As value investors, we gravitate towards the most shunned investments around. The most hated stocks often make for the best investments. But no matter how disliked a company may be, if it possesses certain attributes, it may still not make sense as a value investment. Hart Stores (HIS) provides such an example.
I am sure that you have heard of the retailer Target before. The company is the popular retail chain with the big red bullseye. Target is one of the largest retailers in the United States. The company sells just about anything that you need including clothing, household products, power tools, school supplies, and groceries. The big box retailer competes with Walmart and Costco in the discount retail space.
Target has been one of the few retailers that has been able to carve out a niche for itself competing against Walmart. Target offers a lot more growth potential than Walmart. The company has been able to grow at an 8% rate during the current year which is impressive considering the economic slowdown that has taken place. Walmart has executed its domestic growth plan in a solid manner and now is looking for international growth.
Target recently announced plans to expand into Canada and open up to 150 stores by 2013. Expansion is definitely possible considering that the company generates $5.8 billion dollars in operating cash flow. The firm has been able to generate nearly $70 billion dollars in annual sales and $21.6 billion dollars in gross profit.
Target is not particularly cheap currently trading at 12 times earnings. The stock trades at 2.3 times its book value and 1.1 times earnings growth. It trades at just 0.5 times sales. The firm has just under $900 million in cash and $17.5 billion dollars in debt. Target is becoming more appealing to income investors because of its growing dividend and large amounts of free cash flow.
Target just boosted its dividend yield 20% recently. A company not known for dividend payments is becoming a dividend favorite. The company has a dividend yield of 2.4% which is higher than the historical yield of 2.4%. The current dividend payout of $1.20 a share represents just 24% of earnings. This is an incredibly low dividend payout which leaves substantial room for annual dividend growth.
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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
There are some really good articles here, please take time and read a few of them.
Universal Corporation (UVV), together with its subsidiaries, operates as a leaf tobacco merchant and processor worldwide. It engages in selecting, procuring, buying, processing, packing, storing, supplying, shipping, and financing leaf tobacco for sale to, or for the account of, manufacturers of consumer tobacco products. Universal is a dividend champion has paid uninterrupted dividends on its common stock since 1927 and increased payments to common shareholders every year for 40 years.
The most recent dividend increase was in November 2010, when the Board of Directors approved a 2.10% increase to 48 cents/share. The largest competitors of Universal include Alliance One International (AOI), British American Tobacco (BTI) and Phillip Morris International (PM).
Over the past decade this dividend growth stock has delivered an annualized total return of 3.90% to its shareholders.
The company has managed to deliver an increase in EPS of 3.50% per year since 2002. Analysts expect Universal to earn $4.25 per share in 2012 and $4.50 per share in 2012. In comparison Universal earned $5.42 /share in 2011. The company has managed to consistently repurchase 0.70% of its common stock outstanding over the past decade through share buybacks.
The company has managed to generate high returns on equity with the exception of a brief dip in 2006 on lower profitability. 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 4.20% per year over the past decade, which is slightly higher than the growth in EPS.
A 4% growth in distributions translates into the dividend payment doubling almost every 18 years. If we look at historical data, going as far back as 1974, we see that Universal has actually managed to double its dividend every nine years on average.
Over the past decade the dividend payout ratio has mostly remained unchanged, with the exception of a brief spike in 2006 – 2007 on lower short-term weakness in profitability. 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 Universal is trading at 6.80 times earnings, yields 5.10% and has a sustainable dividend payout. This value stock currently fits my entry criteria. While I find the dividend to be well covered, future dividend growth will be constrained by the lack of visibility concerning the company’s future earnings prospects.
Full Disclosure: Long UVV
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How does the saying go? You can't keep a good man down? Well...you can't keep a value investor out of a depressed market! My available capital has been extremely limited lately, as I deployed all of my dry powder during my recent buy streak, adding to my position with CVX and initiating a position with COP.
I decided to pull some money out of my emergency fund to make a purchase. I have typically had a high amount, for my personal circumstances, set aside as an emergency fund for myself. I'm single, and I don't have any major liabilities. I don't own a home or a car. I am not married and I don't have children. Due to this, I think that carrying a smaller balance in my emergency fun in the short-term will be fine as I dry it up a little to make a purchase. I didn't alleviate the entire fund, just a portion of it. I'll likely build it back up over the next couple months as my expenses continue to decrease and my income (hopefully) increases in turn.
With my new-found capital I decided to add to my holdings with ConocoPhillips. I've been a little high on energy lately, and my spree of buying up equities in Big Oil is coming to an end. Energy now comprises of just under 25% of my entire portfolio, which in my eyes is too large an allocation for one sector. I don't have a firm number, but I think keeping individual sectors to no more than 20% of an entire portfolio is probably prudent. Allocation levels can be managed and balanced actively, so I'm not concerned about this. As I buy equities in other sectors my energy allocation on a percentage basis will decrease.
I purchased 18 shares of ConocoPhillips (COP) on 8/22/11 at $63.65 a share. I was happy with this purchase. My entry point on a per-share basis was much lower than my initial purchase which lowers my overall cost basis on this position. This purchase doubles my position with COP.
The yield on my purchase is at 4.14%, which is absolutely solid. It will provide me with a yearly dividend total of $47.52 based on the current payout. I'm ecstatic with this entry yield. I am very bullish on energy, if you couldn't tell by my last three purchases. This sector is currently overweight in my portfolio, so my next few purchases will be in other sectors...likely to be consumer staple and finance sectors.
S&P currently has COP at a 4-star BUY with a 12-month target price of $93.00. Morningstar currently rates COP as a 5-star value. I'm in good company!
What are you buying?
Thanks for reading.
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Many US home builders continue to lose money, and sentiment in this sector is decidedly bearish. But it is often among unloved, cyclical companies that value can be found. To that end, a number of home builders trade at discounts to their book values.
One of the stocks that is popping up on a lot of investor’s screens as a value stock is Hewlett Packard (HP). The technology stock has been one of the biggest losers in the sector over the past week. Hewlett Packard’s stock has been beaten down and is currently trading in the low 20’s. So, you should buy HP right?
Let’s take a look at the fundamentals of the stock. HP looks tremendously cheap. The stock trades at just six times the current year’s earnings. The stock is trading at just 1.2 times book value and 0.7 times sales. The stock currently has a 2% yield which is good for a tech name. At $20 a share, this stock looks tremendously cheap based on the strong HP brand name.
Once investors take a closer look however the stock is not the bargain that it appears to be. HP just had a big quarterly miss in its most recent earnings statement. The company missed its revenue and profit targets. HP also saw its margins declining and lowered it outlook for the rest of the year.
As if that was not enough HP announced that the company is completely changing its direction. The company is trying to transform into a business software company with an emphasis on cloud computing. HP is pulling back from its bread and butter business of selling computer hardware. This transition is puzzling and places the company’s stock off of buy lists and onto watch lists.
It is difficult to trust any earnings estimates from HP going forward as the company does not know what earnings will be. All of the revenue and profit expectations have to be thrown out the window as HP seeks to reinvent itself. I would not feel comfortable buying the stock until I am sure that the company can carve out a niche for itself in the software universe.
Until then HP has to be downgraded to a speculative buy.
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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
There are some really good articles here, please take time and read a few of them.
Sysco Corporation (SYY), through its subsidiaries, markets and distributes a range of food and related products primarily to the foodservice industry in the United States. Sysco is a dividend champion has paid uninterrupted dividends on its common stock since 1933 and increased payments to common shareholders every year for 41 years.
The most recent dividend increase was in November 2010, when the Board of Directors approved a 4% increase to 26 cents/share.
Over the past decade this dividend growth stock has delivered an annualized total return of 3.90% to its shareholders.
The company has managed to deliver an increase in EPS of 9.50% per year since 2001. Analysts expect Sysco to earn $1.97 per share in 2011 and $2.07 per share in 2012. In comparison Sysco s earned $1.99 /share the company earned in 2010. The company has managed to consistently repurchase 1.50% of its common stock outstanding over the past decade through share buybacks.
The company has managed to generate high returns on equity, which had consistently remained above 29%. 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 15.30% per year over the past decade, which is much higher than the growth in EPS.
A 15% growth in distributions translates into the dividend payment doubling almost every five years. If we look at historical data, going as far back as 1975, we see that Sysco has actually managed to double its dividend every four years on average.
Over the past decade the dividend payout ratio increased from 26% to 49%. The primary reason behind this steep increase was that dividends increased at almost twice the rate of earnings growth. 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 Sysco is trading at 15.80 times earnings, yields 3.40% and has a sustainable dividend payout. The company currently fits my entry criteria and I would look to add to my position in it subject to availability of funds.
Full Disclosure: Long SYY
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I believe fully in averaging down on my positions. If a position I've committed money to loses value, but the fundamentals remain the same, then this presents a long-term investor such as myself an opportunity to lower my overall cost basis on that position.
Per Investopedia, the definition of averaging down is:
"The process of buying additional shares in a company at lower prices than you originally purchased. This brings the average price you've paid for all your shares down."
When the shares of a company you own go down in value suddenly and drastically you can do one of three things.
First, you can sell the shares. This would usually be a good idea of the fundamentals of the company has changed, the long-term outlook of the company has drastically turned negative or the company changes the way it does business and you no longer agree with the direction it is going in. A dividend cut would be a prime example. You don't want to throw good money after bad.
Your second option is remaining pat and doing nothing. This might be a good idea if you're unsure as to why the market value has gone down so quickly. Also, if the guidance provides a murky short-term outlook it might be a good idea to hold your shares and commit more time to closely watching any news from the company. Remaining still might also be a good idea if the position is already beyond your normal level for asset allocation and diversification. For instance, if company Z falls 10% in value drastically, but it is already 12% of your portfolio and you usually limit individual equities to 10%, you probably do not want to commit more money. Raising your risk profile on a falling equity may not be the best idea. This really depends on your risk profile.
Lastly, you can purchase more shares. More often than not, this is what I'll do. If the overall market drops drastically, such as it recently did, most companies go down with the market. This provides a logical investor an opportunity in an illogical market. Usually, if I commit money to a position I've done my homework and feel comfortable having my hard-earned money invested in said company. If the value falls, but the long-term outlook remains stable, then there is no reason I wouldn't want to commit more money. It goes along the lines of "if I like company Z at $40, I love it at $30".
I don't believe the market is efficient. I believe there are undervalued and overvalued securities in any market any time of day. Sometimes a company turns unpopular. Often, a company will narrowly miss unrealistic earnings estimates. Perhaps the trading volume falls due to something new and shiny in the market (LinkedIn anyone?). There are many reasons a security may fall in value unjustly. When it does, I'll be there to swoop in and buy more.
But, that's me. What about you?
Thanks for reading.
This article was written by Dividend Mantra. If you enjoyed this article, please consider subscribing to my feed.
Yesterday after the markets closed, Dell reported results from its most recent quarter that caused its stock price to fall 8% in after-hours trading. While we can never really know why a stock falls (as it is the result of the choices of tens of thousands of decision-makers that mostly remain anonymous), the media widely reports that the stock fell because of Dell's lowered revenue guidance. The market's infatuation with revenue growth can create excellent opportunities for value investors.
While there are a lot of good yielders in the market right now, there is one company that has a yield that is simply too good to pass up. The recent market drop has bought AT&T back into the spotlight. There are a number of reasons why AT&T is so attractive. AT&T is one of the best yielders in the market. The company is one of the biggest players in the telecommunications industry. This is an industry that includes rivals Verizon and Sprint. AT&T is trying to increase its size by gobbling up the operations of T-Mobile. This merger will still require approval by the federal government.
AT&T has been aggressively expanding its businesses with acquisitions. There is the pending deal for T-Mobile and the $1.9 billion dollar purchase of Qualcomm’s Spectrum company. AT&T is trying to increase its subscriber base and wireless service offerings with the purchases. They are seen as key components of the company’s future growth plans.
AT&T is a cash flow giant with $36 billion dollars in operating cash flow. The company has a cash flow rate of just shy of 70%. AT&T’s primary concern is its massive debt load. The company just retired some near term debt by issuing more long term debt. It would be nice to see the company start to pay down its long term debt obligations. Despite’s these challenges AT&T’s stock is a solid one for income seekers.
The company’s dividend is the highest yielder in telecommunications. Compare AT&T’s dividend yield to that of its competitors. The company currently has a 6.1% yield is far more attractive than almost any other large cap stock in the industry. Verizon has a similar yield to AT&T at 5.7%. Sprint pays no dividend whatsoever and has a bunch of problems of its own.
AT&T is currently trading at $28 a share. Shares are not less than 10% from the 52 week low of $26.20 per share. That is only 1.4 times the current book value of $19.18 per share. The current payout is 60% of this year’s earnings estimates. AT&T has a long term history of increasing its dividend having raised its dividends for 28 straight years.
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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
There are some really good articles here, please take time and read a few of them.
Illinois Tool Works Inc. (ITW) manufactures a range of industrial products and equipment worldwide. Illinois Tool Works is a dividend champion, has paid uninterrupted dividends on its common stock since 1933 and increased payments to common shareholders every year for 47 years. The most recent dividend increase was in August 2010, when the Board of Directors approved a 9.70% increase to 34 cents/share.
The largest competitors of Illinois Tool Works include Timken Co (TKR), Kaydon Corp (KDN) and SKF AB (SKFRY).
Over the past decade this dividend growth stock has delivered an annualized total return of 8.10% to its shareholders.
The company has managed to deliver an increase in EPS of 9.70% per year since 2002. Analysts expect Illinois Tool Works to earn $3.93 per share in 2012 and $4.59 per share in 2013. In comparison Illinois Tool Works earned $3.03 /share the company earned in 2011.
The returns on equity are on the rebound, after hitting a low of 11.80% in 2010. Right now this indicator is on the rebound, as higher expected earnings would certainly improve returns on equity. 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 13.40% per year over the past decade, which is much higher than the growth in EPS.
A 13% growth in distributions translates into the dividend payment doubling almost every five and a half years. If we look at historical data, going as far back as 1987, we see that Illinois Tool Works has actually managed to double its dividend every five years on average.
Over the past decade the dividend payout ratio increased from 32% to 42%. 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 Illinois Tool Works is trading at 16 times earnings, yields 2.30% and has a sustainable dividend payout. I would consider adding to my position in the stock on dips below 54.
Full Disclosure: Long ITW
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With the drop in the market being the talk of the town, it's not terribly difficult to find value. I could probably put a list of 30 or more stocks that I find particular value in, but I think ultimately you want to stick to your plan. You should always think about allocation, diversification and buying quality on sale.
Here's a diversified list of quality equities on sale:
Aflac Incorporated (AFL)
Aflac is down over 10% today. It's trading at a 9.33 P/E ratio. I think this stock is of particular value, as I thought it was already attractively valued in the mid-$40's. It has a yield of 3.37% at today's prices, which is unusually high for this company.
Intel Corporation (INTC)
Intel is a tech titan trading at a very attractive valuation. It is also trading in a single digit P/E ratio of 9.13. It has an entry yield 4.21% based on today's price. This stock is trading below my cost basis, and am strongly considering adding to my holdings.
Chevron Corporation (CVX)
Energy has been getting hammered lately, right along with insurance. Oil has fallen dramatically lately, and that puts a lot of energy stocks on sale. Chevron is trading for a P/E ratio of only 7.91 with a yield of 3.44%. Great long-term holding here.
Abbott Laboratories (ABT)
Health care hasn't been immune to the downturn and ABT is trading at very attractive values right now. The P/E ratio is a lowly 14.28 and the yield is currently at 4.09%. I really like the long-term prospects of Abbott and it's one of the stronger companies available in its space.
PepsiCo, Inc. (PEP)
Pepsi may not be the fabulous deal that other stocks on this list are, but it's a wonderful company that is extremely dominant in the snack food category. It's trading at a P/E ratio of 15.36 and has an entry yield of 3.42%, which is very attractive for this stock.
There are a number of attractively priced equities out there, and I think this is a phenomenal time to deploy captial, if you have it. We may see further drops in the market, but that would just be an even better time to buy than it already is. I enjoy getting paid dividends in the mean time.
Full Disclosure: I'm long INTC, CVX, ABT, PEP
Thanks for reading.
This article was written by Dividend Mantra. If you enjoyed this article, please consider subscribing to my feed.
The Q&A sessions during company conference calls are usually filled with the questions of analysts with very short-term mindsets. This is illustrated by the nature of their questions, which can range from "Is your gross margin next quarter likely to be 23.3% or 23.4%?" to "Were sales in the 3rd week of July higher or lower than they were in the 2nd week in July?". But on the most recent conference call for Blonder Tongue (BDR), a shareholder with a different agenda appeared. The price has fallen so low, that the caller wanted to talk liquidation value!
One of the places that investors can look to for dividends are the payroll processing companies. This industry is dominated by the two largest processing companies which are ADP (ADP) and Paychex (PAYX). Both companies compete to be the main administrator of payroll and benefits management for small and medium sized business. Let’s take a look at the leading payroll company and see if its shares are a buy.
Automated Data Processing is currently trading at $45 per share. The stock trades at 17 times earnings which is pretty expensive considering that the company is growing at a 10% rate. The company’s growth has been hindered by the bad economy like many of its competitors. Earnings peak in the payroll processing industry when the economy is performing well and unemployment is low. That has not been the environment for ADP over the past few years.
Last quarter ADP beat the market’s expectation by achieving top line revenue growth of 14%. The company is now forecasting earnings growth for the year of 7%. This number made not seem that large but it is. It is amazing that ADP has been able to achieve the growth that it has in the current economic environment. Paychex for example reported a bad earnings number last quarter and is struggling to keep up with the competition.
ADP has a great balance sheet with $1.4 billion dollars in cash and just $34 million dollars in debt. ADP is currently paying investors a dividend of $1.44 per share and has a 3% yield. The 3% yield is close to being in line with the historical dividend yield of 2.9%.
This is below the 4.6% yield that Paychex is offering. ADP’s dividend is much more sustainable considering that the payout is slightly more than 50% of the company’s earnings. That is much easier to maintain than the near 100% dividend payout that Paychex is offering. If earnings stay at the same rate going forward Paychex will be looking at a dividend cut while ADP’s dividend has room for an increase.
Investors should not run out and buy shares of ADP now as the stock is likely to get much cheaper over the next few weeks. Although the dividend is solid, shares are not yet a bargain. With the stock trading at 2.2 times book value and nearly 2 times earnings, ADP is still too pricey in a market with much cheaper stocks.
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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
There are some really good articles here, please take time and read a few of them.
Lowe's Companies, Inc. (LOW), together with its subsidiaries, operates as a home improvement retailer in the United States, Canada, and Mexico. Lowe’s is one of the original dividend aristocrats, has paid uninterrupted dividends on its common stock since 1961 and increased payments to common shareholders every year for 49 years.
The most recent dividend increase was in May 2011, when the Board of Directors approved a 27.30% increase to 14 cents/share. The largest competitor of Lowe’s includes Home Depot (HD).
Over the past decade this dividend growth stock has delivered an annualized total return of 3.40% to its shareholders.
The company has managed to deliver an increase in EPS of 9.10% per year since 2002. Analysts expect Lowe’s to earn $1.64 per share in 2012 and $1.90 per share in 2013. In comparison Lowe’s earned $1.42 /share the company earned in 2011.
The returns on equity have declined from a high of 21% in 2006 to a low of 9.60% in 2010. Right now this indicator is on the rebound, as higher expected earnings would certainly improve returns on equity. 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 31.50% per year over the past decade, which is much higher than the growth in EPS.
A 31% growth in distributions translates into the dividend payment doubling almost every two and a half years. If we look at historical data, going as far back as 1980, we see that Lowe’s has actually managed to double its dividend every five years on average.
Over the past decade the dividend payout ratio increased from 5% to 31%. 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 Lowe’s is trading at 16.60 times earnings, yields 2.40% and has a sustainable dividend payout. I recently initiated a position in the stock. I find the stock attractively valued on dips below 22.50.
Full Disclosure: Long LOW
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The DJIA has slid over 686 points from July 5, 2011-Aug 3, 2011. That's a huge 5.45% drop for the DOW.
The question becomes: are you a bear or a bull?
The bears could easily point to the fact the U.S. government only narrowly missed a default on its obligations. Although the U.S. is currently going to retain it's coveted AAA credit rating, there is the threat that it will be downgraded next year. The deficit is going to be cut by $2.1 trillion over the next decade instead of the $4 trillion the credit rating agencies were looking for. The Eurozone is mired in debt and unpopular austerity measures. Greece and Ireland are going broke. Consumers are not spending and the housing market here in the U.S. is wobbly.
The bulls have a fighting chance. The worst seems to be behind us and a lot of investors are confident that the debt concerns in Europe are overblown. The market drop has provided an opportunity for long-term investors to purchase their favorite equities on sale, relative to their trading prices just one month ago. Many blue chips are reporting strong earnings. Some markets may have seen a bottom to the housing drop. A true bull will be greedy when others are fearful. This is one of those times.
Personally, I'm a long-term investor and I plan on being actively invested for the next 40 years. I believe 10-20 years down the road this will all just be a blip on the radar. Because of that, I'm a bull.
What about you? Bear or Bull?
Thanks for reading.
This article was written by Dividend Mantra. If you enjoyed this article, please consider subscribing to my feed.
If a corporation has a lot of cash, one would think it doesn't need to take on the added costs (through interest payments) associated with debt. But it appears things in practice are a little different from what they are in theory; a simple screen on robotdough.com demonstrates that there are some 1200 public companies in the US in net cash positions that still feel the need to carry debt, paying interest charges that would otherwise be part of shareholder earnings. There can be many legitimate reasons for doing this, but some reasons are more legit than others! C-com (CMI) is actually making currency speculations with its debt!
A logical reason a company may have debt even though it has even more cash has to do with its debt repayment schedule. If debt is due relatively soon, it's only prudent that the company have the cash on hand to pay it off. But this group represents a relatively small subset of the companies who carry debt despite large cash balances.
A major reason many international companies are in this high-cash-some-debt boat has to do with tax laws. For American companies in particular, tax charges for bringing home money that was earned abroad are rather punitive. As such, these companies often borrow at home to fund what they'd rather be doing (e.g. paying out shareholders and/or hiring employees) with cash that is stuck abroad. Cisco (CSCO) and Microsoft (MSFT) are among the companies in this boat.
Another reason a company may have tons of cash and still carry debt may have to do with its being a Chinese RTO. Just because the bank says the cash balance is $100 million (or $200 million, because if you're going to lie, you might as well make it worth your while) doesn't mean you can spend it on salaries. Management of such companies would need debt to grow the operations of the company (however highly exaggerated they may be), despite "cash balances" well in excess of these amounts.
But C-Com doesn't really fit any of the above categories. Though it is an international company, Canadian tax rates and laws are such that repatriation is not such a big deal. And yet despite a cash balance of just under $10 million, management saw fit to take out a $2.8 million loan, bringing the cash balance up to $12.5 million. Here's why:
"Management decided to increase its cash secured line of credit...to meet its Canadian dollar obligations rather than convert its United States dollars into Canadian dollars at unfavourable exchange rate."
In other words, the company is starting to speculate on currency! As the Canadian dollar has strengthened recently against the greenback, the company is betting the opposite will happen. While I may agree with their thinking, I am by no means sure about it, and I don't see how they can be either. Currency markets can stay out of whack for many years at a time, and so this decision increases this company's risk: the company has effectively increased the currency mismatch between its costs and its revenues by increasing its Canadian dollar costs, which have to be paid down with US dollars at some point.
Rather than taking additional currency risks, C-Com would probably have been better served had it hedged its currency mismatch by purchasing forward currency contracts. Since it did not do that ("The Company typically does not enter into foreign currency hedges"), it seems to be trying to recoup currency losses by speculating that currency movements will reverse themselves. The company has enough business risks...why add to the list?
Disclosure: No positionThis article was written by Saj Karsan of Barel Karsan. If you enjoyed this article, please consider subscribing to the feed.
The recent debate over the United States debt deal has led to a bad week for stocks. Many investors have seen their shares plunge as the market had its worst week in awhile. While the market drop may be bad news for old investors, it does prevent an opportunity for new investors. There are some good dividend yields in the market and I would like to take a look at one today. The company in question is Republic Services.
Republic Services Group (RSG) s the 2nd largest provider of waste management services in the United States. The garbage industry is incredibly competitive with firms consistently underbidding each other in order to win contracts. The company’s chief competition is Waste management who is the largest player in the industry. Republic Services has been a long time investing favorite of Microsoft founder Bill Gates.
The company recently reported solid quarterly earnings and chose to reward investors with a share increase. Earnings per share came in at 12 cent per share which was a drop. Revenue came in at $1.5 billion dollars. The company saw its cash position rise nearly fourfold with more than $305 million dollars in cash and cash equivalents. Commercial and industrial collections increased across the board.
The company has been doing a better job of improving its cash ratios and extinguishing its own debt. Investors are benefiting from this in the form of higher dividends. Republic Services increased its dividend payout 10% to 22 cents per share just this week.That is the third consecutive annual dividend increase. The company has now become a quality dividend stock with its yield of 3.06%. The yield over 3% placed Republic Services into investor friendly territory.
Since the current payout represents slightly more than half of the current year’s earnings, the payout appears to be sustainable. Shares are reasonably priced at 1.4 times book value and 1.3 times sales. The 15 P/E ratio is right in line with many industry competitors. This is a company that an investor can safely place on their dividend stocks watchlist.
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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