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 Hewlett-Packard (HPQ) after a 49.3% price decline

This is a first look at Hewlett-Packard (HPQ) after its 49.3% stock price decline since April 2010.


Hewlett-Packard manufactures and sells information technology products and services to businesses and consumers worldwide. With the recent EDS acquisition, we estimate services will constitute about one third of sales, slightly similar to personal computers (30%) but higher than printers (20%) and enterprise storage and servers (13%). The remainder of company sales come from software, financing, and other corporate investments.

Morningstar’s take on HPQ

Hewlett-Packard's services engagements are typically large, long-term in nature, and expensive for the customer to migrate to another vendor. HP has aggressively expanded its services offering in pursuit of the successful IBM IBM model in recent years, most notably with the acquisition of EDS in 2008. Services for HP are not simply a stand-alone offering, but rather a complementary segment to the other technology offerings. Stand-alone hardware can be quickly commodified; by wrapping software and services around its hardware strengths, HP raises customer switching costs by increasing its customers' reliance on the firm.

Market price: $27.27

Shares: 1.99 billion

Market cap: $54.18 billion

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DIVIDEND RECORD

HPQ has paid an $0.08 quarterly dividend since 1998 with the exception of 4Q2009 (no dividend).  Hewlett-Packard is not a dividend grower that keeps up with price inflation.  Price inflation has eroded about 39% of the dollars purchasing power since 1998, yet the dividend remained the same over this time period.  This is the same effect as a gradual dividend cut.  They finally increased the dividend to $0.12 per share in 2Q2011.

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Dividend: $0.12 quarterly

Dividend yield: 1.76%  ($0.48 DIV/$27.27 share price)

Dividend payout ratio: 11.3%  ($0.48 DIV/$4.26 EPS according to Google Finance)

EARNING POWER $3.99 EPS @ 1.99 billion shares

            EPS                   Net inc.             Shares               Adj EPS

2006     $2.18                $6,198 M           2,852 M             $3.11

2007     $2.68                $7,264 M           2,716 M             $3.65

2008     $3.25                $8,329 M           2,567 M             $4.19

2009     $3.14                $7,660 M           2,437 M             $3.85

2010     $3.69                $8,761 M           2,372 M             $4.40

2011E   $4.67E              $9,293 M E        1,990 M             $4.67 E

6 year average adjust earnings = $3.99 per share

Consider contrarian buying below $31.92 (8x avg. earnings)

Consider value buying below $47.88 (12x avg. earnings)

Consider investment buying between $47.89 and $79.79 (12x – 20x avg. earnings)

Consider speculative selling above $79.80 (20x avg. earnings)

BALANCE SHEET

Hewlett-Packard’s balance sheet is completely stagnant.

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Book value per share: $17.69

Price to book value ratio: 1.5

Current ratio: 1.15 TTM (over 2.0 is good)

Quick ratio: 0.70 TTM (over 1.0 is good)

CONCLUSION

Hewlett-Packard’s dividend is pathetic.  HPQ could be a high dividend stock if the executives would choose to pay 80% of earnings as dividends instead of 10%.  A $0.80/quarterly dividend would result in an 11.7% dividend yield and might get investors a reason not to sell the stock like they have since its $53.86 top in April 2010.  The company’s earnings have held up for the past five years, so something else is the cause of the stock’s decline since April 2010.  HQP does not have a strong balance sheet.  Shareholder equity is stagnant.  Don’t buy HPQ despite its low valuation until you know why the stock has lost 49.3% of its share price since April 2010.  A bear market in stocks informs me that there will be opportunities to buy HPQ at much lower prices.

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DISCLOSURE

I don’t own Hewlett-Packard.

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First look at Carnival Corporation (CCL)

I recently took a cruise vacation to Mexico on Carnival Cruise Lines (CCL).  This was my third cruise on Carnival spanning over a decade and I had a wonderful experience each time.  I will cruise with them again.  They treat their returning clients well.  This got me thinking about the company as an investment.

I was pleased to find out that Carnival has a decent dividend yield of 3.0%

Carnival Corporation (CCL)

Market price: $33.25

Shares: 778.42 million

Market capitalization: $25.88 billion

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DIVIDEND RECORD

Carnival was a dividend grower until 2009.  They eliminated their dividend for the year of 2009.  In 2010, they began paying a $0.10 quarterly dividend.  Now they are paying a $0.25 quarterly dividend.

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Dividend: $0.25 quarterly

Dividend yield: 3.0%  ($1.00 annual dividend/$33.25 market price)

Dividend payout ratio: 40.8% ($1.00 annual dividend/$2.45 EPS according to Google Finance)

Carnival would become a 6% high dividend stock if its market price dropped to $16.66 if they kept their current dividend the same.

EARNING POWER

(Earnings adjusted for changes in market capitalization)

            EPS       Net inc.             Shares               Adj EPS

2006     $2.77    $2,279 M           823 M                $2.93

2007     $2.95    $2,408 M           828 M                $3.09

2008     $2.90    $2,330 M           816 M                $2.99

2009     $2.24    $1,790 M           804 M                $2.30

2010     $2.47    $1,978 M           778.42 M           $2.54

2011E   $2.45E                                                  $2.45E

Six year average adjusted EPS = $2.71

Consider contrarian buying below $21.68 (less than 8 times average EPS)

Consider value buying below $32.52 (less than 12 times average EPS)

Consider investment buying between $32.53 and $54.19 (between 12 times and 20 times average EPS)

Consider speculative selling above $54.20 (above 20 times average EPS)

BALANCE SHEET STRENGTH

I’m concerned about their low current ratio and quick ratios.  They don’t have much current assets or cash assets to pay short term liabilities.  This needs to be investigated before making a buy.

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Book value per share: $31.12

Price to BV ratio: 1.06 (good)

Current ratio: 0.22 (over 2.0 is good)

Quick ratio: 0.11 (over 1.0 is good)

CONCLUSION

Wait for a low price below $21.68 after the US recession sets in.  They will revisit the 2008-2009 lows.

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DISCLOSURE – I don’t own Carnival Corporation (CCL)

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A First Look at Lockheed Martin (LMT)

A Seeking Alfa contributor said that Lockheed Martin (LMT) was one of 17 stocks that could double its dividend payments.  It sounded like a recommendation to buy to me.  So I became curious about Lockheed’s rise to almost becoming a high dividend stock yielding above 6%.

http://seekingalpha.com/article/298185-17-high-dividend-stocks-that-can-afford-to-double-dividend-payments

I used to work for Lockheed Martin.  The stock was near $52.00 per share when I started working there in 2004.  When I left in 2007 the stock price was hovering around $111.00.  The stock has fallen to $75 since that time.  I think it will fall still lower with government budget cuts that will not go away due to over promises on welfare and warfare.

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Lockheed Martin (LMT)

Market price: $76.32

Shares outstanding: 335.62 million shares

Market capitalization: $25.61 billion

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Lockheed’s stock fell to $53.10 at the bottom in March 2009.  LMT stock traded at 6.2 times average adjusted earnings at the bottom.  I think the coming worldwide recession will give you an opportunity to buy LMT much lower than it is today due to government budget cuts.

Dividend record:  LMT is a steady dividend payer and grower as you can see in the last five years of dividend payment history below.

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Dividend: $1.00 per share (quarterly) starting at next dividend payment

http://www.reuters.com/finance/stocks/LMT/key-developments/article/2404076

Dividend yield: 5.2%  [$4.00 (annual)/$76.32 share price]

Dividend payout ratio: 53.2%  [$4.00 dividend/$7.51 estimated 2011 EPS]

Earning power: $8.57 per share @ 335.62 million shares

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

            EPS                 Net inc.          Adj EPS          Shares

2006    $5.80               $2,529 M        $7.54               436 M

2007    $7.10               $3,033 M        $9.04               427 M

2008    $7.86               $3,217 M        $9.59               410 M

2009    $7.78               $3,024 M        $9.01               389 M

2010    $7.94               $2,926 M        $8.72               368 M

2011E  $7.51               $2,521 M        $7.51               335.62 M

Six year average EPS = $8.57

Consider CONTRARIAN buying below $68.56 (8x average adjusted EPS)

Consider VALUE buying below $102.84 (12x average adjusted EPS)

Consider INVESTMENT buying between $102.84 and $171.40 (8x -12x average adjusted EPS)

Consider SPECULATIVE selling above $171.40 (20x average adjusted EPS)

Balance sheet: I don’t like the huge run-up in liabilities and the corresponding reduction in shareholder equity (this should be investigated).

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Book value per share: $9.24 (TTM)

Price to BV ratio: 8.25 (not good)

Current Ratio: 1.15 (> 2.0 is good)

Quick Ratio: 0.76 (> 1.0 is good)

Financial Leverage: 10.86 (most recent quarter; not good)

Conclusion: Lockheed Martin pays a moderate dividend that is fairly safe right now.  It would be tempting to buy below $68.56 per share, but beware of the impact of government budget cuts.  I think that $8.57 average adjusted earnings will continue to fall as the government budget cuts grow.  Lockheed’s balance sheet is weak.  This would scary me away from the stock until I could figure out why the liabilities skyrocketed in 2008.  There has been no visible improvement in the balance sheet yet.

Disclosure: I don’t own LMT.

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A Second Look at Verizon (VZ) following it dividend growth.

Verizon (VZ) was in the news today for raising its dividend from $0.48 to $0.50 per quarter.  http://www.reuters.com/finance/stocks/VZ/key-developments/article/2394529 .  Is Verizon a buy at $36.17 given its dividend increase?

Verizon (VZ)

Market price: $36.17

Market cap: $102.38 billion

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Dividend record: VZ has been paying dividends for over a decade.  There are some gaps and some cuts.

Dividend: $0.50 quarterly (raised from $0.48 last quarter)

Dividend yield: 5.5% ($2.00 annual dividend / $36.17 price)

Dividend payout ratio: 89% (if you use the $2.00 dividend / $2.24 TTMs EPS), 116% (if you use $2.00 / $1.72 five year avg. EPS)

Earning power: $1.72 @ 2.833 billion shares

            EPS       Net inc.             Adj. EPS            Shares

2006     $2.12    $6,197 M           $2.19                2.938 B

2007     $1.90    $5,521 M           $1.95                2.902 B

2008     $2.26    $6,428 M           $2.27                2.850 B

2009     $1.29    $3,651 M           $1.29                2.841 B

2010     $0.90    $2,549 M           $0.90                2.833 B

Five year average adjusted EPS = $1.72

Consider buying at or below $20.64 (12 times average earnings).  This price was last seen in November 2009.

Consider selling at or above $34.40 (20 times average earnings)

It is selling time because Verizon is trading at 21 times average earnings.  This is speculative.

Balance sheet: down slightly and stagnant; not strong.

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Book value: $13.61 per share

Price to book value: 2.66  ($36.17 price / $13.61 BV).  This is good.

Current ratio: 0.82 (latest quarter; over 2.0 is good)

Quick ratio: 0.67 (latest quarter; over 1.0 is good)

Disclosure: I don’t own Verizon (VZ)

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This Alternative to Buying Farmland Could Turn Into a High Dividend Stock.

Jim Rogers and others have been recommending agriculture as an investment.

http://tinyurl.com/3hx5cbt

That got me thinking about high dividend stocks in the agricultural sector.  Guess what?  There are none.  But I did find ConAgra (CAG).  The company has been in business for more than 90 years.  It is a diversified player in the packaged food industry. The majority of its sales are derived from North America. Its portfolio includes such well-known brands as Act II, Banquet, Chef Boyardee, Healthy Choice, Orville Redenbacher's, Parkay, and Reddi-wip. Beyond grocery retailers, ConAgra also sells to restaurants and other food service establishments. With its Lamb Weston brand, the firm is the largest supplier of french fries in the U.S.

ConAgra is cheap at $23.19, but you will be able to buy it at a deep discount when the “double-dip recession” panics stock market investors.  Wait for the bottom in the $12 - $15 per share range.

ConAgra (CAG)

Market price: $23.19

Shares: 410.80 M

Market capitalization: $9,526,452,000

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Dividend record: ConAgra started paying a 3 cent quarterly dividend in 1987.  The company grew its dividend from 1987 (34 cents) to 2006 (27.25 cents).  Then they missed a quarter in April 2006 (2Q2006).  They resumed paying a dividend in 3Q2006, but the dividend was cut to 18 cents quarterly.  Since then they have paid a quarterly dividend to today's 23 cents quarterly dividend.

Dividend: $0.23 quarterly

Dividend yield: 3.9% ($0.23 dividend x 4/$23.19)

Recent EPS: $1.90

Dividend payout ratio: 48.4% ($0.92 annual dividend/$1.90 recent EPS)

ConAgra would be a 6% high dividend stock if its price dropped to $15.33 per share.  CAG traded in this range as recent as April 2009.

Earning power: $2.05 EPS @ 410.8 million shares

(earnings adjusted for changes in capitalization.  ConAgra has been buying back shares)

EPS             Net inc.        Adj EPS

2007   $1.51            $765 M         $1.86

2008   $1.90            $931 M         $2.27

2009   $2.15            $978 M         $2.38

2010   $1.62            $726 M         $1.77

2011   $1.88            $817 M         $1.99

Five year average adjust earnings per share: $2.05

Consider buying below $24.65 (12 times avg. adjusted earnings)

Consider selling above $41.00 (20 times avg. adjusted earnings)

ConAgra is trading at 11.3 times average earnings this is value territory.

Balance sheet: Unexciting.  Stagnant since 2007 (assets and liabilities have declined with equity remaining the same)

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Book value per share: $10.83

Price to book value: 2.14 this is good ($23.19/$10.83)

Current ratio: 1.83 (over 2.0 is good)

Quick ratio: 0.86 (over 1.0 is good)

Disclosure: I don't own ConAgra (CAG)

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Should you buy, sell, or hold Terra Nitrogen (TNH) at today's 52 week high?

Terra Nitrogen (TNH) hit a new 52 week high today of $157.00 per share.  This fertilizer company has skyrocketed since April 2011.  I'll bet you're wondering if you should you buy, sell, or hold TNH shares at $157.00?  You should hold them if you own them because TNH is only trading at 15.7 times the company's five year average adjusted earnings of $9.97 per share.  Sit back and collect the dividend until the shares climb to 20 times average earnings which would be $199.40 per share.
 
 
Terra Nitrogen is not a high dividend stock right now due to the huge stock price advance since July 2010.  The company is paying a $1.36 quarterly dividend per share.  There was a special dividend last quarter that is confusing all the online dividend yield calculations.  The dividend yield is closer to 3.4% when the special dividend is removed.  That is still a good dividend compared to the pathetic S&P 500 average of around 2%.
 
If you don't own Terra Nitrogen, then consider buying it when it drops back to the $90 - $119 range.  The stock would be trading at 12 times its five year average earnings when the price is at $119.  At $90 TNH would sport a dividend yield of 6% if it keeps its $1.36 quarterly dividend in place.  The dividend is fairly safe.  In the 1st quarter of 2011 TNH earned $3.60 per share and paid out $1.36 in dividends.  That is a low 37.7% dividend payout ratio.  Let's look at this even more cautiously: assume for a moment that the company only earns its five year average in earnings - $9.97 per share.  The dividend payout ratio at the end of 2011 would only climb to 54.5% ($5.44 annual dividend / $9.97 average annual earnings).
 
Terra Nitrogen has a strong balance sheet.  It has $252.1 million in current assets (most of that is cash and cash equivalents) and only $55.5 million in current liabilities.
 

CONSOLIDATED BALANCE SHEETS

March 31, December 31,
2011 2010
(in millions, except for units)
ASSETS
Current assets:
Cash and cash equivalents $ 221.7 $ 124.8
Demand deposits with affiliate 10.7 6.1
Accounts receivable, net 1.2

33.4
Inventories, net 16.7 27.6
Prepaid expenses and other current assets 1.8 1.2
Total current assets 252.1 193.1
Property, plant and equipment, net 82.6 83.2
Plant turnaround, net 11.9 13.4
Other assets 6.8 7.0
Total assets $ 353.4 $ 296.7
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable and accrued liabilities $ 22.0 $ 24.3
Customer advances 33.1 61.2
Other current liabilities 0.4 0.8
Total current liabilities 55.5 86.3
Noncurrent liabilities 0.7 0.4
Partners' capital:
Limited partners' interests, 18,501,576 Common Units
authorized, issued and outstanding 250.0 208.5
Limited partners' interests, 184,072 Class B Common Units
authorized, issued and outstanding 1.4 0.6
General partners' interest 45.8 0.9
Total partners' capital 297.2 210.0
Total liabilities and partners' capital $ 353.4 $ 296.7
 
To read the other articles I've written on Terra Nitrogen click here: http://www.myhighdividendstocks.com/category/high-dividend-stocks/terra-nitrogen
 
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Are there high dividend stocks worth buying in the LNG shipping sector?

One of the Motley Fool writers wrote on July 7th, 2011 that there are huge dividends to be received from two liquid natural gas (LNG) shipping companies.  The article is a lead up to the recommendation of Teekay LNG Partners L.P. (TGP) and Golar LNG Ltd. (GLNG).  I had heard of Teekay before during my research of dry bulk shipper Safe Bulkers (SB), but I had never heard of Golar.  I didn’t have any awareness of these company’s dividend records, earning power, or strength of balance sheets.

http://www.fool.com/investing/general/2011/07/07/huge-dividends-from-americas-energy-game-changer.aspx

Teekay LNG has a dividend yield above 6% and Golar only yields about 2.6%.  Let’s take a closer look at each of these stocks to determine at what price to buy them low.  The bottom line is that they are both speculatively price right now, but at the right price they can be high dividend stocks.  It will take a few more years of increasing earnings to overcome their spotty records.  Don’t buy these stocks at today’s prices.

Teekay LNG Partners L.P. (TGP)

Market price: $37.10

Shares: 58.81 million

Market capitalization: $2.18 billion

Dividend record: strong and growing, but the earnings aren’t covering the dividend payments!!

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Dividend: $0.63/quarter

Dividend yield: 6.78%

Recent EPS: $1.45

Dividend payout ratio: 173% ($2.52 annual dividend / $1.45 recent EPS)  This is not good.  Expect a dividend cut in the not too distant future.

Earning power: $0.53 average earnings @ 58.81 million shares

(earnings adjusted for changes in capitalization; TGP has issued some shares over the years)

            EPS                   Net inc.             Adj. EPS

2006     ($0.28)             ($9.591 M)        ($0.16)

2007     $0.45                $25.662 M         $0.44

2008     $0.36                $19.486 M         $0.33

2009     $0.85                $42.145 M         $0.72

2010     $1.48                $78.728 M         $1.34

Five year average EPS $0.53

Consider buying below $6.36 (12 times average earnings)

Consider selling above $10.60 (20 times average earnings)

TGP is trading for 70 times average earnings.  This is highly speculative.

Balance sheet: Stagnant and unexciting; weak current financial strength

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Book value per share: $15.23  TGP traded below its book value as recently as late 2008.

Price to book value ratio: 2.43 (not too bad)

Current ratio: 0.27 (over 2.0 is good)

Quick ratio: 0.14 (over 1.0 is good)

Golar LNG Ltd. (GLNG)

Market price: $37.65

Shares: 68.12 M

Market capitalization: $2.56 billion

Dividend record: spotty, usually $0.25/quarter, no earnings to pay the dividend!!

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Dividend: $0.25 quarterly

Dividend yield: 2.6% ($1.00 annual dividend / $37.65 share price)

EPS: none

Dividend payout ratio: can’t be computed without earnings

Earning power: $0.65 per share @ 68.12 million shares

(earnings adjusted for changes in capitalization; GLNG has kept its number of shares very constant)

            EPS       Net inc.             Adj. EPS

2006     $1.05    $71.673 M         $1.05

2007     $2.07    $136.204 M       $2.00

2008     ($0.15) ($9.989 M)        ($0.15)

2009     $0.34    $23.082 M         $0.34

2010     $0.01    $0.384 M           $0.01

Five year average earnings $0.65

Consider buying at $7.80 (12 times average earnings)

Consider selling at $13.00 (20 times average earnings)

GLNG is trading at 57.92 times average earnings.  This is highly speculative.

Balance sheet: horrible trending downward

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Book value: $6.09

Price to book value ratio: 6.18 (bad because the stock is priced six times more than the capital invested in the company)

Current ratio: 0.78 (over 2.0 is good)

Quick ratio: 0.57 (over 1.0 is good)

Disclosure – I don’t own positions in either of these stocks.

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

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

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

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

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

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

Coca-Cola (KO)

Market price: $68.53 per share

Shares: 2.29 billion shares

Market capitalization: $156.88 billion

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

Dividend: $0.47 quarterly

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

2010 EPS: $5.17

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

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

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

            EPS       Net inc.             Adj. EPS

2006     $2.16    $5,080 M           $2.22

2007     $2.57    $5,981 M           $2.61

2008     $2.49    $5,807 M           $2.54

2009     $2.93    $6,824 M           $2.98

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

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

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

Value price territory below 12x average earnings = $30.96

Speculative price territory above 20x average earnings = $51.60

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

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

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Book value per share: $13.83

Price to book value: 4.95 (bad)

Current ratio: 1.07 (greater than 2.0 is good)

Quick ratio: 0.77 (greater than 1.0 is good)

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First look at American Electric Power (AEP).

I read some article on high dividend stocks and it mentioned American Electric Power (AEP).  That made me curious because I hadn’t examined this company yet.  This is what I found.

American Electric Power is one of the largest regulated utilities in the U.S. AEP's electric utility operating companies provide generation, transmission, and distribution services to more than 5 million retail customers in 11 states.  About 80% of AEP's power is generated using coal. Approximately 55% of AEP's revenue comes from operations in Ohio, Texas, and Virginia.

American Electric Power (AEP)

Market price: $37.43

Shares: 481.79 million

Link to 3 year chart: http://bit.ly/AEP3yrChart

Dividend record: (strong dividend growth)

Dividend: $0.46 quarterly

Dividend yield: 4.92%

EPS: $2.61

Dividend payout ratio: 70% ($1.84 dividend/$2.61EPS)

This stock will become a high dividend stock (yielding 6%) at a price of $30.66 per share

Earning power: $2.50 average for five years @ 481.79 million shares

(Earning adjusted for changes in capitalization)

            EPS       Net inc.             Adj. EPS

2006     $2.53    $1,002 M           $2.08

2007     $2.72    $1,086 M           $2.25

2008     $3.42    $1,380 M           $2.86

2009     $2.96    $1,357 M           $2.82

2010     $2.53    $1,211 M           $2.51

Five year average earnings $2.50

Value price territory at 12 times average earnings begins below $30.00 per share

Market price at 14.97 times average earnings

Speculative price territory at 20 times average earnings begins above $50.00 per share

Balance sheet: Looks okay to me.  The current ratio and quick ratio have me a little concerned.

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Book value: $28.69

Price to book value: 1.30 (good)

Current ratio: 0.80 (over 2.0 is good)

Quick ratio: 0.51 (over 1.0 is good)

Conclusion: Add to watch list with alert set to $30.00 per share.  Start deep analysis when price approaches $30.00.  Sell above $50.00.

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A first look at a potential high dividend stock - Brookfield Infrastructure (BIP)

I read an article from Double Dividend Stocks titled “5 Defensive Utility Dividend Stocks With Increasing Institutional Buying”.  It mentioned a company named Brookfield Infrastructure Partners L.P. (BIP) that had some qualities that might make it a worthwhile high dividend stock during a broad stock market correction.  Let’s take a first look at Brookfield

Brookfield Infrastructure (BIP)

Market price: $24.85

Shares: 112.96 million

Dividend record – The company has only been around since 2007.  No dividend cuts in its history.

Dividend: $0.31 quarterly

Dividend yield: 4.99%

EPS: $4.55

Dividend payout ratio: 27% (the dividend appears safe)

Earning power – $1.14 average earnings @ 112.96 shares

(Earnings adjusted for changes in capitalization – BIP has issued many shares)

            EPS       Net inc.             Adj. EPS

2006     -           -                       -

2007     $0.05    $1.1 M              $0.01

2008     $0.72    $28 M                $0.25

2009     $0.52    $25 M                $0.22

2010     $4.25    $462 M              $4.09

Four year average earnings $1.14 per share

Value pricing at below 12 times average earnings = $13.68

Speculative pricing above 20 times average earnings = $22.80

Today’s market price: $24.85 is trading at 21.8 times average earnings

If 2011 net income can match 2010 net income, then the five year average earnings will grow to $1.82 and today’s market price would be trading at 13.7 times average earnings.  Warning: I haven’t looked into BIP’s business enough to know if 2011’s profits will be close to 2010’s.  Although the linked article shows some large expected EPS growth.

Strength of balance sheet: Appears strong, but how is it growing so quickly?  I don’t know yet, but the low current ratio and quick ratio shows a lack of current assets to cover current liabilities.

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Book value per share: $44.13 ($4,985 M equity divided by 112.96 shares)

P/BV: 0.56 (really good)

Current ratio: 0.95 (over 2.0 is good)

Quick ratio: 0.18 (over 1.0 is good)

Conclusion: It is unclear at this point in time if this stock is speculatively priced or investment priced.  It has had one good year out of four in 2010, but is its 2010’s performance the new norm.  This company deserves to go on a watch list with an alert set at $21.88.  A thorough analysis would be necessary when its stock price drops between $21.88 and $13.68.  The company would begin yielding above 6% when its stock price drops to $20.66 (assuming it keeps its $0.31 dividend quarterly).

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Excerpts below from the article on BIP

Market: Electric Utilities

Market Cap: $3.92 billion

Institutional Transactions: 2.35%

Institutional Ownership: 55.12%

Brookfield Infrastructure (BIP): It's a bit of a misnomer to call BIP a utility, since this is just one part of their many businesses - they also own oil & gas pipelines, port facilities, timberlands, and healthcare facilities. These other parts have helped them achieve higher ROE and EPS growth numbers, which you'll see in the following tables.

BIP is the only stock in this group that exceeds all of the broad sector averages., due to its diversification into other higher margin businesses.

Dividend yield: 4.95%

Dividend payout ratio: 40.75%

Return on equity: 22.69%

Return on investment: 10.97%

Total debt/equity: 1.44

Operating margin: 62.39%

Valuations: Although utilities aren't considered a growth sector, by any means, 2 of these stocks actually look undervalued on a next year PEG basis: BIP and HE. Additionally, BIP's 5-year PEG is only .92. The Price/Book figures for these 2 stocks are also much lower than sector standards, and BIP has a very low Graham P/E x P/Book figure of 4.63.

EPS growth this year: 717.31%

Price to earnings ratio: 5.51

EPS growth next fiscal year: 95%

PEG; next fiscal year: 0.06

PEG; next 5 years: 0.92

Price to book value: 0.84

EPS growth next 5 years: 6.00%

Original link: http://seekingalpha.com/article/276627-5-defensive-utility-dividend-stocks-with-increasing-institutional-buying