Stock Analysis: Weyco Group, Inc. (WEYS)

Linked here is a detailed quantitative analysis of Weyco Group, Inc. (WEYS). Below are some highlights from the above linked analysis:

Company Description: Weyco Group, Inc. distributes, wholesale & retail, men's branded footwear in the U.S., Canada, Europe; it offers casual footwear, dress shoes and accessories under Florsheim, other brands.

Fair Value: In calculating fair value, I consider the NPV MMA Differential Fair Value along with these four calculations of fair value, see page 2 of the linked PDF for a detailed description:

1. Avg. High Yield Price
2. 20-Year DCF Price
3. Avg. P/E Price
4. Graham Number

WEYS is trading at a discount to only 1.) above. The stock is trading at a slight discount to its calculated fair value of $24.87. WEYS earned a Star in this section since it is trading at a fair value.

Dividend Analytical Data: In this section there are three possible Stars and three key metrics, see page 2 of the linked PDF for a detailed description:

1. Free Cash Flow Payout
2. Debt To Total Capital
3. Key Metrics
4. Dividend Growth Rate
5. Years of Div. Growth
6. Rolling 4-yr Div. > 15%

WEYS earned three Stars in this section for 1.), 2.) and 3.) above. A Star was earned since the Free Cash Flow payout ratio was less than 60% and there were no negative Free Cash Flows over the last 10 years. The stock earned a Star as a result of its most recent Debt to Total Capital being less than 45%. WEYS earned a Star for having an acceptable score in at least two of the four Key Metrics measured. Rolling 4-yr Div. > 15% means that dividends grew on average in excess of 15% for each consecutive 4 year period over the last 10 years (2000-2003, 2001-2004, 2002-2005, etc.) I consider this a key metric since dividends will double every 5 years if they grow by 15%. The company has paid a cash dividend to shareholders every year since 1935 and has increased its dividend payments for 29 consecutive years.

Dividend Income vs. MMA: Why would you assume the equity risk and invest in a dividend stock if you could earn a better return in a much less risky money market account (MMA)? This section compares the earning ability of this stock with a high yield MMA. Two items are considered in this section, see page 2 of the linked PDF for a detailed description:

1. NPV MMA Diff.
2. Years to > MMA

WEYS earned a Star in this section for its NPV MMA Diff. of the $4,274. This amount is in excess of the $600 target I look for in a stock that has increased dividends as long as WEYS has. If WEYS grows its dividend at 15.0% per year, it will take 4 years to equal a MMA yielding an estimated 20-year average rate of 3.9%. WEYS earned a check for the Key Metric 'Years to >MMA' since its 4 years is less than the 5 year target.

Memberships and Peers: WEYS is and a Dividend Champion. The company's peer group includes: Brown Shoe Co. Inc. (BWS) with a 1.9% yield, Phillips-Van Heusen Corp. (PVH) with a 0.3% yield and Core-Mark Holding Company, Inc. (CORE) with a 0.0% yield.

Conclusion: WEYS earned one Star in the Fair Value section, earned three Stars in the Dividend Analytical Data section and earned one Star in the Dividend Income vs. MMA section for a total of five Stars. This quantitatively ranks WEYS as a 5 Star-Strong Buy.

Using my D4L-PreScreen.xls model, I determined the share price would need to increase to $48.72 before WEYS' NPV MMA Differential decreased to the $600 minimum that I look for in a stock with 29 years of consecutive dividend increases. At that price the stock would yield 1.27%.

Resetting the D4L-PreScreen.xls model and solving for the dividend growth rate needed to generate the target $600 NPV MMA Differential, the calculated rate is 8.7%. This dividend growth rate is below the 15.0% used in this analysis, thus providing a significant margin of safety. WEYS has a risk rating of 1.00 which classifies it as a medium risk stock.

WEYS principal brands of shoes are well respected and include include Florsheim, Nunn Bush, Brass Boot, Stacy Adams, and Weyenberg. The company held up well during the economic downturn. In the face of declining earnings, management was able to increase cash flow and keep the string of consecutive dividend increases in tact. With virtually no debt and a low free cash flow payout, the company is well-positioned to continue increasing its dividend in the future. WEYS is currently trading below my calculated fair value of $24.87. Unfortunately, WEYS is in the Consumer Goods sector in which there are other worthy and higher yielding options available. For additional information, including the stock’s dividend history, please refer to its data page.

Disclaimer: Material presented here is for informational purposes only. The above quantitative stock analysis, including the Star rating, is mechanically calculated and is based on historical information. The analysis assumes the stock will perform in the future as it has in the past. This is generally never true. Before buying or selling any stock you should do your own research and reach your own conclusion. See my Disclaimer for more information.

Full Disclosure: At the time of this writing, I held no position in WEYS (0.0% of my Income Portfolio). See a list of all my income holdings here.

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This article was written by Dividends4Life. If you enjoyed this article, please subscribe to my feed [RSS], or have future articles emailed to you [Email] or follow me on Twitter [Twitter].

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Weekend Reading Links - February 27, 2011

For your weekend reading pleasure, the articles listed below contain some of the best dividend and value investing insights found on the web. They were written by various members of the Dividend Investing and Value Network over the past week:

Articles From DIV-Net Members

• Dividends Value presented 13 Dividend Stocks Headed In The Right Direction
• Dividend Growth Investor presented Dividend Growth Investing Gets No Respect
• The Passive Income Earner presented Dividend Yield: Enbridge (TSE:ENB)
• The Dividend Guy presented HSE Husky Energy Dividend Stock Analysis
• Disciplined Approach to Investing presented Public Employee Cost Driving Discontent
• Dividend Monk presented 9 Steps to Build and Manage a Dividend Portfolio
• Frankly Speaking presented Berkshire Exec Ajit Jain Livin’ Large in NYC
• The Dividend Pig presented A Bad Year for Abbott, A Great Time for Investors
• Dividend Ninja presented Dan Bortolotti Interview – Part 1

There are some really good articles here, please take time and read a few of them.

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PPG Industries (PPG) Stock Analysis

PPG Industries, Inc. (PPG) manufactures and supplies protective and decorative coatings. The company is a dividend aristocrat which has increased distributions for 39 years in a row.
Over the past decade this dividend stock has delivered an annualized total return of 9.60% to its loyal shareholders.

The company has managed to deliver a negative average increase in EPS of 6.10% per year since 2000. Analysts expect PPG Industries to earn $5.04 per share in 2010 and $5.68 per share in 2011. This would be a nice increase from the $2.03/share the company earned in 2009. The company’s net income is exposed to the cyclical nature of the company’s business, as it shrinks during downturns but rebounds sharply during upturns.


Few cyclical companies can afford to raise dividends for as long as PPG Industries has done so. Companies that come to mind include Nucor (NUE) and RPM International (RPM). The main risk with cyclical companies is that the dividend is at risk depending on the length and depth of each recession. Future management could decide to cut dividends during the next recession, as the distributions would look unsustainable. However, if they expect an upturn within a year or two, chances are that the dividend would be at least maintained.

The company’s return on equity has closely followed the volatility in earnings per share over the past decade. One could easily pinpoint the periods of economic downturn, which is when the ROE decreased –2001-2002 and 2008-2009 recessions. Rather than focus on absolute values for this indicator, I generally want to see at least a stable return on equity over time.

The annual dividend payment has increased by 3.20% per year since 2000, which is substantially higher than the growth in EPS. Despite the cyclicality of earnings, the company has managed to not only maintain but raise dividends consistently, which is not a minor accomplishment.

A 3% growth in distributions translates into the dividend payment doubling every 24 years. If we look at historical data, going as far back as 1973, we see that PPG Industries has actually managed to double its dividend every nine years on average.

Over the past decade the dividend payout ratio has increased from 45% to 105%. Based on estimated FY 2010 EPS of $5 however, the dividend looks adequately covered. A lower payout is always a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings.

Currently PPG Industries is close to being overvalued at 19.40 times earnings, yields 2.40% and has a sustainable dividend payout based off forward earnings. The cyclical business model and the valuation relative to other dividend companies make this company a hold at current prices.

Full Disclosure: Long NUE and RPM

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- How to select dividend stocks?
- How to invest in dividend stocks
- Ten Dividend Stocks Beating Inflation
- The case for dividend investing in retirement

This article was written by Dividend Growth Investor. If you enjoyed this article, please subscribe to my feed [RSS], or have future articles emailed to you [Email] or follow me on Twitter [Twitter].

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TransCanada Corporation (TRP) Dividend Analysis

This week I will be reviewing TransCanada Corporation (TRP on both TSE and NYSE). Another large energy distributor operating in Canada and the US. TRP operates in 2 major segments:

• Pipelines
• Energy

TransCanada pipelines cover more than 60,000 kilometres (37,000 miles). From Alberta (soon to be Alaska) to Louisiana, and from Oregon to New Hampshire through Canada. It also owns (or partially owns) 20 power plants for their energy segment.

Quick Fact

• Stock Ticker: TRP on both NYSE & TSX
• Market Cap.: 26.90B$
• P/E: 21.69
• EPS: $1.77
• 5 Year EPS Growth Average: -5.98%
• Dividend Yield: 4.37%
• 5 Year Dividend Growth Average: 5.57%
• ROE: 7.93%
• 52-Week Low: $30.01
• 52-Week High: $39.28
• 52-Week Range: 91.37%

Dividend Growth

On February 15, 2011, TRP increased their dividends by 5%. The 5% increase is in line with their 5 year average and does more than keep up with inflation. In fact, it has consistently increased its dividends by 8 cents over the past 8 years making it a Canadian Dividend Aristocrat.

Its dividend growth graph is quite amazing for the past 10 years.  I would prefer 8% or so on the dividend growth but considering the growth over the past 8 years, the combination of the dividends and stock appreciation is still quite nice.

Dividend Payout Ratio

2010 was not a great year for their payout ratio but otherwise TRP is relatively consistent and within the ratio of its main competiror Enbridge.

EPS Growth

Similar to the payout ratio, TRP had a step back in 2010. In doesn't have stellar record growth with its earnings per share but it's not erratic either. It shows an upward tendency which is something we can appreciate.

Thoughts

I am currently an owner of TRP and I am in for the long haul. I own it through Computershare and I am slowly dripping it. I don't think any investor should expect record stock appreciation but due to its business, we should expect good dividend income and growth for many years. At least until all our homes are solar powered.

Readers: What do you think a TRP?

Full Disclosure: At the time of writing I am long ENB.

Disclaimer: The material presented should not be considered a recommendation. You should always do your own research and reach your own conclusion.

This article was written by The Passive Income Earner. If you enjoyed this article, please consider subscribing to my feed.

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Stock Analysis: T. Rowe Price Group Inc. (TROW)

Linked here is a detailed quantitative analysis of T. Rowe Price Group Inc. (TROW). Below are some highlights from the above linked analysis:

Company Description: T. Rowe Price Group Inc. operates one of the largest no-load mutual fund complexes in the United States.

Fair Value: In calculating fair value, I consider the NPV MMA Differential Fair Value along with these four calculations of fair value, see page 2 of the linked PDF for a detailed description:

1. Avg. High Yield Price
2. 20-Year DCF Price
3. Avg. P/E Price
4. Graham Number

TROW is trading at a premium to all four valuations above. The stock is trading at a 59.0% premium to its calculated fair value of $44.63. TROW did not earn any Stars in this section.

Dividend Analytical Data: In this section there are three possible Stars and three key metrics, see page 2 of the linked PDF for a detailed description:

1. Free Cash Flow Payout
2. Debt To Total Capital
3. Key Metrics
4. Dividend Growth Rate
5. Years of Div. Growth
6. Rolling 4-yr Div. > 15%

TROW earned three Stars in this section for 1.), 2.) and 3.) above. A Star was earned since the Free Cash Flow payout ratio was less than 60% and there were no negative Free Cash Flows over the last 10 years. The stock earned a Star as a result of its most recent Debt to Total Capital being less than 45%. TROW earned a Star for having an acceptable score in at least two of the four Key Metrics measured. Rolling 4-yr Div. > 15% means that dividends grew on average in excess of 15% for each consecutive 4 year period over the last 10 years (2001-2004, 2002-2005, 2003-2006, etc.) I consider this a key metric since dividends will double every 5 years if they grow by 15%. The company has paid a cash dividend to shareholders every year since 1986 and has increased its dividend payments for 24 consecutive years.

Dividend Income vs. MMA: Why would you assume the equity risk and invest in a dividend stock if you could earn a better return in a much less risky money market account (MMA)? This section compares the earning ability of this stock with a high yield MMA. Two items are considered in this section, see page 2 of the linked PDF for a detailed description:

1. NPV MMA Diff.
2. Years to > MMA

TROW earned a Star in this section for its NPV MMA Diff. of the $1,592. This amount is in excess of the $1,100 target I look for in a stock that has increased dividends as long as TROW has. If TROW grows its dividend at 15.0% per year, it will take 7 years to equal a MMA yielding an estimated 20-year average rate of 3.9%.

Memberships and Peers: TROW is a member of the S&P 500 and a member of the Broad Dividend Achievers™ Index. The company's peer group includes: Federated Investors (FII) with a 3.5% yield, Eaton Vance (EV) with a 2.1% yield and BlackRock Inc. (BLK) with a 1.9% yield.

Conclusion: TROW did not earn any Stars in the Fair Value section, earned three Stars in the Dividend Analytical Data section and earned one Star in the Dividend Income vs. MMA section for a total of four Stars. This quantitatively ranks TROW as a 4 Star-Buy.

Using my D4L-PreScreen.xls model, I determined the share price would need to increase to $80.81 before TROW's NPV MMA Differential decreased to the $1,100 minimum that I look for in a stock with 24 years of consecutive dividend increases. At that price the stock would yield 1.53%.

Resetting the D4L-PreScreen.xls model and solving for the dividend growth rate needed to generate the target $1,100 NPV MMA Differential, the calculated rate is 13.8%. This dividend growth rate is below the 15.0% used in this analysis, thus providing a margin of safety. TROW has a risk rating of 1.75 which classifies it as a medium risk stock.

TROW is well-positioned as an asset manager with a strong market share and a well-respected brand. It consistently produces net client inflows based on the relative performance of its funds, with over 70% of its funds in the top half of their categories on a five-year performance basis. Since its August 30, 2010 low of $43.78, TROW has seen a significant run-up in its price. This has resulted in a depressed yield of 1.75%. The stock's current valuation is 59% above my calculated fair value of $44.63. For now, I will pass on TROW. For additional information, including the stock’s dividend history, please refer to its data page.

Disclaimer: Material presented here is for informational purposes only. The above quantitative stock analysis, including the Star rating, is mechanically calculated and is based on historical information. The analysis assumes the stock will perform in the future as it has in the past. This is generally never true. Before buying or selling any stock you should do your own research and reach your own conclusion. See my Disclaimer for more information.

Full Disclosure: At the time of this writing, I held no position in TROW (0.0% of my Income Portfolio). See a list of all my income holdings here.

Related Articles:

- Lowe’s Companies, Inc. (LOW) Dividend Stock Analysis
- Southside Bancshares Inc. (SBSI) Dividend Stock Analysis
- Becton, Dickinson and Co. (BDX) Dividend Stock Analysis
- AT&T Inc. (T) Dividend Stock Analysis
- More Stock Analysis

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Weekend Reading Links - February 20, 2011

For your weekend reading pleasure, the articles listed below contain some of the best dividend and value investing insights found on the web. They were written by various members of the Dividend Investing and Value Network over the past week:

Articles From DIV-Net Members

• Dividends Value presented 12 Industrial Strength Dividend Stocks
• Dividend Growth Investor presented How to invest in dividend stocks
• Barel Karsan presented Envoy Capital: Now Trades For What It's Worth
• Buy Like Buffett presented There Is No Other Nike
• The Passive Income Earner presented Weekly Blog Round: Your Money & Your Dividends
• The Dividend Guy presented 9 Sectors, 9 Great Dividend Stock Picks for 2011
• Disciplined Approach to Investing presented Recent Company Actions Support Strong Market Advance
• Triaging My Way To Financial Success presented TurboTax Giveaway 2011
• 40percent 20years presented Millionaire boom - An optimistic bubble?
• The Market Capitalist presented Why I'm Leery of Financial Advisers
• Dividend Monk presented AZZ Incorporated (AZZ) Dividend Stock Analysis
• Frankly Speaking presented Value in Emerging Market Small-Caps
• The Dividend Pig presented 4 Dogs of the Dow Worth Adopting
• Dividend Ninja presented The Power of Preferred Shares

There are some really good articles here, please take time and read a few of them.

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Stock Analysis: Kimberly-Clark

Kimberly-Clark Corporation (KMB), together with its subsidiaries, engages in the manufacture and marketing of various health care products worldwide. The company operates in four segments: Personal Care, Consumer Tissue, K-C Professional & Other, and Health Care. The company is a dividend aristocrat which has increased distributions for 38 years in a row.

Over the past decade this dividend stock has delivered an annualized total return of 2% to its loyal shareholders.

The company has managed to deliver an average increase in EPS of 3.40% per year since 2000. Analysts expect Kimberly-Clark to earn $4.64 per share in 2010 and $5.01 per share in 2011. This would be a nice increase from the $4.52/share the company earned in 2009. The company’s EPS has been aided by the consistent share buybacks, which has led to a 3.10% average decrease in total shares outstanding per year. This means that over the past decade net income has been mostly flat.



The company’s high return on equity has been on the rise since hitting a bottom at 25.70% in 2006. Rather than focus on absolute values for this indicator, I generally want to see at least a stable return on equity over time.

The annual dividend payment has increased by 9.30% per year since 2000, which is substantially more than the growth in EPS. This dividend growth has been possible mostly due to the expansion in the dividend payout ratio. Without growth in earnings, future dividend growth would be limited. A 9% growth in distributions translates into the dividend payment doubling every eight years. If we look at historical data, going as far back as 1980, we see that Kimberly-Clark has actually managed to double its dividend every seven and a half years on average. I expect modest dividend growth of up to 6% per year in the future, which could translate in the dividend payment doubling every twelve years.

Over the past decade the dividend payout ratio has increased from 32.30% to over 53%. A lower payout is always a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings.

Currently, Kimberly-Clark is attractively valued at 14.40 times earnings, yields 4.20% and has a sustainable dividend payout. In comparison Procter & Gamble (PG) yields 3% and trades at a P/E of 15.90, while Colgate-Palmolive (CL) yields 2.60% and trades at a P/E of 18.80. The issue with Kimberly-Clark is that it has not been able to increase net income over the past decade. The reason behind the increase in earnings per share is because it consistently repurchased shares. In addition to that, the company was able to deliver dividend growth by paying a higher portion of earnings in the form of dividends. Over the next few years I see Kimberly-Clark raising dividends by 4% - 5% per year. The company is suited for investors seeking current income, but should be able to deliver decent total returns over the next decades. I would continue monitoring Kimberly-Clark and will consider adding to my position in the stock on dips.

Full Disclosure: Long KMB

Relevant Articles:

- Becton, Dickinson and Company (BDX) Dividend Stock Analysis
- McCormick & Company (MKC) Dividend Stock Analysis
- Sysco Corporation (SYY) Dividend Stock Analysis
- Genuine Parts (GPC) Dividend Stock Analysis

This article was written by Dividend Growth Investor. If you enjoyed this article, please subscribe to my feed [RSS], or have future articles emailed to you [Email] or follow me on Twitter [Twitter].

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Enbridge (ENB) Dividend Analysis

Enbridge transports and distribute energy in North America through its vast network of pipelines. It's one of the largest Canadian energy distributor publicly traded (since many of the large ones are crown corporations). If it generates energy, Enbridge is usually involved. They operate in the current fields:

• Gas distribution with 1.9 million customers
• Oil & Gas transport through its pipelines
• Storage of oil & gas
• Renewable energy
• Alternative energy

Quick Facts

• Stock Ticker: ENB on both NYSE & TSX
• Market Cap.: 22.04B$
• P/E: 22.31
• EPS: $2.57
• 5 Year EPS Growth Average: 16.37%
• Dividend Yield: 3.41%
• 5 Year Dividend Growth Average: 13.88%
• ROE: 13.14%
• 52-Week Low: $46.03
• 52-Week High: $59.03
• 52-Week Range: 87.46%

Enbridge had a nice growth this past year. If you combine that with its dividends, it makes for a nice investment.

Dividend Growth

How do you like this chart? 13 increases in the past 13 years and an annual average dividend growth of 11% for those 13 years. Unfortunately, it was flat for 10 years prior to that and a little inconsistent with its growth before that. It has, however, paid dividends for 58 years with no drop in dividends. It highlights their commitment to pay dividends.

Dividend Payout Ratio

Enbridge targets a 60%-70% payout ratio. In the past 10 years, it has done quite well to keep their payout in line with their targets.

EPS Growth

The EPS growth is actually nice. Even though it suffered a drop this past year, you can still see a linear growth. ENB has a P/E of 22 which is a little above the sector average of 20 but not too far from the pack.

Thoughts

Enbridge is a Canadian Dividend Aristocrats and investor friendly with its healthy dividends. Its business model is recession proof but not incident proof unfortunately. There is always a risk that an incident can cost them money and that translates in a step back for investors. The stability of the business and the healthy dividends make Enbridge a solid 'boring' investment.

Readers: Do you feel Enbridge has a place in your portfolio?

Full Disclosure: At the time of writing I am long ENB.

Disclaimer: The material presented should not be considered a recommendation. You should always do your own research and reach your own conclusion.

This article was written by The Passive Income Earner. If you enjoyed this article, please consider subscribing to my feed.

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Time to buy Kirkland's?

Just three months ago, shares of Kirkland's (KIRK) fell 17% to nearly $10/share. At that price, the stock was brought up as a potential stock idea as its P/E was only 6 after subtracting out the company's net cash position. Last week, however, the shares traded up over $15/share, resulting in a very strong return over a very short period. The lesson for investors is simple: catch the falling knife, and sell it to Mr. Market once it's no longer falling.

There is a multitude of research that suggests that stocks that underperform the market tend to outperform the market in subsequent periods. Despite this, the mainstream media and analysts continually advise against buying a stock that is falling. This is terrible advice. Panic-selling can often create just the opportunity the value investor is waiting for.

Of course, this doesn't mean one should buy just any falling knife. All investments must be studied and vetted carefully. A company's current financial position and future earnings power must always be considered relative to its asking price. But "falling knives" should be welcomed as potential opportunities, and not situations to be avoided.

Above $15/share, Kirkland's stock is no longer the steal it was just three months ago. The company's P/E (now near 10) faces upward pressure as same-store sales are declining in the high single-digits. However, the company's financial position remains strong, as Kirkland's has $60 million of cash against no balance sheet debt. Nevertheless, the company likely trades a lot closer to fair value than it did when it was identified as a potential value opportunity. (And even if it is still slightly undervalued, it is likely better to be approximately right than precisely wrong.) This offers value investors a chance to get out and deploy their capital towards the next opportunity.

Disclosure: No positionThis article was written by Saj Karsan of Barel Karsan. If you enjoyed this article, please consider subscribing to its feed.

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A Partnership With A Generous Yield

[Brookfield Infrastructure Partnership is a limited partnership that was spun off from Brookfield Asset Management in 2008. Brookfield Infrastructure Partnership owns and operates all of the infrastructure assets for Brookfield Asset Management including its energy, transportation, electricity transmission systems, timberlands, and social infrastructure.] [
The majority of the company’s assets are split between investments in utilities, transportation infrastructure, and timber. The remaining portion of the company’s assets are invested in social infrastructure projects. The company’s owns and manages assets in Australia, Canada, Chile, Europe, New Zealand, the United Kingdom, and the United States.
The stock is currently yielding 4.8%. The dividend is very appealing since Brookfield is currently paying out a dividend of $1.10 per share despite earnings being below this level. The payout ratio is a concern since the company is only expected to earn 64 cents for the full year.
Brookfield recently reported fourth quarter earnings Friday. The results were disappointing as the company missed earnings expectations handedly. Earning per share was 14% below expectations. Funds from operations came in at 39 cents a unit.
Earning per share is pegged to come in at 16 cents per share next quarter. The company has historically traded at a multiple of 16.  Right now, shares are trading at about twice that number with a P/E of 31. Shares are currently trading at 1.2 times book value.
Although the stock is very attractive because of the yield, shares of Brookfield look fully valued right now.
] This article was written by [Buy Like Buffett]. If you enjoyed this article, please consider subscribing to my feed at [RSS].

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Stock Analysis: Hormel Foods Corp. (HRL)

Linked here is a detailed quantitative analysis of Hormel Foods Corp. (HRL). Below are some highlights from the above linked analysis:

Company Description: Hormel Foods Corp. company is a leading processor of branded, convenience meat products (primarily pork) for the consumer market.

Fair Value: In calculating fair value, I consider the NPV MMA Differential Fair Value along with these four calculations of fair value, see page 2 of the linked PDF for a detailed description:

1. Avg. High Yield Price
2. 20-Year DCF Price
3. Avg. P/E Price
4. Graham Number

HRL is trading at a premium to all four valuations above. The stock is trading at a 8.9% premium to its calculated fair value of $47.09. HRL did not earn any Stars in this section.

Dividend Analytical Data: In this section there are three possible Stars and three key metrics, see page 2 of the linked PDF for a detailed description:

1. Free Cash Flow Payout
2. Debt To Total Capital
3. Key Metrics
4. Dividend Growth Rate
5. Years of Div. Growth
6. Rolling 4-yr Div. > 15%

HRL earned two Stars in this section for 1.) and 2.) above. A Star was earned since the Free Cash Flow payout ratio was less than 60% and there were no negative Free Cash Flows over the last 10 years. The stock earned a Star as a result of its most recent Debt to Total Capital being less than 45%. The company has paid a cash dividend to shareholders every year since 1928 and has increased its dividend payments for 45 consecutive years.

Dividend Income vs. MMA: Why would you assume the equity risk and invest in a dividend stock if you could earn a better return in a much less risky money market account (MMA)? This section compares the earning ability of this stock with a high yield MMA. Two items are considered in this section, see page 2 of the linked PDF for a detailed description:

1. NPV MMA Diff.
2. Years to > MMA

HRL earned a Star in this section for its NPV MMA Diff. of the $514. This amount is in excess of the $500 target I look for in a stock that has increased dividends as long as HRL has. If HRL grows its dividend at 10.6% per year, it will take 8 years to equal a MMA yielding an estimated 20-year average rate of 3.9%.

Memberships and Peers: HRL is a member of the S&P 500, a Dividend Aristocrat and a member of the Broad Dividend Achievers™ Index and a Dividend Champion. The company's peer group includes: Cal-Maine Foods, Inc. (CALM) with a 3.0% yield, Kraft Foods Inc. (KFT) with a 3.7% yield and ConAgra Foods, Inc. (CAG) with a 4.1% yield.

Conclusion: HRL did not earn any Stars in the Fair Value section, earned two Stars in the Dividend Analytical Data section and earned one Star in the Dividend Income vs. MMA section for a total of three Stars. This quantitatively ranks HRL as a 3 Star-Hold.

Using my D4L-PreScreen.xls model, I determined the share price would need to increase to $51.68 before HRL's NPV MMA Differential decreased to the $500 minimum that I look for in a stock with 45 years of consecutive dividend increases. At that price the stock would yield 1.97%.

Resetting the D4L-PreScreen.xls model and solving for the dividend growth rate needed to generate the target $500 NPV MMA Differential, the calculated rate is 10.5%. This dividend growth rate is slightly below the 10.6% used in this analysis, thus providing a virtually no margin of safety. HRL has a risk rating of 1.00 which classifies it as a low risk stock.

Being from the south, I knew what Spam was even before Al Gore invented the internet. HRL has defined a niche on which it converts commodity meats to value-added packaged products. This has allowed the company to achieve superiour results when compared with other meat processors. HRL has a relatively strong balance sheet, with minimal debt and generates stong cash flows (even during the recession). Like most in the industry, the company has a high sensitivity to changes in commodity costs. With a NPV MMA Diff. close to it target and trading close to a 9% premium to my calculated fair value, I will wait for a more opportune time to take a closer look at the stock. For additional information, including the stock’s dividend history, please refer to its data page.

Disclaimer: Material presented here is for informational purposes only. The above quantitative stock analysis, including the Star rating, is mechanically calculated and is based on historical information. The analysis assumes the stock will perform in the future as it has in the past. This is generally never true. Before buying or selling any stock you should do your own research and reach your own conclusion. See my Disclaimer for more information.

Full Disclosure: At the time of this writing, I held no position in HRL (0.0% of my Income Portfolio). See a list of all my income holdings here.

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This article was written by Dividends4Life. If you enjoyed this article, please subscribe to my feed [RSS], or have future articles emailed to you [Email] or follow me on Twitter [Twitter].

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Weekend Reading Links - February 13, 2011

For your weekend reading pleasure, the articles listed below contain some of the best dividend and value investing insights found on the web. They were written by various members of the Dividend Investing and Value Network over the past week:

Articles From DIV-Net Members

• Dividends Value presented 10 Financial Services Dividend Stocks To Boost Your Yield
• Dividend Growth Investor presented Dividend Champions - The Best List for Dividend Investors
• The Passive Income Earner presented Which do you do? Maximize or Optimize your RRSP
• The Dividend Guy presented What Happened In the Dividend World in 2010 and What is Coming In 2011
• Disciplined Approach to Investing presented Municipal Bond Fund Flows Strongly Negative
• Triaging My Way To Financial Success presented RRSP Investing 2010
• 40percent 20years presented Clas Ohlson? & Calculate the dividend for next year!
• EPIC INVESTOR presented Never Fall In Love
• Value Walk presented The Folly of Forecasting
• The Market Capitalist presented Using Limit Orders
• Dividend Monk presented Do You Invest Ethically?
• Wax Inc presented Food For Thought
• Frankly Speaking presented Inventing the Poison Pill
• The Dividend Pig presented The Hershey Company Dividend Stock Analysis
• Dividend Ninja presented Time to Sell Enercare?
• The Twenty Year Millionaire presented Best in Breed Dividend Stocks Title Fight: Coke Vs. Pepsi

There are some really good articles here, please take time and read a few of them.

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Vicon Industries, Inc. (VII)

Vicon Industries, Inc. (AMEX:VII) is a designer and producer of video security and surveillance systems. It is currently has a market cap of approximately $18.7m, but has NCAV of $26m (Tangible BV of 34m) and no bank debt.VII has had a rough time during the recession, with revenues collapsing from an average of $17 million per quarter in the two years before the recession to lows of $11m earlier this year. At the same time, the company's gross margin eroded by more than 1,000 bp as the company cut prices in order to remain competitive as the industry entered a price war for the few remaining customers.

It appears now that the worst is over, as the following chart demonstrates.



This chart shows how 1Q2010 and 2Q2010 were rocked by the worst of the recessionary declines in revenue combined with the largest increases in SG&A and COGS (leading to the low Gross Profit margin). This demonstrates the somewhat fixed nature of VII's operations, which were unable to scale down as a result of the decline in revenues. 3Q2010 and 4Q2010 are now returning to more normal levels on all accounts, and the company has returned to profitability.

When Saj Karsan of BarelKarsan.com reviewed the company earlier in the year (in the middle of 2Q2010), the company was trading at less of a discount to NCAV and there was a question of how long it would be before the company would regain profitability and get its operating expenses in order. Today, that picture is clearer, yet the company is trading at a larger discount to NCAV.

Earlier in the year, an EPV analysis was made difficult due to the ongoing losses and uncertainty about future earnings. Today, with margins and revenue return to more normal levels (though, admittedly, revenue has quite a bit to gain before it reaches pre-recession levels), an EPV analysis can be completed with a bit more certainty. My analysis results in a value of $6.00, which is a 45% premium to today's price. On an asset base, I mentioned above that the company has an NCAV of $26m (or $5.77/share) and tangible book value of $34m (or $7.55).

I should also note that Anita G. Zucker (who I believe is the widow of Jerry Zucker, owner of the Hudson's Bay Company of Canada) owns more than 10% of the company and has been increasing her stake in the company recently.

Talk to Frank about VII

Author Disclosure: Long VII.

This article was written by frankvoisin.com. If you enjoyed this article, please consider subscribing to my feed.

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Stock Analysis: PepsiCo

PepsiCo, Inc. manufactures, markets, and sells various foods, snacks, and carbonated and non-carbonated beverages worldwide. The company operates in four divisions: PepsiCo Americas Foods (PAF), PepsiCo Americas Beverages (PAB), PepsiCo Europe, and PepsiCo Asia, Middle East and Africa (AMEA). The company is a dividend aristocrat which has increased distributions for 38 years in a row.

Over the past decade this dividend stock has delivered an annualized total return of 4.90% to its loyal shareholders.

The company has managed to deliver an average increase in EPS of 10.90% per year since 2000. Analysts expect PepsiCo to earn $4.12 per share in 2010 and $4.61 per share in 2011. This would be a nice increase from the $3.77/share the company earned in 2009.
The company has a high return on equity, which has remained above 30%, with the exception of a brief decrease in 2004. Rather than focus on absolute values for this indicator, I generally want to see at least a stable return on equity over time.

The annual dividend payment in US dollars has increased by 13.70% per year since 2000. A 14% growth in distributions translates into the dividend payment doubling every five years. If we look at historical data, going as far back as 1978, we see that PepsiCo has actually managed to double its dividend every six and a half years on average.


Over the past decade the dividend payout ratio has remained above 50% only in 2008. A lower payout is always a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings.

Currently, PepsiCo is attractively valued at 16.50 times earnings, yields 2.90% and has a sustainable dividend payout. In comparison Coca Cola (KO) yields 2.70% and trades at a P/E of 20. I would continue monitoring PepsiCo and will consider adding to my position in the stock on dips.

Full Disclosure: Long PEP and KO

Relevant Articles:

- Lowe’s Companies (LOW) Dividend Stock Analysis
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This article was written by Dividend Growth Investor. If you enjoyed this article, please subscribe to my feed [RSS], or have future articles emailed to you [Email] or follow me on Twitter [Twitter].

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National Bank (TSE:NA) Dividend Analysis

These past weeks I reviewed the top 5 Canadian banks each with a 30B$ market value or more. Although they have roots in Canada, they are truly international banks now. With a minimum yield in the 3% and an expected dividend increase for 2011. Up until the financial crisis, the banks were Canadian Dividend Aristocrats.

Often included alongside the top 5, National Bank (TSE:NA) is my next dividend analysis. It's a smaller bank at 11.72B$, it is mostly present in Eastern Canada and it has a long history with 150 years of business.

Quick Facts

• Stock Ticker: NA on the TSX
• Market Cap.: 8.79B$
• P/E: 12.13 - Lowest than all of the 5 major banks
• EPS: $5.94
• EPS Growth: 20.77%
• 5 Year EPS Growth Average: 7.58%
• Dividend Yield: 3.66%
• 5 Year Dividend Growth Average: 8.13%
• ROE: 17.0%
• 52-Week Low: $54.40
• 52-Week High: $72.45
• 52-Week Range: 98.06%

As you can see, NA had a stock increase of 25.43% for the year compared with the following performance from the other banks:

• 3.15% for Royal Bank
• 23.51% for Toronto-Dominion
• 27.41% for Scotia Bank
• 14.34% for Bank of Montreal
• 23.47% for CIBC

Dividend Growth

National Bank was the first bank to rise its dividend in late 2010 signaling a possible increase from the other banks. The last 10 years saw a significant growth with an average of 17% between 2002 and 2008. The current 5 year average is at 8.13% due to the last 3 years which is in line with the dividend increase from before 2002.



The growth between 2002 and 2008 is probably not sustainable and if you go back long enough, there are a couple of years where the bank did not pay any dividends. Based on its 150 year history, its dividend payments are not as consistent as the top 5 banks.

Dividend Payout Ratio

The dividend payout ratio is in line with the banks in general and relatively consistent once you eliminate the odd year. What's more strange is that the odd year is 2007 and not 2008/2009 when the financial crisis happened. For the past 5 years, it averaged at 50% but prior to 2007, it was below 40% and that's National Bank payout ratio target.

EPS Growth

The earnings per share are showing a decent growth over the past 12 years. In fact, it practically doubled. The stock had double too prior to the economic crisis reaching 100$ per share. It may well be on its way to 100$ again ... for a 28% growth.

Thoughts

National Bank is more of a local Canadian bank with a relatively low impact from international economies. Since 2009, the bank, which adopted the Basel III rule, was able to increase its capital ratio up to 17.5% from 14% while providing a dividend increase. Their dividend increase shows that they are ready to grow and provide shareholders with growth. It's currently trading at a premium from earlier this year but short of their high. There is no indication of trouble looming and the average analyst rating is a buy. Depending on your investing strategy, it may be time to get on the gravy train or you may want to look for  contrarian option such as RY or BMO.

Full Disclosure: At the time of writing I am long BNS & BMO.

Disclaimer: The material presented should not be considered a recommendation. You should always do your own research and reach your own conclusion.

This article was written by The Passive Income Earner. If you enjoyed this article, please consider subscribing to my feed.

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Stock Analysis: Lowe's Companies, Inc. (LOW)

Company Description: Lowe's Companies, Inc. sells retail building materials and supplies, lumber, hardware and appliances through more than 1,700 stores in the U.S. and Canada.

Fair Value: In calculating fair value, I consider the NPV MMA Differential Fair Value along with these four calculations of fair value, see page 2 of the linked PDF for a detailed description:

1. Avg. High Yield Price
2. 20-Year DCF Price
3. Avg. P/E Price
4. Graham Number

LOW is trading at a discount to only 1.) above. The stock is trading at a 7.4% discount to its calculated fair value of $26.68. LOW earned a Star in this section since it is trading at a fair value.

Dividend Analytical Data: In this section there are three possible Stars and three key metrics, see page 2 of the linked PDF for a detailed description:

1. Free Cash Flow Payout
2. Debt To Total Capital
3. Key Metrics
4. Dividend Growth Rate
5. Years of Div. Growth
6. Rolling 4-yr Div. > 15%

LOW earned two Stars in this section for 2.) and 3.) above. The stock earned a Star as a result of its most recent Debt to Total Capital being less than 45%. LOW earned a Star for having an acceptable score in at least two of the four Key Metrics measured. Rolling 4-yr Div. > 15% means that dividends grew on average in excess of 15% for each consecutive 4 year period over the last 10 years (2001-2004, 2002-2005, 2003-2006, etc.) I consider this a key metric since dividends will double every 5 years if they grow by 15%. The company has paid a cash dividend to shareholders every year since 1961 and has increased its dividend payments for 48 consecutive years.

Dividend Income vs. MMA: Why would you assume the equity risk and invest in a dividend stock if you could earn a better return in a much less risky money market account (MMA)? This section compares the earning ability of this stock with a high yield MMA. Two items are considered in this section, see page 2 of the linked PDF for a detailed description:

1. NPV MMA Diff.
2. Years to > MMA

LOW earned a Star in this section for its NPV MMA Diff. of the $1,474. This amount is in excess of the $500 target I look for in a stock that has increased dividends as long as LOW has. If LOW grows its dividend at 15.0% per year, it will take 7 years to equal a MMA yielding an estimated 20-year average rate of 3.9%.

Memberships and Peers: LOW is a member of the S&P 500, a Dividend Aristocrat and a member of the Broad Dividend Achievers™ Index and a Dividend Champion. The company's peer group includes: The Home Depot, Inc. (HD) with a 2.6% yield, KingFisher plc (KGFHY.PK) with a 2.7% yield and Rona Inc. (RON.TO) with a 1.0% yield.

Conclusion: LOW earned one Star in the Fair Value section, earned two Stars in the Dividend Analytical Data section and earned one Star in the Dividend Income vs. MMA section for a total of four Stars. This quantitatively ranks LOW as a 4 Star-Buy.

Using my D4L-PreScreen.xls model, I determined the share price would need to increase to $34.63 before LOW's NPV MMA Differential decreased to the $500 minimum that I look for in a stock with 48 years of consecutive dividend increases. At that price the stock would yield 1.21%.

Resetting the D4L-PreScreen.xls model and solving for the dividend growth rate needed to generate the target $500 NPV MMA Differential, the calculated rate is 12.0%. This dividend growth rate is below the 15.0% used in this analysis, thus providing a margin of safety. LOW has a risk rating of 1.00 which classifies it as a low risk stock.

As the second-largest home-improvement retailer in the world, LOW enjoys tremendous enables purchasing power enabling it to provide low prices to its customers. The company is a well-managed company with a highly automated distribution network. The housing slump has hurt LOW, and will likely to do so in the near-term. However, its strong balance sheet, including a relatively low debt level, and impressive free cash flows should provide ample cushion to see LOW through the downturn. Even though LOW is trading below my $26.68 fair value price, I hesitate to initiate a position due to its low yield. For additional information, including the stock’s dividend history, please refer to its data page.

Disclaimer: Material presented here is for informational purposes only. The above quantitative stock analysis, including the Star rating, is mechanically calculated and is based on historical information. The analysis assumes the stock will perform in the future as it has in the past. This is generally never true. Before buying or selling any stock you should do your own research and reach your own conclusion. See my Disclaimer for more information.

Full Disclosure: At the time of this writing, I held no position in LOW (0.0% of my Income Portfolio). See a list of all my income holdings here.

Related Articles:

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- AT&T Inc. (T) Dividend Stock Analysis
- Harleysville Group Inc. (HGIC) Dividend Stock Analysis
- Nucor Corporation (NUE) Dividend Stock Analysis
- More Stock Analysis

This article was written by Dividends4Life. If you enjoyed this article, please subscribe to my feed [RSS], or have future articles emailed to you [Email] or follow me on Twitter [Twitter].

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Weekend Reading Links - February 6, 2011

For your weekend reading pleasure, the articles listed below contain some of the best dividend and value investing insights found on the web. They were written by various members of the Dividend Investing and Value Network over the past week:

Articles From DIV-Net Members

• Dividends Value presented Building Yield: 15 Consumer Goods Dividend Stocks
• Dividend Growth Investor presented How to select dividend stocks?
• Barel Karsan presented Cash Levels High Or Low?
• Buy Like Buffett presented The Beginners Investing Roundup To Help You Make Money Investing
• The Dividend Guy presented ScotiaBank BNS Dividend Stock Analysis
• The Div Guy presented January Dividend Income Update
• Disciplined Approach to Investing presented Dividend Payers Underperform In January
• Triaging My Way To Financial Success presented DivG Purchases - January 2011
• 40percent 20years presented Screener, better corporate filters, latest reports!
• EPIC INVESTOR presented Why Abbott Looks Cheap
• Value Walk presented EBITDA: Warren Buffett Versus Everyone Else
• The Market Capitalist presented Becoming An Investor - Yes, You Can.
• Dividend Monk presented AGL Resources (AGL) Dividend Stock Analysis
• Wax Inc presented Waldo Thinks Ahead
• Frankly Speaking presented Small Firms Repurchase Strategically
• The Dividend Pig presented February Industry Analysis Announcement
• Dividend Ninja presented Creating Monthly Dividend Income

There are some really good articles here, please take time and read a few of them.

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Stock Analysis: Abbott Labs

Abbott Laboratories engages in the discovery, development, manufacture, and sale of health care products worldwide. It operates in four segments: Pharmaceutical Products, Diagnostic Products, Nutritional Products, and Vascular Products. The company is a dividend aristocrat which has increased distributions for 38 years in a row.
Over the past decade this dividend stock has delivered an annualized total return of 3.10% to its loyal shareholders.

The company has managed to deliver an average increase in EPS of 8.40% per year since 2000. Analysts expect Abbott Laboratories to earn $4.17 per share in 2010 and $4.66 per share in 2011. This would be a nice increase from the $3.69/share the company earned in 2009.
The company has a high return on equity, which has remained above 20%, with the exception of a brief decrease in 2001 and 2006. Rather than focus on absolute values for this indicator, I generally want to see at least a stable return on equity over time.

The annual dividend payment in US dollars has increased by 8.60% per year since 2000. A 9% growth in distributions translates into the dividend payment doubling every eight years. If we look at historical data, going as far back as 1986, we see that Abbott Laboratories has actually managed to double its dividend every six years on average.

Over the past decade the dividend payout ratio has remained above 50% Only in the past few years has the dividend payout ratio remained below 50%. A lower payout is always a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings.

Currently, Abbott Laboratories is attractively valued at 15.60 times earnings, yields 3.60% and has a sustainable dividend payout. In comparison Johnson & Johnson (JNJ) yields 3.50% and trades at a P/E of 12.80. I would continue monitoring Johnson & Johnson and will consider adding to a position in the stock on dips.

Full Disclosure: Long ABT

Relevant Articles:

- Altria (MO) Dividend Stock Analysis
- Four International Dividend Stocks to Consider
- Five Dividend Machines Raising Distributions
- Medtronic (MDT) Dividend Stock Analysis

This article was written by Dividend Growth Investor. If you enjoyed this article, please subscribe to my feed [RSS], or have future articles emailed to you [Email] or follow me on Twitter [Twitter].

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Peerless Systems Corp. (PRLS)

Peerless Systems Corp. (NASDAQ:PRLS) licenses imaging and networking technologies for use in printers and multifunctions. In 2008, it sold substantially all of its operating assets to Kyocera-Mita Corp., but retained the intellectual property which it now licenses. The company is trading at a slight (5%) discount to its NCAV, but the interesting story of PRLS relates to its EPV.

Several months ago, the company offered to repurchase up to $45 million in common stock at $3.25 per share. (It appears this transaction may have been at the behest of an investment firm that, subsequent to the completion of the tender, had its representatives resign from the board and tendered its own shares). The tender was undersubscribed by approximately 5% and the company repurchased 13,214,401 shares, leaving just 3,357,519 outstanding as of November 10, 2010. The company financed this ~$43m repurchase with cash on hand, leaving the company with $12m cash remaining. Using TTM earnings of $7.639m and the new shares outstanding, this translates to EPS of $2.28. But the company is trading at just $3.20, representing a P/E of 1.4x. What gives?

One possible explanation (as always) is that the future is not expected to be the same as the past. In PRLS' case, that would seem to be a possibility, as the company notes (emphasis added)

The technology we license has addressed the worldwide market for monochrome printers (21-69 pages per minute) and multifunction printers ("MFP") (21-110 pages per minute). This market has been consolidating, and the demand for the technology offered by us has continued to decline since fiscal year 2008. The document imaging industry has changed. Lower cost of development and production overseas as well as increasing complexity of imaging requirements makes us unable to effectively compete in this environment. ... We are currently pursuing other potential investment opportunities. The strategy calls for aligning our cost structure with our current and projected revenue streams, maximizing the value of our licensed back technologies and expanding our business through investment opportunities.

From this, we may conclude that, without extensive R&D to remain competitive, the company should be treated as if it were in secular decline, with future revenues substantially lower than past revenues. Furthermore, the company has extremely concentrated revenues, with greater than 70% of revenues coming from less than three customers in any given quarter. Thus, the loss of just one or two customers could prove catastrophic. The decline is likely to come quickly, rather than a slow petering out. It could be that the market is discounting this information and that is why the price has not climbed subsequent to the repurchase. What do you think?

Talk to Frank about Peerless Systems.

Author Disclosure: No position.

This article was written by frankvoisin.com. If you enjoyed this article, please consider subscribing to my feed.

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