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.
Enterprise Products Partners L.P. provides a range of services to producers and consumers of natural gas, natural gas liquids (NGLs), crude oil, refined products, and petrochemicals in the continental United States, Canada, and Gulf of Mexico. This dividend achiever has raised distributions for thirteen consecutive years. As a master limited partnership, the company doesn’t pay taxes at the corporate level. The tax bill is paid by the unitholders, which receive K-1 forms that give detailed explanations on how to report each significant item of income that Enterprise Product Partners has generated. 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].
Over the past decade, this dividend stock has delivered a total return of 18.30% annually. The stock has been mostly flat over the past ten years.
Over the past decade, Enterprise Products Partners L.P. has managed to increase cash flow per share by 10.20% annually. The beauty of pipeline MLPs is that they generate stable revenues, as they have virtual monopoly on oil and gas transportation for a particular pipeline in a particular region. In addition to that, volumes transported of natural gas or oil are much less volatile than the price of the underlying commodity.
The company has managed to raise annual distributions at a rate of 8.60% annually over the past decade. At 9%, dividends double every eight years. The current rate of distribution is double the amount paid every quarter nine years ago.
The company’s cashflow payout ratio has steadily decreased over the past decade from its highs reached in the early 2000s. A lower payout is always a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings.
As a master limited partnership, Enterprise Product Partners tends to distribute more than what it earns in a given year. Because it distributes almost all of its cashflow to unitholders, the company grows by issuing additional units or taking on debt. 
There are several risks to EPD in particular. The first risk is that interest rates could increase, which will make master limited partnerships unattractive relative to risk-free fixed income instruments. This could also increase the cost of capital for the company and hinder future growth. Another risk with master limited partnerships is that the government could decide to abolish the MLP structure, in order to generate more revenues to fill in the huge deficits that the US is running. A similar move by the Canadian government in 2006 to phase-out the Canadian royalty trust structure led to losses in principal and income for investors who were relying exclusively on Canroys. The most important thing is to be diversified and not have over 10-15% of one’s portfolio in master limited partnerships such as Enterprise Product Partners (EPD) or Kinder Morgan Partners (KMP).
Another risk that will be mitigated for this MLP is incentive distribution rights, which allow the general partner a cut of distributions above certain thresholds. This would not be an issue for EPD, since on September 7 it announced plans to purchase the general partner that held those rights, and merge it with one of its wholly-owned subsidiaries. This move would lower the cost of capital for EPD.
The return on assets dropped off sharply between 2000 and 2003, before starting to recover since 2003. Master limited partnerships typically grow by purchasing new assets, which is one reason that this indicator would fluctuate over time. Rather than focus on absolute values for this indicator, I generally want to see at least a stable return on equity over time.
Overall I find Enterprise Product Partners (EPD) to be an attractive dividend stock for current income and distribution growth. It yields 5.50% and trades at a P/E of 21.40. I would consider initiating a position in the stock on dips below $39.
Full Disclosure: None
Relevant Articles:
- Kinder Morgan Energy Partners (KMP) Dividend Stock Analysis
- Master Limited Partnerships (MLPs) – an island of opportunity for dividend investors
- General vs Limited Partners in MLP's
- MLPs for tax-deferred accounts
We spend most of our time on this site discussing stocks from a bottom-up perspective. But sometimes the environment for business becomes more important than the business itself. When governments intervene between willing trading partners or property rights are not protected, the assumptions that underly bottom-up investing no longer apply. For this reason, even bottom-up investors must be cognizant of the business environment into which they are considering investing.
For those who disagree, consider Venezuela, which is run by an administration that abhors capitalism. Nevertheless, many American businesses still have significant operations there. Undoubtedly, some of these businesses are cheap enough to pique the interest of the value investor. But value investors should stay away.
The country has been on a nationalization rampage, and no business is safe. Recently, the country's leader Hugo Chavez announced that it would be taking over the Venezuelan operations of Owens-Illinois (OI), the glass container manufacturer.
While the company had no advance knowledge of its nationalization, it could hardly come as a surprise. As we've discussed on this site before, investors in Venezuela should be very careful. Yet the company announced that "we were surprised to learn of this decision and we are prepared to work with government officials to better understand the situation." What's to understand? Venezuela is not a free country.
Bottom-up investing works and it works well. But it only works because in most environments with which we are familiar, companies are free to buy, sell and allocate their resources towards their most productive uses. Investors must not take this for granted; where this paradigm does not exist (either by geography, industry or otherwise), investors should be wary of using methods that rely on its presence.This article was written by Saj Karsan of Barel Karsan. If you enjoyed this article, please consider subscribing to the feed.
Value investors love a good bargain. Some of the best values in the stock market can be fund in the technology sector. Stocks like Apple and Amazon may be soaring but many great technology companies are selling at a discount to their true earnings power. One of these companies is Intel Corporation.
Intel is the dominant player in the chip market. The company is the largest semiconductor chip maker in the world. Intel derives a significant portion of its $42 billion dollars in revenue by supplying microprocessors to personal computer companies. The company’s chief competition in the PC chip market is Advanced Micro Devices.
Intel recently agreed to buy antivirus software and security market protection company McAfee for $17.68 billion dollars. The move will give Intel access to the mobile telecommunications market via smartphones. Intel can now bundle its chips with software protection. This will increase profits and margins in the existing PC, laptop, and tablet PC market. This differentiates Intel from AMD who has no such security offering.
Intel has a tremendous balance sheet as many tech bellwethers do. Intel has over $20 billion dollars in cash and just $2.5 billion dollars in debt. Intel generates tremendous free cash flow and has been able to grow earnings at a 7% clip over the past five years despite facing an economic slowdown. The next five years should be even better as the company is forecasting 12% earnings growth.
Intel recently posted impressive quarterly results. The company grew earnings 59.2% last quarter and increased revenue 18.2%. Operating margins were high at 39% and profit margins were just south of 25%. Return on equity was impressive at 24% and return on assets came in at 18%.
The stock is undervalued and trades at less than 1 times earnings growth. Intel’s shares have dropped recently as the company is forecasting slower growth for the chip market. The company appears to be trying to temper investor expectations. Intel has a history of guiding down and surprising Wall Street by performing better than expected.
Shares of Intel have been cheap for a while now. Intel trades just under 10 times next year’s earnings and has a dividend yield of 3.2%. This is nearly a full percentage point higher than the historical yield of 2.3%. At 63 cents per share the company is paying out just 33% of earnings via dividend distributions.
I would feel comfortably buying shares of Intel at the current price level. Intel’s stock is worth $23 per share.
This article was written by [Buy Like Buffett]. If you enjoyed this article, please consider subscribing to my feed at [RSS].
Company Description: Colgate-Palmolive Company (Colgate) is a major consumer products company that markets oral, personal and household care, and pet nutrition products in more than 200 countries and territories.
Fair Value: I consider 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
CL is trading at a discount to 1.) and 3.) above. The stock is trading at a 16.1% discount to its calculated fair value of $91.57. CL 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%
CL earned two Stars in this section for 1.) 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. CL earned a Star for having an acceptable score in at least two of the four Key Metrics measured. The company has paid a cash dividend to shareholders every year since 1895 and has increased its dividend payments for 47 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
CL earned a Star in this section for its NPV MMA Diff. of the $2,603. This amount is in excess of the $500 target I look for in a stock that has increased dividends as long as CL has. If CL grows its dividend at 12.5% per year, it will take 3 years to equal a MMA yielding an estimated 20-year average rate of 3.4%. CL earned a check for the Key Metric 'Years to >MMA' since its 3 years is less than the 5 year target.
Memberships and Peers: CL is a member of the S&P 500 and a member of the Broad Dividend Achievers™ Index. The company's peer group includes: Procter & Gamble Co. (PG) with a 3.0% yield, Kimberly-Clark Corporation (KMB) with a 4.0% yield, and Clorox Corporation (CLX) with a 3.2% yield.
Conclusion: CL 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 CL as a 4 Star-Buy.
Using my D4L-PreScreen.xls model, I determined the share price would need to increase to $139.09 before CL's NPV MMA Differential decreased to the $500 minimum that I look for in a stock with 47 years of consecutive dividend increases. At that price the stock would yield 1.46%.
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 6.9%. This dividend growth rate is below the 12.5% used in this analysis, thus providing a margin of safety. CL has a risk rating of 1.50 which classifies it as a low risk stock.
Demand for household and personal care products is generally stable and not affected by changes in the economy. Within personal care products, CL has focused the oral care category and has a worldwide toothpaste market share of approximately 45%. The company is also adept in utilizing sophisticated promotional tools. Near-term the CL changes in the Venezuelan bolivar could negatively affect results, but long-term the company should see above-industry-average growth with more resources being allocated to faster-growing markets. I plan to add to my position while the stock is trading below my fair value price of $91.57 and as my allocation allows. 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.
- The Clorox Company (CLX) Dividend Stock Analysis
- HCC Insurance Holdings Inc. (HCC) Dividend Stock Analysis
- Universal Health Realty Income Trust (UHT) 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].
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, through its subsidiaries, markets and distributes a range of food and related products primarily to the foodservice industry in the United States. The company has raised dividends for forty consecutive years, and is a dividend champion.
Over the past decade, this dividend stock has delivered a total return of 4.40% annually. The stock has been mostly flat over the past ten years.
Over the past decade, Sysco has managed to increase earnings per share by 9.50% annually. The company has bought back 1.50% of its shares outstanding on average over the past decade. Analysts project Sysco to earn $1.99 in FY 2011 followed by $2.15 in FY 2012.
The company has managed to raise annual dividends at a rate of 15.50% annually over the past decade. At 16%, dividends double every four and a half years. Since 1974 the company has managed to double its quarterly dividend payment every four years.
The company’s dividend payout ratio has steadily increased over the past decade. Right now the dividend is sustainable at payout ratio of just under 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.
The return on equity has remained steadily over 29% over the past decade, fueled by strong earnings growth. Rather than focus on absolute values for this indicator, I generally want to see at least a stable return on equity over time.
Overall I find Sysco (SYY) to be attractively valued at a P/E of 14.20 and a yield of 3.50%. Given the adequately covered distribution, and the expectations for modest EPS growth going forward, I view the company as an attractive candidate for a dividend growth portfolio.
Full Disclosure: Long SYY
Relevant Articles:
- A dividend portfolio for the long-termIn last few years, we have seen a slew of mergers and acquisitions in corporate American landscape. Among others, one the main reason for such M&A is growing the parent company under the notion that it will get complementary set of product portfolio or customer base. This all sounds good in theory, but in practice it has wide connotations. In practice, very few merger or acquisitions work out in long term. There are umpteen examples that, holistically, M&As, serve no purpose other than increase fat bonus packages of c-suite executives.
In these M&A driven growths, in almost all cases, the synergies are achieved by cutting jobs, consolidations, killing few products, etc. In two or three years, c-suite executives take hefty bonuses and leave the company behind with all the debt loads or waste of shareholder money.
Consider the example of HP in last few years. HP has spent $31billion to acquire about 35 companies in last 5 years. What is the outcome? These acquisitions have grown company in revenue and earnings. Cut cost by synergies and consolidations, in the process laying off 25000+ people. I wonder with $31 billion, couldn't HP develop new products on its own? But then how will management get their bonus? The guy who is running the show is not going to be there for long! Short term thinking? Spending $31 billion in development and growing future business could have employed 25000+ or more people. Boost to US economy. Boost to its real competitive edge. HP research funding has gone down from 7% of revenue to close to 3% now. HP recent announcement says, 2010 earnings will grow by 14% (excluding one-time cost of recent acquisitions). Acquisitions have become part of HP's operations now. So why exclude? It was not free. Not just HP, almost all companies are on this path.
Microsoft is estimated to have spent more than $15 in last few years on acquisitions. Intel recently spent $10 billion dollars some of which went to acquire business which it exited earlier! Pfizer is another example where it has failed to come up with any new drug in last 10 years. Instead Pfizer management is happy spending time and effort in acquisition binge.
That's the story of 21st century big corporations in US. Money keeps getting wasted and not invested in future business building. Very few companies are focusing on building businesses. All of this driven by managers whose background is in law/accounting/management. They really do not know how to build businesses!
On the other hand, 1950s to mid-1990s, US corporations used to spend large amounts in R&D, developing products, new markets, new applications, etc... on which these corporations are built.
The entrepreneurial culture has given way for wall street’s investing banking culture.
This article was written by Dividend Tree. If you enjoyed this article, please consider subscribing to my feed at [feed link].
McDonald’s is the most popular fast food restaurant in the industry. Everyone goes to McDonald’s. Whether it’s the Big Mac, the milkshakes, salads, crispy chicken wraps, ice cream cones or the fries; customers flock to McDonald’s by the millions. Its drive thrus are often packed as customers drive in to get an early morning McMuffin or a late night snack. McDonald’s is an earnings giant with nearly $24 billion dollars in annual revenue.
The margins are incredible at McDonald’s. McDonald’s has a 20% profit margin, 40% gross margin and an operating margin approaching 30%. That’s better than competitors Yum Brands and Burger King. The king of fast food has been able to grow earnings at a remarkable 19% clip per annum. McDonald’s has made efficient use of its assets and capital earning a 15% return on assets and 36% return on equity.
Although McDonald’s has all of these things going for it; the stock is not cheap. The stock currently trades at just under $75 per share. This values the company at 16.5 times earnings. This is not a high multiple based on past growth but is high compared to future forecasts. McDonald’s is projected to grow earnings at a 10% clip over the next few years. That means the stocks trades at 1.6 time projected earnings growth.
The stock is currently paying a dividend of $2.44 per share. That's a very solid yield of 3.1%. There is no reason to run out and buy shares of McDonald's right now. The stock currently looks expensive to me at $77 a share. Patient investors may get a chance to buy shares of the fast food king on a pullback.
This article was written by [Buy Like Buffett]. If you enjoyed this article, please consider subscribing to my feed at [RSS].
Company Description: Wal-Mart Stores, Inc. is the largest retailer in North America. The company operates retail stores in various formats worldwide. It operates through three segments: Wal-Mart Stores, Sam's Club, and International.
Fair Value: I consider 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
WMT is trading at a discount to 1.) and 3.) above. The stock is trading at a 12.1% discount to its calculated fair value of $60.72. WMT 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%
WMT 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 1973 and has increased its dividend payments for 36 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
WMT earned a Star in this section for its NPV MMA Diff. of the $1,163. This amount is in excess of the $500 target I look for in a stock that has increased dividends as long as WMT has. If WMT grows its dividend at 11.0% per year, it will take 5 years to equal a MMA yielding an estimated 20-year average rate of 3.4%.
Memberships and Peers: WMT is a member of the S&P 500, a Dividend Aristocrat and a member of the Broad Dividend Achievers™ Index. The company's peer group includes: Costco Wholesale (COST) with a 1.3% yield, Target Corp (TGT) with a 1.85% yield, and PriceSmart Inc (PSMT) with a 1.68% yield.
Conclusion: WMT 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 WMT as a 4 Star-Buy.
Using my D4L-PreScreen.xls model, I determined the share price would need to increase to $70.61 before WMT's NPV MMA Differential decreased to the $500 minimum that I look for in a stock with 36 years of consecutive dividend increases. At that price the stock would yield 1.71%.
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 8.4%. This dividend growth rate is below the 11.0% used in this analysis, thus providing a margin of safety. WMT has a risk rating of 1.25 which classifies it as a low risk stock.
WMT enjoys dominant positions in most markets where it competes. The company continues to gain market share aided by the economic downturn as consumers choose WMT over higher-cost competitors and take advantage of its convenience. Its unmatched scale leads to favorable terms on everything from the products it sells to store leases and distribution agreements. I plan to add to my position as my allocation allows and while the stock is trading below my buy price of $60.72. 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.
Related Articles:
- HCC Insurance Holdings Inc. (HCC) Dividend Stock Analysis
- Universal Health Realty Income Trust (UHT) Dividend Stock Analysis
- Cardinal Health, Inc. (CAH) 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].
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.
Lockheed Martin Corporation engages in the research, design, development, manufacture, integration, operation, and sustainment of advanced technology systems and products in the United States and internationally. The company has raised dividends for eight consecutive years, and is a potential dividend achiever. The latest dividend increase was in September, when the board of directors authorized a 19% dividend increase to 75 cents/share.
Over the past decade, this dividend stock has delivered a total return of 9.90% annually. The stock is still 40% off its all-time-highs reached in 2008.
Over the past decade, Lockheed Martin managed to increase earnings per share from a loss of $1.05 in 2000 to a profit of $7.78 in 2009. The company has bought back 1.50% of its shares outstanding on average over the past decade. The company has spent almost twice as much in cash on buybacks as opposed to dividends over the past few years. Analysts project Lockheed Martin to earn $7.40 in FY 2010 followed by $7.65 in FY 2011.
The company’s largest customer is the US Government, which accounted for 85% of Lockheed’s revenues. The large deficits that the government is running might limit future spending on the military. The possible ending of the conflicts in Iraq and Afghanistan could also potentially hurt defense budgets in the future, which could hurt sales at Lockheed. Another risk for the company is the government favoring other defense companies over Lockheed, which is the largest defense company in the world.
The company has managed to raise its annual dividend at a rate of 20.40% annually over the past decade. At 20%, dividends double every 3 and half years. The company actually cut dividends by 50% in the year 2000, but it had lost its status of a dividend achiever a few years before that. Currently, the company can afford to grow distributions given the low payout ratio. However without growth in earnings, the company’s future dividend growth will be limited. 
The company’s dividend payout ratio has remained below 40% since 2002. Right now the dividend is sustainable at payout ratio of 30%. A lower payout is always a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings.
The return on equity has steadily increased over the past decade, fueled by strong earnings growth. Rather than focus on absolute values for this indicator, I generally want to see at least a stable return on equity over time.
Overall I find Lockheed Martin (LMT) to be attractively valued at a P/E of 8.80 and a yield of 4.30%. In comparison, rival Boeing (BA) trades at a P/E of 48 and yields 2.50%, while Northrop Grumman (NOC) trades at a P/E of 9 and yields 3.10%. Another defense contractor, Raytheon (RTN) trades at a P/E of 10.60 and yields 3.40%.
However it is still too early to consider adding Lockheed Martin to my dividend portfolio, particularly due to the ten year requirement for dividend growth that I have. I have no doubt that Lockheed would be able to join the dividend achievers in 2012, but its future would depend on whether it could boost earnings in the future.
Full Disclosure: None
Relevant Articles:
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].
Value investors prefer investing in companies that control their own destinies. That way, if things aren't going well, fixes can be implemented to avoid a loss in asset value or earnings power, either by existing management or a new one. When a company faces problems as a result of external factors beyond the company's control, however, there is nothing the investor can do but hope for the best.
Needless to say, this is not ideal for the value investor, who prefers to minimize his downside risk.
The most common situation where external factors play a dominant role in a company's success occurs when a firm has a large portion of its revenue or costs based on a commodity product with a volatile price (e.g. oil, gold etc.). Changes in the commodity's price can often be the determining factor between a highly profitable few years and several years of persistent losses. But reliance on a commodity price is far from the only situation where a company's success is strongly influenced by external factors.
Consider LodgeNet Interactive (LNET), provider of interactive connectivity solutions to the hospitality industry (e.g. internet and cable services to hotels for their guests). The company trades for just $60 million, despite generating annual operating cash flows closer to $70 million in each of the last four years.
Despite the company's apparent attractive price relative to its cash flows, its fortunes are tied to those of the economy. This is due to the $400 million of debt the company has outstanding. This debt load is basically a self-induced amplification of the effects that external factors already have on the business.
The company is heavily reliant on hotel occupancy rates, and how much those guests wish to spend on video-on-demand and other services. As previously discussed, travel expenditures are highly sensitive to the economy. Due to the leverage effect of debt, LodgeNet's fortunes are highly sensitive to travel expenditures, which are in turn already highly sensitive to the economy.
Another external factor that affects the company is that it operates in an industry constantly undergoing change. To remain competitive, the company may face capital requirements it did not expect (e.g. with the popularity of High-Definition (HD), the company has to make capital investments to upgrade existing infrastructure). Furthermore, there is a risk that disruptive technologies reduce the demand for the company's services (e.g. the proliferation of mobile devices may reduce the need for the company's broadband offering).
If the economy remains as it is or even gradually improves, LodgeNet could turn out to be a steal at the current price. It generates enough cash flow to pay down its debt obligations despite interest payments that reduce the company's net profits to negative. However, this is nonetheless a risky situation, as the company is reliant on factors out of its control in order to stay afloat. If the economy recedes further and/or disruptive technologies bite into the company's existing revenues, the investor does not appear protected on the downside.
Disclosure: NoneThis article was written by Saj Karsan of Barel Karsan. If you enjoyed this article, please consider subscribing to the RSS feed.
Things are looking up at General Electric (GE). General Electric is one of America's oldest and most diversified companies. The company operates in just about every market segment from industrial production to healthcare. The company stock has long been a fixture in the portfolio of dividend investors. Shares of the industrial giant were battered over the past few years dropping as low as $5 per share. The stock no longer trades in the single digits and has been slowly rising over the past two years. The company has seen its operating performance slowly improving.
Equipment orders increased 17%, including 20% growth in the Energy Infrastructure segment and 14% at Technology Infrastructure. Last quarter revenue came in at $37.4 billion which is a 4.3% decline.. Growth was positive at every division except for Technology Infrastructure which declined 11%. Things are even turning around at GE Capital. In the 2nd quarter of this year, GE Capital delivered a 93% increase in net income earning $700 million dollars. The company saw 13% growth at NBC Universal and 59% growth at Home Business Solutions.
General Electric generates massive amounts of free cash flow. The firm generated $6.3 billion in free cash flow last quarter. This is a 10% decline from last year’s $7 billion dollar intake. GE is still awaiting regulatory approval of its $13.75 billion dollar deal to sell 51% of NBC Universal to Comcast.
Earnings are on pace to come in at $1.11 for this year and $1.30 for 2011. Shares currently trade at 15.3 times earnings and 1.6 times book value. GE has seen its earnings grow 16% this year and expects double digit earnings growth for the next 5 years. The company has even increased its dividend after cutting it for the first time in the company’s history. Income investors may find GE’s stock attractive again. The stock currently has a 2.80% dividend yield.
This article was written by [Buy Like Buffett]. If you enjoyed this article, please consider subscribing to my feed at [RSS].
Company Description: Leggett & Platt Inc makes a broad line of bedding and furniture components and other home, office and commercial furnishings, as well as diversified products for non-furnishings markets.
Fair Value: I consider 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
LEG is trading at a discount to only 3.) above. The stock is trading at a 35.0% premium to its calculated fair value of $17.59. LEG 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%
LEG 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%. LEG earned a Star for having an acceptable score in at least two of the four Key Metrics measured. The company has paid a cash dividend to shareholders every year since 1939 and has increased its dividend payments for 38 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
LEG earned a Star in this section for its NPV MMA Diff. of the $769. This amount is in excess of the $500 target I look for in a stock that has increased dividends as long as LEG has. The stock's current yield of 4.46% exceeds the 3.4% estimated 20-year average MMA rate.
Memberships and Peers: LEG is a member of the S&P 500, a Dividend Aristocrat and a member of the Broad Dividend Achievers™ Index. The company's peer group includes: Ethan Allen Interiors (ETH) with a 1.1% yield, Tempur Pedic International Inc (TPX), La-Z-Boy Inc (LZB) and Bassett Furniture Industries Inc (BSET).
Conclusion: LEG 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 LEG as a 4 Star-Buy.
Using my D4L-PreScreen.xls model, I determined the share price would need to increase to $27.20 before LEG's NPV MMA Differential decreased to the $500 minimum that I look for in a stock with 38 years of consecutive dividend increases. At that price the stock would yield 3.90%.
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 1.5%. This dividend growth rate is below the 3.0% used in this analysis, thus providing a margin of safety. LEG has a risk rating of 1.50 which classifies it as a low risk stock.
In spite of being a highly cyclical company, LEG has a long history of profitability and generating strong free cash flow. In addition, its low debt to total capital of 38% provides additional flexibility. With its high yield the stock is appealing. However, with the stock trading 35% above my calculated fair value of $17.59, I will wait for a more favorable time to add to my position. 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.
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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., together with its subsidiaries, operates as a home improvement retailer in the United States and Canada. This dividend aristocrat has increased distributions for 48 consecutive years. The company was one of original dividend aristocrats that joined the elite dividend index in 1989. 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].
Over the past decade, this dividend stock has delivered an annual total return of 6.90%.
At the same time earnings per share have increased only by 9.80% per year since 2001. Earnings per share have been weak since hitting $1.99 in 2007 as sales have stagnated and same store sales drifted lower. For 2010 analysts estimate an increase in EPS by 16.20% to $1.41. For FY 2011 analysts expect the company to earn $1.67/share, which would represent an increase of 18.40% in comparison with the results in FY 2010.
The annual dividend per share has increased by 27.70% on average since 2001. A 28% growth in dividends translates into dividends doubling every two and a half years. Since 1980 the company has managed to double its quarterly dividend every five years on average.
The dividend payout ratio has increased dramatically over the past decade, with the largest increases occurring after 2007. Given the estimated increases in earnings per share over the next few years, the company could easily afford to further increase the dividend payout ratio, by distributing a higher dividend from earnings. A lower payout is always a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings.
The return on equity has experienced a dramatic drop since 2007, which was coincidental with the beginning of the housing crisis. As the economy rebounds, and sales and profitability increase, this indicator should return to its normal levels above 15%. Rather than focus on absolute values for this indicator, I generally want to see at least a stable return on equity over time.
Currently the company trades at a P/E of 16.60, yields 2% and has a dividend payout ratio of 31%. In comparison, Home Depot (HD) trades at a P/E of 17.10 and yields 3.20%. While Home Depot (HD) yields more, the company maintained its distributions flat for 3 whole years, while Lowe’s was increasing their distribution. As a result Home Depot (HD) lost its dividend achiever status in 2008. The stock trades at a yield which is lower than my minimum yield of 2.50%. The stock however has yielded above 2.50% only during 2008-2009 during the financial crisis. Nevertheless I would consider initiating a position in the stock on dips below $18.
Full Disclosure: None
Relevant Articles:
- 16 Quality Dividend Stocks for the long run
- Where are the original Dividend Aristocrats now?
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When Ben Graham was researching stocks, it wasn't easy to get information. Companies did not have to disclose the kind of info we take for granted today, and 3rd party analysis that was independent was hard to come by (okay, maybe that one's still a problem). Investors would have to send for snail-mail financial reports, and/or visit libraries to manually access printed data that was several weeks or months old. Today, all that info and then some is available to investors at the click of a button. But the challenge to investors has merely transformed from one of data availability to that of data filtration. With the plethora of information available, investors must determine how to identify sources of relevant information without getting bogged down by the irrelevant. That is getting more difficult!
One example illustrating this issue is the easy-to-use Google Finance, which is a powerful tool for investors despite some of its inadequacies. Whereas Google Finance used to contain useful, recent articles about individual stocks on the right-hand side of its individual stock pages, it now appears to mostly contain a large dearth of automated articles describing trends, MAC-D's, and moving averages leaving no room for articles that actually the discuss a company's business situation.
For example, articles from "Comtex SmartTrend" keep popping up on individual stock pages, discussing stock price trends, whereas articles discussing the company's prospects are nowhere to be found! As another example, consider this possibly automated article on Nu Horizons, which last month agreed to be bought out at $7/share (and therefore trades at $6.96 today). The article discusses Nu Horizons' upcoming earnings and how it might impact the share price, completely oblivious to the buyout and the fact that the share price is tied to the buyout price.
What used to be a good source of relevant information for value investors has turned into a far less useful resource. Are readers experiencing the same problem? How do you find relevant, value-oriented information about the stocks you follow? I have found following a bunch of value investors on twitter to be very useful in increasing the amount of relevant information I come across. What methods do you use?
This article was written by Saj Karsan of Barel Karsan. If you enjoyed this article, please consider subscribing to my twitter feed.
From its delicious cheesecakes to its baked goods, Sara Lee (SLE) has delicious offerings that can tempt even the most disciplined dieter. The company makes food, beverage, household goods, and body care products.
Sara lee has been a lousy investment for investors over the past few years. The stock has had negative growth for the past five years. Earnings have declined nearly 12% and revenue has dropped the last three years. The company’s CEO just resigned two months ago due to health problems. The good news is that things appear to finally be improving at Sara Lee.
The company has been trying to turn its operations around for years. Sara Lee underwent a restructuring in 2006. The company has refocused its operation around its food products. Sara Lee adopted a new slogan, “the joy of eating”. The company sold off many of its apparel and household goods brands. Sara Lee has engaged in a major cost cutting strategy, reducing expenses and jobs to improve the company’s bottom line. The plan is working.
Earnings have grown nearly 30% for the current year and the company is expected to earn $10.9 billion dollars this year. That would be the first time that the company has had positive revenue growth in years. Margins and operating profits have been rising over the past two years. Sara Lee is restructuring high interest debt and buying back shares. All of these moves will help provide value to shareholders.
Other firms are also taking notice of the positive moves at Sara Lee.The stock was even buoyed today by reports that the company may have a buyout offer. Reports stated that KKR Inc. made a $12 billion dollar offer for Sara Lee. That’s a 25% premium on its current market cap. Shares closed up 7% at $14.40.
Although the stock is trading for just $14 a share, Sara Lee’s shares still do not appear cheap. The stock currently trades at 15 times earnings. That’s a high valuation for a company that has struggled to grow earnings historically. The most attractive thing about Sara lee is the dividend. The stock is currently yielding 3.3%. This yield is actually below the historical yield of 3.8%. The current dividend payout rate is 60% which is high but will drop to 47% of earnings at the end of the year. The dividend is easily sustainable due to the company’s great balance sheet.
This article was written by [Buy Like Buffett]. If you enjoyed this article, please consider subscribing to my feed at [RSS].
Full Disclosure: At the time of this writing, I was long in CLX (0.5% of my Income Portfolio). I also held positions in CL, PG and KMB. See a list of all my income holdings here.
Company Description: The Clorox Company is a diversified producer of household cleaning, grocery and specialty food products is also a leading producer of natural personal care products.
Fair Value: I consider 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
CLX is trading at a discount to 1.) and 3.) above. Since CLX's tangible book value is not meaningful, a Graham number can not be calculated. The stock is trading at a 12.5% discount to its calculated fair value of $76.31. CLX 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%
CLX earned two Stars in this section for 1.) 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. CLX earned a Star for having an acceptable score in at least two of the four Key Metrics measured. The company has paid a cash dividend to shareholders every year since 1968 and has increased its dividend payments for 35 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
CLX earned a Star in this section for its NPV MMA Diff. of the $1,753. This amount is in excess of the $500 target I look for in a stock that has increased dividends as long as CLX has. If CLX grows its dividend at 9.3% per year, it will take 2 years to equal a MMA yielding an estimated 20-year average rate of 3.71%. CLX earned a check for the Key Metric 'Years to >MMA' since its 2 years is less than the 5 year target.
Memberships and Peers: CLX is a member of the S&P 500, a Dividend Aristocrat and a member of the Broad Dividend Achievers™ Index. The company's peer group includes: Colgate-Palmolive (CL) with a 2.7% yield, Kimberly-Clark (KMB) with a 4.1% yield, Procter & Gamble (PG) with a 3.2% yield and WD-40 Company (WDFC) with a 2.7% yield.
Conclusion: CLX 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 CLX as a 4 Star-Buy.
Using my D4L-PreScreen.xls model, I determined the share price would need to increase to $101.25 before CLX's NPV MMA Differential decreased to the $500 minimum that I look for in a stock with 35 years of consecutive dividend increases. At that price the stock would yield 2.17%.
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 5.3%. This dividend growth rate is well below the 9.3% used in this analysis, thus providing a margin of safety. CLX has a risk rating of 1.50 which classifies it as a low risk stock.
As a consumer goods company, CLX sells products with a stable demand that are generally not affected by changes in the economy. The company's presence in the natural home/personal care products arena through Burt's Bees and GreenWorks is viewed positively by environmentalists. CLX's strategy of building its share in mid-sized categories, expanding into foreign markets and focusing on brands with long-term growth potential should provide steady cash flows well into the future. Although the stock is trading below my calculated fair value of $76.31, I am hesitant to add to my position due to its Debt To Total Capital of 97%. I would like to see this number come down some before buying. 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.
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].
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.
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