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.

Do you want to know what is going on in Europe?

Nigel Farage explains the insanity going on in Europe in two minutes.

http://www.youtube.com/embed/TN_1mF-3JTI

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First Look at DOW 30 Component Walt Disney Co. (DIS)

Today I take a look at Dow 30 component stock Walt Disney (DIS).  Disney is a phenomenal dividend payer and grower.  However, the stock is speculatively priced at today’s price of $47.07 and their balance sheet is weak.  To see how I came to these conclusions read on.

Walt Disney (DIS)

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Price: $47.07

Shares: 1.79 billion

Market capitalization: $84.15 billion

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What does the company do: Disney owns the rights to some of the most famous characters ever created, including Mickey Mouse and Winnie the Pooh. These characters and others are featured in several theme parks Disney owns or licenses around the world. Disney makes live-action and animated films under several labels and owns ABC, Disney Channel, and ESPN. Disney also owns a 42.5% stake in A&E, The History Channel, and Lifetime Networks. The company generates about 25% of its sales from outside the United States.

Morningstar’s take: Disney owns a collection of valuable assets, but its media networks, which generate more than half of the company's operating profit, are the backbone of this conglomerate.

Bonds: $11.0 billion outstanding

Times interest earned: 11 times (DIS earned $4.807 billion as of 3Q 2011 / $435 million interest expense).  That far exceeds Benjamin Graham’s recommendation of earning at least five times interest expenses.  Disney’s bonds do not threaten the dividend at all.

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Preferred stock: none.

DIVIDEND RECORD: Walt Disney Co. has paid a dividend since at least 1987.  Disney paid a $0.02 annual dividend in 1987 and it has grown that dividend to $0.60 annually today.   That is 2,900% straight-line dividend growth over 25 years or 116% annual straight-line dividend growth per year.  Disney has been a phenomenal dividend grower.  Note: they paid a quarterly dividend from 1987 until 1997.  In 1998 they switched to an annual dividend.

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Dividend: $0.60 annual dividend paid late in the year

Dividend yield: 1.27% ($0.60 / $47.07 share price) Disney will become a 6%  high dividend stock at $10.00

Dividend payout: 21.5% using the Google Finance reported EPS of $2.79 –OR- 27.7% using the average adjusted earning power of $2.16

I’d like to see Disney pay out at least 50% of their average adjusted earnings in the form of dividends.  That would work out to an annual dividend of $1.08.  Even better would be a quarterly dividend of $0.27 per share instead of the annual dividend.

EARNING POWER: $2.16 per share at 1.79 billion shares

(earnings adjusted for changes in capitalization – typically share buybacks and/or additional shares created)

Date

EPS

Net Income

Shares

Adjusted EPS

9/2005

$1.22

$2,533 M

2,089 M

$1.41

9/2006

$1.64

$3,374 M

2,076 M

$1.88

9/2007

$2.25

$4,687 M

2,092 M

$2.62

9/2008

$2.28

$4,427 M

1,948 M

$2.47

9/2009

$1.76

$3,307 M

1,875 M

$1.85

9/2010

$2.03

$3,963 M

1,948 M

$2.21

9/2011

$2.52

$4,807 M

1,909 M

$2.69

Seven year average adjusted earnings per share is $2.16

Consider contrarian buying below $17.28 (8 times average adjusted EPS)

Consider value buying below $25.92 (12 times average adjusted EPS)

Consider speculative selling above $43.20 (20 times average adjusted EPS)

Walt Disney Co. (DIS) is currently trading at 21.8 times average adjusted EPS.  This is speculatively priced; consider shorting.

BALANCE SHEET – Disney has a weak balance sheet.  The price to book value ratios and other measures of financial strength are weak.

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Book value per share: $21.26 ($38.049 B equity / 1.79 B shares)

Price to book value ratio: 2.2 (under 1.0 is good) ($47.07 share price / $21.26 BV)  Investors are paying $2.20 for each $1.00 in book value.

Tangible book value per share: $4.35 (equity - $25.113 B goodwill - $5.142 B intangibles)

Price to tangible book value: 10.8 ($47.07 share price / $4.35 TBV)  40.2% of Walt Disney’s assets are in intangibles which explains why the P/TBV increased so much.

Current ratio: 1.14 latest quarter (over 2.0 is good) ($14.537 B current assets / $12.724 B current liabilities)

Quick ratio: 0.29 latest quarter (over 1.0 is good) ($3.731 B cash and equivalent / $12.724 B current liabilities)

Debt to equity ratio: 0.33 (lower is better)

Percentage of total assets in plant, property, and equipment: 27.7% (the higher the better) Disney has massive intangible assets at 40.2% of total assets, current assets were 19.52%, and other long term assets were 12.76%

Working capital trend (w/ 3 year moving average trendline): Up slightly in the long run, but I don’t like the several year stint of negative working capital.

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CONCLUSION – Walt Disney Co. bottomed near $15.00 in early 2009 near the height of the financial crisis.  That price represented an extreme contrarian buying opportunity at 6.9 times average adjusted earnings.  The stock price has tripled since that time and has entered speculative price territory at 21.8 times average adjusted earnings.  I would consider shorting Disney above $43.20.  A return of the worldwide recession will hurt Disney’s theme park revenues and media sales.  Disney’s dividend yield is less than the S&P 500 average of 2.2%.  I wish the board  of directors would increase the payout from 27% to 50% or more.  A high payout would increase yield.  Disney’s real weakness is its balance sheet.  The price to tangible book value is horrible.  Also, Disney has weak financial strength in the current ratio and quick ratio metrics.  I would stay away from Disney until the stock drops back to the $25 to $17 dollar range.

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DISCLOSURE – I don’t own Walt Disney Co. (DIS).

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TIP OF THE WEEK: Read Mises on Money for free.

Avoid bad investments based on Keynesian economics.  Gary North explains Mises valuable contribution to Austrian economics.

Gary North's Tip of the Week - June 23, 2012 Money Book
                        =========================
                        My new book on money in now online. I am offering it to you for the price of toner
and paper.

                        The book presents what is known as the Austrian theory of the business cycle:
booms and busts. This theory was first presented a century ago by Ludwig von
Mises.

                        If you have never read what Mises wrote on money, but you really do want to know
what is going on today with the banking system, this book presents it in five
short chapters.

                        I am easier to read than Mises was. This will get you started.

                        http://www.garynorth.com/public/9689.cfm

                        Gary "Sound Money" North

First Look at DOW 30 Component Microsoft (MSFT)

Today I take a look at Dow 30 component stock Microsoft (MSFT).  Microsoft is a decent dividend payer and grower.  The stock is not very attractive at today’s price of $30.76 because of its nearing the lower limits of the speculative price territory.  There is more price risk than reward going forward.  On the bright side, Microsoft’s balance sheet is strong due to huge amounts of cash.  To see how I came to these conclusions read on.

Microsoft (MSFT)

Price: $30.76

Shares: 8.40 billion

Market capitalization: $258.41 billion

What does the company do: Microsoft develops the Windows PC operating system, the Office suite of productivity software, and enterprise server products such as Windows Server and SQL Server. The Windows PC and Office franchises collectively account for nearly 60% of the firm's revenue, and the server and tools business contributes 24%. The firm's other businesses include the Xbox 360 video game console, Bing Internet search, business software, and software for mobile devices.

Morningstar’s take: Cloud computing is a double-edge sword for Microsoft. The impending move to web-based applications threatens to commodify the Windows PC operating system while opening up new revenue and profit opportunities in the deployment and delivery of cloud-based software services. Microsoft's server and business application software products are well positioned to ride the cloud computing wave even as the Windows PC OS franchise bears the brunt of the incoming tide.

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Bonds: $12.0 billion outstanding

Times interest earned: 78 times (MSFT earned $23.15 billion as of 6/2011 / $295 million interest expense).  That far exceeds Benjamin Graham’s recommendation of earning at least five times interest expenses.  Microsoft’s bonds do not threaten the dividend at all.

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Preferred stock: none.

DIVIDEND RECORD: Microsoft started dividend payments in 2003 biannually and maintained that pattern until the start of 2005.  In Q1 2005 Microsoft started paying a quarterly dividend of $0.08 per share.  It has grown the dividend to $0.20 quarterly today.  That is 200% straight-line dividend growth over 7 years, or 28.5% annual growth per year.  That’s pretty impressive growth.

Dividend: $0.20

Dividend yield: 2.6% ($0.80 / $30.76 share price) Microsoft is a 6% high dividend stock at $13.33

Dividend payout: 29% using the Google Finance reported EPS of $2.75 –OR- 42% using the average adjusted earning power of $1.92

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EARNING POWER: $1.92 @ 8.4 billion shares

(earnings adjusted for changes in capitalization – typically share buybacks and/or additional shares created)

EPS

Net income

Shares

Adjusted EPS

6/2005

$1.12

$12,254 M

10,906 M

$1.46

6/2006

$1.20

$12,599 M

10,531 M

$1.50

6/2007

$1.42

$14,065 M

9,886 M

$1.67

6/2008

$1.87

$17,681 M

9,470 M

$2.10

6/2009

$1.62

$14,569 M

8,996 M

$1.73

6/2010

$2.10

$18,760 M

8,927 M

$2.23

6/2011

$2.69

$23,150 M

8,593 M

$2.76

Seven year average adjusted earnings per share is $1.92

Consider contrarian buying below $15.36 (8 times average adjusted EPS)

Consider value buying below $23.04 (12 times average adjusted EPS)

Microsoft (MSFT) is currently trading at 16.02 times average adjusted EPS.  This is stock is priced for investment.

Consider speculative selling above $38.04 (20 times average adjusted EPS)

BALANCE SHEET – Microsoft has a strong balance sheet.  The only problem is the high price to book value ratios.

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Book value per share: $8.17 ($68.659 B equity / 8.4 B shares)

Price to book value ratio: 3.76 (under 1.0 is good) ($30.76 share price / $8.17 BV)  Investors are paying $3.76 for each $1.00 in book value.

Tangible book value per share: $5.50 (equity - $19.698 B goodwill - $2.756 B intangibles)

Price to tangible book value: 5.59 ($30.76 share price / $5.50 TBV)  19.03% of Microsoft’s assets are in intangibles which explains why the P/TBV increased so much.

Current ratio: 2.94 latest quarter (over 2.0 is good) ($76.86 B current assets / $26.17 B current liabilities)

Quick ratio: 2.27 latest quarter (over 1.0 is good) ($59.529 B cash and equivalent / $26.17 B current liabilities)

Debt to equity ratio: 0.17 (lower is better)

Percentage of total assets in plant, property, and equipment: 6.97% (the higher the better) Microsoft has massive current assets at 65.13% of total assets, intangibles were 19.03%, and other long term assets were 8.87%

Working capital trend: Up slightly in the long run.

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CONCLUSION – As usual, the best time to buy MSFT in recent years was in March 2009 when the stock hit bottom at $15.28.  It was a contrarian buy then at just below 8 times average adjusted earning power.  Today the stock trades for double that price.  I think the stock is overpriced given the coming worldwide recession.  Microsoft is a steady dividend payer and grower.  The dividend yield is slightly above the S&P average of 2.2%.  The best part of Microsoft is their balance sheet.  The balance sheet is strong with the exception of their price to book value ratio and tangible book value ratio.  I would ignore this stock until it drops below the $23.04 value stock threshold.

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DISCLOSURE – I don’t own Microsoft (MSFT).

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First Look at DOW 30 Component United Technologies (UTX)

Today I continue my series on the Dow 30 component stocks with United Technologies (UTX).  They are a long time dividend payer and accomplished dividend grower.  Their stock price is a little expensive at 16.3 times average adjusted earning power.  Lastly, UTX’s balance sheet is awful and should keep you away from this stock.  To see how I came to these conclusions read on.

United Technologies (UTX)

Price: $73.63

Shares: 911.36 million

Market capitalization: $67.1 billion

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What does the company do: United Technologies is a $54 billion diversified conglomerate with business operations serving primarily construction and aerospace markets. Otis elevators, Carrier air conditioners, Pratt & Whitney engines, and Sikorsky helicopters are key United Technologies product lines.

Morningstar’s take: Durability and balance are trademarks of the portfolio of United Technologies. While the company may not boast the flashy growth prospects found in some of its diversified industrial peers, we think management's consistency and commitment to shareholders separate this wide-moat franchise from the cohort.

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Bonds: $9.4 billion outstanding

Times interest earned: 7.4 times.  UTX earned $4.979 billion in 2011 and had interest expenses of $673 million in 2011.  7.4 times earned exceeds Benjamin Graham’s recommendation of earning at least five times interest expenses.  United Technologies’ bonds do not threaten the dividend at all.

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Preferred stock: none.

DIVIDEND RECORD: United Technologies paid a $0.04 quarterly dividend in 1987.  They have grown the dividend to $0.54 quarterly today.  That is 1,250% straight line over 25 years or 50% annual straight line growth.

Dividend: $0.54

Dividend yield: 2.9% ($2.16 / $73.63 share price)

Dividend payout: 39% using the Google Finance reported EPS of $5.49 –OR- 48% using the average adjusted earning power of $4.53

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EARNING POWER: $4.53 @ 911.36 million shares

(earnings adjusted for changes in capitalization – typically share buybacks and/or additional shares created)

EPS

Net income

Shares

Adjusted EPS

2005

$3.03

$3,069 M

1,014 M

$3.37

2006

$3.71

$3,762 M

1,006 M

$4.13

2007

$4.27

$4,224 M

989 M

$4.63

2008

$4.90

$4,689 M

956 M

$5.15

2009

$4.12

$3,829 M

929 M

$4.20

2010

$4.74

$4,373 M

923 M

$4.80

2011

$5.49

$4,979 M

907 M

$5.46

Seven year average adjusted earnings per share is $4.53

Consider contrarian buying below $36.24 (8 times average adjusted EPS)

Consider value buying below $54.36 (12 times average adjusted EPS)

United Technologies (UTX) is currently trading at 16.3 times average adjusted EPS.  This is stock is priced for investment.

Consider speculative selling above $90.60 (20 times average adjusted EPS)

BALANCE SHEET – United Technologies has a weak balance sheet.

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Book value per share: $24.70 ($22.492 B equity / 911.36 shares)

Price to book value ratio: 2.98 (under 1.0 is good) ($73.63 share price / $24.70 book value per share)  UTX investors are paying $2.98 for each $1.00 of book value.  That is a large premium.

Tangible book value per share: $2.83 (equity - $16.169 B goodwill - $3.742 B intangibles / 911.36 M)

Price to tangible book value: 26 ($73.63 share price / $2.98 tangible book value)  UTX investors are paying $26.00 for each $1.00 of tangible book value.  That is insanely expensive.

Current ratio: 1.52 latest quarter (over 2.0 is good) ($27.847 B current assets / $18.33 B current liabilities)

Quick ratio: 0.34 latest quarter (over 1.0 is good) ($6.285 B cash / $18.33 B current liabilities)

Debt to equity ratio: 0.42 (lower is better)

Percentage of total assets in plant, property, and equipment: 9.45% (the higher the better) other assets as a percentage of total assets were: current assets 45.12%, intangibles 32.26%, and other long term assets 13.17%

Working capital trend: Up slightly in the long run.  Up nicely from $3.848 B to $7.142 B.

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CONCLUSION – United Technologies bottomed at $38.54 in March 2009?  It was at an extreme value price back then at 8.5 times average adjusted earnings.  Presently UTX is trading at 16.3 times average adjusted earnings.  That’s too high for a value investor like me.  UTX has a slightly above average dividend yield at 2.9% and the company is a dedicated dividend payer/grower.  It would be a high dividend stock if it returns to its 2009 low.  I think it will return to its 2009 low because there is a worldwide recession brewing in China, Europe, and the USA.  Its main product divisions are related to two industries that will be harmed by another worldwide recession: defense and construction.  Also, their balance sheet stinks due to high price to value ratios, poor current and quick ratios, and stagnant shareholder equity growth.  My recommendation is to wait for this stock to drop to $40 or below.

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DISCLOSURE – I don’t own United Technologies (UTX).

Subscribe today for free at www.myhighdividendstocks.com/feed to discover high dividend stocks with earning power and strong balance sheets.

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The True Source of Monopoly by Thomas DiLorenzo

There is no such thing as a market monopoly. The government creates monopolies. Thomas Dilorenzo explains in this short article.

http://lewrockwell.com/dilorenzo/dilorenzo231.html

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First Look at DOW Component Cisco Systems (CSCO).

Today I continue my series of articles on the Dow 30 component stocks with a first look at Cisco Systems (CSCO).  Cisco just started paying a dividend last year.  They have meager dividend yield of 1.86%.  The stock is priced for investment at only 13.7 times earnings.  Best of all – Cisco has a strong balance sheet due to their large cash assets.  To see how I came to these conclusions read on.

Cisco Systems (CSCO)

Price: $17.17

Shares: 5.36 billion

Market capitalization: $91.95 billion

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What does the company do: Cisco Systems is the world's leading supplier of data networking equipment and software. Its products include routers, switches, access equipment, and network-management software that allow data communication among dispersed computer networks. The firm has also entered newer markets, such as video conferencing, web-based collaboration, and data center servers.

Morningstar’s take: Significant scale advantages, meaningful customer switching costs, and a reputation as the go-to provider of enterprise-class networking equipment give Cisco a durable competitive advantage in its core markets of routing and switching. Although Cisco faced a challenging 2011 characterized by aggressive competition, restructuring, and rocky product transitions, the firm has largely recovered from missteps with its market share intact and improving operating results. We believe Cisco is well positioned in 2012 to maintain share and expand its operating margin.

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Bonds: $16 billion outstanding

Times interest earned: Cisco earned 12.32 times their interest expenses in the trailing twelve months.  They earned $7.356 billion in the trailing twelve months and paid $597 million in interest expenses.  Cisco’s bonds are not a threat to their dividend.

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Preferred stock: none

DIVIDEND RECORD: Cisco started paying a quarterly dividend in the first quarter of 2011.  They started paying a $0.06 quarterly dividend and have grown it to $0.08 presently.  That is 33% straight-line growth over less than two years.  If Cisco keeps growing their dividend at their present pace, then they will become a powerful dividend stock.

Dividend: $0.08 quarterly

Dividend yield: 1.86% ($0.32 annual dividend / $17.17 share price)

Dividend payout: 24% using the 2011 EPS of $1.35 –OR- 25.6% using their average adjusted earnings of $1.25

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EARNING POWER: $1.25 @ 5.36 billion shares

(earnings adjusted for changes in capitalization – typically share buybacks and/or additional shares created)

EPS

Net income

Shares

Adjusted EPS

7/2005

$0.87

$5,741 M

6,612 M

$1.07

7/2006

$0.89

$5,580 M

6,272 M

$1.04

7/2007

$1.17

$7,333 M

6,265 M

$1.37

7/2008

$1.31

$8,052 M

6,163 M

$1.50

7/2009

$1.05

$6,134 M

5,857 M

$1.14

7/2010

$1.33

$7,767 M

5,848 M

$1.45

7/2011

$1.17

$6,490 M

5,563 M

$1.21

Seven year average adjusted earnings per share is $1.25

Consider contrarian buying below $10.00 (8 times average adjusted EPS)

Consider value buying below $15.00 (12 times average adjusted EPS)

Cisco Systems (CSCO) is currently trading at 13.7 times average adjusted EPS.  This is stock is priced for investment.

Consider speculative selling above $25.00 (20 times average adjusted EPS)

BALANCE SHEET – Cisco has an strong balance sheet loaded with current assets.

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Book value per share: $9.58 ($51.357 B equity / 5.36 B shares)

Price to book value ratio: 1.79 (under 1.0 is good)  ($17.17 share price / $9.58 BV)

Tangible book value per share: $6.01 (equity - $17.006 B goodwill - $2.134 B intangibles / 5.36 B shares)

Price to tangible book value: 2.86 ($17.17 share price / $6.01 TBV)

Current ratio: 3.57 latest quarter (over 2.0 is good) ($61.212 B current assets / $17.124 B current liabilities)

Quick ratio: 2.83 latest quarter (over 1.0 is good) ($48.412 B cash & equivalents / $17.124 B current liabilities)

Debt to equity ratio: 0.33 (lower is better)

Percentage of total assets in plant, property, and equipment: 3.99% (the higher the better)  Disposition of other assets categories: Current assets 67.15%, Intangibles 21.00%, and Other long term assets 7.86%

Working capital trend: Up huge.  This is what a working capital chart should look like.

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CONCLUSION – As usual, the best time to buy Cisco Systems in recent years was back in March 2009 when the stock price was $14.18.  It was a value investment back then at 11.3 times average earning power.  Cisco System is a new dividend payer and grower.  Their dividend record is too short to know if they’ll keep paying and growing their dividend during the next financial crisis.  The company is priced for investment at this time as 13.7 times average earning power.  The balance sheet is strong.  Their current ratio and quick ratio are some of the only good ones in the Dow 30 stocks.  There company has plenty of cash to finance current liabilities.  They are not dependent on any banks for funding in a crisis.  I’d look to buy Cisco below 15.00 when the stock market declines from the worldwide recession just getting started.

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DISCLOSURE – I don’t own Cisco Systems (CSCO).

Subscribe today for free at www.myhighdividendstocks.com/feed to discover high dividend stocks with earning power and strong balance sheets.

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First Look at DOW 30 Component Procter & Gamble (PG).

Today I continue my series on the Dow 30 component stocks with consumer staples giant Procter & Gamble (PG).  Their stock price is okay and the dividend growth continues to be phenomenal, but their balance sheet is horrible.  To see how I came to these conclusions read on.

Procter & Gamble (PG)

Price: $63.31

Shares: 2.74 billion

Market capitalization: $173.17 billion

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What does the company do: Since its founding in 1837, Procter & Gamble has become the world's largest consumer product manufacturer, with a lineup of famous brands. The brands are sold through three global business units, and include Tide laundry detergent, Charmin toilet paper, Pantene shampoo, Cover Girl cosmetics, and Iams pet food. Since 2001, the company has doubled the sales it derives from developing markets; acquired and integrated Wella and Gillette; and sold its pharmaceutical, coffee, and food businesses.

Morningstar’s take: During the past several years, Procter & Gamble has divested noncore businesses, repositioned its product portfolio toward more value offerings, significantly increased spending to reclaim and defend market share, and aggressively expanded in overseas markets. Unfortunately, the firm's stock hardly budged. Frustrated investors were asking whether P&G was doing enough to fix its problems, which included a bloated cost structure and sluggish top-line growth. In February, management responded with a massive $10 billion cost savings plan that will dramatically reduce headcount as the firm aims to return to 8% to 10% EPS growth and free up funds to reinvest in its business. This overhaul is significant, and while we're not entirely convinced that the firm can pull it off, we don't see much downside to the shares at current prices. That said, the stock gave up gains it enjoyed in the wake of its February restructuring announcement when during a a rocky third-quarter conference call management detailed pressures from slowing growth rates, competitive pricing, and negative foreign exchange. None of these pressures are new, so they were perceived as more excuses for a weak quarter, and that's not what investors expect of P&G management.

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Bonds: $24.6 billion outstanding

Times interest earned: 13.9 times.  PG earned $11.564 billion in 2011 and had interest expenses of $831 million in the same year.  Their bonds are not an immediate threat to the dividend payments, but PG has a lot of big bonds due in 2014.  If interest rates rise between not and 2014 (and I think they will), then PG will have a real challenge refinancing those bonds.

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Preferred stock: PG has a small amount of preferred stock.  They paid about $233 million in preferred dividends in 2011.  The preferred stock is not a threat to the common dividends.  You can see on the market capitalization graphic above that the preferred stock is a very small percentage of total capitalization.

DIVIDEND RECORD: Procter & Gamble has been an excellent dividend payer and grower over the last 25 years.  They paid a $0.04 quarterly dividend in 1987.  Today they pay a $0.56 quarterly dividend.  That is 1,300% straight-line dividend growth over 25 years or 52% straight-line annual growth.

Dividend: $0.56 quarterly

Dividend yield: 3.56% ($2.24 annual dividend / $63.31 share price)

Dividend payout: 70% using 2011 EPS of $3.21 –OR- 57% using average adjusted earning power of $3.93

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EARNING POWER: $3.93 at 2.74 billion shares

(earnings adjusted for changes in capitalization – typically share buybacks and/or additional shares created)

EPS

Net income

Shares

Adjusted EPS

2005

$2.66

$7,257 M

2,726 M

$2.65

2006

$2.64

$8,684 M

3,286 M

$3.17

2007

$3.04

$10,179 M

3,317 M

$3.71

2008

$3.64

$11,899 M

3,317 M

$4.34

2009

$4.26

$13,244 M

3,154 M

$4.83

2010

$4.11

$12,517 M

3,099 M

$4.57

2011

$3.93

$11,564 M

3,022 M

$4.22

Seven year average adjusted earnings per share is $3.93

Consider contrarian buying below $31.44 (8 times average adjusted EPS)

Consider value buying below $47.16 (12 times average adjusted EPS)

Procter & Gamble (PG) is currently trading at 16.1 times average adjusted EPS.  This is stock is priced for investment.

Consider speculative selling above $78.60 (20 times average adjusted EPS)

BALANCE SHEET – Equity growth is stagnant, price to book value is bad at the current stock price, tangible book value is a negative number because of a huge percentage of intangible assets, their liquidity is horrible also.  Weak balance sheet.

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Book value per share: $23.81 ($65.265 B in equity / 2.74 B shares)

Price to book value ratio: 2.65 (under 1.0 is good) ($63.31 share price / $23.81 BV)  PG investors are paying $2.65 per $1.00 of book value.  That is not a bargain price.

Tangible book value per share: -$7.66 (equity - $54.833 B goodwill - $31.429 B intangibles)

Price to tangible book value: N/A because negative number

Current ratio: 0.86 latest quarter (over 2.0 is good) ($23.108 B current assets / $26.904 B current liabilities)

Quick ratio: 0.15 latest quarter (over 1.0 is good) ($3.991 B cash / $26.904 B current liabilities)

Debt to equity ratio: 0.33 (lower is better)

Percentage of total assets in plant, property, and equipment: 15.14% (the higher the better)  Other assets as a percentage of total assets: 64.09% intangibles, 17.17% current assets, and other long term assets 3.6%

Working capital trend: Horrible.  This company relies on just in time financing and will be at risk during a financial crisis like the one in 2008 and the next one brewing right now.  They have to finance about $5 billion dollars each year just to pay their current liabilities.

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CONCLUSION – Procter & Gamble bottomed in March 2009 at $45.59.  That is a little under 12 times average adjusted earnings.  I would wait to buy this stock below 12 times average adjusted earnings of $47.16.  The stock currently yields 3.56%, which is a lot more than the S&P 500 average of around 2.2%.  They continue their awesome dividend growth pattern, but a worldwide recession can harm even the consumer staple stocks.  Poorly run finances can threaten the dividend in the future.  This company has a horrible balance sheet.  I relies on just in time financing like banks to operate.  A worldwide repeat of the financial crisis will hurt PG badly.  I would stay away until they fix their weak balance sheet.

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DISCLOSURE – I don’t own Procter & Gamble (PG).

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Americans duped by Congress think their social security taxes are theirs

Check out this website I found at lewrockwell.com

Walter Williams explains the lies behind social security in just a few paragraphs.

First Look at DOW 30 Component DuPont (DD).

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Today I take a first look at DOW 30 component DuPont (DD).  This article continues my series on the Dow 30 stocks.  I learned that DuPont pays a decent dividend that they have grown over many years, their share price is approaching speculative pricing, and their balance sheet is pretty weak.  I wouldn’t buy DuPont at today’s prices.  To see a conservative price to buy and learn how I came to these conclusions read on.

E.I. du Pont de Nemours & Company (DD) aka DuPont

Price: $48.76

Shares: 937.04 million

Market capitalization: $45.76 billion

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What does the company do: DuPont is a diversified chemical company operating in more than 80 countries. Its massive portfolio includes agriculture, coatings, electronics and communication, construction and transportation, and safety and protection. DuPont has increased its research into genetically modified seed technologies over the years, making it one of the most prominent global seed providers.

Morningstar’s take: Founded in 1802, E. I. du Pont de Nemours and Company started as a gunpowder mill. Over the years, the company expanded into specialty chemicals, including coating and coloring, safety equipment, textiles, and genetically modified seed production, and became a dominant global chemical conglomerate. We believe product innovation and successful market penetration will remain long-term sources of support for DuPont's earnings power. We are changing our economic moat rating for DuPont to narrow from none, as the company's specialty operations now make up more than half of its earnings.

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Bonds: $12.2 billion outstanding

Times interest earned: DuPont earned $3.464 billion in 2011 and they paid 447 million in interest expenses in the same year.  Therefore, they earned 7.74 times their interest expenses.  I like to see companies earn at least eight times their interest expenses.  Their bonds are a moderate threat to the future dividend growth.

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Preferred stock: DuPont paid a small dividend of $10 million in 2011.

DIVIDEND RECORD: DuPont paid a $0.13 quarterly dividend in 1987.  Today it pays $0.43 quarterly.  That is 230% straight-line growth over 25 years or 9.2% annual straight-line growth.  DuPont did not cut their dividend during those 25 years.  They are a dedicated dividend payer and grower.

Dividend: $0.43 quarterly

Dividend yield: 3.52% ($1.72 annual dividend / $48.76 share price)

Dividend payout: 46% ($1.72 / $3.73 EPS in 2011) –OR- 61% ($1.72 / $2.81 average earning power)

High dividend stock (6% dividend yield) at $28.67

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EARNING POWER: $2.81 @ 937.04 million shares

(earnings adjusted for changes in capitalization – typically share buybacks and/or additional shares created)

EPS

Net income

Shares

Adjusted EPS

2005

$2.07

$2,053 M

987 M

$2.19

2006

$3.38

$3,148 M

928 M

$3.36

2007

$3.22

$2,978 M

925 M

$3.18

2008

$2.20

$2,007 M

907 M

$2.14

2009

$1.92

$1,755 M

909 M

$1.87

2010

$3.28

$3,021 M

922 M

$3.22

2011

$3.68

$3,464 M

941 M

$3.70

Seven year average adjusted earnings per share is $2.81

Consider contrarian buying below $22.48 (8 times average adjusted EPS)

Consider value buying below $33.72 (12 times average adjusted EPS)

DuPont (DD) is currently trading at 17.3 times average adjusted EPS.  This is stock is priced for investment, but it’s getting close to speculative.

Consider speculative selling above $56.20 (20 times average adjusted EPS)

BALANCE SHEET – DuPont’s balance sheet contains too much debt and high price to book values.  DuPont has a large percentage of total assets in intangibles.  Their current ratio and quick ratio are substandard.

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Book value per share: $10.63 ($9.96 billion in total equity / 937.04 million shares)

Price to book value ratio: 4.6 (under 1.0 is good)

Tangible book value per share: -$0.95 (total equity - $5.443 B goodwill - $5.41 B in intangibles / 937.04 million shares)

Price to tangible book value: N/A due to negative number

Current ratio: 1.58 latest quarter (over 2.0 is good) ($19.809 B current assets / $12.536 B current liabilities)

Quick ratio: 0.29 latest quarter (over 1.0 is good) ($3,601 B cash / $12.536 B current liabilities)

Debt to equity ratio: 1.16 (lower is better)  You can see the high debt (red) to equity (green) on the balance sheet graph above.

Percentage of total assets in plant, property, and equipment: 26.67% (the higher the better) Here are the other assets as a percentage of total assets: Current assets were 39.4%, intangibles 21.61%, and other long term assets 12.28%

Working capital trend: slightly up.

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CONCLUSION – DuPont bottomed in March 2009 at a price of $16.87 at extreme contrarian pricing of 6 times average adjusted earnings.  They have been a good dividend grower and dividend payer for at least 25 years.  Their 3.5% yield is above the S&P average.  DuPont (DD) will become a high dividend stock at $28.67 if they keep paying their current dividend.  DuPont is a little expensive because it is trading at 17.3 times average adjusted earnings.  DuPont’s balance sheet stinks.  They have a lot of debt and most of the other measurements of balance sheet strength are weak such as: current ratio, quick ratio, and price to book values.  I would pass up DuPont until they strengthen their balance sheet.  Then I’d wait until their share is down below the $28.67 price range.

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DISCLOSURE – I don’t own DuPont (DD).

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