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Investing Specialists

Morningstar Runs the Numbers

We take a numerical look through this week's Morningstar research. Plus, our most popular articles and videos for the week ended Nov. 9.

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Inspired by Harper's Index (with a tip of the hat to FiveThirtyEight's Significant Digits blog), Morningstar Runs the Numbers uses a numbers-based approach to highlight recent Morningstar research, along with some outside news stories.

Christine Benz published her annual roundup of capital gains distributions, and it is going to be another painful year for some fund shareholders. One standout is  Harbor International (HIINX) which will distributing 40% of its NAV as capital gains following a manager change earlier this year, larger than the one-third distribution that had been initially foreseen. Across the board what’s keeping these distributions high? Benz writes:


After all, the same factors that led funds to make big distributions in 2017 are in place again this year. Because stocks have been running up for the better part of a decade, most U.S. equity funds hold appreciated holdings in their portfolios. At the same time, investors continue to yank their dollars from many actively managed funds, and that forced selling can force management to sell appreciated positions. Those distributions, in turn, are made to a reduced group of shareholders. That's where big capital gains distributions come in.

Erin Lash thinks investors should look to the cereal aisle for dividends. She highlights opportunities in  Kellogg (K) and  General Mills (GIS). For General Mills, she thinks the firm’s acquisitive streak won't dent the dividend.


We model a dividend payout ratio averaging 65% over our 10-year explicit forecast (which is in line with its five-year historical average), and implies mid-single-digit dividend growth. Given its discounted price, trading about 25% below our $58 fair value estimate, and with a 4%-plus dividend yield, we think the stock provides a sufficient margin of safety for long-term investors.

It's no secret that the cost of college keeps rising. Over the past 10 years, it's up 4.2% annual, roughly 2.5 percentage points above general inflation. Do 529 plans help investors keep pace? Research from Jason Kephart and Stefan Sayre shows they can help, but only if investors start early. They explored the chance of beating tuition inflation by investing for 18 years versus 15.


Over rolling 18-year periods from 1979 to September 2018, the median direct-sold and advisor-sold plan would have beat tuition inflation 85% and 78% of the time, respectively. Starting just three years later would have lowered the odds of beating tuition inflation to 80% and 73%, respectively. Those who wait until the child turns nine see their odds fall to 66% and 62%.

Analyst Karen Andersen sees value in  Celgene (CELG) and thinks shares are trading at a 30% discount to fair value:


Pipeline setbacks have brought investor focus back to core drug Revlimid, which generates more than 60% of Celgene's revenue today and is vulnerable to generics between 2022 and 2027. But we think the market is fixating on Revlimid declines, and our projections for the firm's pipeline are higher than consensus.

The market may be expecting lithium prices to fall due to growing supply, but Seth Goldstein thinks prices will stay flat at $12,000 a ton as demand is set to rise with growing appetite for electric vehicle batteries. He thinks both  SQM (SQM) and  Albemarle (ALB) are undervalued today.

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Vanguard Dividend Appreciation does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.