My High Dividend Stocks Blog

My High Dividend Stocks
This is my high dividend stocks site where I help site members find high dividend stocks with earning power and strong balance sheets.

How in the world can Cramer recommend Netflix @ $298.73/share?

I watched portions of Jim Cramer’s Mad Money show tonight.  He was positive on Netflix (NFLX).  I wondered to myself how much Netflix earned per share and if it paid a dividend.

Sadly, Netflix does not pay a dividend.  It has never paid a dividend.

Earning power:  NFLX has earned an average of $1.80 per share over the past five years.

            EPS       Net inc.             Adj. EPS

2006     $0.71    $49 M                $0.93

2007     $0.97    $67 M                $1.27

2008     $1.32    $83 M                $1.57

2009     $1.98    $116 M              $2.19

2010     $2.96    $161 M              $3.04

Five year average earnings equals $1.80 per share

Consider buying at or below $21.60 per share (12x average earnings)

Consider selling at or above $36.00 per share (20x average earnings)

The market price of Netflix is $298.73 is trading at 165.96 times average earnings.  This is delusional speculation.  Netflix would not be a value stock unless it was earning $24.98 per share.  ($298.73/12 = $24.98)

Balance sheet: Netflix has a weak balance sheet.  Shareholder equity peaked in 2007.

Image001

Book value per share: $5.09

Price to book value: 58.69 (Oh my gosh!!)

Current ratio: 1.47 (over 2.0 is good)

Quick ratio: 0.70 (over 1.0 is good)

Conclusion: Netflix is speculatively priced.  Don’t buy it.

Disclosure: I don’t own Netflix (NFLX).

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First look at AstraZeneca pharmaceutical looks promising

I read an article titled “7 Companies Paying Large Dividends That Are Fully Covered by Earnings” by The Manual of Ideas.  It mentioned a drug company named AstraZeneca which produces several billion dollar drugs.  I haven’t written much on pharmaceutical companies so I thought I’d take a first look at AstraZeneca (AZN).

Here is the excerpt from the article:

AstraZeneca (AZN) ($50 per share; MV $68 billion; EV $65 billion) is a major pharma firm that develops cardiovascular, gastrointestinal, infection, neuroscience, oncology and respiratory and inflammation medicines. It had ten drugs with annual sales of $1+ billion in 2010, including Crestor, Nexium, and Seroquel. Crestor sales rose 26% from $4.5 billion in 2009 to $5.7 billion in 2010, while total revenue increased 1% to $33.3 billion in the period. The Street expects AstraZeneca to earn $7.17 per share in 2011 (7x P/E), followed by $6.07 (8x) and $5.97 (8x) in subsequent years. The annualized dividend of $3.00 per share, an increase of 18% from a year ago, implies a yield of 6.0%. AstraZeneca has boosted the dividend six times in seven years, delivering an annualized growth rate of 18% for the period. AstraZeneca has a high-return business, with a seven-year average return on equity of 36%.

Here is the link to the original article http://seekingalpha.com/article/278778-7-companies-paying-large-dividends-that-are-fully-covered-by-earnings

AstraZeneca (AZN)

Market price: $49.34

Shares: 1.37 billion

Market capitalization: $67.40 billion

Dividend record: AZN pays dividends twice a year usually in February and August.  The February dividend is usually 2-3 times larger than the August dividend.  Here is the last five years of dividend payments:

Date                  Dividend            Yield at that time

2/2/11              $1.85                3.88%

8/4/11              $0.70                1.33%

2/3/10              $1.71                3.97%

8/5/09              $0.59                1.26%

2/4/09              $1.50                3.92%

8/6/08              $0.55                1.11%

2/7/08              $1.35                3.55%

8/?/07              none?                None?

2/7/07              $1.23                2.16%

8/9/06              $0.49                0.81%

Dividend: $1.85 + at least $0.70 = $2.55 or greater

Dividend yield: 5.1% estimated

EPS (trailing twelve months): $5.72

Dividend payout ratio: 46% ($2.55/$5.72)

Earning power: $4.86 @ 1.37 billion shares

            EPS       Net inc.             Adj. EPS

2006     $3.85    $6,043 M           $4.41

2007     $3.73    $5,595 M           $4.08

2008     $4.20    $6,101 M           $4.45

2009     $5.19    $7,521 M           $5.49

2010     $5.57    $8,053 M           $4.86

Five year average EPS $4.86

Consider buying at or below $58.34 (below 12x average earnings)

Consider selling at or above $97.20 (above 20x average earnings)

Balance sheet: looks pretty strong

Image002

Book value per share: $15.60

Price to book value: 3.18 (so-so)

Current ratio: 1.47 (above 2.0 is good)

Quick ratio: 1.35 (above 1.0 is good)

Conclusion: high dividend stock with growth potential, $4.86 average earnings @ 1.37 billion share, good balance sheet.  This high dividend stock is value priced.  I haven’t read all the earning releases and annual reports.  I will investigate further.  This company could join Safe Bulkers (SB) on the best dividend stocks list.

Disclosure: I don’t own AstraZeneca (AZN).

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Investors back away from leveraged RE bets

These investors are the smart ones.

Investors Back Away From Leveraged RE Bets

Jul. 11 2011 - 11:24 am | 1,214 views | 0 recommendations | 0 comments

By ETFCHANNEL.COM

Looking today at week-over-week shares outstanding changes among the universe of ETFs covered at ETF Channel, one standout is the Proshares Ultra Real Estate (URE) where we have detected an approximate $14.6 million dollar outflow — that’s a 2.7% decrease week over week (from 8,429,372 to 8,204,372). Among the largest underlying components of URE, in trading today American Campus Communities (ACC) is off about 1.3%, and American Capital Agency (AGNC) is lower by about 1%. For a complete list of holdings, visit the URE Holdings page »

The chart below shows the one year price performance of URE, versus its 200 day moving average:

Looking at the chart above, URE’s low point in its 52 week range is $35.44 per share, with $65.20 as the 52 week high point — that compares with a last trade of $62.55. Comparing the most recent share price to the 200 day moving average can also be a useful technical analysis technique — learn more about the 200 day moving average ».


Exchange traded funds (ETFs) trade just like stocks, but instead of ”shares” investors are actually buying and selling ”units”. These ”units” can be traded back and forth just like stocks, but can also be created or destroyed to accommodate investor demand. Each week we monitor the week-over-week change in shares outstanding data, to keep a lookout for those ETFs experiencing notable inflows (many new units created) or outflows (many old units destroyed). Creation of new units will mean the underlying holdings of the ETF need to be purchased, while destruction of units involves selling underlying holdings, so large flows can also impact the individual components held within ETFs.

http://blogs.forbes.com/etfchannel/2011/07/11/investors-back-away-from-leveraged-re-bets/

Disclosure: I don’t own AGNC.

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Warning: Annaly Capital Management (NLY) announces pricing of public offering of common stock.

Another day, another public offering of common stock by a leveraged REIT.  These companies including NLY, AGNC, and a few other high dividend stocks offer new shares to bring in money.  They use the money to leverage the purchase of 6x-9x more agency securities (back by the full faith and credit of the US govt – hahaha!!).  The people who run these companies are paid for the amount of equity they accumulate; shareholders do not come first.

Keynesian economics says deficits don’t matter.  They do.  The Greek government is learning this lesson the hard way.  When interest rates rise in the US for the same reasons these high yielding stocks will tank.  Until then they will pay high dividends.  Just know that there are significant risk with these stocks.

NLY has little earning power and a horrible balance sheet.

Disclosure: I don’t own NLY or AGNC.

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press release

July 11, 2011, 7:06 p.m. EDT

Annaly Capital Management Announces Pricing of Public Offering of Common Stock

Image001

NEW YORK, Jul 11, 2011 (BUSINESS WIRE) -- Annaly Capital Management, Inc. /quotes/zigman/189739/quotes/nls/nly NLY -2.29% today announced the pricing of an underwritten public offering of 120,000,000 shares of its common stock at a price per share of $17.70 for expected gross proceeds of approximately $2.1 billion before expenses.

Annaly has also granted the underwriters a thirty-day option to purchase up to an additional 18,000,000 shares of common stock solely to cover overallotments. Annaly expects to use the proceeds of this offering to purchase mortgage-backed securities for its investment portfolio and for general corporate purposes, which may include additional investments and repayment of short-term indebtedness.

Credit Suisse Securities (USA) LLC is acting as the lead book-running manager for the offering. BofA Merrill Lynch, Morgan Stanley, UBS Investment Bank and RCap Securities, Inc. are acting as joint book-running managers.

Annaly has filed a shelf registration statement and prospectus with the Securities and Exchange Commission (SEC), and will file a prospectus supplement for the offering to which this communication relates. Before you invest, you should read the prospectus supplement and the accompanying prospectus and other documents Annaly has filed with the SEC for more complete information about Annaly and this offering. You may obtain these documents for free by visiting EDGAR on the SEC Web site at http://www.sec.gov . Alternatively, Annaly, the underwriters or any dealer participating in the offering will arrange to send you the prospectus supplement and accompanying prospectus if you request them by contacting:

Link to the original press release http://www.marketwatch.com/story/annaly-capital-management-announces-pricing-of-public-offering-of-common-stock-2011-07-11?reflink=MW_news_stmp

TIP OF THE WEEK - The Usefulness of Bollinger Bands

The Usefulness of Bollinger Bands

Jason Brizic

June 8, 2011

Bollinger Bands are a technical trading tool created by John Bollinger in the early 1980s. They arose from the need for adaptive trading bands and the observation that volatility was dynamic, not static as was widely believed at the time.

The purpose of Bollinger Bands is to provide a relative definition of high and low. By definition prices are high at the upper band and low at the lower band. This definition can aid in rigorous pattern recognition and is useful in comparing price action to the action of indicators to arrive at systematic trading decisions.

Bollinger Bands consist of a set of three curves drawn in relation to securities prices. The middle band is a measure of the intermediate-term trend, usually a simple moving average, that serves as the base for the upper band and lower band. The interval between the upper and lower bands and the middle band is determined by volatility, typically the standard deviation of the same data that were used for the average. The default parameters, 20 periods and two standard deviations, may be adjusted to suit your purposes.

You can use Bollinger Bands to help you time your purchase of high dividend stocks, commodities, and contrarian stocks.  Price bottoms tend to occur when the stock price lifts off the long downward slide down the lower band.  Price tops tend to occur when the stock price falls from hitting its head on the top of the upper band.  I use the MACD and CCI in conjunction with the Bollinger Bands to confirm a top or bottom because just using the Bollinger Band alone can get you burned (the UNG example below).

I use Bollinger Bands when I create free charts on www.stockcharts.com.

Here are the steps I take to setup my charts in less than 10 seconds:

  1. Leave the Type of chart: set to SharpChart.
  2. Type in the ticker symbol and click Go.
  3. Change the Period to Weekly.
  4. Scroll down to Chart Attributes; change Size to Landscape.
  5. Check the following checkboxes: Full Quote, Price Labels,
  6. Uncheck the Log Scale checkbox.
  7. Scroll down to the Overlays area.  Change the one that says –None- to Bollinger Bands
  8. Scroll down to the Indicators area.  Change the one that says RSI to CCI

I discovered the usefulness of Bollinger Bands when I tried to time the recent bottom in the gold price back in 2008  Here is the 3 year gold price chart:

Image002

http://stockcharts.com/h-sc/ui?s=$GOLD&p=W&b=5&g=0&id=p99091791121

When was the best time to buy gold on this chart? $681 in late October 2008.  What happened right after that point?  The price lifted off the bottom Bollinger Band.  The CCI was deep in the red and the MACD turned upward from negative territory.  Those confirmed the bottom.  I bought at $820.

The natural gas ETF trading as UNG provides a good example of how the solely relying on the Bollinger Bands alone can trick you into buying too high.  Look at this chart:

Image003

http://stockcharts.com/h-sc/ui?s=UNG&p=W&b=5&g=0&id=p99958479096

Wow!  This fund has lost a lot of money.  The price of UNG lifted off the bottom Bollinger Band many times, but never enough to bust through the middle band.  The CCI and MACD indicators were good at around March 2009, but the price didn’t break through the middle BB.  Knowing the fundamentals of UNG were horrible was enough to stay away from the fund.  However, just carefully examining the technicals was also enough.

I use the fundamentals to decide to buy or sell.  Then I use the technicals to time my entry or exit.  I will write about the CCI and MACD in upcoming tips of the week.

The fundamentals of Safe Bulkers were strong during the big market crash of 2008-2009.  You could have used Bollinger Bands to get this gem at around $3.00 per share.

Image004

http://stockcharts.com/h-sc/ui?s=SB&p=W&b=5&g=0&id=p24023572905

For more tips, go here:

http://www.myhighdividendstocks.com/category/tip-of-the-week

DryShips (DRYS) earns an upgrade. Why?

I read a short post on shipping upgrades and downgrades.  Here is the short post:

Shares of dry bulk shipping firm DryShips (DRYS) are soaring 3% after the stock earned its second upgrade this week. Sterne Agee raised its rating on the stock to “buy” from “neutral” with a $6 price target, which is more than 50% above where the shares currently trade. The research firm said the coming spin-off of the DryShips ocean rig unit could unlock value for shareholders.

The news isn’t doing much to help the fortunes of the Dry Bulk Shipping Stocks Index, which is down 1%. Earlier this week, Wells Fargo upgraded DryShips to “outperform” from “market perform” with a price target range of $5-$6.

Shares of Diana Shipping (DSX) are tumbling 5% on news of a Credit Suisse downgrade. The bank pared its rating on Diana to “underperform” from “outperform,” saying it expects supply to outpace demand in the dry bulk shipping market. The bank slashed its price target on Diana to $8 from $15 and the new price target is more than 25% below where the stock currently trades.

Looking at other Index members, Safe Bulkers (SB) is up 1% while Navios Maritime Holdings (NM) is up about half a percent. Eagle Bulk Shipping (EGLE) and Excel Maritime Carriers (EXM) are both lower by 1%.

Investors can track the Dry Bulk Shipping Stocks Index for performance trends and a suite of other metrics at tickerspy.com.

I like Safe Bulkers, but I like to check out the competition.  So I decided to take a quick look at DryShips.  Here is what I found.

DryShips (DRYS)

Market price: $4.20

Shares: 399.14 million

Market capitalization: $1.68 billion

Dividend record: no dividend since 2008.  The dividend was cut entirely in 2009.

Earning power: $0.16 average earnings @ 399.14 million shares

Recent EPS: $0.63

(earning adjusted for changes in capitalization; massive issuance of new shares since 2006)

            EPS       Net inc.             Adj. EPS

2006     $1.75    $57 M                $0.14

2007     $13.40  $478 M              $1.22

2008     ($8.11) ($361 M)           ($0.90)

2009     ($0.13) ($27 M)             ($0.07)

2010     $0.61    $173 M              $0.43

Five year average EPS is $0.16

Value price territory below 12 times average earnings = $1.97

Speculative price territory above 20 times average earnings = $3.20

DRYS trades at 26.25 times average earnings.  This is very speculative.

Balance sheet: Improving, mostly from issuance of new stock equities

Image003

Book value per share: $10.43

Price to book value: 0.40 (this is very good)

Current ratio: 0.72 (over 2.0 is good)

Quick ratio: 0.24 (over 1.0 is good)

Conclusion: no dividend, puny earning power, and a balance sheet based on stock issuance.  No thanks.  Chose the high dividend stocks Safe Bulkers instead.

Disclosure: I don’t own DryShips (DRYS) or Safe Bulkers (SB), but I want to own SB.

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Is Coca-Cola (KO) price for value, investment, or speculation?

Charlie Munger, Warren Buffet’s longtime business partner, on Coca-Cola recently:

Coke today vs. past: Coca-Cola (NYSE: KO  ) is not as good today as it used to be. It's just so big. Like Berkshire, it's hard to make the elephant move very fast.

But it's still one of our favorites. The trouble with selling an expensive product is that it gives people the incentive to knock you off. Coke isn't like that. Branded companies that sell cheap products, and lots of them, is a fantastic business model to have.

Here is the rest of the article: http://www.fool.com/investing/general/2011/07/02/charlie-mungers-thoughts-on-the-world-part-1.aspx

Is Coca-Cola (KO) priced for value at $68.53 per share?  Here is my first look at Coke.

Coca-Cola (KO)

Market price: $68.53 per share

Shares: 2.29 billion shares

Market capitalization: $156.88 billion

Dividend record:  This company is a solid dividend grower for at least the last decade.

Dividend: $0.47 quarterly

Dividend yield: 2.75%  ($1.88 annual dividend/$68.53 share price)

2010 EPS: $5.17

Dividend payout ratio:   36.3%  ($1.88/$5.17), but its usually closer to 72%  ($1.88/$2.58 average EPS over five year excluding the extra $6 billion in other income during 2010)

Earning power: $2.58 average EPS @ 2.29 billion shares ($3.10 if extra income in 2010 is included)

(Earnings adjusted for changes in capitalization; Coke has been buying back shares)

            EPS       Net inc.             Adj. EPS

2006     $2.16    $5,080 M           $2.22

2007     $2.57    $5,981 M           $2.61

2008     $2.49    $5,807 M           $2.54

2009     $2.93    $6,824 M           $2.98

2010     $5.06    $11,809 M         $5.16 (+$6 billion in other income)

2010                 $5,809 M           $2.54 (excluding the extraordinary income)

Five year average earnings excluding extraordinary income in 2010 equals $2.58 per share

Value price territory below 12x average earnings = $30.96

Speculative price territory above 20x average earnings = $51.60

Coca-Cola priced at 26.5 times average earnings (market price $68.53 per share)  This is speculative.

Balance sheet: Coke has a nice looking balance sheet; however, I’d like to see better current and quick ratios.

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Book value per share: $13.83

Price to book value: 4.95 (bad)

Current ratio: 1.07 (greater than 2.0 is good)

Quick ratio: 0.77 (greater than 1.0 is good)

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PIMCO enters the mortgage REIT business.

PIMCO is getting into the mortgage REIT business. 

http://www.bloomberg.com/news/2011-07-05/pimco-reit-agrees-to-slash-fee-if-residential-mortgage-fund-loses-money.html

What is its unique selling proposition?  In other words, why would I want to invest in PIMCO’s REIT instead of Annaly Capital (NLY) or American Capital Agency Corp. (AGNC)?

The trouble with these mortgage REITs is that the management is compensated for the size of their shareholder equity.  Offering additional shares is the easiest, fastest way to grow their equity through the use of 6x-8x leverage.

Avoid the mortgage REITs if you are a long term investor.  Traders can make some money before these REITs implode due to rising interest rates.

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Strattman: Government Bonds Not Safe

Stattman: Government Bonds Not Safe

Government bonds aren't the risk-free investments they once were, while stocks have better reward potential right now, says Dennis Stattman of BlackRock.

http://news.morningstar.com/articlenet/article.aspx?id=385155

No duh!!  Buy high dividend stocks instead.  Safe Bulkers (SB) is an excellent high dividend stock.

Disclosure: I don’t own Safe Bulkers (SB) right now, but I’d like to.

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Bigger than Verizon and sporting an 8.87% dividend yield

AT&T and Verizon are not the only large telecom companies with high dividends.  Telefonica S.A. is a high dividend stock yielding 8.87%.  The company is the incumbent fixed-line and wireless telephone operator in Spain and the Czech Republic. It has the second-most wireless subscribers in the United Kingdom and a big position in Germany. It has substantial fixed-line and wireless assets in Latin America, where more than 60% of its customers reside. However, they provide only 42% of its revenue and 41% of EBITDA. Telefonica also owns stakes in Telecom Italia and China Unicom.

Here is my first look at Telefonica S.A.

Telefonica S.A. (ADR traded on NYSE as ticker: TEF)

Market price: $24.12

Shares: 4.56 billion

Market cap: $110.17 billion (larger than Verizon, but slightly smaller than AT&T)

Dividend record:  Good and growing

Dividend: $1.07 / semi-annual

Dividend yield: 8.87%

EPS: $3.26

Dividend payout ratio: 66% ($2.14 dividend / $3.26 EPS)

Earning power: $2.57 per share at 4.56 billion shares

(Earnings adjusted for changes in capitalization)

Earnings in Euros.  Use the exchange rate below to convert to USD.

            EPS       Net inc.             Adj. EPS

2006     1.30      6,238 M             1.37

2007     1.87      8,895 M             1.95

2008     1.63      7,592 M             1.66

2009     1.71      7,776 M             1.71

2010     2.25      10,167 M           2.23

Five year average earnings (in EUR) 1.78

Value territory at less than 12 times average earnings = 21.41 EUR

Speculative territory at above 20 times average earnings = 35.68 EUR

Exchange rate today:

0.6938 EUR = $1 USD

$1.4414 USD = $1 EUR

Valuations in USD

Five year average earnings in USD = $2.57

Telefonica S.A. trading at $24.12 per share which is 9.38 times average earnings.  This is value pricing.

Value territory at less than 12 times average earnings = $30.86

Speculative territory at more than 20 times average earnings = $51.43

Balance sheet: Shareholder equity is slowly growing

Image003

Book value: 5.57 EUR or $8.03 per share

P/BV: 3.00 (that’s okay, but not great)

Current ratio: 0.75 (greater than 2.0 is good)

Quick ratio: 0.70 (greater than 1.0 is good)

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