  They haven’t been in a hurry to purchase big ticket items.

Don't Follow the Crowd - Let It Follow YouNevertheless, we think the time has come to take a look at successful companies in these industries.  There are clear signs today that auto sales are on the mend.  Last month was the best model month in more than two years!  Homebuilding also seems to be improving from a low base.  Housing start figures are showing signs of recovery.

So, how do we play this budding trend?  It’s particularly hard since we can’t find automakers or home builders that meet our SELECT criteria.  The answer is we participate in companies that supply these industries or benefit from their recovery.

Our favorite auto-related stock is Johnson Controls.  It is a major worldwide components supplier.  It manufactures everything from seating to door systems to batteries.  In the housing sector we like Rayonier.  Although it’s uniquely respected for its specialty fibers business, the company also produces logs for lumber and sells land to housing developers.  We also like Tempur-Pedic, a fast-growing global bedding supplier. Typically, furniture and bedding sales perk up with a rise in housing completions.

We would like to find more participants in these sectors but refuse to water down our SELECT framework to jump on a rising trend.  Our Investment Team, though, will continue to work hard to keep IAM’s clients ahead of the crowd.

 

Important Consumer Disclosure

This newsletter is limited to the dissemination of general information pertaining to Investors Asset Management, Inc.’s (“IAM”) investment advisory services and general economic market conditions.  This communication contains general information that is not suitable for everyone.  The information contained herein should not be construed as personalized investment advice, and should not be considered as a solicitation to buy or sell any security or engage in a particular investment strategy.  Information presented herein is subject to change without notice and should not be considered as a solicitation to buy or sell any security.  Past performance is no guarantee of future results, and there is no guarantee that the views and opinions expressed in this newsletter will come to pass. Individual client needs, asset allocations, and investment strategies differ based on a variety of factors.

The Select List represents all of IAM’s recommendations as of August 15, 2011.  A list of all recommendations made by IAM within the immediately preceding one year is available upon request at no charge.  IAM is under no obligation to hold any equity position for any time period, and the recommendations on the Select List are subject to change at any time without notice.  The Select List should not be considered as personalized investment advice, and the securities information contained therein should not be construed as an endorsement, solicitation, or recommendation to purchase or sell any security.  Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment on the Select List, or any recommendations in the future, will be profitable.

IAM is an SEC registered investment adviser with its principal place of business in the State of Texas.  IAM and its representatives are in compliance with the current registration and notice filing requirements imposed upon registered investment advisers by those states in which IAM maintains clients.  IAM may only transact business in those states in which it is noticed filed, or qualifies for an exemption or exclusion from notice filing requirements.  Any subsequent, direct communication by IAM with a prospective client shall be conducted by a representative that is either registered or qualifies for an exemption or exclusion from registration in the state where the prospective client resides.  For information pertaining to the registration status of IAM, please contact IAM or refer to the Investment Adviser Public Disclosure web site (www.adviserinfo.sec.gov).  For additional information about IAM, including fees and services, send for our disclosure brochure as set forth on Form ADV using the contact information herein.

Investors Asset Management, Inc. ­ 5000 Legacy Drive, Plano, TX 75024 ­ www.iaminvest.com ­ 972-985-7162

 

 

 

 

 

 

 

 

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It’s Time To Pump Energy Stocks Into Your Portfolio

By Rich Erwin on November 14, 2011

While gasoline prices have declined to just above the $3.00 per gallon level in the Dallas-Ft. Worth area, drivers and investors shouldn’t become complacent about modest post-summer price relief.  Prices for light sweet crude oil are again bumping up against the $100 level.  Today a barrel is trading for $96, up from a September low of $77.

Many economists predicted prices would trade around the $80 level for several months.  It appears those forecasts were low.  Interestingly, the vast majority of energy-related stocks are trading at levels that seem to endorse such forecasts.  We see a potential investment opportunity if analysts start to expect higher prices and increase their earnings’ forecasts.  This could be very good for equities, since the single most important influence on long-term prices is profits.

What could be an impetus for this to happen?  Our analysis indicates global supply and demand is continuing to tighten.  Producers just can’t seem to increase output equal to the rise in demand.  Higher utilization is coming from emerging market countries.  Some forecasters predicted that China’s economy would slow down significantly as a result of government credit restraints.  What seems to be occurring instead is a “soft landing” that will help remove excesses but bring little change in underlying energy demand.  By “soft landing” we mean Q3 GDP growth of 9% instead of 11%, a rate that is still many times that of the developed world.

It’s Time To Pump Energy Stocks Into Your PortfolioThe Chinese government’s latest 5-year plan calls for more emphasis on domestic consumption and less focus on exports.  This could reduce crude demand slightly as energy demand slows for manufacturers.  On the other hand, the country continues to experience a huge population shift from the country to cities.  The percentage of urban population has risen from just below 20% in 1980 to approximately 50% today and is currently rising at its fastest rate on record.  This should result in increased purchases of homes, vehicles, appliances, and many other items that consume energy.  The same trends apply to other Asian countries, although at different paces.

Looking at our SELECT List choices in this sector (Apache, Chevron, Devon Energy, Oceaneering International, Schlumberger, and Dynamic Energy Income Fund), one-half of them are trading at greater than a 20% discount to their yearly price highs.  All six are trading below their peaks.  In general, energy company earnings are expected to rise nicely at year-end and in 2012, despite slow growth in the overall economy.

We view the current period as a time to over-weight energy positions in investor portfolios.  They appear quite attractive in the current environment.  The sector is one our highest conviction opportunities into the first half of 2012.

For more information on energy stocks, please contact an IAM advisor.

 

Important Consumer Disclosure

This newsletter is limited to the dissemination of general information pertaining to Investors Asset Management, Inc.’s (“IAM”) investment advisory services and general economic market conditions.  This communication contains general information that is not suitable for everyone.  The information contained herein should not be construed as personalized investment advice, and should not be considered as a solicitation to buy or sell any security or engage in a particular investment strategy.  Information presented herein is subject to change without notice and should not be considered as a solicitation to buy or sell any security.  Past performance is no guarantee of future results, and there is no guarantee that the views and opinions expressed in this newsletter will come to pass. Individual client needs, asset allocations, and investment strategies differ based on a variety of factors.

The Select List represents all of IAM’s recommendations as of August 15, 2011.  A list of all recommendations made by IAM within the immediately preceding one year is available upon request at no charge.  IAM is under no obligation to hold any equity position for any time period, and the recommendations on the Select List are subject to change at any time without notice.  The Select List should not be considered as personalized investment advice, and the securities information contained therein should not be construed as an endorsement, solicitation, or recommendation to purchase or sell any security.  Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment on the Select List, or any recommendations in the future, will be profitable.

IAM is an SEC registered investment adviser with its principal place of business in the State of Texas.  IAM and its representatives are in compliance with the current registration and notice filing requirements imposed upon registered investment advisers by those states in which IAM maintains clients.  IAM may only transact business in those states in which it is noticed filed, or qualifies for an exemption or exclusion from notice filing requirements.  Any subsequent, direct communication by IAM with a prospective client shall be conducted by a representative that is either registered or qualifies for an exemption or exclusion from registration in the state where the prospective client resides.  For information pertaining to the registration status of IAM, please contact IAM or refer to the Investment Adviser Public Disclosure web site (www.adviserinfo.sec.gov).  For additional information about IAM, including fees and services, send for our disclosure brochure as set forth on Form ADV using the contact information herein.

 

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Revisiting Cloud Computing and EMC – A Socially-Responsible Company

By Rich Erwin on October 19, 2011

(10/19/11) When we first authored an article titled “Are There Profits in the Clouds?” (05/15/09), the movement toward cloud computing was still in its early stages.  (Please read our article as a primer on the subject.)   We’ve since seen rapid adaption of the technology among large entities and increasing utilization by SBMs (small and medium-sized businesses).

Three IAM SELECT List companies that participate in this marketplace are IBM, Cisco Systems, and Apple Computer.  Now, we’ve added another – EMC.   EMC is the world leader in high-performance storage products and software.  Its devices help retain large amounts of data transferred over the internet and utilized in business.  The company has the broadest portfolio of products, and largest global footprint, in its category.

We’ve liked EMC over the years, owning it in the 1990s and 2000s.  In fact, we would have been wise to have retained the shares when the U.S. economy went into its Great Recession in 2008.  At the time, we saw it as a cyclical company that would suffer from slower business activity.  We let go of the shares, replacing them with defensive securities that appeared better positioned to weather the turmoil.  As it turned out, the stock did fall for 6 months following our sale, but then started to climb, rising from a low of $8 per share in November ’08 to nearly $29 earlier this year.  (The shares now trade under $23.)

Cloud computing - Revisiting Cloud ComputingEMC is extremely well-positioned in the clouds.  “Cloud computing” is basically virtualized processing, a system allowing for efficient sharing of server and storage devices via “virtual machine software.”  Aside from increased demand for storage equipment, EMC benefits from this trend through its ownership of software provider VMWare.

VMWare developed the virtualization platform most commonly used today.  You see, EMC has always been a smart and visionary company.  It saw this whole “cloud” thing developing back in 2003, when it announced the purchase of VMWare (VMW) for $625 million.  Now, as a publicly-traded NYSE company, VMW is worth $38 billion.  That’s a value increase of 60x in less than 8 years!

EMC’s 80% interest in the company is now worth over $30 billion, a figure that represents 65% of EMC’s stock capitalization.  Analysts always discount this interest when calculating EMC’s share value, but it represents a sizable interest.

EMC also holds $3.7 billion in cash versus only $450 million in debt, a value of $2.50 per share.  When you pull out VMWare and cash, EMC’s shares trade at only 5x earnings.  This is a very low price for a company that’s grown its revenues at a 17.5% clip over the past five years.

We can go on and on about EMC, but will spare you the details.  It’s targeting the ”cloud”,  generating new products, gaining market share, increasing profitability and expanding globally.  Its sales force is one of the best in the technology sector.  Leadership has done a good job envisioning the future while operating the company in a sustainable manner.

EMC has been ranked in the top 50 of Corporate Responsibility Magazine’s 100 Best Corporate Citizens list for the past three years.  It’s also made Fortune’s Most Admired Companies list and received the Disability Matters award over that time frame, among other achievements.  Just this week it was selected #13 on Newsweek’s list of 500 U.S. Green Companies.

The stock doesn’t yet pay a dividend, but the company clearly has the wherewithal to do so.  In portfolios not focused on income or low risk we’ve trimmed back Pepsico (PEP) shares and replaced them with EMC.  We favor technology names in the current environment and are attempting to build up the sector with ethically-responsible companies.

If you would like more information on EMC or have questions on any investment subject, please contact us.  Our Investment Team is eager to share SELECT investment ideas and receive your inquiries.

 

Important Consumer Disclosure

This newsletter is limited to the dissemination of general information pertaining to Investors Asset Management, Inc.’s (“IAM”) investment advisory services and general economic market conditions.  This communication contains general information that is not suitable for everyone.  The information contained herein should not be construed as personalized investment advice, and should not be considered as a solicitation to buy or sell any security or engage in a particular investment strategy.  Information presented herein is subject to change without notice and should not be considered as a solicitation to buy or sell any security.  Past performance is no guarantee of future results, and there is no guarantee that the views and opinions expressed in this newsletter will come to pass. Individual client needs, asset allocations, and investment strategies differ based on a variety of factors.

The Select List represents all of IAM’s recommendations as of August 15, 2011.  A list of all recommendations made by IAM within the immediately preceding one year is available upon request at no charge.  IAM is under no obligation to hold any equity position for any time period, and the recommendations on the Select List are subject to change at any time without notice.  The Select List should not be considered as personalized investment advice, and the securities information contained therein should not be construed as an endorsement, solicitation, or recommendation to purchase or sell any security.  Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment on the Select List, or any recommendations in the future, will be profitable.

IAM is an SEC registered investment adviser with its principal place of business in the State of Texas.  IAM and its representatives are in compliance with the current registration and notice filing requirements imposed upon registered investment advisers by those states in which IAM maintains clients.  IAM may only transact business in those states in which it is noticed filed, or qualifies for an exemption or exclusion from notice filing requirements.  Any subsequent, direct communication by IAM with a prospective client shall be conducted by a representative that is either registered or qualifies for an exemption or exclusion from registration in the state where the prospective client resides.  For information pertaining to the registration status of IAM, please contact IAM or refer to the Investment Adviser Public Disclosure web site (www.adviserinfo.sec.gov).  For additional information about IAM, including fees and services, send for our disclosure brochure as set forth on Form ADV using the contact information herein.

 

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Dividend Stocks – The Power of Compounding

By Rich Erwin on September 26, 2011

(09/26/2011)  When was the last time you seriously thought about the power of compounding?  No, don’t stop reading and leave this article.  I know you’ll find it interesting and helpful if you follow it through to the end.

Seriously, compounded dividends provide a very powerful investment benefit.  I’d like to compare the income of high quality, blue chip dividend stocks to that of intermediate-term bonds.  Why?  Because in almost a four decade career in investment management, I’ve never seen such a disparity of returns.

Let’s take a quick look at what I’m talking about.  I promise this will be painless.

The current yield on a 5-year U.S. Treasury note is .84%.  What will the rate be as it finishes its full term?  Yup, you got it:  .84%.  Interest rates on Treasuries are fixed.  That’s why we call bonds “fixed income.”

With stocks the income is anything but fixed.  Dividend rates can rise, and they can fall.  There are thousands of stocks trading in the U.S. but, as of the end of last year, only about 200 had increased their dividend rate for 10 consecutive years.  That’s down 100 names from three years before. 

Yet, there are a number of companies that have proven their ability to reward shareholders year in and year out with a growing income stream.  I’d like to illustrate how important this can be to your investment return.  The numbers in parentheses are consecutive years of dividend boosts.

  Price Div. Yld. Gr. Rate 5-yr. Div. 5-yr. Yld.
Abbott Laboratories (38) 50.90 1.92 3.8% 9% 2.95 5.8%
Emerson Electric (54) 42.84 1.38 3.2% 6% 1.85 4.3%
Pepsico (39) 60.20 2.06 3.4% 6% 2.76 4.6%
Procter & Gamble (57) 61.06 2.10 3.4% 7% 2.95 4.8%
Realty Income REIT (16) 33.02 1.74 5.3% 3% 2.02 6.1%
Sysco (34) 25.86 1.04 4.0% 5% 1.33 5.1%
3M (52) 73.82 2.20 3.0% 12% 3.88 5.3%
UGI (23) 26.56 1.04 3.9% 6% 1.39 5.2%
Average (39)     3.75%     5.15%

 The eight companies listed above all represent different industries.  On average, they’ve increased their dividends for 39 consecutive years.  Pretty reliable, don’t you think?  Their current payouts yield more than 3.7%, almost 4.5x that of the 5-year U.S. Treasury note, and much more than a similar length corporate or municipal note.  These income winners are expected to ramp up their average dividend rate by 6.75% annually over the next 5 years, as forecast by Value Line.  At end of that period, the mean yield should be 5.15%. 

Here is your first quiz question:  What will the 5-year Treasury note yield at the end of its term?  You’re right:  .84%.  See how easy that was!  So, what would you prefer to own over the next half-decade – a note that pays .84%, or a group of proven dividend payers that distribute 3.75% and should increase that rate to 5.15%? 

Let’s not forget that stocks are more volatile than bonds and are, in fact, less safe.  On the other hand, all of these 8 equities have an S&P Quality Ranking of A+, A, or A-.  They have proven track records. 

Now for our final quiz questions.  What investment factor have we yet to mention?  I hope you said “growth.”  Will the bond grow in value over its 5-year tenure?  No.  What about stocks?  We don’t know, but history indicates they might appreciate as much as their estimated earnings growth, which consensus estimates indicate is 9%.  Even if they rise at just half that rate, some of us would be happy with the result. 

Personally, I have never known a more attractive time to buy and hold great companies with rising dividends.  I’m not predicting we’re at a bottom in the stock market or in these particular issues.  I’m just saying that it’s hard to find investment selections with more attractive features.

If you would like to learn more about dividend stocks, contact us.  And, if you think someone else might enjoy this analysis, please forward it to them and tell them we will gladly add them to our e-mail list.

Important Consumer Disclosure

This newsletter is limited to the dissemination of general information pertaining to Investors Asset Management, Inc.’s (“IAM”) investment advisory services and general economic market conditions.  This communication contains general information that is not suitable for everyone.  The information contained herein should not be construed as personalized investment advice, and should not be considered as a solicitation to buy or sell any security or engage in a particular investment strategy.  Information presented herein is subject to change without notice and should not be considered as a solicitation to buy or sell any security.  Past performance is no guarantee of future results, and there is no guarantee that the views and opinions expressed in this newsletter will come to pass. Individual client needs, asset allocations, and investment strategies differ based on a variety of factors.

The Select List represents all of IAM’s recommendations as of August 15, 2011.  A list of all recommendations made by IAM within the immediately preceding one year is available upon request at no charge.  IAM is under no obligation to hold any equity position for any time period, and the recommendations on the Select List are subject to change at any time without notice.  The Select List should not be considered as personalized investment advice, and the securities information contained therein should not be construed as an endorsement, solicitation, or recommendation to purchase or sell any security.  Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment on the Select List, or any recommendations in the future, will be profitable.

IAM is an SEC registered investment adviser with its principal place of business in the State of Texas.  IAM and its representatives are in compliance with the current registration and notice filing requirements imposed upon registered investment advisers by those states in which IAM maintains clients.  IAM may only transact business in those states in which it is noticed filed, or qualifies for an exemption or exclusion from notice filing requirements.  Any subsequent, direct communication by IAM with a prospective client shall be conducted by a representative that is either registered or qualifies for an exemption or exclusion from registration in the state where the prospective client resides.  For information pertaining to the registration status of IAM, please contact IAM or refer to the Investment Adviser Public Disclosure web site (www.adviserinfo.sec.gov).  For additional information about IAM, including fees and services, send for our disclosure brochure as set forth on Form ADV using the contact information herein.

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Are Autos Rolling Again? Johnson Controls – A Socially-Responsible Company

By Rich Erwin on September 23, 2011

(09/23/2011)  Last month our Investment Committee made the decision to swap holdings of Bemis, a leading packaging company, into Johnson Controls, a diversified manufacturer of auto parts and building control systems.

This change was led by two factors.  First, Bemis had not reaped the benefits we expected from its timely purchase of Alcan’s flexible food packaging business.  We liked the acquisition and felt it would vault the company into a strong global leadership position and substantially improve profitability.  The company delivered on the former, but not on the latter.  Profit margins and returns on capital have not risen.  In fact, most analysts have lowered their expectations on these fronts.

Johnson Controls, on the other hand, has boosted both measures to new decade highs despite only a gradual recovery in the auto industry – and they’ve done it with less debt.

A good question might be, why would anyone want to invest in a company that generates over one-half of its revenues and profits from the auto industry?  Isn’t that sector well past its prime?

We actually see good growth ahead for auto manufacturers and their suppliers.  Last year China became the largest auto consumer in the world.  It and other growth countries are in the early stages of vehicle consumption.  Meanwhile, car buyers in more mature markets are looking for greater safety, fuel efficiency, comfort, and a better environmental footprint.

Auto consumption in the U.S. is expected to approach 13 million vehicles over the next 12 months, a level that should grow through mid-decade.  Johnson Controls already provides components to 30 million vehicles worldwide.  Auto companies now build models on a world scale and expect strong suppliers to deliver parts around the globe.  Johnson provides seating, interior, and door systems as well as electronics and battery technology.  In just the past quarter, they completed 18 major launches for Ford Motor, KIA, Volkswagen, Tata Motors, Daimler AG, and Honda Motor.

A recent development is their advancement in start-stop batteries, a technology that shuts down and restarts an internal combustion engine to reduce the time it spends idling while stopped.  This improves fuel economy and reduces emissions by 5-12%.  Johnson plans to produce 2.4 million of these batteries annually by 2015 from plants in Germany, the United States, and China.

To demonstrate its socially-responsible characteristics, all you have to do is list its recent awards:

  • #1 of Best Corporate Citizens in 2011 as ranked by CR magazine
  • One of the World’s Most Ethical Companies named by Ethisphere magazine
  • #14 among Greenest Big Companies in America in 2010 – Newsweek
  • #1 most shareholder-friendly company in its industry by Institutional Investor
  • Supplier of the year in 2010 – General Motors
  • Sole source provider of automotive batteries in 2010 – Walmart
  • #7 of top 100 U.S. firms as Military-Friendly Employer in 2011 – G.I. Jobs
  • National Minority Supplier Development Council 2008 Corporation of the Year

It’s also been listed in the Dow Jones Sustainability Indexes:  World and North America since 2005 and the FTSE4Good Index Series (Financial Times Stock Exchange) since 2004.  Carbon Disclosure Project named it to its Carbon Leadership Indexes in 2008 and 2010.

While much of the economy is in a slow growth phase, the auto industry appears to be on a steady recovery path.  It will take some time before production reaches pre-recession levels, but vehicle replacement demand will not suddenly disappear. 

Johnson Controls has navigated tough times well, having recovered to new all-time high profit levels in 2011, two years after the recession.  Its dividend has risen steadily in recent decades, now generating a yield of 2.1%, more than a 10-year U.S. Treasury note.  Next year’s earnings per share are expected to rise 29%, many multiples more than the U.S. corporate average.

We believe this is a good time to participate in a rejuvenating global auto industry via a participant known for high ethical standards and investor-friendly practices.  And, we’ve not even begun to talk about the company’s efforts to make buildings operate more efficiently.  I bet you’d like me to stop here, though, before I go off in a new direction.

If you’d like more information on this company, or others on our SELECT List, just contact us.  We’d love to let you know more about some of the world’s best corporate citizens.

Important Consumer Disclosure

This newsletter is limited to the dissemination of general information pertaining to Investors Asset Management, Inc.’s (“IAM”) investment advisory services and general economic market conditions.  This communication contains general information that is not suitable for everyone.  The information contained herein should not be construed as personalized investment advice, and should not be considered as a solicitation to buy or sell any security or engage in a particular investment strategy.  Information presented herein is subject to change without notice and should not be considered as a solicitation to buy or sell any security.  Past performance is no guarantee of future results, and there is no guarantee that the views and opinions expressed in this newsletter will come to pass. Individual client needs, asset allocations, and investment strategies differ based on a variety of factors.

The Select List represents all of IAM’s recommendations as of August 15, 2011.  A list of all recommendations made by IAM within the immediately preceding one year is available upon request at no charge.  IAM is under no obligation to hold any equity position for any time period, and the recommendations on the Select List are subject to change at any time without notice.  The Select List should not be considered as personalized investment advice, and the securities information contained therein should not be construed as an endorsement, solicitation, or recommendation to purchase or sell any security.  Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment on the Select List, or any recommendations in the future, will be profitable.

IAM is an SEC registered investment adviser with its principal place of business in the State of Texas.  IAM and its representatives are in compliance with the current registration and notice filing requirements imposed upon registered investment advisers by those states in which IAM maintains clients.  IAM may only transact business in those states in which it is noticed filed, or qualifies for an exemption or exclusion from notice filing requirements.  Any subsequent, direct communication by IAM with a prospective client shall be conducted by a representative that is either registered or qualifies for an exemption or exclusion from registration in the state where the prospective client resides.  For information pertaining to the registration status of IAM, please contact IAM or refer to the Investment Adviser Public Disclosure web site (www.adviserinfo.sec.gov).  For additional information about IAM, including fees and services, send for our disclosure brochure as set forth on Form ADV using the contact information herein.

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Finding Growth in Smaller Socially-Responsible Companies

By Rich Erwin on September 9, 2011

(09/09/2011)  At IAM’s core is our philosophy of investing in companies with SELECT qualities.  The SELECT acronym stands for key characteristics we seek in companies:

 S = shareholder-friendly

E = environmentally-responsible

L = leadership with a vision

E = employee-fair

C = customer-focused

T = time proven

It’s easiest to find these qualities demonstrated by companies of size with long track records.  Good examples are Apple, Colgate-Palmolive, Costco Wholesale, Emerson Electric, Nike, and United Parcel Service.  They’ve had many years to prove their adeptness and have grown large enough to be well-scrutinized.

The largest companies on IAM’s SELECT List are valued highly in the market place.  Apple is worth $355 billion.  IBM, Chevron, and Procter & Gamble are all approaching $200 billion.  Today I’d like to talk about smaller companies.  Why?  Because their size provides them with opportunities for expansion and growth.

A year ago, IAM had just two SELECT companies with less than $10 billion in market capitalization, or size, outside of utilities.  We’ve diligently researched to find more companies in this category with SELECT qualities.  We now have eight in this group.

The new additions span the economy.  Let’s just look at what they do.  I’ll address them alphabetically.  Fossil (FOSL) is a rapidly-growing marketer of accessories and apparel.  It’s best known for its retro watches.  Oceaneering International (OII) is the world leader is subsea products and services, including remote operating vehicles (ROVs) that help oil drillers as they connect equipment in deep ocean environments.

Rayonier REIT (RYN) owns timber and sells land, but does much more.  Its leading business is the manufacture of specialty fibers used for various purposes such as high-tech filters and elements used in LCDs.  Realty Income REIT (O) is the “monthly dividend company.”  It has a 40-year history of buying real estate to lease back to retail stores and other business owners.  It made it through the “Great Recession” without dipping below a 96% occupancy rate.  And, of course, it pays a monthly dividend that increases each quarter.

Tempur-Pedic (TPX) is a rapidly expanding global manufacturer of bedding designed to provide greater comfort and better sleep.  It’s more than tripled in size over the past nine years and appears headed for further growth as it broadens its offerings, penetrates additional stores, and expands abroad.  Werner Enterprises (WERN) is a truckload carrier focused on service-sensitive markets and logistics.  It uses the latest technology and methods to assure dedicated delivery services to major U.S. retailers and customers with complex requirements.

IAM has long been known for its focus on SELECT investment criteria and its ability to identify high-quality, dividend-producing stocks.  Over the past year we’ve broadened our efforts to include a much wider assortment of smaller, growth companies.  Some of these pay good dividends, while others pay none.  All of them meet our SELECT standards.  We haven’t lowered to bar to go for growth.

Actually, this effort was founded upon our vision of the future.  We see a somewhat lengthy period of slow growth for mature economies, such as the U.S. and Europe.  Large companies with strong operations in emerging economies will likely continue to thrive.  Smaller companies with new products and services will also do well as they expand their footprint domestically and abroad.

What’s different in this decade is there seems to be fewer emerging growth stocks around.  The days of rapid expansion in the U.S. seem to be gone.  We believe companies that have moved up into the mid-capitalization category ($3 billion to $10 billion) and have proven growth plans will become more highly valued by investors.  It’s the scarcity factor, just as we’ve often cited for companies with steadily growing dividends.

We believe these mid-cap, SELECT companies will garner more attention this decade from large investors and, consequently, rise in value.  It’s time for us to get our investment clients out ahead of this movement and positioned for growth in the decade of the ‘10s.

 If you want to discuss any of these names, contact us.  We’d be happy to review their potential for your portfolio.

Important Consumer Disclosure

This newsletter is limited to the dissemination of general information pertaining to Investors Asset Management, Inc.’s (“IAM”) investment advisory services and general economic market conditions.  This communication contains general information that is not suitable for everyone.  The information contained herein should not be construed as personalized investment advice, and should not be considered as a solicitation to buy or sell any security or engage in a particular investment strategy.  Information presented herein is subject to change without notice and should not be considered as a solicitation to buy or sell any security.  Past performance is no guarantee of future results, and there is no guarantee that the views and opinions expressed in this newsletter will come to pass. Individual client needs, asset allocations, and investment strategies differ based on a variety of factors.

The Select List represents all of IAM’s recommendations as of August 15, 2011.  A list of all recommendations made by IAM within the immediately preceding one year is available upon request at no charge.  IAM is under no obligation to hold any equity position for any time period, and the recommendations on the Select List are subject to change at any time without notice.  The Select List should not be considered as personalized investment advice, and the securities information contained therein should not be construed as an endorsement, solicitation, or recommendation to purchase or sell any security.  Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment on the Select List, or any recommendations in the future, will be profitable.

IAM is an SEC registered investment adviser with its principal place of business in the State of Texas.  IAM and its representatives are in compliance with the current registration and notice filing requirements imposed upon registered investment advisers by those states in which IAM maintains clients.  IAM may only transact business in those states in which it is noticed filed, or qualifies for an exemption or exclusion from notice filing requirements.  Any subsequent, direct communication by IAM with a prospective client shall be conducted by a representative that is either registered or qualifies for an exemption or exclusion from registration in the state where the prospective client resides.  For information pertaining to the registration status of IAM, please contact IAM or refer to the Investment Adviser Public Disclosure web site (www.adviserinfo.sec.gov).  For additional information about IAM, including fees and services, send for our disclosure brochure as set forth on Form ADV using the contact information herein.

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When They Start Selling – Think Twice About Buying

By Rich Erwin on August 31, 2011

(08/29/2011)  While reading this headline you probably thought I was referring to smart money in the stock market.  That’s where all the fear and uncertainty is now and investors are keeping a finger to the wind to see which way it’s blowing.  Not a bad idea.  It’s always good to get a sense of what savvy market participants are doing with their money.

So, if this isn’t about equities what is it about?  Bonds!  This year large companies with sizable coffers of cash are selling bonds to investors.  A few of those issuers are AT&T, Google, Johnson & Johnson, Microsoft, Disney, and Pepsico.  This week the latter two priced large offerings. 

Disney issued $1.85 billion in debt in three tranches.  The shortest was a 5-year note with a 1.35% coupon.  The next was a 10-year note paying 2.75% (sold at a modest discount).  Finally there was a 30-year bond with a 4.375% rate (also priced below par).

Pepsico announced two offerings.  The first was a 3-year note with a 0.8% coupon, while the second was a 10-year note with a 3.0% coupon.  This follows a sale in May of $1 billion 5-year notes at a 2.5% rate and $750 million at a ridiculously low floating rate of 8 basis points above the 3-month London interbank rate.  So far in August alone large companies have sold $20 billion in low-priced debt.

So what does this tell us?  Large companies are selling debt they don’t really need.  It indicates they think money is as close to free as they’re going to get.  Rates may stay at this level for some time if the Fed continues to try to stimulate a recovery and avoid deflation, but these rates are just too attractive for corporate treasurers to pass up.

Then if they’re so great for the seller, what does that mean for the buyer?  Take a guess.  It tells us they’re probably pretty unattractive if you have an intermediate-term timeframe or longer. 

So, what is a person desiring income and stability supposed to do?  Investment grade notes still have a place in individual portfolios but they just won’t earn returns you’ve enjoyed in the past.  They provide safety and stability, but not a whole lot of payback.

In today’s environment there is no silver bullet.  You have to scrounge for every bit of income you can get.  At IAM, we search diligently for corporate notes that generate as much income as can be safely gathered.  We stay in investment grade names, but reach below the names listed above.  This month we’ve purchased securities of JP Morgan Chase, W.R. Berkley, Magellan Midstream, Questar, Rowan Companies, and Wachovia (now Wells Fargo).  Some days good selections are few and far between.  It requires a lot of looking.

We’ve also added Realty Income REIT to our SELECT List.  It pays a monthly dividend that yields 5.4% on an annual basis.  The company’s occupancy rate is presently above 97%.

IAM’s SELECT Dividend List (SDL) is composed of 29 names with an average yield of 3.8%.  Those dividends as a group are expected to grow 7% per annum.  At that rate they should yield 5.3% in five years. Compare that to the bond rates listed at the top of this article.  We’ve just recently e-mailed the SDL to clients.

These approaches may provide some relief from low interest rates on money market funds, certificates of deposit, U.S. Treasury bills, fixed annuities and other traditional income-producing investments.  They aren’t the same financial instruments, though.  These have higher levels of volatility and risk.  Yet, they’re not illiquid, low quality, or loaded with large sales charges.  These are mainstream investments that work for some who have already set aside their “rainy day reserves”.

We would be glad to discuss them with you or with someone you refer to IAM.  Just send an e-mail or give us a call.

Important Consumer Disclosure

This newsletter is limited to the dissemination of general information pertaining to Investors Asset Management, Inc.’s (“IAM”) investment advisory services and general economic market conditions.  This communication contains general information that is not suitable for everyone.  The information contained herein should not be construed as personalized investment advice, and should not be considered as a solicitation to buy or sell any security or engage in a particular investment strategy.  Information presented herein is subject to change without notice and should not be considered as a solicitation to buy or sell any security.  Past performance is no guarantee of future results, and there is no guarantee that the views and opinions expressed in this newsletter will come to pass. Individual client needs, asset allocations, and investment strategies differ based on a variety of factors.

The Select List represents all of IAM’s recommendations as of August 15, 2011.  A list of all recommendations made by IAM within the immediately preceding one year is available upon request at no charge.  IAM is under no obligation to hold any equity position for any time period, and the recommendations on the Select List are subject to change at any time without notice.  The Select List should not be considered as personalized investment advice, and the securities information contained therein should not be construed as an endorsement, solicitation, or recommendation to purchase or sell any security.  Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment on the Select List, or any recommendations in the future, will be profitable.

IAM is an SEC registered investment adviser with its principal place of business in the State of Texas.  IAM and its representatives are in compliance with the current registration and notice filing requirements imposed upon registered investment advisers by those states in which IAM maintains clients.  IAM may only transact business in those states in which it is noticed filed, or qualifies for an exemption or exclusion from notice filing requirements.  Any subsequent, direct communication by IAM with a prospective client shall be conducted by a representative that is either registered or qualifies for an exemption or exclusion from registration in the state where the prospective client resides.  For information pertaining to the registration status of IAM, please contact IAM or refer to the Investment Adviser Public Disclosure web site (www.adviserinfo.sec.gov).  For additional information about IAM, including fees and services, send for our disclosure brochure as set forth on Form ADV using the contact information herein.

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