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.

First Look at ExxonMobil (XOM). Don't buy until after double-dip recession.

A recent article on Guruwatch.com listed ExxonMobil as one of the recommend dividend stocks for 2012.  I think this is bad advice at the current price $85.18 and dividend yield of 2.2%.  Read on to find out why.

http://www.gurufocus.com/news/170209/5-highdividend-yielders-for-2012

ExxonMobil (XOM)

Price: $85.18

Shares: 4.71 billion

Market capitalization: $401.42 billion

What does the company do – Exxon Mobil Corporation (Exxon Mobil) is a manufacturer and marketer of commodity petrochemicals, including olefins, aromatics, polyethylene and polypropylene plastics and a range of specialty products. It also has interests in electric power generation facilities. The Company has a number of divisions and affiliates with names that include ExxonMobil, Exxon, Esso or Mobil. Divisions and affiliated companies of ExxonMobil operate or market products in the United States and other countries of the world. Their principal business is energy, involving exploration for, and production of, crude oil and natural gas, manufacture of petroleum products and transportation and sale of crude oil, natural gas and petroleum products. In October 2011, Cosan SA Industria e Comercio bought the distribution assets of Exxon Mobil in Bolivia, Paraguay and Uruguay. In January 2012, Apache Corporation acquired Exxon Mobil's Mobil North Sea Limited assets including the Beryl field and related properties.

Morningstar’s take - ExxonMobil sets itself apart among the other supermajors as a superior capital allocator and operator. Through a relentless pursuit of efficiency, technology, development, and operational improvement, it consistently delivers higher returns on capital relative to peers. With a majority of the world's remaining resources in government hands, opportunities for the company to expand its large production base are limited. However, we believe ExxonMobil's experience and expertise, particularly with large projects, should allow it to successfully compete for resources.

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Preferred stock: none.

Bonds: $786.8 million outstanding.  That is a very small amount for a company as large as ExxonMobil.  The bonds are not a threat to the dividend.

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DIVIDEND RECORD: Dividend grower since 1987.  Their quarterly dividend has grown from $0.11 in 1987 to $0.47 in 2012.  That is a 327% gain over 25 years or it can be expressed as a 13.1% straight-line gain per year (not compounded)

Dividend: $0.47

Dividend yield: 2.2% ($1.88 annual dividend / $85.18 share price)

Dividend payout: 22% using 2011 EPS of $8.42 –OR- 25% using average adjusted earning power of $7.50 per share.  XOM doesn’t believe in paying out a large percentage of its profits to shareholders or they would increase the percentage of the dividend payout.  The dividend payout has averaged 27% since 2001 with a max of 55% in 2001.  The next highest payout was in 2008 when the stock price crashed.

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EARNING POWER: $7.50 per share @ 4.71 billion shares

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

EPS

Net income

Shares

Adjusted EPS

2007

$7.28

$40,610 M

5,517 M

$8.62

2008

$8.66

$45,220 M

5,194 M

$9.60

2009

$3.98

$19,280 M

4,848 M

$4.09

2010

$6.22

$30,460 M

4,897 M

$6.47

2011

$8.42

$41,060 M

4,875 M

$8.72

Five year average adjusted earnings per share is $7.50

Consider contrarian buying below $60.00 (8 times average adjusted EPS)

ExxonMobil (XOM) is currently trading at 11.4 times average adjusted EPS.  This is stock is value priced.

Consider value buying below $90.00 (12 times average adjusted EPS)

Consider speculative selling above $150.00 (20 times average adjusted EPS)

BALANCE SHEET – The high price to book value ratio should keep you away from XOM.  The current and quick ratios show that XOM has little current assets to cover current liabilities.  The company’s working capital has eroded over the years.  It is now negative for several years.  That isn’t a good sign.  This means that the company had to get $5 billion dollars from somewhere other than operations to meet its current liabilities.

Book value per share: $32.78

Price to book value ratio: 2.6 (under 1.0 is good)  Buyers of ExxonMobil at today’s price of $85.18 are paying a huge premium over book value per share.

Current ratio: 0.94 latest quarter (over 2.0 is good)

Quick ratio: 0.66 latest quarter (over 1.0 is good)

Debt to equity ratio: 0.06 (lower is better)

Percentage of total assets in plant, property, and equipment: 64.8% (the higher the better)  Current assets 22%, long term assets 10.3%, and intangibles 2%

CONCLUSION – The best time to buy ExxonMobil in recent years was in June 2010 when oil was at $71 per barrel.  This is interesting because oil bottomed in 2009 below $46 per barrel.  XOM is a decent dividend grower historically.  Their yield has never been very high, but since they only payout an average of 27% the dividend has never been threatened.  The stock is currently in value territory at 11.4 times average adjusted earnings.  The only thing that I don’t like about XOM is the high book value ratio per share and the weak current and quick ratios.  The coming worldwide double dip recession will drop the price of oil from its current price of around $100 per barrel.  That event will hurt XOM’s earnings and the price will drop like it did in 2009 – 2010.  I think you will have an opportunity to buy XOM between $60 - $53 again in the next two years.

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DISCLOSURE – I don’t own ExxonMobil (XOM).

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First Look at Kraft (KFT) - An Excellent Dividend Grower.

Gurufocus.com ran an article yesterday on “High-Dividend Yielders for 2012”.  Kraft (KFT) was one the five stocks recommended in the article.  Apparently the author of the article thinks that a 3% dividend yield is a high dividend.  I think that a stock needs to yield at least 6% to be considered a high dividend stock.  Kraft has very stable earnings, but it is overpriced right now .  Read on to see when Kraft was a value stock worth buying.

Kraft (KFT)

Price: $38.29

Shares: 1.77 billion

Market capitalization: $67.71 billion

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Preferred stock: none

Bonds: $26.5 billion outstanding.  The outstanding bonds are not a threat to the dividend this year.

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DIVIDEND RECORD:  Kraft has been an excellent dividend grower since 2001.  The annual dividend has grown from $0.26 annually to $1.16.  I don’t know if they paid a dividend before 2001.

Dividend: $0.29 quarterly

Dividend yield: 3.0% ($1.16 annual dividend / $38.29 share price)

Dividend payout: 58.3% using 2011 EPS of $1.99 –OR- 63.7% using average adjusted earning power of $1.82.  Kraft is a dedicated dividend payer.

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EARNING POWER: $1.82 @ 1,772 million shares

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

EPS

Net income

Shares

Adjusted EPS

2007

$1.62

$2,590 M

1,594 M

$1.46

2008

$1.90

$2,884 M

1,515 M

$1.63

2009

$2.03

$3,021 M

1,486 M

$1.70

2010

$2.39

$4,114 M

1,720 M

$2.32

2011

$1.99

$3,527 M

1,772 M

$1.99

Five year average adjusted earnings per share is $1.82

Consider contrarian buying below $14.56 (8 times average adjusted EPS)

Consider value buying below $21.84 (12 times average adjusted EPS)

Consider speculative selling above $36.40 (20 times average adjusted EPS)

Kraft (KFT) is currently trading at 21 times average adjusted EPS.  This is stock is speculatively priced.

BALANCE SHEET – [add a summary of the balance sheet there]

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Book value per share: $19.87

Price to book value ratio: 1.93 (under 1.0 is good)  You would be paying a large premium to book value if you buy Kraft at today’s price of $38.29 per share.

Current ratio: 0.85 latest quarter (over 2.0 is good)  Where will Kraft get the current assets to cover current liabilities?

Quick ratio: 0.43 latest quarter (over 1.0 is good)  The company has very little cash to cover current liabilities.

Debt to equity ratio: 0.63 (lower is better)

Percentage of total assets in plant, property, and equipment: 14.72% (the higher the better)  I like to see this number above 50%.  Most of Kraft’s assets 66.5% are comprised of intangibles and goodwill.  Current assets comprise 17.27%.

CONCLUSION – Kraft is a moderate yielding dividend stock at 3.0%.  They have been an excellent dividend grower since 2001.  The dividend was $0.26 per year in 2001.  Now the dividend is $1.16 per year.  That is a 284% increase over 11 years.  Unfortunately, the stock is speculatively priced now at 21 times average adjusted earning power.  The best time to buy Kraft when it was a value was back in April 2009 when was trading for 11.5 time average adjusted earnings.  Kraft’s balance sheet is not strong.  The price to book value ratio is quite high and it has very little in the way of current assets and cash compared to current liabilities.  I’m always suspicious of the book value when it is mostly supported asset values dominated by intangibles and goodwill.  Give Kraft a second look below $21.84 per share.  A worldwide double dip recession will drop the price back down to attractive levels that could provide safety of principal and adequate returns.

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DISCLOSURE – I don’t own Kraft (KFT).

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Don't Overpay for Apple (AAPL) Despite the New Dividend.

Today I take a first look at Apple (AAPL) since they finally decided to pay a dividend to the owners of the company.  You’ll learn how small the dividend yield will be, how speculative the current share price is, and how all the claims of massive cash stockpiles is not so true.  Read on to find out.

Apple (AAPL)

Price: $608.60

Shares: 932.37 million

Market capitalization: $567.44 billion

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Preferred stock: none

Bonds: none

DIVIDEND RECORD:  Apple has never paid a dividend in 17 years, but they recently announced that they would begin paying a quarterly dividend of $2.65 per share (http://www.bloomberg.com/news/2012-03-19/apple-to-pay-dividend-buy-back-stock-to-return-some-of-its-cash.html) beginning in the period starting July 1st, 2012.  Will they become a dividend grower?  Who knows; they have no track record.  However, the dividend will not be threatened by any debt, preferred stock, or bonds.

Dividend: $2.65 quarterly starting in 2Q 2012

Dividend yield: 1.7% ($10.60 annual dividend / $608.60 share price)

Dividend payout: 30% ($10.60 dividend / $35.11 recent EPS) -0R- 85% ($10.60 dividend / $12.39 average adjusted earning power)

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EARNING POWER: $12.39 per share @ 932.37 million shares

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

EPS

Net income

Shares

Adjusted EPS

9/2007

$3.93

$3,496 M

889 M

$3.75

9/2008

$6.78

$6,119 M

902 M

$6.56

9/2009

$9.08

$8,235 M

907 M

$8.83

9/2010

$15.15

$14,013 M

925 M

$15.03

9/2011

$27.68

$25,922 M

937 M

$27.80

Five year average adjusted earnings per share is $12.39

Consider contrarian buying below $99.12 (8 times average adjusted EPS)

Consider value buying below $148.68 (12 times average adjusted EPS)

Consider speculative selling above $247.80 (20 times average adjusted EPS)

Apple (AAPL) is currently trading at 49 times average adjusted EPS.  This is stock’s price is highly speculative.

BALANCE SHEET – The chart of the balance sheet is beautiful, but the price to book value ratio shows you how overvalued Apple is at the present time.  Investors have forgotten that Apple traded at $82 - $85 a share between November 2008 and March 2009.  You can buy Apple near its book value if you are patient.  Their current ratio is not impressive despite all the pundit talk of Apple having so much cash.

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Book value per share: $81.80 as of September 2011

Price to book value ratio: 7.44 (under 1.0 is good)  You are paying a massive premium to book value for every Apple share at today’s prices.  Remember that is only as good as its last product.  Not every product is going to be a homerun.  When it eventually disappoints the share price is going to crash as the hedge funds retreat.

Current ratio: 1.58 latest quarter (over 2.0 is good)  I thought with all that talk of Apple being loaded with cash that they would have blow the current ratio away.   That simply isn’t the case.  They have $54.771 billion in current assets and $34.607 billion in current liabilities.

Quick ratio: 1.35 latest quarter (over 1.0 is good)  There is the cash showing through.

Debt to equity ratio: 0 (lower is better)  They are long term debt free.  Outstanding.

Percentage of total assets in plant, property, and equipment: 5.64% (the higher the better)  Not a lot of plant and equipment.  Here are where their assets are relative to total assets: Other long term investments 51.72%, current assets 39.49%, and intangibles 3.15%.

CONCLUSION – Apple will be a small dividend payer yielding about 1.7% at today’s stock price.  It will be interesting to see if they become a strong dividend grower over time.  The dividend will be safe at the onset.  Payout ratios are not a problem.  In my opinion the stock price is highly speculative at 49 times average adjusted earning power of $12.39 per share.  Apple’s share price has taken a beating in the past.  In late 2007 the share price peaked at $199.  By March 2009 the stock price had fallen to $85.  Don’t make the mistake to believe that Apple is crashproof.  There is a worldwide recession coming and Apple will take another beating.  I think the dividend it to entice hedge funds from pulling out of the stock with the recession hits.  Apple’s balance sheet is not as strong as I thought.  The price to book value is ridiculous right now and their current ratio is unimpressive.  However, they are in much better shape than most companies.  I recommend you sell it  if you own it now.  I think Apple is a safe buy below $148; otherwise, you’re playing a speculative game of the greater fool theory.  Don’t get trampled by the hedge funds when they exit their positions in Apple.  The dividend yield will be much higher below $148, you won’t be paying through the nose for earnings, and you’ll pay a much smaller premium to book value.

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DISCLOSURE – I don’t own Apple (AAPL).

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Apple dividend

There is news that Apple will begin paying a $2.65 per share quarterly
dividend (http://news.investors.com/article/604927/201203201524/apple-shares-retreat-fr....
That is great news, but I like high dividend stocks. Apple would
become a 6% high dividend stock if it pays its proposed dividend and
its stock price drops to $176.66. Unfortunately for current Apple
investors that would be nearly a 71% price decline from today's
closing price of $605.88 per share. Right now you are laughing at me.
How preposterous!! Ahhh, but you forget that Apple was selling for
$176 in mid-September of 2009. Apple is not market-proof. I will
write a "First Look" article on Apple soon where we can discover their
average earning power together.

There is another way for Apple to become a high dividend stock. They
could pay out 80% of the recent earnings of $35.11 per share in the
form of a dividend. A $7.02 quarterly dividend payment would bring
the yield up to 6%. I'm very confident that Apple will not do this.

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sheets.

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First Look at Plains All American Pipelines (PAA).

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  Today I take a look at Plains All American Pipeline (PAA).  This is the last of fifteen articles examining some of the dividend stock recommendations of Seeking Alpha contributor Insider Monkey.  Most of these stocks have dividend yields of 4% - 5%, so I think that they need to be looked at because they could become high dividend stocks when the stock market pulls back from another worldwide recession.  I want to see which of his 15 are potential high dividend stocks with earning power and strong balance sheets.  Plains has a high dividend payout ratio, it is speculatively priced, and its balance sheet is blah.  To see how I arrived at those conclusions and what a good value price to buy at read on.

Plains All American Pipeline (PAA)

Price: $79.99

Shares: 155.57 million

Market capitalization: $12.44 billion

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What does the company do to please customers - Plains All American Pipeline, L.P. (PAA) is engaged in the transportation, storage, terminalling and marketing of crude oil, refined products and liquefied petroleum gas (LPG) and other natural gas-related petroleum products. It is also engaged in the acquisition, development and operation of natural gas storage facilities. It has three segments: Transportation, Facilities, and Supply and Logistics. PAA’s operations are conducted through, and its operating assets are owned by, PAA’s subsidiaries. On December 23, 2010, PAA acquired Nexen Holdings U.S.A. Inc. On February 9, 2011, the Company, through its subsidiary PAA Natural Gas Storage, L.P., acquired 100% interest in SG Resources Mississippi, LLC. In July 2011, Gavilon, LLC acquired refined products rack marketing business from the Company. In December 2011, it acquired South Texas crude oil and condensate gathering system and a Canadian trucking operation. In December 2011, it acquired Yorktown Terminal and Jal Pipeline.

Morningstar’s Take - Plains All American Pipeline LP built itself into one of the most successful master limited partnerships by focusing on one thing: supplying the Midwest with crude oil to run its refineries. Plains is expanding its geographic and product focus to include the entire United States and extend the model that has worked so well for crude oil to refined products, natural gas liquids, liquefied petroleum gas, and natural gas.

Preferred stock: I’m not sure how many shares, but there has been preferred stocks since 2009 that receives about a quarter of net income.  For example, in 2011 Net income was $966 million dollars before a $236 million dollar preferred dividend.  That is 24.4%.  This is a threat to the common dividend.

Bonds: $250 million outstanding.  This isn’t a threat to the common dividend.

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DIVIDEND RECORD: Wow!  PAA is an amazing dividend grower.  It paid $0.19 quarterly in 1999.  Thirteen years later it is paying $1.02 quarterly.  That is a 437% increase in 13 years, or 33% straight line dividend growth per annum.

Dividend: $1.02 quarterly

Dividend yield: 5.1% ($4.08 annual dividend / $79.99 share price)

Dividend payout: 83% using recent Google Finance EPS of $4.93 –OR- 145% using average adjusted earning power of $2.82.  This company almost always paid out more than it earned in the past 10 years.  It makes up the difference by constantly offering new shares each year.

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EARNING POWER: $2.82 @ 155.57 million shares

(earnings adjusted for changes in capitalization – typically share buybacks and/or additional shares created.  In PAA’s case they are steadily adding shares)

EPS

Net income

Shares

Adjusted EPS

2007

$2.52

$365 M

114 M

$2.35

2008

$2.64

$325 M

121 M

$2.09

2009

$3.32

$443 M

131 M

$2.85

2010

$2.40

$330 M

138 M

$2.12

2011

$4.88

$730 M

155.57 M

$4.69

Five year average adjusted earnings per share is $2.82.

Consider contrarian buying below $22.56 (8 times average adjusted EPS)

Consider value buying below $33.84 (12 times average adjusted EPS)

Consider speculative selling above $56.40 (20 times average adjusted EPS)

Plains All American Pipeline (PAA) is currently trading at 28.4 times average adjusted EPS.  This is stock is speculatively priced.

BALANCE SHEET – Blah balance sheet.

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Book value per share: $35.03

Price to book value ratio: 2.28 (under 1.0 is good)  This is way too high for my liking.  Wait for a big price drop.

Current ratio: 0.96 latest quarter (over 2.0 is good) This company is a little short of current assets to cover this year’s liabilities.  I’m guessing they will offer more shares to make up the difference.

Quick ratio: 0.005 latest quarter (over 1.0 is good)  This company is cash starved.

Debt to equity ratio: 0.96 (lower is better)  This is not great, but not too bad either.

Percentage of total assets in plant, property, and equipment: 50.32% (the higher the better).  PAA has 21% of assets in receivables, 12% in intangibles, and 9% in long term assets.

CONCLUSION - The best time to buy PAA in recent years was in late 2008.  It was a value investment back then.  Plains All American Pipelines is an amazing dividend payer and grower, but I’m concerned that the preferred stock and capital expenditures are going to threaten the dividend growth in the future.  The company is speculatively priced at this time at over 28 times average adjusted earnings.  Wise investors should have scaled out of it when it reached $56.40 back in October 2011.  Keep selling portions and rising your stops is the key to scaling out.  The balance sheet is weak when you look at the price to book value ratio and the current ratio and quick ratios.   The company is going to have to issue more debt or stock to finance its current operations.  You can safely ignore this stock until it drops back to the $35.00 to $22.00 dollar range.

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DISCLOSURE – I don’t own Plains All American Pipelines (PAA).

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First Look at Bristol-Myers Squibb (BMY).

Today I take a look at pharmaceutical company Bristol-Myers Squibb (BMY). This is the fourteenth article out of fifteen covering the stocks that Seeking Alpha contributor Insider Monkey recommended a few weeks ago.  Most of the stocks on his list were yielding between 4% to 5%, so they are potential 6% high dividend stocks when the market slides due to a second worldwide recession.  I’m trying to find the ones with high dividends, earning power, and strong balance sheets.  Bristol-Myers Squibb looks promising in the $22.66 - $18.00 price range.  Their price to book value ratio would still be a little high, but BMY definitely has demonstrated stable earning power, high dividends plus growth, and a strong balance sheet.  Read on to see how I came to that conclusion.

Bristol-Myers Squibb (BMY)

Price: $32.59 on Monday March 5th, 2012

Shares: 1.69 billion

Market capitalization: $55.02 billion

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Preferred stock: none

Bonds: none

What do they do to satisfy customers - Bristol-Myers Squibb discovers, develops, and markets pharmaceuticals for various indications, such as cardiovascular and infectious diseases, cancer, and psychiatric disorders. Unlike some of its more diversified peers, Bristol has exited several nonpharmaceutical businesses to focus on branded drugs.  Plavix is their biggest revenue product.  Plavix is a heart attack prevention drug.

Morningstar’s take - Adept at partnerships, Bristol-Myers Squibb has built a strong portfolio of drugs and a robust pipeline. While the company faces major patent losses beginning in 2012, we expect Bristol's next generation of drugs will fill the patent holes over the next decade. Further, by selling off business lines unrelated to its core pharmaceutical strategy, the company has been building a war chest of cash to make acquisitions and new partnership deals.

DIVIDEND RECORD: Steady dividend payer since at least 1987.  Strong dividend grower – the quarterly dividend was $0.09 in 1987 and it has grown to $0.34 quarterly.  That is about 11% straight-line dividend growth per year.

Dividend: $0.34

Dividend yield: 4.17% ($1.36 annual dividend / $32.59 share price)

Dividend payout: 63% using recent Google Finance reported EPS of $2.16 –OR- 58% using average adjusted earning power of $2.35 per share.

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EARNING POWER: $2.35 @ 1.69 billion shares (*Note: This amount only includes net income from continuing operations.  There was significant net income from discontinued operations in 2009 ($8 billion) and 2008 ($2.5 billion).  The earning power would be higher if I included the discontinued ops, but that would skew earning power going forward).

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

EPS

Net income*

Shares

Adjusted EPS

2007

$1.09

$1,968 M

1,980 M

$1.16

2008

2.62

$3,686 M

1,999 M

$2.18

2009

$5.34

$4,420 M

1,974 M

$2.62

2010

$1.79

$4,513 M

1,713 M

$2.67

2011

$2.16

$5,260 M

1,700 M

$3.11

Five year average adjusted earnings per share is $2.35 @ 1.69 billion shares

Consider contrarian buying below $18.80 (8 times average adjusted EPS)

Consider value buying below $28.20 (12 times average adjusted EPS)

Bristol-Myers Squibb (BMY) is currently trading at 13.86 times average adjusted EPS.  This is stock is priced for investment.

Consider speculative selling above $47.00 (20 times average adjusted EPS)

BALANCE SHEET – Bristol-Myers Squibb has a strong balance sheet.

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Book value per share: $9.44

Price to book value ratio: 3.45 (under 1.0 is good)  Wait for the share price to retreat below $20.00 to drop this ratio down.

Current ratio: 1.96 latest quarter (over 2.0 is good)  BMY has plenty of current assets to cover current liabilities.

Quick ratio: 1.12 latest quarter (over 1.0 is good)  BMY has 112% of its current liabilities in cash alone.  This is good.

Debt to equity ratio: 0.33 (lower is better)  A nice low debt rate.

Percentage of total assets in plant, property, and equipment: 13.71% (the higher the better)  I like companies with a higher percentage of real assets relative to total assets.  BMY has 16% of its total assets in goodwill and another 9.5% in intangibles.  I would want to know if any of its most profitable drugs are going generic anytime soon.  That event will drop the value of their assets.

CONCLUSION – As usual, the best time to buy BMY in recent years was in March 2009 when it was below $20.00.  It was a value investment back then.  It is still a pretty good buy at 13.86 times average adjusted earning power.  Bristol-Myers Squibb has been a steady dividend payer and a strong dividend grower.  The dividend is very stable and payout ratios look good because there is still ample room to pay the dividend if some of its drugs go generic.  The only thing that bothers me is the high price to book value ratio, but that will come down as the worldwide recession returns.  The company has a lot of current assets and cash to cover upcoming.  I would read the company’s quarterly financials and annual reports to learn what product provide most of the company’s profits.  Their biggest revenue producing product, Plavix, is going generic in the USA this year.  US sales of all BMY drugs account for 65% of sales, Europe accounts for 17%, and Canada and Japan at 3% each.  Read the beginning of the 2011 annual report for an excellent overview of their products, their revenues, and when they go generic: http://quote.morningstar.com/stock-filing/Annual-Report/2011/12/31/t.aspx?t=&ft=10-K&d=82bed019190b624cc2daf43fd54c3551

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DISCLOSURE – I don’t own Bristol-Myers Squibb (BMY).

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Revisiting First Energy (FE).

Today I revisit First Energy (FE) for the second time.  This is the thirteenth article out of fifteen covering the stocks that Seeking Alpha contributor Insider Monkey recommended a few weeks ago.  Most of the stocks on his list were yielding between 4% to 5%, so they are potential 6% high dividend stocks when the market slides due to a second worldwide recession.  I’m trying to find the ones with high dividends, earning power, and strong balance sheets.  First Energy looks promising in the $30 - $32 price range, but I have some concerns over the sustainability of their dividend.  Read on to see how I came to that conclusion.

First Energy (FE)

Price: $44.15

Shares: 418.22 million

Market capitalization: $18.46 billion

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Preferred stock: none

Bonds: $4.7 billion.  The bonds don’t appear to be a threat to the dividend anytime soon.

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DIVIDEND RECORD: First Energy (FE) has paid a dividend since at least 1998.  It paid $0.38 quarterly in 1998.  It has grown the dividend to $0.55.

Dividend: $0.55 quarterly

Dividend yield: 4.98% ($2.20 annual dividend / $44.15 share price)

Dividend payout: 91.6% ($2.20 annual dividend / $2.40 recent EPS on Google Finance) OR 86.9% ($2.20 annual dividend / $2.53 avg. adjusted earnings)

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Share price for 6% dividend yield: $31.66 ($2.20 / 0.06)

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EARNING POWER: $2.53 @ 418.22 million shares

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

EPS

Net income

Shares

Adjusted EPS

2007

$4.22

$1,309 M

310 M

$3.13

2008

$4.38

$1,342 M

307 M

$3.21

2009

$3.29

$1,006 M

306 M

$2.41

2010

$2.42

$742 M

305 M

$1.77

2011

$2.21

$885 M

418.22 M

$2.12

Five year average adjusted earnings per share is $2.53

Consider contrarian buying below $20.24 (8 times average adjusted EPS)

Consider value buying below $30.36 (12 times average adjusted EPS)

First Energy (FE) is currently trading at 17.45 times average adjusted EPS.  This is stock is priced for investment, but it is getting close to speculative.

Consider speculative selling above $50.60 (20 times average adjusted EPS)

BALANCE SHEET – Why can’t this company reduce liabilities in order to gain equity.

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Book value per share: $31.75

Price to book value ratio: 1.39 (under 1.0 is good)

Current ratio: 0.69 latest quarter (over 2.0 is good) Little current assets to cover this year’s liabilities.

Quick ratio: 0.04 latest quarter (over 1.0 is good) Almost no cash to cover this year’s liabilities.

Debt to equity ratio: 2.20 (lower is better)  Lots of debt to equity.

Percentage of total assets in plant, property, and equipment: 64.1% (the higher the better)  Current assets account for 7%, intangibles 13.6%, other long term assets 15.2%.  Find out what the intangibles and others are before you invest.

CONCLUSION – As usual, the best time to buy First Energy (FE) in recent years was in March 2009.  It was a value investment back then.  First Energy is a steady dividend payer and moderate grower.  I’m concerned that the company doesn’t have the earning power to keep up with a growing dividend payment.  The company is still priced for investment at this time, but it is much closer to speculative pricing than value.  Start scaling out of it when the price hits $50.60.  The balance sheet is weak when you look at the price to book value ratio and the current ratio and quick ratios.   The company is going to have to issue more debt or stock to finance its current operations.  You can safely ignore this stock until it drops back to the $30.00 - $32.00 range where the dividend yield climbs above 6% and the price to book value ratio approaches 1.0.

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DISCLOSURE – I don’t own First Energy (FE).

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First Look at Public Service Enterprise Group (PEG).

Today I take a first look at Public Service Enterprise Group (PEG) a regulated utility.  This is the twelfth article in a series of fifteen based on some stock recommendations from Seeking Alpha contributor Insider Monkey.  Most of his stocks had dividend yields between 4% - 5%, so those are likely high dividend stocks when the market turns down due to worldwide recession.  I want to figure out which of these will have high dividend yields, earning power, and strong balance sheets.  PEG could be a buy at a lower price.  Read on to see how I came to that conclusion.

Public Service Enterprise Group (PEG)

Price: $30.90

Shares: 505.9 million

Market capitalization: $15.64 billion

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Preferred stock: none

Bonds: $1.3 billion.  The outstanding bonds do not appear to be a threat to the dividend.

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What the company does – Public Service Enterprise Group is the holding company for a regulated utility (PSE&G), a merchant power generation owner (PSEG Power), and an energy investment firm (Energy Holdings). PSE&G provides regulated energy delivery services in New Jersey. PSEG Power owns and operates power plants that sell wholesale power in New Jersey, Pennsylvania, New York and Connecticut. Energy Holdings invests in energy-related assets worldwide.

Morningstar’s take - Since New Jersey regulators effectively killed a $17.8 billion merger with Exelon EXC in 2006, we think Public Service Enterprise Group continues to realize the value that Exelon sought to capture. Tightly constrained power supplies in the New Jersey and Northeast markets make those markets some of the most attractive in the United States for selling electricity that PSEG generates. The company's efficiency, financial strength, and focus provide strong investor returns even through turbulent power markets. This makes the stock one of our top utility picks at the right price for long-term investors.

DIVIDEND RECORD: PEG has been paying dividends since at least 1987 according to Google Finance.  They have been a pathetic grower.  The dividend has only grown by 9 cents quarterly in 25 years.  That equates to roughly a 1.4% annual increase which is way below the government reported price increases of 2%-3% per annum.  I don’t like it when a company can’t keep dividend increase with the understated government CPI.  Did the company really miss its dividend payment in 2009 4Q?  Or is that a Google Finance graphical artifact?  I don’t know.  Make sure you do before you invest.

Dividend: $0.34 quarterly

Dividend yield: 4.4% ($1.36 annual dividend / $30.90 share price)

Dividend payout: 49% ($1.36 annual dividend / $2.78 recent EPS IAW Google Finance) –OR- 47% ($1.36 DIV / $2.84 average earning power)

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EARNING POWER: $2.84 @ 505.9 million shares

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

EPS

Net income

Shares

Adjusted EPS

2007

$2.62

$1,335 M

509 M

$2.64

2008

$2.34

$1,188 M

508 M

$2.35

2009

$3.14

$1,592 M

507 M

$3.15

2010

$3.08

$1,564 M

507 M

$3.09

2011

$2.96

$1,503 M

505.9 M

$2.97

Six year average adjusted earnings per share is $2.84

Consider contrarian buying below $22.72 (8 times average adjusted EPS)

Public Service Enterprise Group (PEG) is currently trading at 10.9 times average adjusted EPS.  This stock is currently priced for VALUE.

Consider value buying below $34.08 (12 times average adjusted EPS)

Consider speculative selling above $56.80 (20 times average adjusted EPS)

BALANCE SHEET – Its nice to see decreasing liabilities for a change.  Most companies are gaining equity by increasing assets at a slightly higher rate than they are increasing liabilities.  The price to book value and current ratio is not good.  This is a moderate balance sheet.

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Book value per share: $20.30 ($10,270 M equity / 505.9 M shares)

Price to book value ratio: 1.52 (under 1.0 is good) ($30.90 price / $20.30 BV)

Current ratio: 1.35 latest quarter (over 2.0 is good)

Quick ratio: 0.82 latest quarter (over 1.0 is good)

Debt to equity ratio: 2.94 (lower is better)

Percentage of total assets in plant, property, and equipment: 59.85% (the higher the better)  A potential investor in PEG should know why 26% of assets are categorized as “other long term assets”.  What are those?

CONCLUSION – As usual, the best time to buy PEG in recent years was in March 2009.  It was a contrarian investment back then.  Public Service Enterprise Group (PEG) is a steady dividend payer and pathetic dividend grower.  They are a regulated utility company serving some of the most socialist states in the USA.  Therefore, I don’t expect much earnings growth in the future.  The company is value priced at this time at 10.9 times average adjusted earnings.  The balance sheet is weak when you look at the price to book value ratio and the current ratio and quick ratios.   This stock will drop in the upcoming worldwide recession.  Buy below $20.30 when the price/book value equals 1.0.  The dividend yield will be higher than 6% below a price of $22.66.  You need that high dividend yield to compensate you for the lack of dividend growth that PEG’s historical dividend record shows.

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DISCLOSURE – I don’t own Public Service Enterprise Group (PEG).

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First Look at ONEOK Partners (OKS).

Today I take a look at ONEOK Partners (OKS).  They are another natural gas pipeline and natural gas liquid producer.  This is the eleventh article out of fifteen examining a list of stocks that Seeking Alpha contributor Insider Monkey wrote about last month.  Most of his stocks carried a dividend yield of 4% - 5%, so I think they need to be looked at closer in the event that the worldwide recession returns and drops all equities markets.  Some of these stocks will become high dividend stocks yielding over 6%.  I want to find the ones with high dividends, earning power, and strong balance sheets.  They are few and far between.  Read on to see how ONEOK Partners measures up.

ONEOK Partners (OKS)

Share price: $58.51

Shares: 203.82 million

Market capitalization: $11.92 billion

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Bonds outstanding: $3.8 billion.  Big bonds due in 2016.  The preferred shows a dashes here, but they paid $148 million in preferred dividends in 2011 according to the company’s income statement.

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What the company does - ONEOK Partners gathers, processes, and transports natural gas and natural gas liquids. The partnership's interstate pipelines carry nearly one fifth of the gas exported from Canada to the United States, while its large gathering and processing operations serve Texas, Oklahoma, Kansas, and the High Plains region. ONEOK Partners' largest segment is its NGL business, which is growing rapidly thanks to multiple recent projects.

Morningstar’s take - ONEOK Partners has positioned itself for growth in the midstream sector by focusing on natural gas liquids. While natural gas transportation still makes up a third of cash flows, we think ONEOK's sweet spot is on the liquids side of the business. Recently completed and announced projects will shift cash flows more strongly toward NGLs, and we think the partnership can differentiate itself from peers by continuing to address the challenge of getting liquids to market.

DIVIDEND RECORD – Steady dividend payer and moderate dividend grow since mid-2006 when OKS started paying dividends.  The dividend was $0.48 quarterly in 2006.  This quote comes from the company’s 2010 annual report, “Distributions to unitholders have increased 43 percent since 2006; they are expected to increase one penny per quarter in 2011 and 5 to 10 percent annually in 2012 to 2013, pending board approval.”  I looks like they’ve kept their word from the dividend record chart below.

Dividend: $0.61 quarterly

Dividend yield: 4.17%

Dividend payout ratio: 67% using Google Finance recent EPS of $3.35 –OR- 107% using average adjusted earning power of $2.28.

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EARNING POWER – $2.28 @ 203.82 million shares

(Earnings adjusted for changes in capitalization)

EPS

Net income

Shares

Adjusted EPS

12/2007

$2.10

$408 M

166 M

$2.00

12/2008

$3.00

$537 M

179 M

$2.63

12/2009

$3.60

$338 M

94 M

$1.66

12/2010

$1.75

$355 M

203 M

$1.74

12/2011

$3.35

$682 M

204.82 M

$3.35

Six year average adjusted earnings per share is $2.28

Consider contrarian buying below $18.24 (8 times average adjusted EPS)

Consider value buying below $27.36 (12 times average adjusted EPS)

Consider speculative selling above $45.60 (20 times average adjusted EPS)

ONEOK Partners (OKS) is currently trading at 25.6 times average adjusted EPS.  This is stock is speculatively priced.

BALANCE SHEET – The chart looks fine, but the stock is way overpriced compared to book value.  Also, the company has little current assets to pay current liabilities.  Huge capital expenditures leaving little free cash flow need to be examined before investing.

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Book value per share: $16.88

Price to book value ratio: 3.47 (under 1.0 is good)

Current ratio: 0.69 (over 2.0 is good)

Quick ratio: 0.0185 (over 1.0 is good)

Debt to equity ratio: 2.64 (lower is better)

Percentage of total assets in plant, property, and equipment: 63.76%

CONCLUSION – As usual, the best time to buy OKS in recent years was in March 2009.  It was a value investment back then.  ONEOK Partners is a steady dividend payer and grower, but I’m concerned that the capital expenditures are going to threaten the dividend growth in the future.  The company is speculatively priced at this time.  Wise investors should have scaled out of it when it reached $45.60 back in November 2011.  The balance sheet is weak when you look at the price to book value ratio and the current ratio and quick ratios.   The company is going to have to issue more debt or stock to finance its current operations.  You can safely ignore this stock until it drops back to the $19.00 - $20.00 range.

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DISCLOSURE – I don’t own ONEOK Partners (OKS).

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First Look at Altria (MO). Hint: Quit Smoking and Quit MO.

Today I take a look at Altria (MO).  This is the tenth article in a series of fifteen articles examining the stock recommendations of Seeking Alpha contributor Insider Monkey.  Most of his stocks have dividend yields in the 4% - 5% range, so they are candidates for high dividend stocks once the worldwide recession returns and crushes markets.  I want to find out which of his stocks are the real deal.  I’m looking for those with high dividends, earning power, and strong balance sheets.  The scariest thing about Altria is its balance sheet.

Altria (MO)

Share price: $29.67

Shares: 2.05 billion

Market capitalization: $60.63 billion

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Bonds outstanding: $12.8 billion, this company has a lot of debt and liabilities that I see as a threat to the dividend.

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What the company does - Altria comprises Philip Morris USA (PM USA), U.S. Smokeless Tobacco Company, John Middleton, Ste. Michelle Wine Estates, and Philip Morris Capital Corporation (PMCC). It also owns a 27.1% interest in SABMiller, the world's second-largest brewer. Through its tobacco subsidiaries, Altria holds the leading position in cigarettes and smokeless tobacco in the U.S., and the number-two spot in cigars. PMCC specializes in leveraged and direct finance leases but no longer accepts new investments.

Morningstar’s take - Having divested its nontobacco and international segments over the last four years, Altria now operates primarily in the challenging U.S. tobacco industry. Cigarette volumes are in structural decline; the Food and Drug Administration, having assumed regulatory control, has been quick to assert its authority. The threat of regulation has now overtaken that of litigation as the most significant risk to an investment in tobacco, in our view. In spite of these headwinds, tobacco manufacturing is still a lucrative business, and we think Altria is well-positioned to generate steady medium-term earnings growth. The addictive nature of cigarettes and Altria's dominance of the U.S. market are the reasons behind our wide economic moat rating.

DIVIDEND RECORD – Long term dividend payer and grower, but MO cut its quarterly dividend from $0.86 to $0.69 in 2007.  Another big dividend cut occurred in 2008 from $0.75 to $0.29 per share.  The current dividend has grown up to $0.41.  However, the dividend is not safe from cuts in the near future.

Dividend: $0.41 quarterly

Dividend yield: 5.5% ($1.64 annual dividend / $29.67 share price)

Dividend payout ratio: 100% using full year 2011 EPS of $1.64 OR 70.6% using the average earning power over the past six years ($1.64 annual dividend / $2.32 earning power)

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EARNING POWER – $2.32 @ 2.05 billion shares

(Earnings adjusted for changes in capitalization)

EPS

Net income

Shares

Adjusted EPS

2006

$4.62

$9,786 M

2,116 M

$4.77

2007

$2.36

$4,930 M

2,084 M

$2.40

2008

$1.54

$3,206 M

2,071 M

$1.56

2009

$1.87

$3,905 M

2,079 M

$1.90

2010

$1.64

$3,390 M

2,064 M

$1.65

2011

$1.64

$3,390 M

2,050 M

$1.66

EPS

Net income

Shares

Adjusted EPS

2011 Q1

$0.45

$937 M

2,084 M

$0.46

2011 Q2

$0.21

$444 M

2,076 M

$0.22

2011 Q3

$0.57

$1,173 M

2,054 M

$0.57

2011 Q4

$0.41

$836 M

2,043 M

$0.41

2011 total

$1.64

$3,390 M

2,050 M

$1.66

Six year average adjusted earnings per share is $2.32

The company recently reaffirmed its 2012 EPS guidance: http://www.reuters.com/finance/stocks/MO.N/key-developments/article/2485916  If true, then MO will earn closer to their six year average adjusted earning power in 2012.

Consider contrarian buying below $18.56 (8 times average adjusted EPS)

Consider value buying below $27.84 (12 times average adjusted EPS)

Altria is currently trading at 12.8 times average adjusted EPS.  This is stock is priced for investment; it is nearly a value stock.

Consider speculative selling above $46.40 (20 times average adjusted EPS)

BALANCE SHEET – Altria has a horrible balance sheet filled with liabilities, goodwill assets, and intangible assets.  You can see the selloff of much of its assets in 2007-2008.  Shareholder equity has be eroded.  This is not good.

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Book value per share: $1.80 ($3,680 M in equity / 2,050 M shares)

Price to book value ratio: 16.5 (under 1.0 is good)  This is absolutely horrible.  You would be paying sixteen times the company’s equity for a share!!

Current ratio: 0.94 (over 2.0 is good)

Quick ratio:  0.46 (over 1.0 is good)

Debt to equity ratio: 2.96 (lower is better)

Percentage of total assets in plant, property, and equipment: 6% (most assets are Intangibles: 46.7% and Other: 27.98% [mostly Goodwill])  I don’t like this at all.

CONCLUSION – Altria is not a dedicated dividend grower.  It has a recent history of cutting its dividend and that bothers me.  Its earnings are fairly stable since the sale of major assets in 2007-2008, but lawsuits and the government are a constant threat to its earnings.  The stock is priced for investment only if you only look at its earnings.  The balance sheet is horrible.  This company only has a book value of $1.80 per share.  Strong company’s build equity; Altria sheds equity.  All measures of the balance sheet are not good.  I would not buy Altria even at its 2009 lows with its current balance sheet.  This stock should not be bought on its fundamentals.

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DISCLOSURE – I don’t own Altria (MO).

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