My High Dividend Stocks Blog http://myhighdividendstocks.posterous.com Most recent posts at My High Dividend Stocks Blog posterous.com Tue, 21 Jun 2011 15:15:11 -0700 3 So-called High Dividend Stocks The Dumb Money Is Buying. You can do better. http://myhighdividendstocks.posterous.com/3-so-called-high-dividend-stocks-the-dumb-mon http://myhighdividendstocks.posterous.com/3-so-called-high-dividend-stocks-the-dumb-mon

Benzinga staff writer, Jonathan Chen, wrote an article on what he called “3 High Dividend Stocks The Smart Money Is Buying”.  His three stocks were Philip Morris International Inc. (PM), Pfizer (PFE), and Johnson & Johnson (JNJ).

These aren’t high dividend stocks.  I believe that high dividend stocks begin above 6% yield because they should be higher than bonds because common stocks are subordinate to bonds for claims on the company’s assets in the event of a liquidation.  Also, the long term rate of price inflation is much higher than the 2-3% that the Federal Reserve reports as part of its CPI numbers.  These stocks are barely yielding over 3 percent.  I would consider these stocks moderate dividend stocks.  PFE had to half its dividend in 2009, so it isn’t a great dividend grower.  JNJ is the best dividend grower of the bunch.

These stocks are not cheap.  They are closer to speculative pricing of 20 times average earnings than value territory below 12 times average earnings.

            Philip Morris is trading at 18.5 times its five year average earnings.

            Pfizer is trading at 18.24 times its five year average earnings.

            Johnson & Johnson is trading at 15.14 times its five year average earnings.

So, when should you buy these so-called high dividend stocks?  Buy them when they are values below 12 times average earnings.  The yields will be higher then also.  Then next stock market crash in reaction to the fiscal and monetary insanity of the US government and Federal Reserve will drive the prices of these stocks lower.  Buy them on sale (low); sell them when everyone thinks the market will continue up forever (high).  The smart money should be selling these stocks now if they bought them back in 2009-2010.

Consider buying Philip Morris under $44.04 per share.  PM traded below $44.00 in June 2010.

Consider buying Pfizer under $13.44 per share.  PFE traded below $13.44 in May 2009, but is has been down in the $14.00’s several times since then.

Consider buying Johnson & Johnson under $52.68 per share.  JNJ traded below $52.68 in May 2009.

Philip Morris Intl. (PM)

Market price: $68.05

Shares: 1.78 billion

Dividend record:

            Dividend yield: 3.76%

            Dividend: $0.64 quarterly

            Dividend payout ratio: 62.6% ($2.56 annual dividend divided by $4.09 recent EPS)

Earning power: $3.67 per share @ 1.78 billion shares

            Earnings adjusted for changes in capitalization

            EPS       Net inc.             Adj. EPS

2006     $2.91    $6,130 M           $3.44

2007     $2.86    $6,038 M           $3.39

2008     $3.31    $6,890 M           $3.87

2009     $3.24    $6,342 M           $3.56

2010     $3.92    $7,259 M           $4.08

Five year average earnings = $3.67

Value below 12x average earnings = $44.04

Market price at 18.5x average earnings = almost speculatively priced

Speculative above 20x average earnings = $73.40

Strength of balance sheet: Quite weak (liabilities are rising faster than assets)

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Book value per share: $1.90 (Really?  That’s bad)  I calculated it at $1.97 which is still horrible

Price to book value: 35.81 (Wow!!  That’s horrible)

Current ratio: 1.07 (Less than 2.0 is bad)

Quick ratio: 0.37 (Less than 1.0 is bad)

Pfizer (PFE)

Market price: $20.43

Shares: 7.90 billion

Dividend record:

            Dividend yield: 3.92%

            Dividend: $0.20 quarterly

            Dividend payout ratio: 76% ($0.80 annual dividend divided by $1.05 recent EPS)

Earning power: $1.12 per share @ 7.90 billion shares

            Earnings adjusted for changes in capitalization

            EPS       Net inc.             Adj. EPS

2006     $2.66    $11,019 M*        $1.40

2007     $1.17    $8,140 M           $1.03

2008     $1.20    $8,104 M           $1.04

2009     $1.23    $8,635 M           $1.09

2010     $1.02    $8,257 M           $1.05

* Net income was $19,332 M but $8,313 M was from discontinued operations.  I removed the discontinued ops so the earnings wouldn’t be skewed too much.

Five year average earnings = $1.12

Value below 12x average earnings = $13.44

Market price at 18.24x average earnings = almost speculatively priced

Speculative above 20x average earnings = $22.40

Strength of balance sheet: Fairly stable

Image006

Book value per share: $11.17

Price to book value: 1.83 (good)

Current ratio: 2.00 (Over 2.0 is good)

Quick ratio: 1.66 (Over 1.0 is good)

Johnson & Johnson (JNJ)

Market price: $66.49

Shares: 2.74 billion

Dividend record:

            Dividend yield: 3.43%

            Dividend: $0.57 quarterly

            Dividend payout ratio: 51.7% ($2.28 annual dividend divided by $4.41 recent EPS)

Earning power: $4.39 per share @ 2.74 billion shares

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

            EPS       Net inc.             Adj. EPS

2006     $3.73    $11,053 M         $4.03

2007     $3.63    $10,576 M         $3.86

2008     $4.57    $12,949 M         $4.73

2009     $4.40    $12,266 M         $4.48

2010     $4.78    $13,334 M         $4.87

Five year average earnings = $4.39

Value below 12x average earnings = $52.68

Market price at 15.14x average earnings = priced for investment

Speculative above 20x average earnings = $87.80

Strength of balance sheet: Strong (That’s what I like to see…shareholder equity covering up the liabilities – nice.)

Image009

Book value per share: $21.51

Price to book value: 3.09 (decent)

Current ratio: 2.05 (Over 2.0 is good)

Quick ratio: 1.57 (Over 1.0 is good)

Disclosure: I don’t own any of these stocks.

                                                                                                              

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3 High Dividend Stocks The Smart Money Is Buying

By Jonathan Chen

Created 06/20/2011 - 11:59am

[1]

In times of uncertainty, investors look to high-dividend paying stocks for some sort of normalcy. Every investor looks for dividends to juice yields and returns, as dividends are an important source of income for many, especially retirees.

We also want to be playing the same game the "smart money" is playing. The hedge funds, the legendary investors, the institutions. They are all known as the "smart money," so why should they benefit and not us?

Here is a list of a few low-risk, high dividend stocks that will allow investors to play the same game the "smart money" is playing, and hopefully, generate the same returns.

Philip Morris International Inc. (NYSE: PM [2]) is a low-risk, large-cap stock that sports a hefty 3.7% dividend yield, in addition to strong growth from outside the U.S. Philip Morris International was spun off from Altria (NYSE: MO [FREE Stock Trend Analysis] [3]) last decade as a way to unlock the value from the company's international presence, and not deal with the regulatory scrutiny here in the U.S. Shares trade at 13.6 times earnings, and have risen 17% this year, best among the tobacco stocks only behind Lorillard (NYSE: LO [4]). Capital Research Global Investors, Blackrock, and State Street are among Philip Morri's largest investors.

Pfizer Inc. (NYSE: PFE [5]) is another low-risk defensive play, and sports a dividend yield of 3.9%. The company is currently in the process of divesting businesses as a way to unlock shareholder value. Shares have been stagnant for what seems like forever, but it looks as if shares are starting to perk up a bit. The company has a rock solid balance sheet, trades at less than 9 times earnings, and counts State Street, BlackRock and Vanguard among major shareholders. The stock is also a hedge fund favorite.

The last name to consider is Johnson & Johnson (NYSE: JNJ [FREE Stock Trend Analysis] [6]). The New Brunswick-based company is the maker of things like Band-Aids, Tylenol, and other products we use everyday, but don't really think about it. Johnson & Johnson has one investor in it that will make other shareholders sleep better at night: Warren Buffett.

Late last year, the company issued one of the lowest yields over U.S. Treasuries on record, indicating the strong demand for its debt. Johnson & Johnson boasts a triple-A credit rating from Standard & Poor's, a distinction shared by only three other U.S. industrial firms. It trades at just 12.8 times earnings, and is one of the safest companies out there.

Link to original article: http://www.benzinga.com/trading-ideas/long-ideas/11/06/1183851/3-high-dividend-stocks-the-smart-money-is-buying

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Thu, 26 May 2011 17:07:17 -0700 What will it take for Philip Morris (PM) to become a high dividend stock? http://myhighdividendstocks.posterous.com/what-will-it-take-for-philip-morris-pm-to-bec http://myhighdividendstocks.posterous.com/what-will-it-take-for-philip-morris-pm-to-bec

Philip Morris International (PM) just bought the global rights to nicotine aerosol technology.  This move could help protect revenues and profits.  This dividend stock is currently yielding 3.68%.  I’m going to run PM through my quick valuation checks to see what will it take to make PM a high dividend stock?

Philip Morris International (PM)

Market price: $70.30

Shares: 1.78 billion

Dividend record: dividend increases every year for the past three years

Dividend: $0.64 quarterly

Dividend yield: 3.68%

Dividend payout ratio: $2.56 dividend divided by $4.08 most recent EPS = 62%

Stock price necessary for 6% dividend yield: $42.67

Earning power: a very stable $3.67 five year average earnings

Earnings yield: 5.9%

(Earnings adjusted for changes in capitalization)

            EPS     Net. Inc.          Adj. EPS

2006    $2.91   $6,130 M         $3.44

2007    $2.86   $6,038 M         $3.39

2008    $3.31   $6,890 M         $3.87

2009    $3.24   $6,342 M         $3.56

2010    $3.92   $7,259 M         $4.08

5 year average earning power per share: $3.67

Value territory @ below 12 times average earnings = $44.04 (it was near this price as recently as May 2010)

Speculative territory @ above 20 times average earnings = $73.40.  PM’s price is approaching speculative territory at 19.2 times it five year average earnings.

Balance sheet – huge hits to shareholder equity need to be investigated

Book value: $1.90 (what? Where did all the equity go?)

Image003

Price to book value: 37 (this is horrendous)

Current ratio: 1.07 (above 2.0 is good.  PM will be strained to pay some short term debts coming due)

Quick ratio: 0.37 (above 1.0 is good)

Conclusion: If you want to own it, then put PM on your watch list for a target price of $44.04.  I will consider performing detailed analysis on PM if the price drops considerably toward the $44.04 target.  If you own it, then consider selling it at $73.40 and above.  The balance sheet scares me.

Disclosure: I don’t own Philip Morris (PM), or plan to until it yields 6% and improves its balance sheet

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Philip Morris International Buys Nicotine Aerosol Technology

By Melissa Korn

   Of DOW JONES NEWSWIRES

 

NEW YORK (Dow Jones)--Philip Morris International Inc. (PM) bought the global rights to technology that creates nicotine in the form of an aerosol as the company seeks smokeless and potentially less harmful alternatives to traditional cigarettes.

The world's biggest tobacco company by revenue, which sells cigarettes such as Marlboro and L&M outside the U.S., bought the patent from inventors including Jed Rose, director of Duke University's Duke Center for Nicotine and Smoking Cessation Research. Terms of the deal weren't disclosed.

It's too early to say what form a product might eventually take or whether it will contain tobacco, Philip Morris spokesman Peter Nixon said. He said translating the technology into a product could take "a few years."

Nicotine itself isn't believed to cause many common smoking-related diseases. Explaining that the ailments are often linked instead to combustion, Philip Morris said the new, non-burning technology "has the potential to reduce the harm of smoking."

A number of companies have expanded their smokeless tobacco offerings in recent years amid increasing bans on indoor smoking and continued concerns over the harmful effects of cigarettes. Philip Morris is in a partnership with Swedish Match AB (SWMA.SK), which makes moist snuff products called snus, for international marketing of smokeless tobacco. British American Tobacco PLC (BATS.LN, BTI), one of Philip Morris's major competitors, launched a startup in April to develop new nicotine-based, non-tobacco products.

Meanwhile, in the U.S., Altria Group Inc. (MO) recently began testing spit-free, tobacco-coated sticks that resemble toothpicks and Reynolds American Inc. (RAI) launched an advertising campaign this week for its Camel Snus product to coincide with an expanded smoking ban in New York City.

-By Melissa Korn, Dow Jones Newswires; 212-416-2271; melissa.korn@dowjones.com

Link to original article: http://online.wsj.com/article/BT-CO-20110526-712786.html

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Thu, 14 Apr 2011 10:19:13 -0700 The practical significance of book value. Plus 15 book values of stocks mention on this blog. http://myhighdividendstocks.posterous.com/the-practical-significance-of-book-value-plus http://myhighdividendstocks.posterous.com/the-practical-significance-of-book-value-plus

There is no hard fast rule for price to book value ratios, but lower is definitely better.  I like the ratio too be less than 2.0.  Here is a list of many of the high dividend stocks mentioned on this blog with their most recent price, book value (BV)/share, Price/BV ratio, and dividend yield.  The results might surprise you.  Most of the book values per share are as of December 21st, 2010 unless otherwise noted.

Ticker              Price                BV/share         P/BV   Div. yield

=================================================

AGNC            $28.58             $24.24             1.18     19.51%

SB                   $8.26               $3.86               2.14     6.79%

SDRL              $34.42             $9.78               3.52     5.6%

TNH                $108.96           $11.35             9.6       4.94%

EXC                $39.97             $20.45             1.95     5.13%

FE                   $37.90             $28.02             1.35     5.99%

FRO                $22.59             $9.57               2.36     1.62%

MCD               $76.66             $13.55             5.66     3.27%

NGG               $48.80             $12.87 (ttm)    3.79     4.28%

PM                  $65.90             $1.90               34.68   4.01%

PCL                 $42.13             $8.47               4.97     3.96%

TNK                $10.15             $10.46             0.97     9.02%

VOD               $28.85             $17.06 (ttm)    1.69     3.18%

WIN                $12.41             $1.77               7.01     7.73%

T                      $30.27             $18.80             1.61     6.11%

Excelon (EXC), First Energy (FE), Teekay Tankers (TNK), and AT&T (T) warrant further examination for their high dividend yields and low price/book value ratios.

Philip Morris (PM) has an extremely high price/book value ratio which needs to be examined to make sure it’s not some weird artifact of how Google Finance and Morningstar display financial information.

Here is quick excerpt for Chapter 42 of Security Analysis 2nd edition on the practical significance of book value.

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Practical Significance of Book Value. The book value of a common stock was originally the most important element in its financial exhibit. It was supposed to show “the value” of the shares in the same way as a merchant’s balance sheet shows him the value of his business. This idea has almost completely disappeared from the financial horizon. The value of a company’s assets as carried in its balance sheet has lost practically all its significance. This change arose from the fact, first, that the value of the fixed assets, as stated, frequently bore no relationship to the actual cost and, secondly, that in an even larger proportion of cases these values bore no relationship to the figure at which they would be sold or the figure which would be justified by the earnings. The practice of inflating the book value of the fixed property is giving way to the opposite artifice of cutting it down to nothing in order to avoid depreciation charges, but both have the same consequence of depriving the book-value figures of any real significance. It is a bit strange, like a quaint survival from the past, that the leading statistical services still maintain the old procedure of calculating the book value per share of common stock from many, perhaps most, balance sheets that they publish.

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