My High Dividend Stocks Blog http://myhighdividendstocks.posterous.com Most recent posts at My High Dividend Stocks Blog posterous.com Thu, 23 Feb 2012 12:22:42 -0800 First Look at Altria (MO). Hint: Quit Smoking and Quit MO. http://myhighdividendstocks.posterous.com/first-look-at-altria-mo-hint-quit-smoking-and http://myhighdividendstocks.posterous.com/first-look-at-altria-mo-hint-quit-smoking-and

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

Altria (MO)

Share price: $29.67

Shares: 2.05 billion

Market capitalization: $60.63 billion

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

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

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

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

Dividend: $0.41 quarterly

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

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

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EARNING POWER – $2.32 @ 2.05 billion shares

(Earnings adjusted for changes in capitalization)

EPS

Net income

Shares

Adjusted EPS

2006

$4.62

$9,786 M

2,116 M

$4.77

2007

$2.36

$4,930 M

2,084 M

$2.40

2008

$1.54

$3,206 M

2,071 M

$1.56

2009

$1.87

$3,905 M

2,079 M

$1.90

2010

$1.64

$3,390 M

2,064 M

$1.65

2011

$1.64

$3,390 M

2,050 M

$1.66

EPS

Net income

Shares

Adjusted EPS

2011 Q1

$0.45

$937 M

2,084 M

$0.46

2011 Q2

$0.21

$444 M

2,076 M

$0.22

2011 Q3

$0.57

$1,173 M

2,054 M

$0.57

2011 Q4

$0.41

$836 M

2,043 M

$0.41

2011 total

$1.64

$3,390 M

2,050 M

$1.66

Six year average adjusted earnings per share is $2.32

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

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

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

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

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

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

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

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

Current ratio: 0.94 (over 2.0 is good)

Quick ratio:  0.46 (over 1.0 is good)

Debt to equity ratio: 2.96 (lower is better)

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

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

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DISCLOSURE – I don’t own Altria (MO).

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Be seeing you!

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Tue, 18 Jan 2011 13:19:04 -0800 A Disturbing Fact Regarding S&P500 Dividend Yields http://myhighdividendstocks.posterous.com/a-disturbing-fact-regarding-sp500-dividend-yi http://myhighdividendstocks.posterous.com/a-disturbing-fact-regarding-sp500-dividend-yi

I recently embarked on a quest to find S&P500 stocks yielding over 6 percent.  I was shocked by the results.  There are only seven S&P500 stocks currently yielding over 6 percent.

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Company

Ticker

Yield

Industry

Frontier Communications

FTR

7.71%

Rural telecom

Windstream

WIN

7.17%

Rural telecom

Diamond Offshore Drilling

DO

6.73%

Oil drilling

Altria

MO

6.42%

Tobacco

Century Link

CTL

6.28%

Rural telecom

Reynolds American

RAI

6.13%

Tobacco

Pitney Bowes

PBI

6.12%

Mail processing

That is just plain sad.  I once read that the S&P500 yielded around 6.7% back in 1982.  Today the index yields a paltry 1.7%.  A depression level bear market could bring the S&P500 yields back to the 6.7% level.  That depression will come when the Federal Reserve stops buying US Treasury debt.  You had better be holding high dividend stocks with earning power and strong balance sheets in your hand when the music stops.

Look for some analysis on these stocks in future posts.

There will be a multitude of stocks currently yielding between 4.00 and 5.99% that will become high dividend stocks when the Federal Reserve tightens and investors run for the exits.  This will mark the return of the bear market.  There will be high dividend stock bargains not seen since March 2009 when that happens.  Subscribe to www.myhighdividendstocks.com/feed to discover high dividend stocks with earning power and strong balance sheets.

Be seeing you!

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http://files.posterous.com/user_profile_pics/697493/v_for_vendetta_guy_fawkes_mask11.jpg http://posterous.com/users/4wuf4tt8LZzb Jason Brizic myhighdividendstocks Jason Brizic