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One of many ways the BLS lies to you.

Daryl Montgomery from ETFguide.com wrote an interesting article on how the Bureau of Labor Statistics lies about the unemployment numbers.  He says that the headline unemployment number should be 9.6% instead of the government reported 8.5%.  The bottom line is that the economic recovery is a lie.  There will be a double dip recession in 2012.

The article is short.  It should only take you 5 minutes to read.

http://www.etfguide.com/research/747/23/The-Art-of-Statistical-Manipulaton--The-December-Jobs-Report/

(Hat tip to Mike for the article link)

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A First Look at Staples (SPLS)

I’m back after a long Christmas and New Year’s vacation.

I read a very positive article on Staples (SPLS) that came to my inbox courtesy of the Motley Fool.  http://www.fool.com/investing/general/2012/01/03/1-stock-to-buy-in-january.aspx  I had no idea if Staples even paid a dividend.  It turns out that they do, so I will take a first look at it.

Staples (SPLS)

Share price: $14.64

Shares: 699.42 M

Market capitalization: $10.25 billion

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Bonds outstanding: $2.5 billion

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What the company does - Staples is the world's leading office products company, with $25 billion in sales and more than 2,000 stores in 25 countries. The company represents an estimated 10% of the global office products market, larger than direct competitors OfficeMax and Office Depot combined. North American delivery is the largest segment (40% of revenue), followed by North American retail (39%), and international operations (21%).

Morningstar’s take - Staples need not fear losing its number-one status among the office products distributors. In fact, we assert that the firm can extend its already market-leading position. While office supplies are an intensely competitive industry, we continue to believe that the firm's scale, distribution efficiencies, and ability to broaden the scope of its business through service offerings will provide ample revenue growth and margin expansion opportunities. In our view, Staples may have an emerging economic moat given improved distribution efficiencies and bargaining power over suppliers.

DIVIDEND RECORD – Staples converted to a quarterly dividend payer in 2009.  It has grown its dividend nicely since then.

Dividend: $0.10 quarterly

Dividend yield: 2.73%  ($0.40 annual / $14.64 share price)

Dividend payout ratio: 32% ($0.40 / $1.26 average adjusted EPS)  I’d like to see Staples pay out 80% of its average adjusted earnings ($1.26 EPS x 80% = $1.00).  A $0.25 quarterly dividend would make Staples a 6.8% high dividend stock at the current share price.

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EARNING POWER – Staples has a very consistent earning power through the economic peak in 2007 to the depth of the bust in 2009.

(Earnings adjusted for changes in capitalization to 699.42 M shares)

EPS

Net income

Shares

Adjusted EPS

JAN 2007

$1.32

$974 M

740 M

$1.39

JAN 2008

$1.38

$996 M

720 M

$1.42

JAN 2009

$1.13

$805 M

712 M

$1.15

JAN 2010

$1.02

$739 M

722 M

$1.06

JAN 2011

$1.21

$882 M

726 M

$1.26

Five year average adjusted earnings per share is $1.26

Consider contrarian buying below $10.08 (8 times average adjusted EPS)

Staples is currently trading at 11.6 times average adjusted EPS.  This is value pricing.

Consider value buying below $15.12 (12 times average adjusted EPS)

Consider speculative selling above $25.20 (20 times average adjusted EPS)

BALANCE SHEET – Staples has a decent balance sheet.

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Book value per share: $10.08 TTM

Price to book value ratio: 1.45 (under 1.0 is good)

Current ratio: 1.51 latest quarter (over 2.0 is good)

Quick ratio: 0.76 latest quarter (over 1.0 is good)

Debt to equity ratio: 0.22 (lower is better)

CONCLUSION – Staples is a moderate dividend grower that appears to be well positioned in their industry.  It is value priced with a decent balance sheet.  I think that this will be an excellent stock at the bottom on the double dip recession that is coming.  Put it on your watch list between $15 and $10 dollars per share.

DISCLOSURE – I don’t own Staples (SPLS).

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Seasons Greetings

Merry Christmas and have a Happy New Year from
myhighdividendstock.com. I will start writing articles after January
1st, 2012. Thank you all very much for reading my blog on high
dividend stocks. Please add it to your RSS reader so you don't miss
an article.

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First look at Transocean (RIG)

Transocean (RIG)

Market price: $39.83

Shares: 319.86 million

Market capitalization: $12.74 billion

Morningstar’s take: In our opinion, Transocean is the best-positioned driller to capitalize on numerous drilling technology breakthroughs, as well as higher oil and gas prices. This positioning has led to strong secular trends supporting high levels of offshore exploration and development well into the next decade. Because Transocean owns the world's largest offshore drilling fleet, it will collect billions from customers eager to exploit large discoveries under the sea floor.

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Transocean is an offshore drilling company. Its fleet of 135 vessels includes drill ships, semisubmersibles, and jackups, which operate in technically demanding environments such as Brazil, Nigeria, and the North Sea. It contracts primarily with some of the largest global exploration and production companies.

DIVIDEND RECORD – Transocean paid an adjusted $0.03 quarterly dividend from 1993 – 2002.  Then it stopped all dividend payments.  Three quarters ago it started paying a $0.79 quarterly dividend.  It went from a no dividend stock to a high dividend stock instantaneously.

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Dividend: $0.79 quarterly

Dividend yield: 7.9% ($3.16 annual DIV / $39.83 share price)

Dividend payout ratio: 200% ($3.16 / $1.58 2011 adjusted EPS) or 103% ($3.16 / $3.06 eleven year average adjusted EPS)

EARNING POWER – $3.06 eleven year average adjusted earnings @ 320 million shares

(earnings adjusted for changes of capitalization)

                        EPS                   Net inc.             Shares               Adj EPS

2001                 $0.80                $254 M              315 M                $0.79

2002                 ($11.69)            ($3,732 M)        319 M                ($11.66)

2003                 $0.06                $19 M                321 M                $0.06

2004                 $0.47                $152 M              325 M                $0.48

2005                 $2.13                $716 M              339 M                $2.24

2006                 $4.28                $1,385 M           325 M                $4.33

2007                 $14.14              $3,131 M           222 M                $9.78

2008                 $13.09              $4,202 M           321 M                $13.13

2009                 $9.84                $3,181 M           321 M                $9.94

2010                 $2.99                $961 M              320 M                $3.00

2011 E              $1.09                $504 M              320 M                $1.58

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2011 Q1            $0.40                $309 M              320 M                $0.97

2011 Q2            $0.53                $154 M              320 M                $0.48

2011 Q3            ($0.19)             ($71 M)             320 M                ($0.22)

2011 Q4            $0.35 E*            $112 M              320 M                $0.35

* Q4 2011 earnings estimates comes from Reuters.com

$3.06 eleven year average adjusted earnings @ 320 million shares

Consider contrarian buying below $24.48 (8 times average adjusted EPS)

Consider value buying below $36.72 (12 times average adjusted EPS)

Transocean is currently trading at 13 times average adjusted EPS

Consider speculative selling above $61.20 (20 times average adjusted EPS)

BALANCE SHEET – Thirty-nine percent of Transocean assets is comprised of goodwill.  Why?  I don’t know yet.  The price to book value ratio would rise to about 1.0 if we exclude the $8.1 billion in goodwill.

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Book value per share: $65.10

Price to book value per share ratio: 0.61 this is good ($39.83 price / $65.10 BV per share)

Current ratio: 1.54 (over 2.0 is good)

Quick ratio: 0.77 (over 1.0 is good)

Debt to equity ratio: 0.71

CONCLUSION – Transocean is currently a high dividend stock, but I’m not convinced that it has the earning power to cover the current dividend for the next few years.  The company is currently trading at 13 times average adjusted earnings, but its earning power is highly variable.  A deeper analysis is necessary to determine why there is so much volatility in Transocean’s earning power.  Other companies in this sector do not have the same volatility in earning power.  RIG’s balance sheet is okay right now, but without more earnings it will deteriorate.

I would wait buy until the dividend situation stabilizes and the price falls closer to contrarian territory in the mid-20’s.  China’s looming recession will lower demand for oil at the current price.  That’s not good for Transocean.

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DISCLOSURE – I don’t own Transocean (RIG).

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TIP OF THE WEEK - Why MF Global went down and how you can protect your life's savings

December 16th, 2011

Jason Brizic

Investment institutions (like MF Global) can legally steal your assets and use your property for their own purposes.  They can do this because you have agreed to let them do this by consenting to their customer agreements.  Read the article below by Austrian economist, Doug French, for a devastatingly clear explanation of what killed MF Global and it customer’s [victims] savings.

Your savings and investments may not be safe in your brokerage accounts depending on the fine print in the agreements you consented to.  Some financial corporations have agreements that allows them to use your assets as their collateral in their bets in the derivatives markets.  Other financial corporation’s only claim to do this with your margin accounts; therefore, standard brokerage accounts and retirement accounts would remain untouched in that situation.

This means that an investor who had $100,000 in a money market account with MF Global could still be wiped out by the MF Global bankruptcy.  Most people think that their brokerage money is safe in money markets, but that is not necessarily the case depending on the customer agreements you entered into.

Action steps:

1)    Go to Google and perform a search using the name of your financial institution plus the word rehypothecation.  The results might scare you.

a.    For example Fidelity rehypothecation yields the following results: http://www.google.com/search?q=fidelity+rehypothecation&rls=com.microsoft:*&ie=UTF-8&oe=UTF-8&startIndex=&startPage=1

b.    Click through a couple of the results until you find someone who dug out the applicable fine print from the customer agreements

2)    If the fine print says anything like what MF Global’s fine print said, then you have a decision to make soon.  You can keep the account or close the account.

“7. Consent To Loan Or Pledge You hereby grant us the right, in accordance with Applicable Law, to borrow, pledge, repledge, transfer, hypothecate, rehypothecate, loan, or invest any of the Collateral, including, without limitation, utilizing the Collateral to purchase or sell securities pursuant to repurchase agreements [repos] or reverse repurchase agreements with any party, in each case without notice to you, and we shall have no obligation to retain a like amount of similar Collateral in our possession and control.”

It isn’t clear to me at this time how the MF Global bankruptcy will be handled by the FDIC and the SIPC (http://en.wikipedia.org/wiki/Sipc).  There are proposals in congress to change what is covered and by how much.  Regardless of the actions of congress, ultimately the FDIC and SIPC are empty promises because they don’t have enough money to insure the assets they claim to insure.  The Federal Reserve would have to hyper inflate the money supply to back their insurance claims.  Doug French addresses this at the end of his article below.

* * * * * * * * * *

MF Global's Fractional Reserves

by Doug French

Recently by Doug French: Who Serves During Disaster?

 

 

 

Jon Corzine told the House Agriculture Committee, "I simply do not know where the money is, or why the accounts have not been reconciled to date." The public is outraged that the former CEO of bankrupt global financial-derivatives broker and prime dealer in US Treasury securities MF Global doesn't know where the missing $1.2 billion in client funds went.

Corzine is the member a few exclusive clubs: he is a Goldman Sachs alum, former US senator, and former New Jersey governor. After the incumbent Corzine was beat by Chris Christie in the 2009 New Jersey gubernatorial race, the MF board probably rejoiced, believing the guy to fix their problems was suddenly available. Now he's in the club of taking a mere 20 months to create the eighth largest bankruptcy in history.

As a stand-alone entity, MF Global was born in 2007 when it was spun off from UK hedge-fund giant, Man Group. MF booked revenues of $4 billion that year from interest earned by using its customers' funds, an operation that sounds like fractionized banking: short-term embezzlement used to make profits.

For banks, the practice was sealed in English common law in 1811 in the court case of Carr vs. Carr, where Master of the Rolls Sir William Grant ruled that debts mentioned in a will included bank accounts since the money had been deposited into the bank and wasn't earmarked in a sealed bag. The deposit was thus a loan rather than a bailment.

The same Judge Grant ruled the same way five years later in Devaynes vs. Noble, despite an attorney's argument that "a banker is rather a bailee of his customer's funds than his debtor … because the money in … [his] hands is rather a deposit than a debt, and may therefore be instantly demanded and taken up."

In 1848, in Foley vs. Hill and Others, Lord Cottenham ruled,

"Money, when paid into a bank, ceases altogether to be the money of the principal; it is then the money of the banker, who is bound to an equivalent by paying a similar sum to that deposited with him when he is asked for it.… The money placed in the custody of a banker to do with it as he pleases."

It's been clear sailing for bankers ever since. No questions asked.

At the same time, people are surprised that a commodity brokerage firm would misplace client assets. As Christopher Elias explains for Thomson Reuters,

"MF Global's bankruptcy revelations concerning missing client money suggest that funds were not inadvertently misplaced or gobbled up in MF's dying hours, but were instead appropriated as part of a mass Wall St manipulation of brokerage rules that allowed for the wholesale acquisition and sale of client funds through re-hypothecation. A loophole appears to have allowed MF Global, and many others, to use its own clients' funds to finance an enormous $6.2 billion Eurozone repo bet."

Free bankers are always insisting that fractional-reserve banking is A-OK, as long as bankers inform depositors up front that the bank will be using their customers' money to make loans and investments.

That is exactly the case with MF Global. The company's customer agreements included the following clause:

7. Consent To Loan Or Pledge You hereby grant us the right, in accordance with Applicable Law, to borrow, pledge, repledge, transfer, hypothecate, rehypothecate, loan, or invest any of the Collateral, including, without limitation, utilizing the Collateral to purchase or sell securities pursuant to repurchase agreements [repos] or reverse repurchase agreements with any party, in each case without notice to you, and we shall have no obligation to retain a like amount of similar Collateral in our possession and control.

Back in 2007, customer funds held by MF as collateral against commodities trades could be invested in two-year Treasuries earning north of 4.5 percent. But in the wake of the '08 meltdown, the Bernanke Fed has flattened yields to be counted in basis points. With these low rates MF Global revenues fell to $517 million in 2010.

The old bond trader Corzine thought he could juice up MF's earnings with a little financial razzle-dazzle. Thinking outside the box (and off the balance sheet), Corzine moved $16.5 billion in assets into repos. A repo involves putting up assets as collateral, assets to be repurchased later, and borrowing money against those assets. MF used an off-balance-sheet repo called a "repo-to-maturity" where the loan and the collateral in the transaction have the same maturity. US accounting rules consider the transaction a sale and the assets can be moved off the balance sheet.

Most of these assets were bonds from Italy, Spain, Belgium, Portugal, and Ireland, all paying healthy coupon rates that would easily cover the repo interest rate and provide a nice profit. MF Global would have virtually no skin in the game (their customers provided it) and be earning a nice interest-rate spread.

Although things have been rocky in euroland, the collateral value of the short-term bonds appeared safe with the guarantee provided by the European Financial Stability Facility (EFSF).

With the $16.5 billion in assets moved off its balance sheet, MF Global then ramped up a net-long sovereign-debt position of $6.2 billion on its balance sheet – exposure that was five times the company's net worth.

While the EFSF guarantee would insure against the default of the sovereign debt if the bonds were held to maturity, MF was still at risk to make margin calls, if the bonds dropped in price day-to-day. Elias writes,

"Like Wall Street cocaine, leveraging amplifies the ups and downs of an investment; increasing the returns but also amplifying the costs. With MF Global's leverage reaching 40 to 1 by the time of its collapse, it didn't need a Eurozone default to trigger its downfall – all it needed was for these amplified costs to outstrip its asset base."

So while MF Global's eurozone bets had not defaulted, the company's liquidity was drained making margin calls and trying to meet short-term-debt obligations as the euro-crisis news flow out of Europe vacillated.

MF Global was able to leverage up its euroland bets by way of the rehypothecation of their clients' collateral. Hypothecation is pledging collateral for a loan. Like the mortgage on your house.

Customers of MF posted cash, gold, or securities as collateral to backstop their commodity futures and derivatives trading. MF would then take those customer assets to back its own trades and borrowing. Mr. Elias explains, "The practice of re-hypothecation runs into the trillions of dollars and is perfectly legal. It is justified by brokers on the basis that it is a capital efficient way of financing their operations much to the chagrin of hedge funds."

Under US rules, a prime broker is allowed to rehypothecate assets to the value of 140 percent of the client's liability to the broker. The rules are more liberal in the United Kingdom, where there is no limit and in many cases UK brokers rehypothecate 100 percent of collateral value placed in their custody.

Elias writes that by 2007, rehypothecation was half the shadow banking system.

"Prior to Lehman Brothers' collapse, the International Monetary Fund (IMF) calculated that U.S. banks were receiving $4 trillion worth of funding by re-hypothecation, much of which was sourced from the UK. With assets being re-hypothecated many times over (known as 'churn'), the original collateral being used may have been as little as $1 trillion – a quarter of the financial footprint created through re-hypothecation."

All of this churning has created rivers of liquidity, much of it with no asset backing. And what assets do provide backing aren't the quality they used to be. The repo rules were liberalized in the Clinton era. So instead of AAA government paper being required, AA sovereign debt works just fine; after all, as James B. Stewart writes for the New York Times:

"The law also allows commodities firms like MF Global to use segregated customer funds as a source of low-cost financing for their own operations, but they are required to replace any customer assets taken from segregated accounts with supposedly ultrasafe collateral of the same value, typically United States Treasuries, municipal obligations and obligations whose payments of principal and interest are guaranteed by the government." [emphasis added]

Of course all this rehypothecating creates mountains of counterparty risk, all dependent on dubious collateral that has been pledged multiple times. The equivalent of having four mortgages on a house, each having been sold to other parties who have been told their mortgage is in first position. When the property value starts dropping or the borrower doesn't pay, only one lender will get there first and legal fistfights ensue.

This rehypothecation activity may be the biggest credit bubble of all time, according to Elias. J.P. Morgan alone has rehypothecated over half a trillion dollars in 2011, Morgan Stanley $410 billion, Goldman Sachs $28 billion, and the list goes on.

Americans have been told US banks have little exposure to European sovereign debt, but according to the Bank for International Settlements (BIS), US banks hold $181 billion in the sovereign debt of Greece, Ireland, Italy, Portugal, and Spain. And while Germany is considered the belle of the Continental ball, Grant's Interest Rate Observer reports that Deutsche Bank is levered at 43:1 and the Bundesbank has doubled its leverage since 2007 when it was geared at 75:1 – these days the central bank is levered at 153:1.

Extreme leverage is a problem if the slightest thing goes wrong – anywhere. When the cost of swapping euros for dollars soared at the end of last month, a coordinated central-bank cavalry charged out of nowhere, cutting swap rates and establishing temporary bilateral-liquidity swap arrangements. Nobody but financial news junkies seemed to know or care.

The truth about the financial crash wasn't known until Bloomberg chased its request for information all the way to the Supreme Court to obtain documents that shed light on how much dough the Federal Reserve really provided the banks during the 2008 meltdown.

For instance, it turns out Wachovia shareholders got lucky as the bank was floated a secret loan from the Fed of $50 billion to keep the doors open while a sale could be arranged with Wells Fargo for $7 a share rather than shareholders having to take the buck-a-share offer from the wounded Citibank.

"This deal enables us to keep Wachovia intact and preserve the value of an integrated company, without government support," Wachovia's chief executive Robert Steel said at the time.

Right, no government support at all.

Instead of being among the bailed out, Corzine and MF Global are now joining Lehman, IndyMac, Colonial, and all the small-fry banks lacking the friends in high places needed to keep them afloat. In the fractional-reserve world, markets don't decide the winners and losers; government does.

Stewart writes for the NYT, "SIPC will replace up to $500,000 of securities and cash (but not futures contracts) missing from customer accounts at member firms," and the notion of even covering futures accounts has been floated on CNBC by Senator Debbie Stabenow, just as the FDIC replaces deposits up to $250,000. But covering the losses of clients and depositors is hardly the reflection of sound capitalism and the honoring of property rights.

Murray Rothbard wrote,

"If no business firm can be insured, then an industry consisting of hundreds of insolvent firms is surely the last institution about which anyone can mention 'insurance' with a straight face. 'Deposit insurance' is simply a fraudulent racket, and a cruel one at that, since it may plunder the life savings and the money stock of the entire public."

So it's unlikely Jon Corzine knows where the $1.2 billion in customer money went any more than the president of a failed bank would know exactly where the customer deposits went.

The bigger issue is that, day by day, Mr. Corzine looks to be merely a canary in the fractional-reserve coal mine.

Reprinted from Mises.org.

December 15, 2011

Doug French [send him mail] is president of the Ludwig von Mises Institute and the author of Early Speculative Bubbles & Increases in the Money Supply. He received the Murray N. Rothbard Award from the Center for Libertarian Studies. See his tribute to Murray Rothbard.

* * * * * * * * * *

Link to the article on LewRockwell.com: http://lewrockwell.com/french/french143.html

For more tips of the week click here: www.myhighdividendstocks.com/tip-of-the-week

First look at Ensco (ESV)

The third highest dividend yielder in the ocean drilling business is Ensco (ESV) with a small yield of 2.86%.  The highest yielder is SeaDrill (SDRL) at 9.04% and the second highest is Transocean (RIG) at 7.53%.  I read a quick article on Seeking Alpha summarizing Jim Cramer’s opinion on Transocean and Ensco.  He liked Ensco much more than Transocean for the following reasons:

Transocean (RIG), Ensco (ESV), Marathon Oil (MRO), Conoco-Phillips (COP)

The biggest company in a sector is not necessarily the best. Transocean (RIG) is up only one point from its 52 week low in spite of the fact that it is the major player in offshore drilling, and everything points to demand for oil staying strong for the long-term. The stock is down 50% from its highs earlier in the year. RIG is the largest offshore driller, but Cramer thinks it happens to be the worst. Ensco (ESV), the second largest driller, is actually superior to RIG, with a strong balance sheet and a young fleet. The company poured a billion into buying new rigs since 1996, and is seeing results with less maintenance and shorter downtime per rig. ESV has enough cash left to make smart acquisitions. While ESV rigs are an average of 7 years old, RIG's rigs are an average of 16 years old. Maintenance costs on these old rigs are high, and money is lost on extended down time. RIG's balance sheet is in trouble, and it has had to make a dilutive offering of 26 million shares to pay its hefty 7.5% dividend, which it might have to cut anyway. Cramer called RIG "Just one rung above junk." It sells at a multiple of 12 compared to ESV's multiple of 8. While ESV's dividend is much lower, at 2.9%, RIG will most likely end up having to cut its dividend by as much as 50%, so even yield is not a reason to buy RIG instead of Ensco.

Cramer took a call:

Marathon Oil (MRO) is inexpensive, but yields just 2% and has no catalyst. Cramer would buy Conoco-Phillips (COP), with a 4% yield, on the way down.

Original article at http://seekingalpha.com/article/313701-cramer-s-mad-money-jung-and-foolish-12-13-11

I’m curious to know if I come to the same conclusion as Jim Cramer concerning Ensco (ESV).  He likes it compared to Transocean (RIG).  So let’s put my first look methodologies to the test.

Ensco (ESV)

Share price: $47.24

Shares: 230.67 million

Market capitalization: $10.9 billion

Bonds outstanding: $5.1 billion due in 2015-2016 and beyond

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Morningstar’s take: Ensco's strategy is a breath of fresh air in a contract drilling industry where differentiation is hard to come by. Its cost-efficient approach results in industry-leading operating margins. In contrast, Pride has one of the industry's worst cost structures, with gross margins typically 20 points lower than Ensco's. In addition, Pride's administrative costs run around 7% of revenue, versus Ensco's more svelte 3%. We think Ensco has significant cost-cutting opportunities available, which could lead to substantial value creation. We've already seen positive early results, as recently Ensco doubled its anticipated 2012 savings estimate to $100 million from $50 million and introduced a post-2012 target of $150 million in annual savings, made up of both capital expenditure and expense savings.

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Ensco owns one of the newest jackup fleets in the contract drilling industry, which drills for oil and natural gas globally. The firm has been acquiring jackups since the early 1990s and has recently expanded its fleet to include four semisubmersibles. It has several additional semisubmersibles under construction. After the merger with Pride is completed, Ensco will own one of the industry's largest and youngest deep-water fleets.

DIVIDEND RECORD – Ensco has been paying dividends since at least 1997.  It payed $0.03 per share for years and then jumped to $0.35 per share in 2Q 2010.

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Dividend: $0.35 per quarter

Dividend yield: 2.96%

Dividend payout ratio: 49.4% ($1.40 annual DIV / $2.83 recent Google Finance EPS) or 40% ($1.40 / $3.50 average adjusted EPS)

EARNING POWER – Six year average adjusted earning power of $3.50 per share at 230.67 million shares

(earnings adjusted for changes in capitalization – Ensco has near doubled the number of shares outstanding in 2011)

                        EPS                   Net inc.             Shares               Adj EPS

2006                 $5.04                $757 M              153 M                $3.28

2007                 $6.73                $967 M              147 M                $4.19

2008                 $8.02                $1,151 M           142 M                $4.99

2009                 $5.48                $779 M              141 M                $3.38

2010                 $4.06                $580 M              141 M                $2.51

2011 E              $2.99                $613.5 M E        230.67 M           $2.66

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2011 Q1            $0.45                $63.6 M             141.4 M             $0.28

2011 Q2            $0.59                $100.9 M           170.2 M             $0.44

2011 Q3            $0.88                $202.2 M           228.60 M           $0.88

2011 Q4            $1.07 E             $246.8 M E        230.67 M E        $1.07 E

Estimates for 2011 Q4 are from Reuters.com consensus estimate.

Six year average adjusted earnings are $3.50 per share @ 230.67 million shares

Consider contrarian buying at $28.00 (8 times average adj EPS)

Consider value buying at $42.00 (12 times average adj EPS)

Consider speculative selling at $70 (20 times average adj EPS)

Ensco is trading at 13.5 times average adjusted earnings.  This is priced for investment.

BALANCE SHEET – That is a nice look balance sheet.

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Book value per share: $46.43

Price to book value ratio: 1.02 (good)

Current ratio: 1.21 latest quarter (okay; over 2.0 is good)

Quick ratio: 0.90 latest quarter (okay; over 1.0 is good)

Debt/equity ratio: 0.46 (not bad)

CONCLUSION – Ensco (ESV) looks like a well run company with a modest dividend.  It is price just barely above value territory right now at 13.5 times average adjusted earnings.  However, I think you will have your chance to buy this stock much cheaper as the world’s stock markets drop due to worldwide recession.  The sovereign debt crisis will suck up capital that could be use to fuel real economic growth.  Take a look at how Ensco performed during the Panic of 2008 to see what might happen to the stock price in the event of another recession worse than the one in 2008.  It hit a high near $80.74 in June 2008, then it dropped 69.5% down to near $24.58 in February 2009.  I believe that the world’s economic problems will drop the price of oil and Ensco down to those levels again.  Ensco would yield 5.6% if it returned to its February 2009 lows and kept its current quarterly dividend of $0.35 per share.  That is getting very close to the kind of high dividend stock I like.  Wait for this one to come to you.

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DISCLOSURE – I don’t own Ensco (ESV).

P.S. I’ve written about SeaDrill before.  Check out my SeaDrill analysis here: http://www.myhighdividendstocks.com/category/high-dividend-stocks/seadrill

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AGNC declares another $1.40 quarterly dividend. Dividend payout ratio up to 118%, again.

American Capital Agency Corp. has just declared another $1.40 dividend
payable on January 27th, 2012 to common shareholders of record as of
December 22nd, 2011, with an ex-dividend date of December 20th, 2011.

http://tinyurl.com/7banmep

This will be the 10th consecutive quarterly dividend payment of $1.40.
However, the trend of dividend payout ratio over 100% also continues.

Reuters.com financial website shows analyst's concensus estimates for
AGNC's 4th quarter earnings at $1.18 per share. If they are right,
then AGNC's dividend payout ratio will be 118%. They will probably
announce a secondary share offering soon to finance their dividend
deficit. Then the share price will drop again. This has been the
pattern for the last few quarters.

AGNC is not earning enough money to cover their dividend payments at
$1.40 per share. There is a substantial downside risk to your capital
if you buy AGNC at today's price.

DISCLOSURE - I don't own AGNC.

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discover high dividend stocks with earning power and strong balance
sheets.

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Legendary Investor, Jim Rogers, says times are going to get much worse

An excellent, straight shooting article on Jim Rogers thoughts.  Own real assets in times of high inflation.  Central bank money printing will lead to highly inflationary times.
 
 
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TIP OF THE WEEK -

Reuters.com has easy to find earnings estimates
December 9th, 2011
Jason Brizic
 
Knowing a company's earning power should help you determine when the company's shares are relatively value priced.  Companies are value priced when they are trading at less than 12 times average adjusted earnings.
 
I like to factor the current year's earnings into my long term average adjusted earnings.  I use Morninstar.com's website to gather the earnings per share, net income, and number of shares for the past five years.  That usually gets me 2006-2010.  But I still need 2011.  I switch the view from annual to quarterly to get Q1, Q2, and Q3 of the current year.  That leaves Q4 as an unknown.
 
This is where Reuters.com comes in.  I use Reuters.com to get an estimate for the next quarter to complete the year.  Its okay if a company beats or misses this estimate because it has little effect on a five or six year average adjusted earnings calculation.
 
Let's do this for one of my favorite stocks, Safe Bulkers (SB).  This data comes from Morningstar.com's financials tab.
(Earnings adjusted for changes in capitalization - Safe Bulkers has issued shares in the past two years)
Year        EPS       Net inc.       Shares      Adj EPS
2006        $1.78     $97 M         55 M         $1.47
2007        $3.84     $209 M       55 M         $3.17
2008        $2.19     $119 M       55 M         $1.81
2009        $3.03     $165 M       55 M         $2.50
2010        $1.73     $110 M       63 M         $1.67
 
For some reason unknown to me Morningstar.com wouldn't show me the quarterly data for Safe Bulkers, so I used Google Finance to find the data I need for Q1-Q3 2011
 
Year        EPS       Net inc.      Shares       Adj EPS
2011 Q1  $0.41     $27.31 M   65.88 M     $0.41
2011 Q2  $0.47     $31.13 M   65.88 M     $0.47
2011 Q3  $0.33     $22.01 M   65.88 M     $0.33
 
Click on the Analysts tab
Scroll down to Consensus Recommendations
You will see Safe Bulkers next quarter consensus estimate of $0.35 per share
 
Now we can complete the estimated earnings for 2011
Year        EPS       Net inc.      Shares      Adj EPS
2011 Q4  $0.35 E  $23.06 M   65.88 M    $0.35
 
Total        $1.56 E  $103.5 M   65.88 M   $1.56 E
 
Compute the six year average adjusted earnings, which equals $2.03 per share @ 65.88 million shares.  Safe Bulkers is trading at $6.16 as I write this, so it is only trading at 3.03 times its six year average earnings.  What a value especially with the 9.79% dividend yield.  However, its stock price will decline in a global recession and a China hard landing so I think you can get it even cheaper in the $3 - $4 range.
 
 
For more tips like these go to www.myhighdividendstocks.com/tip-of-the-week
 
 

Gold mining stocks day four: Kinross Gold Corp (KGC)

It is crisis time in the Eurozone and elsewhere.  Stock markets will crash at least as hard as in 2008 when Europe goes into recession.  Gold is a crisis hedge, but it drops in a stock market crash also (just not a badly).  And gold mining stocks are a great performing asset, but only after most of the stock market crisis has passed because the world is dominated by Keynesian economics.  The financial media, government technocrats, and almost all PhD economists practice the voodoo economic religion of Keynesian economics.  Keynesian investors flee stock markets in a panic and run to US government bonds.  Bonds are bought in dollars.  Demand for dollars increases, demand for gold drops.  This is an opportunity of immense proportions if you keep your powder dry.

It is gold miners week at www.myhighdividendstocks.com, but not because gold miners are high dividend stocks.  Most are no or low dividend stocks.  However, gold mining stocks will offer some huge capital appreciation potential once the US and European stock markets crash again.  Every central bank in the world is printing money (Dollars, Euros, Yen, Pounds, and Yuan) and the commodity gold is priced in fiat currencies, so as more money is printed the price of gold expressed in fiat currencies goes up.  It really is that simple.  Gold mining companies can increase their profit margins when the cost of extracting gold from the Earth’s crust goes up a little and the price of gold goes up a lot.  But gold mining companies tend to be more volatile than the price of the underlying commodity.  They amplify gold’s gains and losses as you will see below.

So what is the best price for several of the gold majors that offers capital preservation and maximum opportunity for capital appreciation with maybe some dividends thrown in for good measure?  That’s what I hope to find out this week for you and I.

Next up is Kinross Gold Corp. (KGC)

Morningstar’s take: Kinross Gold is an intermediate-size gold company with operations in the U.S., Russia, Chile, Brazil, Ecuador, Ghana, and Mauritania. The company generates over 90% of revenue from gold sales and the rest from silver. Copper and other metal output is negligible. We do not think the company has an economic moat, as Kinross' mines are generally medium- to high-cost compared to industry peers. Over the years, Kinross has gone through a series of acquisitions and asset swaps to compile a portfolio of gold projects, however, the rising capital costs of these projects and higher production costs will be a big concern going forward.

Kinross Gold is a Canadian-based gold mining company with 62 million ounces of proven and probable gold reserves, 91 million ounces of silver reserves, and an annual production of 2.3 million ounces of gold. The company operates eight producing mines and five projects in the U.S., Latin America, Western Africa, and Russia.

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Price: $13.26

Shares: 1.14 billion

Market capitalization: $15.08 billion

Bonds outstanding: $3.3 billion

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None of Kinross’ bonds are due anytime soon.

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DIVIDEND RECORD – Kinross has been paying a low semi-annual dividend since 2008.  There isn’t much history there, but they have grown the dividend by 50% from $0.04 to $0.06 in 4 years.

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Dividend: $0.06 semi-annually

Dividend yield: 0.9% ($0.12 annual DIV/$13.26 share price)

Dividend payout ratio: 15% to 38% depending on how you calculate ($0.12/$0.81 recent EPS or $0.12/$0.26 avg adjusted EPS over six years)

EARNING POWER – Six year average adjusted earnings of $0.26 per share @ 1.142 billion shares

(Earnings adjusted for changes in capitalization – Kinross has increase the number of shares by 223% since 2006)

                        EPS       Net Inc.             Shares               Adj EPS

2006                 $0.47    $165 M              353 M                $0.14

2007                 $0.59    $334 M              566 M                $0.29

2008                 ($1.28) ($807 M)           629 M                ($0.71)

2009                 $0.44    $310 M              697 M                $0.27

2010                 $0.93    $772 M              829 M                $0.68

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2011 Q1            $0.22    $256 M              1,139 M             $0.22

2011 Q2            $0.22    $247 M              1,141 M             $0.22

2011 Q3            $0.19    $213 M              1,142 M             $0.19

2011 Q4            $0.24 E $274 M E           1,142 M             $0.24 E

20011 E             $0.87    $990 M E           1,142 M             $0.87 E

Six year average adjusted earnings of $0.26 per share.

Consider contrarian buying at $2.08 (8 times average adj EPS)

Consider value buying at $3.12 (12 times average adj EPS)

Consider speculative selling at $5.20 (20 times average adj EPS)

Kinross Gold Corp is currently trading at 51 times average adjusted annual earnings.  The is highly speculative pricing.

BALANCE SHEET – That is a nice balance sheet, but goodwill accounts for 33% of assets.  It would still be a good balance sheet if goodwill were zero.

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Book value per share: $13.22

Price to book value ratio: 1.00 (good)

Current ratio: 4.43 latest quarter (over 2.0 is good)

Quick ratio: 3.19 latest quarter (over 1.0 is good)

Debt to equity ratio: 0.09 (this is good)

CONCLUSION – Kinross Gold Corp. is a low dividend grower that is speculatively priced for its earning power.  The company’s balance sheet is strong.

Kinross bottomed in the $8.81 dollar range in October 2008 several months before the US stock market bottom in March of 2009.  That represented the best investment entry into Kinross since late 2008.  The gold price will go down at least half of the percentage of the stock market’s decline.  This happened in 2008-2009.  US stocks dropped about 50% and gold dropped about 25%.  However, Kinross dropped even more than the broader market or gold.  It dropped almost 67% from $26.84 in March 2008 down to $8.81 by October 2008.  Don’t think that it won’t happen again.  Wait for another bottom near value territory at $5.20 per share.  Kinross would be yielding about 2.3% if it keeps its new dividend rate at such a low price.  The good news is that gold will continue to go up in price as the world’s sovereign debt crisis worsens, but you have to buy extremely low to preserve your capital when purchasing mining stocks.

DISCLOSURE – I don’t own Kinross Gold Corp. (KGC).

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