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 Duke Energy (DUK).

Today I take a look at Duke Energy (DUK).  This article should be read in conjunction with my article on Progress Energy (PGN) because Duke Energy is trying to merge with Progress.

http://www.myhighdividendstocks.com/category/stocks-that-pay-small-dividends/progress

This is the eighth in a series of fifteen articles on stocks liked by Seeking Alpha contributor Insider Monkey.  Most of his dividend stocks have a yield between 4% - 5%.  I view these stocks as potential buys in the upcoming worldwide recession.  To discover the value price for Duke Energy, read on.

Duke Energy (DUK)

Share price: $21.42

Shares: 1.333 billion

Market capitalization: $28.55 billion

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Bonds outstanding: They have $4.5 billion in outstanding bonds.

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What the company does - Duke Energy is one of the largest multistate holding companies of regulated electric and gas utilities, with regulated utilities in the Carolinas, Indiana, Ohio, and Kentucky that deliver electricity to about 4 million customers and deliver natural gas to 500,000 customers. Duke's competitive generation and power retailing business operates primarily in the Midwest, and its international energy segment owns and operates hydroelectric generation assets in Latin America.

Morningstar’s take - Pending necessary regulatory approvals, Duke is poised to become the largest regulated utility in the United States following its announced merger with Progress Energy PGN, which is expected to close at the end of 2011.

DIVIDEND RECORD – Duke was a dividend grower from 1987 – 2005, then they cut the dividend from $0.32 per quarter to $0.21 in 2005.  The dividend has grown back to $0.25 since then.

Dividend: $0.25 quarterly

Dividend yield: 4.6% ($1.00 annual dividend / $21.42 share price)

Dividend payout ratio: 72% using Google Finance’s recent EPS of $1.38 OR 88% using the average earning power of $1.13 per share

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EARNING POWER – $1.13 per share at 1.333 billion shares

(Earnings adjusted for changes in capitalization)

EPS

Net income

Shares

Adjusted EPS

2006

$1.57

$1,863 M

1,188 M

$1.40

2007

$1.18

$1,500 M

1,266 M

$1.13

2008

$1.07

$1,362 M

1,267 M

$1.02

2009

$0.83

$1,075 M

1,294 M

$0.81

2010

$1.00

$1,320 M

1,319 M

$0.99

2011 (est)

$1.43

$1,911.21 M

1,333 M

$1.43

EPS

Net income

Shares

Adjusted EPS

2011 Q1

$0.38

$511 M

1,331 M

$0.38

2011 Q2

$0.33

$435 M

1,333 M

$0.33

2011 Q3

$0.35

$472 M

1,333 M

$0.35

2011 Q4 (est)

$0.37

$493.21 M

1,333 M

$0.37

2011 total (est)

$1.43

$1,911.21 M

1,333 M

$1.43

Six year average adjusted earnings per share is $1.13

Consider contrarian buying below $9.04 (8 times average adjusted EPS)

Consider value buying below $13.56 (12 times average adjusted EPS)

Duke Energy is currently trading at 18.9 times average adjusted EPS.  This stock is still priced for investment, but it’s pretty close to speculative pricing.

Consider speculative selling above $22.60 (20 times average adjusted EPS)

BALANCE SHEET – Shareholder equity is very stable, but I’m a little concerned about the low current ratio of 1.23 and quick ratio of 0.42.   Where will Duke Energy get money to cover current liabilities?  Their

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Book value per share: $17.10

Price to book value ratio: 1.25 (under 1.0 is good) ($21.42 / $17.10)

Current ratio: 1.23 latest quarter (over 2.0 is good) ($6,273 M current assets / $5,115 M current liabilities)

Quick ratio: 0.42 (over 1.0 is good) ($2,178 M cash / $5,115 current liabilities)

Debt to equity ratio: 0.77 (lower is better)

Percentage of plant, property, and equipment compared to total assets: 68.9%

CONCLUSION – Duke Energy is trying to merge with Progress Energy (http://www.reuters.com/finance/stocks/DUK/key-developments/article/2441001 ).  Mergers typically involve large sums of debts which erodes shareholder equity.  I would wait to buy the combined company after some combined analysis confirms a value price.  However, if the merger fails, then don’t buy Duke above $13.56.  The stock is currently too close to speculative pricing and the lack of current assets gives me pause.  Europe is already in recession and China has a looming recession (http://teapartyeconomist.com/2012/02/13/chinas-imports-fall-indicating-an-economis-slowdown/ ).  A worldwide recession will ensue and drop stock prices everywhere.

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DISCLOSURE – I don’t own Duke Energy (DUK).

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First Look at Lorillard (LO). Do You Want To See An Ugly Balance Sheet?

Today I take a look at the third largest tobacco company in the USA, Lorillard (LO).  This is the seventh in a string of fifteen articles I’m writing covering 15 stocks recommended by Seeking Alpha contributor, Insider Monkey.  Most of his stocks are in the 4%-5% dividend yield range.  I look at these stocks as potential buys at the next stock market bottom.  So far most of these stocks should only be bought near their 2008 – 2009 lows to get the best yields and potential price appreciation.  Some of them shouldn’t be bought at all.  Lorillard’s negative equity puts it in that category.

Lorillard (LO)

Share price: $121.77

Shares: 132 million

Market capitalization: $16.07 billion

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Bonds outstanding: $2.5 billion.  Big bonds due in 2016 and 2019-2020.  These bonds will threaten the dividend.

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What the company does - With annual sales topping $4 billion in 2010, Lorillard is the third-largest cigarette manufacturer in the United States. Its flagship brand, Newport, claims a 13% share of the total cigarette industry and a 36% share of the menthol category. The firm also competes in the nonmenthol premium category with much smaller brands Kent, True, and Satin and in the discount segment with Old Gold and Maverick.

Morningstar’s take - We think Lorillard possesses a wide economic moat because of the extraordinary strength of Newport, its flagship menthol brand. However, with 90% of its volume generated in the menthol category in 2010 and the threat of Food and Drug Administration regulation still present, the firm could be vulnerable to unfavorable regulatory developments.


Here is a Seeking Alpha article on this risk:
http://seekingalpha.com/article/360571-hesitant-on-lorillard-i-suggest-philip-morris

DIVIDEND RECORD – Lorillard started paying dividends in 2008.  Its dividends have grown from $0.46 in 2008 to $1.55 in 1Q 2012.

Dividend: $1.55 quarterly

Dividend yield: 5.1% ($6.20 annual dividend / $121.77 share price)

Dividend payout ratio: 77.5% using recent reported EPS for 2011 OR 86% using the average adjusted earning power per share of $7.20

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EARNING POWER – $7.20 per share at 132 million shares.  The inept management has been buying back shares and issuing debts which is destroying the balance sheet.

(Earnings adjusted for changes in capitalization; Lorillard has been buying back shares since 2008)

EPS

Net income

Shares

Adjusted EPS

2006

$4.75

$826 M

174 M

$6.26

2007

$5.16

$898 M

174 M

$6.80

2008

$5.15

$887 M

172 M

$6.72

2009

$5.76

$948 M

165 M

$7.18

2010

$6.78

$1,029 M

152 M

$7.80

2011

$8.00

$1,116 M

132 M

$8.45

EPS

Net income

Shares

Adjusted EPS

2011 Q1

$1.71

$248 M

145 M

$1.88

2011 Q2

$2.05

$291 M

142 M

$2.20

2011 Q3

$1.94

$267 M

137 M

$2.02

2011 Q4

$2.30

$310 M

132 M

$2.34

2011 total

$8.00

$1,116 M

132 M

$8.45

Six year average adjusted earnings per share is $7.20

Consider contrarian buying below $57.60 (8 times average adjusted EPS)

Consider value buying below $86.40 (12 times average adjusted EPS)

Lorillard is currently trading at 16.9 times average adjusted EPS.  This stock is still priced for investment, but it is creeping toward speculative pricing

Consider speculative selling above $144.00 (20 times average adjusted EPS)

BALANCE SHEET – Lorillard has one of the ugliest balance sheets I’ve ever seen outside of financial institutions.  This is how you destroy shareholder equity.  And there is no reason for it either.

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Book value per share: ($11.46)

Price to book value ratio: N/A because of negative equity (under 1.0 is good)

Current ratio:  1.73 (over 2.0 is good)

Quick ratio: 1.10 (over 1.0 is good)

Debt to equity ratio: (lower is better) N/A because of negative equity

Percentage of property, plant, and equipment compared to total assets: 8.7%  ($262 M / $3,008 M total assets)

CONCLUSION – Lorillard pays a decent dividend with a yield of 5.1%.  The company’s dividend payout ratio is somewhere in the 77% - 86% range depending on how you calculation and this matches the company’s payout goals according to the most recent earnings conference call.  The stock’s price is still investment quality at only 16.9 times earning power.  So far so good, but then we come to the company’s balance sheet.  It is absolutely horrendous.  There is no reason to buyback share to produce negative share equity.  I’m also disturbed by the small 8.7% percentage of real assets as a percentage of total assets.  I wouldn’t consider buying Lorillard unless the share price dropped down below $60 like they did in 2008 – 2009.  I don’t own companies with negative equity.

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DISCLOSURE – I don’t own Lorillard (LO).

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Kinder Morgan Energy Partners (KMP). Building for the Bust.

Today I’m taking a look at Kinder Morgan Energy Partners (KMP).  This the sixth article out of fifteen covering a dividend stock list recommended by Seeking Alpha contributor Insider Monkey.  Most of the companies were 4%-5% dividend yielders.  I think the Kinder Morgan Energy Partners is way overvalued by the market.  See my quick look analysis below for details.  KMP spends a lot of money on capital expenditures to expand its revenue in the future.  They are focusing on the infrastructure necessary to export liquid natural gas to Asia (meaning China).  China is going to have a large recession because they are trying to use Keynesian mercantilist economic policies to achieve their 8-9% growth.  I think their capital projects won’t be as profitable as the CEO hopes they will be.

Kinder Morgan Energy Partners (KMP)

Share price: $86.98 closing price yesterday

Shares: 333.02 million

Market capitalization: $28.97 billion

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Preferred stock: This company has a huge preferred dividend that takes away from what is available to the common share dividend.

Bonds outstanding: $13.7 billion.  Look at all that debt coming due between now and 2022!

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What the company does – Kinder Morgan Energy Partners is one of the largest master limited partnerships, engaged in the transportation and storage of energy commodities.  It operates more than 37,000 miles of pipelines for oil and natural gas transport.  It also owns 180 terminals that can handle and store liquids, gases, and dry-bulk materials, such as coal.  As a partnership, the company pays no corporate income tax, but its tax burden flows through to individual unitholders.

Morningstar’s take – Our chief critique of Kinder Morgan Energy Partners has been that the burden of incentive distributions to its general partner will make it difficult to maintain its high historical distribution growth.  We’ve argued that the increasing drag of the “GP burden” will make it challenging for Kinder to target distribution growth rates in excess of 5%--and we may have been mistaken.

DIVIDEND RECORD – Kinder Morgan Energy Partners is a steady dividend grower.

Dividend: $1.16 quarterly

Dividend yield: 5.3% ($4.64 annual dividend / $86.98 share price)

Dividend payout ratio: 2,900% using the lastest Google Finance EPS of $0.16 –OR- 314% using the average adjusted earning power of $1.48 for common shares

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EARNING POWER – $1.48 six year average adjusted earning power per share of common stock

(Earnings adjusted for changes in capitalization)

EPS

Net income

Shares

Adjusted EPS

2006

$2.04

$972 M

225 M

$2.92

2007

($0.09)

$590 M

237 M

$1.77

2008

$1.94

$499 M

257 M

$1.50

2009

$1.18

$332 M

282 M

$1.00

2010

$1.40

$431 M

307 M

$1.29

2011 (est)

$0.38

$124.13 M

333.02 M

$0.37

.

EPS

Net income

Shares

Adjusted EPS

2011 Q1

$0.18

$57 M

317 M

$0.17

2011 Q2

($0.19

($62 M)

321 M

($0.19)

2011 Q3

($0.25)

($84 M)

331 M

($0.25)

2011 Q4 (est)

$0.64

$213.13 M

333.02 M

$0.64

2011 total (est)

$0.38

$124.13 M

333.02 M

$0.37

Six year average adjusted earnings per share is $1.48

Consider contrarian buying below $11.84 (8 times average adjusted EPS)

Consider value buying below $17.76 (12 times average adjusted EPS)

Consider speculative selling above $29.60 (20 times average adjusted EPS)

Kinder Morgan Energy Partners is currently trading at 58.7 times average adjusted EPS.  This is highly speculative pricing.

BALANCE SHEET – A mountain of debt

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Book value per share: $22.93

Price to book value ratio: 3.79 (under 1.0 is good)

Current ratio: 0.46 (over 2.0 is good)

Quick ratio: 0.36 (over 1.0 is good)

Debt to equity ratio: 1.54 (lower is better)

% of assets made up of property, plant, & equipment: 65%

CONCLUSION – Kinder Morgan Energy Partner is an speculatively priced stock at 58.7 times average earning power.  It has a nice dividend yield, but it can’t afford to pay that dividend by and measure other than issuing more debt and stock.  If you buy KMP at its current price, then you will be paying almost 4 times its book value.  I wouldn’t even consider a second look at KMP until the price falls down to the $22.93 - $17.76 range.

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DISCLOSURE – I don’t own Kinder Morgan Energy Partners (KMP).

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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A First Look at Progress Energy (PGN). Specultively Priced For Sure.

Today I take a first look at Progress Energy.  This is the fourth stock out of fifteen that I’ll be analyzing based on a Seeking Alpha article by writer Insider Monkey.  When I first started my analysis I didn’t know that this company is in merger talks with Duke Energy (DUK).  Progress Energy is speculatively priced regardless of what happens to the merger.  Take a look below at my analysis to set up you watchlist on Progress.

Progress Energy Inc. (PGN)

Share price: $54.16

Shares: 295.01 million

Market capitalization: $15.98 billion

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Bonds outstanding: $4.8 billion, but who knows how the merger with Duke Energy (DUK) will affect Progress’ outstanding debts?

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What the company does - Progress Energy is a holding company providing electricity generation, transmission, and distribution through its regulated electric utility operating companies in North Carolina, South Carolina, and Florida. Its operating companies are Carolina Power & Light, which serves 1.5 million customers, and Florida Power, which serves 1.6 million customers.

Morningstar’s take - Progress Energy, which became one of the largest regulated utilities in the United States when Carolina Power & Light and Florida Progress merged in 2000, could become part of the largest U.S. utility if its $37 billion merger with Duke Energy DUK closes. Like Duke, Progress management has reconfigured its strategy and now has one goal: Take advantage of growth opportunities at its regulated utilities during the next decade. Merger or no merger, we think this strategy should produce more consistent returns and turn Progress into a classic income stock.

DIVIDEND RECORD – Progress Energy has been paying dividends since at least the year 2000.  The dividend was around 0.52 per share back then.  It missed on dividend payment in 2006 according to Google Finance.  It looks like the company just cut its $0.62 quarterly dividend down to $0.26, but that is not what is going on.  Progress Energy and Duke Energy are merging and the Progress management is trying to synchronize the dividend payment with that of Duke.  So this is a partial dividend payment (see http://www.alaskadispatch.com/article/progress-energy-board-directors-declares-partial-dividend)

Dividend: $0.62 quarterly

Dividend yield: 4.57% ($2.48 annual dividend / $54.16 share price)

Dividend payout ratio: 93.5% ($2.48/$2.65 recent Google Finance EPS) or 100% ($2.48/$2.47 avg adjusted EPS)

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EARNING POWER – $2.47 six year average adjusted earnings per share @ 295.01 million shares

(Earnings adjusted for changes in capitalization)

EPS

Net income

Shares

Adjusted EPS

2006

$2.28

$571 M

250 M

$1.94

2007

$1.96

$504 M

256 M

$1.71

2008

$3.17

$830 M

262 M

$2.81

2009

$2.71

$757 M

279 M

$2.57

2010

$2.95

$856 M

291 M

$2.90

2011 (est)

$2.86

$845.7 M

295.01 M

$2.86

EPS

Net income

Shares

Adjusted EPS

2011 Q1

$0.62

$184 M

295 M

$0.62

2011 Q2

$0.60

$176 M

296 M

$0.60

2011 Q3

$0.98

$291 M

296 M

$0.98

2011 Q4 (est)

$0.66

$194.7 M

295.01 M

$0.66

2011 total (est)

$2.86

$845.7 M

295.01 M

$2.86

Six year average adjusted earnings per share is $2.47

Consider contrarian buying below $19.76 (8 times average adjusted EPS)

Consider value buying below $29.64 (12 times average adjusted EPS)

Consider speculative selling above $49.40 (20 times average adjusted EPS)

Progress Energy is currently trading at 21.9 times average adjusted EPS.  This stock is speculatively priced.

BALANCE SHEET – Yawn!

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Book value per share: $34.59

Price to book value ratio: 1.57 (under 1.0 is good)

Current ratio: 0.97 (over 2.0 is good)

Quick ratio: 0.37 (over 1.0 is good)

Debt to equity ratio: 1.17 (lower is better)

Percentage of real assets: 65% of total assets in plant, property, and equipment

CONCLUSION – Progress Energy (PGN) pays a modest dividend yield at 4.57%.  It would become a 6% yielding high dividend stock with its current dividend at a price of $41.33.  Progress’ dividend payout ratio is quite high compared to the company’s average adjusted earnings of $2.47 per share.  The company’s operating cashflow is not enough to cover dividend payments and capital expenditures.  The company will constantly need to issue more stock or debt to make up the difference.  However, the company is speculatively priced at 21.9 times average adjusted earnings.  I would wait for the price to drop below $30 before investing in Progress Energy.  A $30 share price is much closer to 12 times average earnings and it $34.59 book value.  I don’t like the company’s lack of equity growth.  Nor do I like its meager current and quick ratios.  Progress doesn’t have much cash for upcoming liabilities this year.  The bottom line is that you should wait for the Duke Energy merger and for the return of the worldwide recession to take this stock back down to where it was in 2009.  This one has had a big stock price run since then and its headed for a fall because the earnings don’t justify higher stock prices.

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DISCLOSURE – I don’t own Progress Energy (PGN).

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A First Look at PG&E (PCG).

This is my second article on a list of 15 stocks recommended in a Seeking Alpha article from last week.  Most of the stocks on the list have a current dividend yield between 4% and 5%.  Therefore, at some lower price they will meet my 6% high dividend stock yield.  So, I’m taking this opportunity to take a first look at each of them to screen them for the future.  Today’s stock is utilities company Pacific Gas & Electric (aka PG&E).

PG&E (PCG)

Share price: $40.85

Shares: 405.88 million

Market capitalization: $16.58 billion

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Bonds outstanding: $394.5 million; nothing big is due anytime soon.

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What the company does - PG&E is a holding company whose main subsidiary is Pacific Gas and Electric, a regulated utility operating in Central and Northern California that serves 5.1 million electric customers and 4.3 million gas customers in 47 of the state's 58 counties. The fully regulated utility owns 118 power plants in California that provide about 40% of the utility's power needs. In 2004, PG&E sold its unregulated assets as part of its post-bankruptcy reorganization.

Morningstar’s take - Since PG&E emerged from bankruptcy in 2004, it has posted among the best earnings growth of any regulated utility in the United States. Constructive California regulation following the 2000-01 state energy crisis has led to generous rates and huge investment opportunities for the state's investor-owned utilities, including PG&E, Edison International EIX, and Sempra Energy SRE. But in the short run, inflation threats, costs from the September 2010 San Bruno gas pipeline explosion and regulatory pushback could have an outsize effect on PG&E.

DIVIDEND RECORD – PG&E has been paying dividends since 2005 (it emerged from bankruptcy in 2004).  It has been growing its dividend steadily.  In 2007 the quarterly dividend was $0.36; now it is $0.46.  That is an increase of 27% over five years.

Dividend: $0.46 quarterly

Dividend yield: 4.4% ($1.80 annual dividend / $40.85 share price)

Dividend payout ratio: 72% based on Google Finance EPS of $2.51 per share or 65% based on the six year average adjusted EPS of $2.75 per share

[My standard 5 year dividend chart from Google Finance isn’t working – sorry!]

EARNING POWER – $2.75 six year average adjusted earnings per share @ 405.88 million shares

(Earnings adjusted for changes in capitalization)

EPS

Net income

Shares

Adjusted EPS

2006

$2.76

$991 M

346 M

$2.44

2007

$2.78

$1,006 M

353 M

$2.48

2008

$3.63

$1,338 M

358 M

$3.30

2009

$3.20

$1,220 M

386 M

$3.01

2010

$2.82

$1,099 M

392 M

$2.71

2011 (est)

$2.57

$1,028.88 M

405.88 M

$2.53

EPS

Net income

Shares

Adjusted EPS

2011 Q1

$0.50

$199 M

397 M

$0.49

2011 Q2

$0.91

$362 M

400 M

$0.89

2011 Q3

$0.50

$200 M

404 M

$0.49

2011 Q4 (est)

$0.66

$267.88 M

405.88 M

$0.66

2011 total (est)

$2.57

$1,028.88 M

405.88 M

$2.53

Six year average adjusted earnings per share is $2.75

Consider contrarian buying below $22.00 (8 times average adjusted EPS)

Consider value buying below $33.00 (12 times average adjusted EPS)

PG&E is currently trading at 14.85 times average adjusted EPS.  This is priced for investment.

Consider speculative selling above $55.00 (20 times average adjusted EPS)

BALANCE SHEET – Weak balance sheet despite the bankruptcy in 2004.  Look at all that red (liabilities).  I don’t like the really low quick ratio (cash assets/current liabilities).  It isn’t even close to 1.0.

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Book value per share: $29.46

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

Current ratio: 0.86 latest quarter (over 2.0 is good)

Quick ratio: 0.32 latest quarter (over 1.0 is good)

Debt to equity ratio: 0.97 (lower is better)

CONCLUSION – PG&E appears to be a dedicated dividend payer and slight dividend grower since it emerged from bankruptcy in 2004.  It pays a decent dividend of 4.4% yield; however, I wouldn’t buy it until the price drops below $30.00.  PG&E would be a high dividend stock yielding 6% at the current dividend at a price of $30.00.  It would also be a value stock below $33.00 based upon its average adjusted earning power of $2.75 per share.  Price to book value ratio would also improve to 1.0 under those circumstances.  You can see on the chart below that PG&E was a buy during the March 2009 lows.  Wait for the stock to retreat back to that level to get a better dividend yield and better opportunity of price appreciation.

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DISCLOSURE – I don’t own PG&E (PCG).

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A First Look at Consolidated Edison. Hint: buy under $40

I read an article on Seeking Alpha the other day that touted 15 high dividend stocks for the next few years.  Of course, most of them weren’t high dividend stocks in my opinion.  I believe that a high dividend stock must outpace the government’s long term average of the consumer price index by about double.  That is why I use a 6% dividend yield as my cutoff for high dividend stocks.  Nevertheless, there are many stocks with dividend yields between 4-6% that will become high dividend stocks near market bottoms.  Consolidated Edison (ED) is one of those stocks.  This first look will give you some price levels where this stock will appear attractive to those seeking total return (high dividends plus price appreciation).

Consolidated Edison (ED)

Share price: $58.38 on 1/25/2012 when I compiled these stats; the current price is $58.64

Shares: 292.2 million

Market capitalization: $17.10 billion

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Bonds outstanding: $475 million

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Not much is coming due anytime soon.  This is good for dividend safety.

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What the company does - Consolidated Edison is a holding company for two regulated utilities: Con Ed of New York and Orange & Rockland. These utilities provide steam, natural gas, and electricity to customers in southeastern New York--including New York City--and parts of New Jersey and Pennsylvania. The company's electric utility operations generate more than three fourths of Con Ed's operating revenue. The remainder comes from an energy marketing business and infrastructure investments.

Morningstar’s take - Consolidated Edison's 200-year-old wires-and-pipes business generates dependable earnings and dividends. Furthermore, New York's need for significant infrastructure should provide growth investment opportunities for Con Ed over time, supporting long-term earnings and dividend growth.

DIVIDEND RECORD – Consolidated Edison is a slow and steady dividend grower typical of century old utilities companies

Dividend: $0.60 quarterly

Dividend yield: 4.1% ($2.40 annual dividend/$58.38 share price)

Dividend payout ratio: 67% using Google Finance’s recent EPS of $3.56 or 72% using the company’s average adjusted EPS of $3.35.  ED is a dedicated dividend payer.

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EARNING POWER – $3.35 average adjusted earnings per share @ 292.2 million shares

(Earnings adjusted for changes in capitalization)

EPS

Net income

Shares

Adjusted EPS

2006

$2.95

$737 M

250 M

$2.52

2007

$3.47

$929 M

267 M

$3.17

2008

$4.37

$1,196 M

274 M

$4.08

2009

$3.14

$868 M

276 M

$2.96

2010

$3.47

$992 M

286 M

$3.39

2011 (est)

$3.95 (est)

$1,160.687 M

292.2 M

$3.95 (est)

EPS

Net income

Shares

Adjusted EPS

2011 Q1

$1.06

$311 M

294 M

$1.06

2011 Q2

$0.56

$165 M

294 M

$0.56

2011 Q3

$1.30

$383 M

295 M

$1.30

2011 Q4 (est)

$1.03 (est)

$301.687 M

292.2 M

$1.03 (est)

2011 total (est)

$3.95 (est)

$1,160.687 M

292.2 M

$3.95 (est)

Six year average adjusted earnings per share is $3.35

Consider contrarian buying below $26.80 (8 times average adjusted EPS)

Consider value buying below $40.20 (12 times average adjusted EPS)

Consolidated Edison is currently trading at 17.42 times average adjusted EPS.  This is still priced for investment, but it is getting close to speculative pricing.

Consider speculative selling above $67.00 (20 times average adjusted EPS)

BALANCE SHEET – Consolidated Edison is a slow equity grower.  It doesn’t have a lot of current assets on hand to pay current liabilities (see current ratio and quick ratio below).  It high priced compared to book value.

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Book value per share: $39.93

Price to book value ratio: 1.46 (under 1.0 is good)

Current ratio: 1.17 (over 2.0 is good)

Quick ratio: 0.79 (over 1.0 is good)

Debt to equity ratio: 0.89 (lower is better)

CONCLUSION – Consolidated Edison is a solid dividend payer and a slight grower.  It isn’t a high dividend stock now at over $58 dollars per share, but it is below $40 per share.  At $40 per share the stock would be yielding 6%.  ED has excellent and stable earning power of $3.35 per share @ 292.2 million shares.  Its earnings are not volatile compared to most other industries.  However, ED is almost speculatively priced at 17.42 times average adjusted EPS.  You can buy Consolidated Edison below $40 per share when the stock market tanks in the near future.  The double-dip recession in Europe and the coming recession in China and the US will push equity priced down to their March 2009 lows.  Edison’s balance sheet is unremarkable.  I’d like to see more current assets and cash to cover next year’s current liabilities.  The price to book value ratio would be attractive if the price fell back below $40.  You should consider buying Consolidated Edison below $40 per share.

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DISCLOSURE – I don’t own Consolidate Edison (ED).

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Carnival Corp. (CCL) is listing to port. How low will it sink?

Most people have heard about the grounding of the cruise ship Costa Concordia.  If you haven’t, then follow this link: http://tinyurl.com/7b596qk.

Carnival Corp. (CCL) is the parent corporation of the Costa Concordia.  Putting aside the human tragedy of the grounding, Carnival estimates that it will lose at least $85 - $95 million or $0.11 - $0.12 per share.

http://www.sacbee.com/2012/01/15/4190934/carnival-corporation-plc-required.html

I wrote one article on Carnival that said the stock should not be bought above $21.68 (http://www.myhighdividendstocks.com/stocks-that-pay-small-dividends/first-look-at-carnival-corporation-ccl).  That price was before the grounding of the Costa Concordia.  I think that Carnival was already heading lower due to the oncoming double dip recession.  Look at the March 2009 lows.  The ship wreck and ensuing fallout will only make matters worse for Carnival.

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DISCLOSURE – I don’t own Carnival Corp. (CCL)

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Some Financials on Monsanto (MON)

This short article on agriculture giant Monsanto (MON) appeared on www.TeaPartyEconomist.com.  It reminded me why I hate Monsanto so much, but I never looked at Monsanto as a dividend stock.  Let’s do that after the short article.

* * * * * * * * * *

4:46 AM

On Monsanto’s Payroll? U.S. Diplomates Push GM Seeds.

from The Tea Party Economist

If you wanted to make the world dependent on your generically engineered seeds, what would you do? You would get a little help from your friends. We read: “. . .   leaked documents now reveal that Monsanto has also deeply infiltrated the United States government. With leaked reports revealing how U.S. diplomats are actually working for Monsanto to push their agenda along with other key government officials, Monsanto’s grasp on international politics has never been clearer.”

Genetically Modified (GM) seeds are basic to the marketing plan.

Amazingly, the information reveals that the massive corporation is also intensely involved in the passing and regulations concerning the very GM ingredients they are responsible for. In fact, the information released by WikiLeaks reveals just how much power Monsanto has thanks to key positions within the United States government and elsewhere. Not only was it exposed that the U.S. is threatening nations who oppose Monsanto with military-style trade wars, but that many U.S. diplomats actually work directly for Monsanto.

According to leaked documents, “In 2007 it was requested that specific nations inside the European Union be punished for not supporting the expansion of Monsanto’s GMO crops. The request for such measures to be taken was made by Craig Stapleton, the United States ambassador to France and partner to George W. Bush.”

“Country team Paris recommends that we calibrate a target retaliation list that causes some pain across the EU since this is a collective responsibility, but that also focuses in part on the worst culprits. The list should be measured rather than vicious and must be sustainable over the long term, since we should not expect an early victory. Moving to retaliation will make clear that the current path has real costs to EU interests and could help strengthen European pro-biotech voices.”

Monsanto also got cooperation from the Food and Drug Administration. For more information, read the full story.

Then buy some non-hybrid seeds for your garden. Plant them next spring. That’s what I will be doing.

* * * * * * * * * *

Monsanto (MON)

Share price: $79.20

Shares: 535.41 million

Market capitalization: $42.47 billion

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Bonds outstanding: $3.8 billion

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What the company does - Originally a chemical company, Monsanto has morphed into an agricultural giant, focusing on seeds and crop protection products. In a major breakthrough, Monsanto introduced the first genetically modified crop seeds in 1996 and has remained the industry leader. The St. Louis-based company generated $10.5 billion in sales during fiscal 2010, and is focused on bringing new biotechnology traits to market to improve farmer yields and productivity.

Morningstar’s take - Monsanto is still bouncing back from a series of missteps and misfortune that have plagued the company (and its stock price) during the last couple of years. An overly aggressive pricing strategy for the firm's latest technology, SmartStax corn seeds and Roundup Ready 2 Yield soybeans, led to weak uptake, price cuts, and lower than anticipated profitability from the firm's increasingly important seeds and genomics business. Seeds are more important for Monsanto today because profits from the firm's other business, crop chemicals, have fallen off a cliff after glyphosate overcapacity forced Monsanto to basically cut Roundup prices in half and reset expectations. Adding to the company's drama, the federal government has started poking around Monsanto's business, looking for antitrust violations. While this list of bad news sounds daunting, we still believe Monsanto is the premier player in agricultural biotechnology. The company possesses a promising pipeline of seed products and with a few tweaks to its strategy (in our opinion, the firm needs to become more "farmer friendly"), we think Monsanto will right itself and continue generating shareholder value for years to come.

DIVIDEND RECORD – Monsanto is a consistent dividend grower, but it has a low payout and a low yield.

Dividend: $0.30 per quarter

Dividend yield: 1.51 ($1.20 annually / $79.20 share price)

Dividend payout ratio: 41% ($1.20 annual dividend / $2.92 average adjusted earnings)

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EARNING POWER – Monsanto earns an average of $2.92 per share @ 535.41 million shares

(Earnings adjusted for changes in capitalization)

EPS

Net income

Shares

Adjusted EPS

2006

$1.79

$993 M

555 M

$1.85

2007

$3.62

$2,024 M

559 M

$3.78

2008

$3.77

$2,092 M

556 M

$3.91

2009

$1.99

$1,096 M

551 M

$2.05

2010

$2.96

$1,607 M

542 M

$3.00

Average

$2.83

$1,562 M

535.41 M

$2.92

Five year average adjusted earnings per share is $2.92

Consider contrarian buying below $23.36 (8 times average adjusted EPS)

Consider value buying below $35.04 (12 times average adjusted EPS)

Consider speculative selling above $58.40 (20 times average adjusted EPS)

Monsanto is currently trading at 27 times average adjusted EPS.  This is speculative pricing.

BALANCE SHEET – Stockholder equity is not growing much.  The price to book value ratio is way too high for my likings.

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Book value per share: $20.62

Price to book value ratio: 3.84 (under 1.0 is good)

Current ratio: 1.66 latest qtr (over 2.0 is good)

Quick ratio: 1.02 latest qtr (over 1.0 is good)

Debt to equity ratio: 0.14 (lower is better)

CONCLUSION – Monsanto is an evil corporation that is creating franken-foods.  Their GM crops are spreading onto farms that don’t want them.  That is a massive violation of property rights.  Worse, Monsanto then sues the farmers for GM copyright infringement.  That is vile.  I would never buy this stock on moral principles.  http://bestmeal.info/monsanto/company-history.shtml or type evil monsanto into google.  You’ll be amazed what you’ll find.

The company has a measly dividend with a low payout ratio.  On the plus side it is a dividend grower.  It earns an average of $2.92 per share.  This makes the current price of the stock speculative at 27 times average earnings.  Never pay more than 20 times average adjusted earnings for a stock.  Monsanto’s balance sheet is nothing special.  Price to book value is too high at 3.84 times total equity.  This company is not a good deal.

The best time to buy Monsanto in recent years was at the end of June 2010 when the stock was trading at around 14 times average earnings.  Even then at the bottom the dividend yield would have been on 2.7% at today’s $0.30 quarterly dividend.  I don’t think there is much chance of Monsanto becoming a high dividend stock unless its management started paying out 80% of average net income in dividends ($2.33 annual dividend) and the stock dropped in price down to 12 times average earnings.  In that case Monsanto would yield 6.6% ($2.33 DIV / $35.04 share price), but that is not going to happen.  Bye-bye Monsanto.

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DISCLOSURE – I don’t own Monsanto (MON) and I never will.

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A First Look at Staples (SPLS)

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

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

Staples (SPLS)

Share price: $14.64

Shares: 699.42 M

Market capitalization: $10.25 billion

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Bonds outstanding: $2.5 billion

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

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

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

Dividend: $0.10 quarterly

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

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

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

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

EPS

Net income

Shares

Adjusted EPS

JAN 2007

$1.32

$974 M

740 M

$1.39

JAN 2008

$1.38

$996 M

720 M

$1.42

JAN 2009

$1.13

$805 M

712 M

$1.15

JAN 2010

$1.02

$739 M

722 M

$1.06

JAN 2011

$1.21

$882 M

726 M

$1.26

Five year average adjusted earnings per share is $1.26

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

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

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

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

BALANCE SHEET – Staples has a decent balance sheet.

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Book value per share: $10.08 TTM

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

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

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

Debt to equity ratio: 0.22 (lower is better)

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

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

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First look at Ensco (ESV)

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

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

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

Cramer took a call:

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

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

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

Ensco (ESV)

Share price: $47.24

Shares: 230.67 million

Market capitalization: $10.9 billion

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

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

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

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

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Dividend: $0.35 per quarter

Dividend yield: 2.96%

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

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

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

                        EPS                   Net inc.             Shares               Adj EPS

2006                 $5.04                $757 M              153 M                $3.28

2007                 $6.73                $967 M              147 M                $4.19

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

2009                 $5.48                $779 M              141 M                $3.38

2010                 $4.06                $580 M              141 M                $2.51

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

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2011 Q1            $0.45                $63.6 M             141.4 M             $0.28

2011 Q2            $0.59                $100.9 M           170.2 M             $0.44

2011 Q3            $0.88                $202.2 M           228.60 M           $0.88

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

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

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

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

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

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

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

BALANCE SHEET – That is a nice look balance sheet.

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Book value per share: $46.43

Price to book value ratio: 1.02 (good)

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

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

Debt/equity ratio: 0.46 (not bad)

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

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DISCLOSURE – I don’t own Ensco (ESV).

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

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