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New Update: Healthcare Costs Increasing by Over 60% in Some States. Will you be impacted?

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Investing Insights for Dana Employees: The Pros and Cons of Dollar-Cost Averaging vs. Lump-Sum Contributions

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Healthcare Provider Update: For the company Dana, the healthcare provider is likely UnitedHealthcare. This insurer is known for offering a range of health coverage options, including plans in several ACA marketplaces. Looking ahead to 2026, significant increases in healthcare costs are anticipated. Rising medical expenses, combined with the potential expiration of enhanced federal subsidies, could lead to steep premium hikes for ACA marketplace enrollees. Reports suggest that some states may experience increases exceeding 60%, resulting in many individuals facing more than 75% higher out-of-pocket costs. Such drastic changes could create considerable financial strain for millions, emphasizing the importance of proactive healthcare planning in 2025. Click here to learn more

Table of Contents

The Value Series

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Given the current elevated market volatility, we think now is a good time to revisit important value metrics in our four-part series. As an employee or retiree of Dana, who likely has little market analysis experience, we understand that the valuation process can seem confusing. However, we are here to tell you that the valuation process does not have to be complex to be successful. Simple valuation techniques such as the price-to-book ratio are generally easy to use and have been proven to be effective if utilized correctly.  Investors are often looking for ways for their clients to beat the market. If you're one of those investors, you may want to consider the following strategy that has been implemented by the investment greats. Some value investors have historically beat the average annualized returns of the S&P 500, and many have successful track records spanning several decades to prove it. Dana employees, it is important to be knowledgeable regarding tactics used by famous investors such as Warren Buffett, Benjamin Graham, David Dodd, Charlie Munger, Christopher Browne and Seth Klarman. The investment style implemented by these professionals focus on four metrics that characterize a value investment. These four metrics include the Price to Earnings Ratio, the Price to Cash Flow Ratio, High Dividend Yield and the Price to Book Ratio. These metrics, as you will see, are strong indicators of undervalued security. If undervalued security is brought back to fair value then we would see positive returns on that security.  For Dana employees, it is possible to utilize these metrics to better position yourself in the market for heightened returns. We will examine the effect of investing based off of certain characteristics and how their investment returns are correlated. Today, I want to end the four-part TRG Value Series with the granddaddy of metrics, the Price-to-Book value ratio (P/B).

What is Book Value?

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Book value is preferred by many value investors to cash flow and earnings metrics because it is more stable year-to-year whereas cash flow and earnings can vary greatly. This is an important property for those at Dana to look out for due to the following reason: When a business at a cyclical trough with diminished cash flow and earnings might look expensive on the basis of price-to-cash flow or price-to-earnings, that same business may appear cheap on the basis of price-to-book value. This is because book value won’t fall much or at all in a downturn, and vice versa. Thus, the argument goes, the price-to-book value gives a more reliable picture of a company’s usual business performance, which Dana employees can use to elevate their investment decisions and investment performance. Benjamin Graham popularized the indicator in his books “Security Analysis” and “The Intelligent Investor”. Nobel Prize winner Eugene Fama and his research partner Kenneth French used the ratio in their three- and five-factor models to describe stock returns. Professor Joseph Piotroski uses the ratio as the only valuation measure in his F-Score methodology.

Testing

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We understand the importance of data driven research for Dana employees and retirees. Set out below are the results of two Fama and French backtests of the book value-to-market equity (the inverse of the PB ratio) data from 1926 to 2013. As of December 2013, there were 3,175 firms in the sample (Carlisle-PB, P2). The value decile contained the 459 stocks with the highest earnings yield, and the glamour decile contained the 404 stocks with the lowest earnings yield.

 

 

The average size of the glamour stocks is $7.48 billion and the value stocks are $2.54 billion. (Note that the average is heavily skewed by the biggest companies. For context, the 3,175th company has a market capitalization today of $404 million, which is smaller than the average, but still investable for most investors). Portfolios are formed on June 30 and rebalanced annually. When accounting for this backtest, Dana employees may recognize how two portfolios are weighted by market capitalization, which means that bigger firms contribute more to the performance of the portfolio, and smaller firms contribute less. Here, we can see that the value decile has comprehensively outperformed the glamour decile, returning 12.6 percent compounded (17.7 percent in the average year) over the full period versus 8.6 percent for the glamour decile (10.9 percent in the average year) (Carlisle-PB, P3).

 

These returns are considerably lower than the returns found for the price-to-earnings and cash-flow ratios discussed earlier. Despite the irregularity, Dana employees must be aware that the earnings and cash flow back tests ran back to only 1951, and the book value return data begins in 1926. The difference is due to the 1929 crash, which had an oversized impact on returns. The impact of the crash is visible on the chart; it took twenty years for the value decile to fully recover. Dana employees must also note how something similar has happened to the glamour decile since 2000; it hasn’t grown in 13 years. To make a comparison possible of the book value’s performance to the performance of earnings and cash flow over the same period, I also measured the returns beginning in 1951. Since 1951, the low P/B value decile has generated a compound annual growth rate (CAGR) of 15.0 percent and an average annual return (AAR) of 17.9 percent. Over the same period, the glamour decile returned a CAGR of 9.6 percent and an AAR of 12.6 percent (Carlisle-PB, P5). These returns are approximately the same as the returns generated by the low P/CF and P/E studies over the same period.

 

 

In their study, they found that the quintile of the lowest P/E stocks significantly outperformed the high P/E quintile. The portfolio containing the lowest P/E stock returned 11.61% annualized compared to 4.83% for the highest P/E portfolio and 7.55% for the used universe of stocks. The graph below shows how the cumulative returns compare (it’s not even close). Dana employees can utilize this information to avoid investing in underperforming assets and better predict economic trends that translate into higher ROI.

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Weighting

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It is important for employees and retirees of Dana to understand how market capitalization-weighted returns are useful for demonstrating that the outperformance of value over glamour is not due to the value portfolios containing smaller stocks. Unless you’re running an index (or hugging an index), they’re not really meaningful. The easiest portfolio weighting scheme is to simply equally weight each position. (If we’re prepared to put up with a little extra volatility for a little extra return, we can also Kelly weight our best ideas). Kelly Weighting is determined by the Kelly Criterion which is a formula used to determine what percentage of their capital should be used in each trade to maximize long-term growth. There are two key components to the formula (Kelly % = W- [(1 - W) / R]): the winning probability factor (W) and the win/loss ratio (R). The winning probability is the probability a trade will have a positive return. The win/loss ratio is equal to the total positive trade amounts divided by the total negative trading amounts. The result of the formula will tell investors what percentage of their total capital they should apply to each investment. By utilizing the Kelly Weighting, investors employed or retiring from Dana can have a better grasp of their exposure to each individual asset in their portfolio and make informed decisions regarding their asset allocation.

 

Dana employees should also account for the equal weight return statistics for book value.  In the equal weight backtest, the value generated a 20.2 percent compounded return (27.3 percent on average), beating out glamour’s 6.3 percent compounded return (10.4 percent on average) (Carlisle-PB, P10). Since 1951 the equally weighted P/B value decile has generated a compound annual growth rate (CAGR) of 20.0 percent and an average annual return (AAR) of 25.4 percent (Carlisle-PB, P11).

 

 

 

 

Over the same period, the glamour decile returned a CAGR of 6.4 percent and an AAR of 10.8 percent. These returns are close to the same as the returns generated by the low P/CF and P/E studies over the same period. When accounting for this information, Dana employees must recognize that the value portfolios outperformed because they bought more book value per dollar invested than the glamour portfolios: 4.57x on average versus 0.25x in the glamour portfolios (Carlisle-PB, P12). In the equal-weight portfolios, value has significantly outperformed glamour since 1999, beating it by an extraordinary 15.9 percent compounded, and 16.1 percent in the average year (Carlisle-PB, P13).

The Brandes Research Institute

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Because we understand just how important data-driven solutions are for our Dana employees and retirees, we have provided another study, which discusses the P/CF ratio. In a Brandes Research Institute study, Exhibit 6 below illustrates the global all-cap findings across three price metrics.

 

 

 

 

The results confirmed a consistent value premium across all metrics. We will focus on the P/CF ratio and the outperformance in the decile 10 value stocks. The smallest outperformance between decile 1 glamour stocks and decile 10 value stocks can be observed with the P/B measurement, where the average outperformance was 7.1% (Brandes, p. 8).

About The Retirement Group    

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The Retirement Group is a nation-wide group of financial advisors who work together as a team.

 

We focus entirely on retirement planning and the design of retirement portfolios for transitioning corporate employees. Each representative of the group has been hand selected by The Retirement Group in select cities of the United States. Each advisor was selected based on their pension expertise, experience in financial planning, and portfolio construction knowledge.

TRG takes a teamwork approach in providing the best possible solutions for our clients’ concerns. The Team has a conservative investment philosophy and diversifies client portfolios with laddered bonds, CDs, mutual funds, ETFs, Annuities, Stocks and other investments to help achieve their goals. The team addresses Retirement, Pension, Tax, Asset Allocation, Estate, and Elder Care issues. This document utilizes various research tools and techniques. A variety of assumptions and judgmental elements are inevitably inherent in any attempt to estimate future results and, consequently, such results should be viewed as tentative estimations. Changes in the law, investment climate, interest rates, and personal circumstances will have profound effects on both the accuracy of our estimations and the suitability of our recommendations. The need for ongoing sensitivity to change and for constant re-examination and alteration of the plan is thus apparent.

Therefore, we encourage you to have your plan updated a few months before your potential retirement date as well as an annual review. It should be emphasized that neither The Retirement Group, LLC nor any of its employees can engage in the practice of law or accounting and that nothing in this document should be taken as an effort to do so. We look forward to working with tax and/or legal professionals you may select to discuss the relevant ramifications of our recommendations.

Throughout your retirement years we will continue to update you on issues affecting your retirement through our complimentary and proprietary newsletters, workshops and regular updates. You may always reach us at (800) 900-5867.

Sources

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  1. What to do with an Early Retirement Ebook

  2. Social Security Ebook

  3. Lump Sum vs. Annuity Ebook

  4. 401(k) Rollover Strategies Ebook

  5. Closing the Retirement Gap Ebook

  6. Brandes Institute, The. “Value vs. Glamour: A Long-Term Worldwide Perspective”. 2014. < https://www.brandes.com/docs/default-source/brandes-institute/value-vs-glamour-worldwide-perspective>. 

  7.  Carlisle, Tobias. “Investing Using the Price-to-Earnings Ratio and Earnings Yield (Backtests 1951 to 2013)”. May 26, 2014. <http://greenbackd.com/2014/05/26/price-to-earnings-ratio-backtest-1951-to-2013/>.

  8. Causeway Capital. “The Compelling Case for Value Stocks”. 2018 https://www.causewaycap.com/wp-content/uploads/2018/02/201802-TheCompellingCaseforValue-1.pdf

  9. Research Affiliates. “To Win with ‘Smart Beta’, Ask if the Price is Right” September 7, 2016 < https://seekingalpha.com/article/4004564-win-smart-beta-ask-price-right>

  10. Tweedy Browne Company LLC. “What Has Worked in Investing: Studies of Investment Approaches and Characteristics Associated with Exceptional Returns.” 1992. <http://www.tweedy.com/resources/library_docs/papers/WhatHasWorkedFundVersionWeb.pdf>.

  11. Yuan, Vera. Guru Focus. “Earnings, Free Cash Flow, Book Value? Which Parameters Are Stock Prices Most Correlated To?”. August 2, 2013. < http://www.gurufocus.com/news/225255/earnings-free-cash-flow-book-value-which-parameters-are-stock-prices-most-correlated-to->.

  12. Fama and French Backtesting http://mba.tuck.dartmouth.edu/pages/faculty/ken.french/data_library.html

What is the 401(k) plan offered by Dana?

The 401(k) plan at Dana is a retirement savings plan that allows employees to save a portion of their paycheck before taxes are taken out.

How does Dana match employee contributions to the 401(k) plan?

Dana offers a matching contribution up to a certain percentage of the employee's salary, which helps to enhance the retirement savings.

When can employees at Dana enroll in the 401(k) plan?

Employees at Dana can enroll in the 401(k) plan during their initial onboarding period or during the annual open enrollment period.

What are the eligibility requirements for Dana's 401(k) plan?

To be eligible for Dana's 401(k) plan, employees must be at least 21 years old and have completed a minimum period of service with the company.

Can employees at Dana take loans against their 401(k) savings?

Yes, Dana allows employees to take loans against their 401(k) savings, subject to specific terms and conditions.

What investment options are available in Dana's 401(k) plan?

Dana's 401(k) plan offers a variety of investment options, including mutual funds, target-date funds, and company stock.

How can employees at Dana access their 401(k) account information?

Employees can access their 401(k) account information through Dana's online benefits portal or by contacting the HR department.

What is the vesting schedule for Dana's 401(k) matching contributions?

Dana has a vesting schedule for matching contributions, meaning employees earn ownership of the matched funds over a specified period of service.

Can employees at Dana change their contribution percentage to the 401(k) plan?

Yes, employees at Dana can change their contribution percentage at any time, subject to the plan's guidelines.

What happens to the 401(k) savings if an employee leaves Dana?

If an employee leaves Dana, they can choose to roll over their 401(k) savings to another retirement account or withdraw the funds, subject to taxes and penalties.

With the current political climate we are in it is important to keep up with current news and remain knowledgeable about your benefits.
For Dana Inc., the primary pension plan was the "Dana Retirement Plan," which underwent significant changes in 2019 when Dana transferred its pension liabilities to insurance companies through annuity purchase agreements. This action involved securing pension obligations for plan participants without altering their benefits. The company has not made significant updates to its pension plan offerings since this transfer, focusing instead on fully funding existing obligations. Regarding the 401(k) plan, Dana offers a competitive 401(k) with matching contributions. Employees can contribute up to 8% of their salary, with Dana providing a 4.5% match. This plan is available to all full-time employees. Dana emphasizes the stability and security of its retirement offerings, aligning with the company’s broader strategy to maintain financial health and meet its obligations.
Restructuring Layoffs: Dana Incorporated has been undergoing restructuring efforts in 2023 and 2024, which included several layoffs across different divisions to streamline operations and reduce costs. These layoffs are part of the company's strategy to remain competitive amid economic uncertainties and evolving market conditions. It's important to address this news because the current economic environment, characterized by high inflation and geopolitical tensions, requires companies to adjust their workforce to maintain financial stability. Benefit and Pension Changes: Dana has also made significant changes to its employee benefits and pension plans. In 2023, the company revised its pension formula and adjusted the contribution limits for 401(k) plans in response to the SECURE Act 2.0. The changes were made to align with new federal regulations and to provide more robust retirement options for employees. This news is crucial as the investment climate and tax regulations are evolving, and such changes directly impact employees' retirement planning. Employees should be aware of how these changes affect their future financial security and retirement readiness.
Dana Incorporated offers a variety of stock options and Restricted Stock Units (RSUs) as part of its compensation package to eligible employees. In 2022, 2023, and 2024, Dana continued to use stock options and RSUs to incentivize and retain key talent within the company. The specific stock options at Dana Incorporated are designed to allow employees to purchase shares at a predetermined price, often reflecting the stock price at the time of the grant. These options typically vest over a set period, ensuring that employees remain with the company to gain the full benefit. RSUs at Dana Incorporated are another critical part of the company's equity compensation. RSUs are granted with a vesting schedule, where the employee receives shares after meeting specific service conditions, usually tied to the employee’s tenure or company performance. The company's RSUs do not require employees to pay an exercise price, unlike stock options, which is advantageous for employees as they are guaranteed the value of the shares upon vesting. Eligibility for stock options and RSUs at Dana Incorporated is typically extended to employees who are in managerial or higher-level positions, though the exact criteria may vary by year and specific company needs. In 2022, 2023, and 2024, Dana continued to refine these programs to align employee incentives with company performance, which was evident in their continued financial growth and strategic achievements during these years. The detailed information on these stock options and RSUs, along with the company's ongoing updates, can be found in Dana's annual reports and investor communications, specifically in documents like the 10-K filings. These reports typically outline the terms, eligibility criteria, and the vesting schedules for these equity-based compensation plans. For further details, reviewing the annual reports and quarterly earnings releases on Dana's official website is recommended.
In 2022, Dana, like many companies, faced increasing healthcare costs due to various factors, including inflation and the ongoing impacts of the COVID-19 pandemic. These challenges led to an emphasis on high-deductible health plans (HDHPs), which remained popular among employees, with a notable increase in the median in-network deductible for these plans. Dana also focused on behavioral health benefits, recognizing the importance of supporting employees' mental health in the post-pandemic era. By 2023 and 2024, Dana continued to adapt its health benefits strategy by exploring self-insured health plans, a move aimed at giving the company more control over healthcare costs and the flexibility to tailor benefits to employees' needs. The company also highlighted the importance of accountable care organizations (ACOs) and personalized healthcare services, aiming to improve the quality of care while managing costs.
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For more information you can reach the plan administrator for Dana at 3939 Technology Dr Maumee, OH 43537; or by calling them at (419) 887-3000.

https://www.dana.com/ https://www.aarp.org/retirement/planning-for-retirement/info-2023/biggest-changes-impacting-retirement-finances-in-2024.html https://www.kiplinger.com/retirement/retirement-planning/ways-retirement-planning-is-changing-new-year https://en.wikipedia.org/wiki/Dana_Incorporated https://www.thelayoff.com/t/1qA0cYgm#google_vignette https://www.dana.com/newsroom/press-releases/dana-incorporated-reports-record-sales-for-2022-issues-guidance-for-2023-including-higher-sales-profit-and-record-three-year-sales-backlog-of-$900-million/ https://www.sec.gov/Archives/edgar/data/26780/000119312524039323/d707954dex991.htm https://www.milliman.com/en/insight/2023-lump-sums-defined-benefit-plans-much-lower-as-interest-rates-rise https://www.dana.com/ https://www.dana.com/newsroom/press-releases/dana-incorporated-reports-2024-first-quarter-financial-results-with-increased-sales-adjusted-ebitda-and-free-cash-flow-raises-full-year-free-cash-flow-guidance/ https://www.danacole.com/news/timely-opportunities/new-study-finds-rising-health-benefit-costs https://fortunefinancialadvisors.com/business-retirement-plans/introduction-to-nua-a-tax-saving-strategy/ https://carlsoncap.com/articles/nua-net-unrealized-appreciation/ https://pbnlaw.com/net-unrealized-appreciation-opportunities-in-your-companys-retirement-plan https://www.spglobal.com/en https://www.foxrothschild.com/ https://www.kiplinger.com/ https://www.dana.com/ https://pv-magazine-usa.com/ https://www.thelayoff.com/t/146Zov7K https://www.thelayoff.com/t/1jUwp2BM

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