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.

A First Look at Ship Finance International (SFL). Floating or Sinking?

Today I take a look at diversified ship operator, Ship Finance International (SFL).  They are a high dividend stock yielding 8.8% at present.  But is the dividend safe?  Are they a steady dividend grower?  Is the stock over or under priced?  Is their balance sheet strong?  Read on to find out.

Ship Finance International (SFL)

Price: $13.74

Shares: 79.12 million

Market capitalization: $1.09 billion

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What do they do – Ship Finance International leases a fleet of 57 crude oil tankers exclusively to a company called Frontline Shipping Limited. Ship Finance purchased the oil tankers from Frontline Ltd., the parent company of Frontline Shipping. Ship Finance also provides administrative and maintenance services for the vessels through a partnership with Frontline Management Ltd., another subsidiary of Frontline Ltd.

Preferred stock: none.

Bonds: $1.7 billion outstanding

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DIVIDEND RECORD: Spotty.  They have a pattern of growth and cuts.  In 2007 the dividend was $0.55 quarterly.  In 4Q2008 it grew to $0.60.  Then they cut it in half in 2009.  It grew from $0.30 to $0.39 in 2009 to 2011.  This quarter it was cut to $0.30 again.

Dividend: $0.30 quarterly

Dividend yield: 8.8% ($1.20 annual dividend / $13.74 share price)

Dividend payout: 57% ($1.20 / $2.09 recent EPS) –OR- 55% using average adjusted earning power ($1.20 / $2.16)

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EARNING POWER: $2.16 @ $79.12 million shares

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

EPS

Net income

Shares

Adjusted EPS

2006

$2.48

$181 M

73 M

$2.29

2007

$2.30

$168 M

73 M

$2.12

2008

$2.50

$182 M

73 M

$2.30

2009

$2.59

$193 M

74 M

$2.44

2010

$2.09

$166 M

79 M

$2.10

2011 (est)

$1.56

$133.45 M

79.12 M

$1.68

2011 earnings quarter by quarter

EPS

Net income

Shares

Adjusted EPS

2011 Q1

$0.40

$32.1 M

79.12 M

$0.405

2011 Q2

$0.40

$41.47 M

79.12 M

$0.524

2011 Q3

$0.35

$27.45 M

79.12 M

$0.346

2011 Q4 (est)

$0.41

$32.43 M

79.12 M

$0.409

2011 Total (est)

$1.56

$133.45 M

79.12 M

$1.68

Six year average adjusted earnings per share is $2.16

Ship Finance International (SFL) is currently trading at 6.36 times average adjusted EPS.  This is stock is in contrarian territory.

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)

BALANCE SHEET – You would be paying a 30% premium to book value at today’s share price.  The company is strapped for cash and current assets.  Too much debt for my liking.

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Book value per share: $10.61

Price to book value ratio: 1.3 (under 1.0 is good)

Current ratio: 1.0 latest quarter (over 2.0 is good)

Quick ratio: 0.49 latest quarter (over 1.0 is good)

Debt to equity ratio: 2.2 (lower is better)

Percentage of total assets in plant, property, and equipment: 4% (the higher the better)

CONCLUSION – Ship Finance International is a high dividend stock yielding 8.8% despite the recent dividend cut.  The amount of the dividend has been irregular, but it has paid 31 quarters of consecutive dividends.  The company’s share price has been pummeled into contrarian territory at only 6.36 times average adjusted earnings.  I like this company below book value of $10.61.  It has traded below book value as recently as December 2011.  The rest of the balance sheet is weak.  It has very little current assets relative to current liabilities (current ratio).  I’d like to see them pay down their long term debts with their free cash flow.  The return of the worldwide recession will drive SFL’s stock price down again.  You’ll have your chance to buy it below $10.61.

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DISCLOSURE – I don’t own Ship Finance International (SFL).

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First Look at 12% Dividend Yielder Capital Product Partners (CPLP)

Its back to the high dividend stocks that I’ve never examined before.  Today I take a look at oil tanker company Capital Product Partners (CPLP).  I’ll bet your wondering if their 12% dividend yield safe?  Read on the find out.

Capital Product Partners (CPLP)

Price: $7.59

Shares: 70.79 million

Market capitalization: $537.28 million

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What they do – Based in Piraeus, Greece, Capital Product Partners owns and leases small to medium-sized ships for the transportation of refined oil products. These rental contracts are typically long-term and range from three to 10 years. The company outsources vessel management to parent company Capital Maritime. Spun out from Capital Maritime in 2007, ownership in Capital Product Partners represents a limited-partnership stake.

Capital Product Partners LP. is an international tanker company. The Company is engaged the seaborne transportation services of crude oil and refined petroleum products, edible oils and soft chemicals, by chartering its vessels under medium to long-term time and bareboat charters. Its fleet consisted of 27 modern high specification vessels with an average age of approximately 4.0 years as of January 31, 2012, including two very large crude carrier tankers, four Suezmax crude oil tankers, 18 modern MR tankers. As of December 31, 2011, it charter 24 of our 27 vessels under medium to long-term time and bareboat charters to charterers, such as BP Shipping Limited, Petroleo Brasileiro S.A., Cosco Bulk Carrier Co. Ltd., Capital Maritime and subsidiaries of Overseas Shipholding Group Inc. On June 9, 2011, the Company acquired Patroklos Marine Corp.

Preferred stock: This company has a small amount of preferred stock.  In 2010, they paid $359K out of $17,936K (about 2%) in preferred dividends.  In 2011, they paid $1,742K out of $87,120K (about 1.9%) in preferred dividends.  The preferred does not threaten the common stock dividend at this time.

Bonds: no bonds.

DIVIDEND RECORD: CPLPs grew its dividend from $0.36 quarterly in 2007 to $0.41 in 2010 Q1.  Boom! Then they cut the dividend in almost half and it been there ever since.

Dividend: $0.23 quarterly

Dividend yield: 12.12%  ($0.92 annual dividend / $7.59 share price)

Dividend payout: 51.6% using 2011 reported unadjusted earnings of $1.78 –OR- 153% using average adjusted earning power of $0.60 per share

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EARNING POWER: $0.60 per share @ 70.79 million shares

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

EPS

Net income

Shares

Adjusted EPS

2007

$0.95

$27.8 M

22.3 M

$0.39

2008

$1.54

$50.7 M

24.2 M

$0.72

2009

$1.15

$29.2 M

24.8 M

$0.41

2010

$0.54

$17.5 M

32.4 M

$0.25

2011

$1.78

$85.4 M

47.1 M

$1.21

Six year average adjusted earnings per share is $0.60

Consider contrarian buying below $4.80 (8 times average adjusted EPS)

Consider value buying below $7.20 (12 times average adjusted EPS)

Capital Product Partners (CPLP) is currently trading at 12.65 times average adjusted EPS.  This is stock is priced for investment.

Consider speculative selling above $12.00 (20 times average adjusted EPS)

BALANCE SHEET – Nice equity growth.  The company doesn’t have much in the way of current assets to cover current liabilities.  Great price to book value ratio.

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Book value per share: $7.30

Price to book value ratio: 1.03 (under 1.0 is good)

Current ratio: 1.05 latest quarter (over 2.0 is good)

Quick ratio: 0.94 latest quarter (over 1.0 is good)

Debt to equity ratio: 1.18 (lower is better)

Percentage of total assets in plant, property, and equipment: 89.78% (the higher the better)

CONCLUSION - Capital Product Partners (CPLP) is a high dividend stock yielding over 12%.  However, I’m a little troubled by the high dividend payout ratio using the average adjusted earning power.  You need to really dig into the annual reports and quarterly reports to determine if its earning power will grow enough to protect the current dividend.  Remember that CPLP cut its dividend almost in half in 2010.  I’m always leery of dividend cutters.   It is priced for investment at barely over 12 times average adjusted earning power and the stock was contrarian cheap as recently as August 2010.  The only ding on the balance sheet is the low current ratio.  The return of the worldwide recession will drop CPLPs price.  You will have another opportunity to buy this stock between $7.20 to $4.80.  Wait for it.  Read the annuals and quarterly reports while you are waiting.  I haven’t read them yet, but I will: http://www.capitalpplp.com/sec.cfm

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http://stockcharts.com/c-sc/sc?s=CPLP&p=W&b=5&g=0&i=p59203526393&r=2148

DISCLOSURE – I don’t own Capital Product Partners (CPLP).

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Don't Be Fooled By Annaly's High Dividend Yield.

Today I take a look at Annaly Capital Management, Inc. (NLY).  This is the fifth article out of fifteen on stocks that appeared as recommendations by Seeking Alpha contributor Insider Monkey.  Most of these stocks are 4-5% dividend yielding stocks, but NLY is different.  NLY and AGNC are mortgage REITs.  They follow some different government rules to avoid paying taxes, so they tend to have much higher dividend yield than regular businesses.  They are highly leverages and in my opinion are much riskier that most investor can appreciate.

Annaly Capital Management, Inc. (NLY)

Share price: $17.12

Shares: 970.08 million

Market capitalization: $16.61 billion

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Bonds outstanding: $600 million, and there are some preferred shares.

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What the company does - Formerly known as Annaly Mortgage Management, Annaly Capital Management is a real estate investment trust which invests in mortgage pass-through certificates, collateralized mortgage obligations, and other mortgage-backed securities. Interest and principal payments on the firm's investments are guaranteed by government-sponsored agencies including Fannie Mae, Freddie Mac, and Ginnie Mae. Annaly commenced operations in 1997 and is based in New York City.

DIVIDEND RECORD – Annaly has been cutting it dividend since its peak in 4Q 2009.  This ship is sinking.

Dividend: $0.57 quarterly

Dividend yield: 13.3% ($2.28 annual dividend/$17.12 share price)

Dividend payout ratio: 118% ($2.28 annual dividend/$1.92 recent Google Finance EPS) –OR- 300% using the six year average adjusted earnings ($2.28/$0.76)

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EARNING POWER – $0.76 per share @ 970.08 million shares

(Earnings adjusted for changes in capitalization; Annaly issues stock all the time to stay afloat)

EPS

Net income

Shares

Adjusted EPS

2006

$0.44

$74 M

168 M

$0.08

2007

$1.31

$393 M

306 M

$0.41

2008

$0.64

$325 M

507 M

$0.34

2009

$3.52

$1,943 M

553 M

$2.00

2010

$2.04

$1,249 M

625 M

$1.28

2011 (est)

$0.60

$422.53 M

970.08 M

$0.44

EPS

Net income

Shares

Adjusted EPS

2011 Q1

$0.89

$696 M

791 M

$0.72

2011 Q2

$0.14

$117 M

828 M

$0.12

2011 Q3

($0.98)

($926 M)

949 M

($0.95)

2011 Q4 (est)

$0.55

$535.53 M

970.08 M

$0.55

2011 total (est)

$0.60

$422.53 M

970.08 M

$0.44

Six year average adjusted earnings per share is $0.76

Consider contrarian buying below $6.08 (8 times average adjusted EPS)

Consider value buying below $9.12 (12 times average adjusted EPS)

Consider speculative selling above $15.20 (20 times average adjusted EPS)

Annaly Capital Management is currently trading at 22.5 times average adjusted EPS.  This stock is speculatively priced.

BALANCE SHEET – Toxic assets falsely valued at full face value and a mountain of short term liabilities that are real.  The company’s equinity can disappear in moments.  The company possesses no plant, property, or equipment used to produce goods.  That means no real assets; just deficit spending government non-guaranteed mortgage backed securities.

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Book value per share:  $16.40 ($15,910 M/ 970.08 M shares), but the equity is a phony number because the assets are artificially valued higher than the free market would price them.

Price to book value ratio: 1.04 (under 1.0 is good)

Current ratio: 0.04 (over 2.0 is good) ($4.311 B in current assets / $97.165 B in current liabilities)

Quick ratio: (over 1.0 is good) ($3.474 B in cash / $97.165 in current liabilities)

Debt to equity ratio: 6.14 (lower is better) (total liabilities / total equity)

Percentage of assets in plant, property, and equipment: 0%

CONCLUSION – Never own a bank or financial stock.  Annaly Capital Management suffers from all the same ills of American Capital Agency Corp. (AGNC). 

http://www.myhighdividendstocks.com/category/high-dividend-stocks/american-capital-agency-corp

They are borrowed short and lent long.  They are susceptible to bankruptcy if the financial markets seize up again like in 2008.  Their assets are toxic, but are carried at full face value even though the market would never buy them at such prices if the company where to be liquidated.  Stay away from the siren song of the high dividend yield.  Besides, the shares are speculatively priced based on earnings and book value.  If I can’t convince you to stay away from financial stocks, then at least buy under $9.00.

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DISCLOSURE – I don’t own Annaly Capital Management, Inc. (NLY) and I never will.

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A First Look at Enbridge Energy Partners (EEP).

I keep looking for high dividend stocks with earning power and strong balance sheets in the energy sector.  But all I found today is another high dividend stock in the energy sector that offers more risk than reward.  Don’t be fooled by the high current dividend yield.  Danger lurks below the hood on this one.

Enbridge Energy Partners (EEP)

Share price: $33.55

Shares: 273.15 million

Market capitalization: $9.16 billion

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Bonds outstanding: $4.8 billion

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What the company does - Enbridge Energy Partners LP is one of the largest crude-oil transporters in America. The company operates the U.S. portion of the Lakehead pipeline system, the world's longest crude pipeline, which stretches 3,300 miles from the Canadian oil fields in Alberta to Chicago, points east, and is currently being expanded toward the Gulf Coast. The company has several other smaller crude pipelines in the U.S. as well as a sizable natural gas gathering and processing business.

Morningstar’s take - Enbridge Energy Partners, L.P. EEP is a master limited partnership operated by its general partner, Canadian pipeline giant Enbridge Inc. ENB. We're big fans of EEP's crude oil business. While its natural gas gathering and processing operations detract somewhat from an otherwise wide moat, they also bring attractive growth potential thanks to booming unconventional natural gas liquids (NGL) production.

DIVIDEND RECORD – EEP issues stock and debt to pay for its dividends not covered by earnings (see cash flow chart further below).  Dividend gaps in 2007 and 2009.

Dividend: $0.53 quarterly

Dividend yield: 6.3% ($2.12/$33.55)

Dividend payout ratio: 203% using the most recent EPS ($2.12 DIV/$1.04 EPS) or 252% using average adjusted EPS ($2.12 DIV/$0.84 avg adj. EPS)

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EARNING POWER – $0.84 six year average adjusted earnings @ 273.15 million shares

(Earnings adjusted for changes in capitalization)

EPS

Net income

Shares

Adjusted EPS

2006

$1.81

$285 M

140 M

$1.04

2007

$1.23

$250 M

173 M

$0.92

2008

$1.82

$403 M

194 M

$1.48

2009

$1.12

$261 M

233 M

$0.96

2010

($1.09)

($260 M)

239 M

($0.95)

2011 (est)

$1.64 (est)

$429.5 M (est)

273.15 M

$1.58 (est)

EPS

Net income

Shares

Adjusted EPS

2011 Q1

$0.38

$97 M

253 M

$0.36

2011 Q2

$0.51

$130 M

255 M

$0.48

2011 Q3

$0.36

$96 M

265 M

$0.35

2011 Q4 (est)

$0.39 (est)

$106.5 M (est)

273.15 M

$0.39 (est)

2011 total (est)

$1.64 (est)

$429.5 M (est)

273.15 M

$1.58 (est)

Six year average adjusted earnings per share is $0.84

Consider contrarian buying below $6.72 (8 times average adjusted EPS)

Consider value buying below $10.08 (12 times average adjusted EPS)

Consider speculative selling above $16.80 (20 times average adjusted EPS)

Enbridge Energy Partners is currently trading at 40 times average adjusted EPS.  This is highly speculative pricing.

CASH FLOW – Capital expenditures and dividends are being funded from debt and stock issuance; not operating profits.

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BALANCE SHEET – Poor book value to stock price ratio; stagnant increase in equity.

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Book value per share: $14.03

Price to book value ratio: 2.39 (under 1.0 is good)

Current ratio: 1.05 latest quarter (over 2.0 is good)

Quick ratio: 0.91 (over 1.0 is good)

Debt to equity ratio: 1.39 (lower is better)

CONCLUSION – Enbridge Energy Partners (EEP) is a high dividend stock that lacks enough earning power to pay for that dividend out of operating profits.  It funds its dividend from periodic equity and debt issuances.  The stock is speculatively priced at 40 times average adjusted earnings.  The balance sheet is weak due to a high book value per share ratio.  EEP does not have a lot of current assets to pay for its current liabilities.  I would wait until the price drops below $10.08 per share (12 times average earnings).  The European double dip recession and sovereign debt crisis will spread to the USA.  This will tank the stock market.  Buy EEP on sale if you want to.

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DISCLOSURE – I don’t own Enbridge Energy Partners (EEP).

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First look at Energy Transfer Partners (ETP).

I believe that natural gas pipelines are generally a good investment.  I recent stock screen turned up Energy Transfer Partners (ETP) with a dividend yield of 7.2%

Energy Transfer Partners (ETP)

Share price: $47.98

Shares: 209.59 million

Market capitalization: $10.06 billion

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Bonds outstanding: $7.7 billion.  There are there a bunch on bonds due in the next decade.

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What the company does - Energy Transfer Partners is a master limited partnership primarily engaged in natural gas transportation and storage. The partnership operates more than 17,500 miles of natural gas gathering and intrastate transportation pipelines in Texas and Louisiana and the 2,500-mile Transwestern interstate pipeline. Energy Transfer Partners is also the third-largest retail marketer of propane in the United States, serving more than a million customers across the country.

Morningstar’s take - Energy Transfer has grown into one of the largest master limited partnerships through a steady buildout of large-diameter natural gas pipelines and a few transformative acquisitions. Energy Transfer's Texas intrastate pipeline system is a phenomenal machine for moving gas around and out of Texas, and its interstate pipelines only increase market access and fee-based cash flows. With the LDH acquisition, however, Energy Transfer has now entered the natural gas liquids business. We think this shift in strategy could lead to considerable growth opportunities for the partnership.

DIVIDEND RECORD – Energy Transfer Partners has been a dividend grower since 1997, but the payout ratio has grown to over 100%.  The dividend hasn’t grown since 2008 Q3.

Dividend: $0.89 quarterly

Dividend yield: 7.2%

Dividend payout ratio: 263% using the most recent EPS ($3.56 annual dividend / $1.35 TTM EPS) or 168% using the average adjusted EPS ($3.56 / $2.12 avg. adj EPS)

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EARNING POWER – $2.12 six year average earnings per share

(Earnings adjusted for changes in capitalization)

EPS

Net income

Shares

Adjusted EPS

8/2006

$3.15

$516 M

109 M

$2.46

8/2007

$3.31

$676 M

133 M

$3.23

8/2008

$3.74

$550 M

147 M

$2.62

8/2009

$2.53

$426 M

168 M

$2.03

8/2010

$1.19

$229 M

189 M

$1.09

8/2011

$1.37

$271 M

209.59 M

$1.30

EPS

Net income

Shares

Adjusted EPS

2010 Q4

$0.66

$127 M

192 M

$0.61

2011 Q1

$0.71

$140 M

195 M

$0.67

2011 Q2

$0.19

$42 M

210 M

$0.20

2011 Q3

($0.19)

($38 M)

209.59 M

($0.18)

2011 total (est)

$1.37

$271 M

209.59 M

$1.30

Six year average adjusted earnings per share is $2.12

Consider contrarian buying below $16.96 (8 times average adjusted EPS)

Consider value buying below $25.44 (12 times average adjusted EPS)

Consider speculative selling above $42.40 (20 times average adjusted EPS)

Energy Transfer Partners is currently trading at 22.6 times average adjusted EPS.  This stock is speculatively priced.

BALANCE SHEET – ETP has a weak balance sheet

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Book value per share: $24.59 ($5,153 M in equity / 209.59 M shares)

Price to book value ratio: 1.95 (under 1.0 is good)

Current ratio: 0.84 (over 2.0 is good)

Quick ratio: 0.53 (over 1.0 is good)

Debt to equity ratio: 1.49 (lower is better)

CONCLUSION – Energy Transfer Partners (ETP) is a high dividend stock, but it is not earning enough money to sustain the dividend at its current rate.  The company has an earning power of $2.12 per share @ 209.59 million shares.  At a current stock price of 47.98 is it speculatively priced at 22.6 times average adjusted earnings.  Lastly, it balance sheet is weak.  This stock shouldn’t be bought above $25.00 per share.  It will probably suffer a dividend cut and drop back to that price.  You can buy it then for much cheaper and less downside risk.

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DISCLOSURE – I don’t own Energy Transfer Partners (ETP).

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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

-----------------------------------------------------------------------------------

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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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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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
 
 

Dividends Are Sexier Than You Think by Addison Wiggin

Addison Wiggin demonstrates that much of the total return stocks provide comes in the form of dividends.  Also, I love this quote from the article:

“Better the common equity of an adaptive and profitable American enterprise than the inert emissions of the US Treasury” – James Grant

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Dec 7, 2011

Dividends Are Sexier Than You Think

from The Daily Reckoning

Last month, the dividend yields on American AAA corporations moved above the yield on 30-year Treasury bonds! That had never happened before.

Even after last week’s stock market rally (which pushed dividend yields lower), the stocks of America’s four AAA companies still yield about 3%, on average, which is not quite as high as the yield on 30-year Treasury bonds, but still much higher than the yield on every Treasury bond of 24 years or less.

So you’ve got an opportunity here to forgo the dubious promise of a bankrupt nation and to invest, instead, in some of the strongest companies on the planet — those that are most capable of expanding, those that are most able to respond to government caprice and move operations wherever they need to move them, those with the most cash on their balance sheets. These are the companies that are going to lead the global economy for the next 10, 20, 30 years.

The story is much the same throughout the developed markets of Europe and North America.

In England, the FTSE index yields almost 4%. Ten-year British government bonds yield less than 3%. In France, The CAC 40 index yields 5.0%. Ten-year French government bonds yield around 3%. In Germany, the DAX yields 4%. German 10-year bonds yield 2%. In the US the S&P 500 dividend yield — at 2.08% — is higher than the 10-year Treasury yield for only the second time since 1958.

Image001

In fact, many, many world-leading American companies now pay dividend yields higher than long-dated Treasuries.

As James Grant framed this contrast in the Oct. 7, 2011 edition of Grant’s Interest Rate Observer, “Better the common equity of an adaptive and profitable American enterprise — say, Molson Coors (NYSE: TAP/A) — than the inert emissions of the US Treasury…Today, the stock is quoted at 39… at 11.1 times earnings with the yield of 3.25%. Meanwhile, the utterly unadaptive 10-year note of Timothy Geithner’s negative-cash-flow Treasury is quoted at 1.83% [now 2.03%].”

Grant also highlights Campbell Soup (NYSE:CPB) as a compelling alternative to long-term Treasury securities. At the current quote of $33, Grant observes, this blue chip stock is selling for about 13 times trailing earnings and yielding 3.5%. “Campbell, which traces its corporate ancestry back to 1869 and which incorporated in 1922, early on conceived the bright idea of draining the water from canned soup. The shipping expense thereby saved was enough to allow a price reduction to a dime per can from 30 cents.”

The company has flourished ever since. “From 1955 to the present,” Grant points out, “dividends have grown at an 8.9% compound rate.”

Now, I realize that dividends sound very boring — kind of like watching paint dry… I can almost hear you saying, “C’mon, Addison! This isn’t the Great Depression! I don’t want to invest for dividends, clip bond coupons and store canned peas in my basement. I want something that’s high-growth. Something sexy.”

My answer to that is: Sexy sometimes sneaks up on you.

What if I had told you on Jan. 1, 2000, to sell all your tech stocks — those highflying stocks that were doubling and tripling every few months — and to spread the proceeds equally across three very boring investments: gold, 10-year Treasury bonds and stodgy old dividend-paying stocks — like the ones inside the Vanguard Dividend Growth Fund (VDIGX), the mutual fund we highlighted in Apogee.

You would have looked at me as if I had lost my mind. You might have even felt sorry for me and tried to offer me some intelligent investment advice. But with the benefit of hindsight, we know what happened next.

The high-flying tech stocks that comprised the Nasdaq Composite Index crashed…and still have not recovered their losses, even after all this time. The Nasdaq is down 28% since the end of 1999. Even the “blue chip” S&P 500 stocks are down 15% during that time frame… until you add back those boring dividends.

With dividends included, the S&P 500’s 15% loss flips to a 6% gain. That’s still a miserable return for an entire decade, but it illustrates the point that dividends matter. In fact, for long periods of time in the stock market’s history, dividends have been the only thing that mattered.

Without dividends, the S&P 500 index would have produced a loss for the 25 long years from August 1929 to August 1954. Then again, without dividends, the S&P 500 produced a 5% loss during the 13 years from September 1961 to September 1974. But with dividends included, the S&P’s loss became a 46% gain.

Image002

If you think that’s just a bunch of “ancient history”, think again. During the last 12 years — from early November 1999 until this very moment — the S&P 500 has produced a loss…unless you include dividends.

The moral of the story is simple: Dividends matter. In fact, they may even be a little bit sexy. Over the course of the last half-century, dividends have contributed more than half of the stock market’s total return — 56%, to be exact.

So what happened to all that boring stuff you could have purchased at the dawn of the new millennium? Well, the Vanguard Dividend Growth Fund delivered a total return of 50%, 10-year Treasuries produced a total return of 162% and the “barbarous relic” gold provided a dazzling total return of nearly 500%. Average return of the three investments: 236%!

We would expect the Vanguard Dividend Growth Fund to outperform their low-dividend or no-dividend counterparts over the next few years…and to greatly outperform the return of long-term government bonds. As James Grant observes, “Better the common equity of an adaptive and profitable American enterprise than the inert emissions of the US Treasury.”

Regards,

Addison Wiggin,
for The Daily Reckoning

Dividends Are Sexier Than You Think originally appeared in the Daily Reckoning. The Daily Reckoning provides over 400,000 readers economic news, market analysis, and contrarian investment ideas.

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Visual evidence of the European soverign debt crisis and worldwide recession.

The New York Times employs a bunch of Keynesian socialists, but they do produce some quality interactive visual graphics.  They recently produced an excellent visualization of the European sovereign debt crisis that you should take a look at.

http://www.nytimes.com/interactive/2011/10/23/sunday-review/an-overview-of-the-euro-crisis.html

Italy will defalt along with Greece.  The French banks are doomed without central banker bailouts.  The bailouts will be inflationary.  Europe is back in recession.   The US is next.  Stock markets will fall.  There will be high dividend stock bargains.  Keep your powder dry until near the next bottom.

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