My High Dividend Stocks Blog http://myhighdividendstocks.posterous.com Most recent posts at My High Dividend Stocks Blog posterous.com Thu, 20 Sep 2012 15:27:31 -0700 I've been wrong about AGNC for the past year. http://myhighdividendstocks.posterous.com/ive-been-wrong-about-agnc-for-the-past-year http://myhighdividendstocks.posterous.com/ive-been-wrong-about-agnc-for-the-past-year

I’ll admit it.  I was wrong about American Capital Agency Corp. (AGNC) share price direction in the last year.  I thought that their shrinking interest rate spreads and dividend cuts would have hurt the share price, but they haven’t.  There has been a sustained 10 month rally in AGNC stock since November 2011.  Eventually this rally must end, but Keynesian investors don’t seem to care.  They love the Federal Reserve’s QE3.

Image003

AGNC is a mortgage REIT.  They make money by borrowing short term and then lend the money long term by buying agency mortgage backed securities.

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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
Fri, 10 Aug 2012 13:40:33 -0700 First Look at Penn West Petroleum (PWE). http://myhighdividendstocks.posterous.com/first-look-at-penn-west-petroleum-pwe http://myhighdividendstocks.posterous.com/first-look-at-penn-west-petroleum-pwe

I used to own Penn West Energy (PWE) several years ago when it paid a monthly dividend.  Today I take a first look at PWE on this blog.  The dollar values are in Canadian dollars, but the exchange rate is 1 USD = 0.99499 CAD.  They are basically interchangeable at today’s exchange rates.  PWE is a high dividend stock, but it has some earnings and balance sheet problems that will be exacerbated by falling energy prices.  The price of oil and natural gas will drop when the world falls back into recession due to the sovereign debts crisis.  To see how I can to these conclusions read on.

Penn West Petroleum (PWE)

Price: $14.19

Shares: 474.58 million

Market capitalization: $6.74 billion

Image002

What does the company do to earn profits?  Penn West Petroleum Ltd., based in Calgary, Alberta, is an independent Canadian energy company focused on the exploration and production of oil and natural gas resources in nearly 6.5 million acres across Saskatchewan, Alberta, and British Columbia. At the end of 2011, the company reported proven reserves before royalties of 499 million barrels of oil equivalent. Daily production averaged about 163,000 barrels of oil equivalent in 2011, at a ratio of 63% oil/37% gas.

Morningstar’s take: Penn West seeks to develop oil and gas reserves in the relatively mature environment of the Western Canadian sedimentary basin. Management's strategy is two-pronged: Develop additional reserves in existing producing zones through horizontal drilling and enhanced recovery efforts, and perform exploratory drilling to add new reserves. Exploration efforts are concentrated in light and medium oil plays, as Penn West seeks to increase oil in the production mix and take advantage of more the desirable oil pricing environment.

Bonds outstanding: none

Times bond interest earned: not applicable

Preferred stock: none.

DIVIDEND RECORD  Penn West Petroleum (PWE) paid a monthly dividend through 2010.  In 2011, they switched to quarterly dividends.  But, they also cut the dividend in 2009, 2010, and 2011.  Here are the annual dividend payments over the last few years.

Dividend: $0.27 quarterly ($1.08 annual dividend)

Dividend yield: 7.6% ($1.08 annual dividend / $14.19 share price)

Dividend payout ratio: 85.7% using earning power of $1.26 per share

EARNING POWER – $1.26 @ 474.58 million shares

(Earnings adjusted for changes in capitalization)

EPS

Net income

Shares

Adjusted EPS

2007

$0.73

$176 M

242 M

$0.37

2008

$3.22

$1,221 M

383 M

$2.57

2009

($0.35)

($144 M)

413 M

($0.30)

2010

$2.48

$1,110 M

452 M

$2.34

2011

$1.36

$638 M

467 M

$1.34

2012

474.58 M

Six year average adjusted earnings per share is $1.26

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

Penn West Petroleum is currently trading at 11.3 times average adjusted EPS.  This stock is priced for value.

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

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

BALANCE SHEET – The company’s lack of current assets and cash compared to current liabilities shows its financial weakness

Image013

Book value per share: $19.10 ($9.067 B equity / 474.58 M shares)

Price to book value ratio: 0.74 (under 1.0 is good)

Tangible book value: $14.78 (equity - $2.02 B in intangibles / 474.58 M shares)

Price to tangible book value ratio: 0.96 (under 1.0 is really good)

Current ratio: 0.50 (over 2.0 is good) ($675 M current assets / $1.333 B current liabilities)

Quick ratio:  no cash so N/A (over 1.0 is good) 0.36 according to Morningstar.com.  They probably used the receivables as a substitute of cash.

Debt to equity ratio: 0.38 (lower is better)

Percent of total assets:

            Real assets (property, plant, and equipment) – 79.27%

            Current assets – 4.3%

            Intangibles – 12.86%

            Other long term assets – 3.57%

CONCLUSION – Penn West Petroleum is currently a high dividend stock, but its dividend is not entirely safe.  The company reported disappointing 2nd quarter 2012 earnings. 

http://www.nasdaq.com/article/penn-west-quarterly-profit-declines-on-lower-prices-cuts-outlook---update-20120810-00378

Oil and natural gas prices have been down and will go down further when the worldwide recession worsens.  It is a value stock by common measures trading at only 11.3 times average adjusted earnings, but I think you’ll be able to buy it below $10.00 per share when the recession hits in 2013-2014.  I don’t like the weak current ratio and quick ratio.  That makes the balance sheet weak in my opinion.  Put this one on your watch list for under $10.00.

Image014

DISCLOSURE – I don’t own Penn West Petroleum (PWE).

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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
Tue, 24 Jul 2012 10:37:00 -0700 The Soveriegn Debt Crisis in Europe and What It Means to Your Investments. http://myhighdividendstocks.posterous.com/the-soveriegn-debt-crisis-in-europe-and-what http://myhighdividendstocks.posterous.com/the-soveriegn-debt-crisis-in-europe-and-what

European Union bureaucrats are fessing up that the Greek government still can’t pay its bills.

http://www.marketwatch.com/story/us-stocks-fall-on-greece-debt-restructure-news-2012-07-24

This news tanked markets in the US.  Anyone who is surprised by this news has not been paying attention to the sovereign debt crisis in Europe.  This crisis is going to get worse when Greece gets bailed out for a second or third time.  Portugal, Italy, and Spain will be back for more bailouts of their own.  Where will the money come from.  The European Central Bank will print Euros.  The money will go to the Northern European banks who will be scared to lend it, so they will buy more bad debt of the PIIGS.

I would stay out of the stock market until this sovereign debt crisis has run its course.  You will know it is over when stock prices drop 40% - 60% from their May 2012 highs of about 13,000 on the Dow Jones Industrial Average.  Well run companies with fat dividend yields and decent balance sheets like Safe Bulkers (SB) can have their stock price cut from $6.00 per share down to $2.50 per share like in 2008-2009.  Safe Bulkers fell precipitously from its 2008 IPO price of $19.00 per share down to about $2.50 at the height of the financial crisis.

Image001

I’m spending my time during the sovereign debt crisis analyzing stocks to find the best ones to buy in the aftermath and at what price.  This crisis will take a long time to unravel.

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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
Thu, 03 May 2012 20:10:38 -0700 Shipping Industry Current Ratios and The Erosion of the Current Ratios Since the 1930's. http://myhighdividendstocks.posterous.com/shipping-industry-current-ratios-and-the-eros http://myhighdividendstocks.posterous.com/shipping-industry-current-ratios-and-the-eros

I’m always looking for high dividend stocks with earning power and strong balance sheets.  I consider a dividend yield above 6% to be a high dividend stock.  To see why read this: http://bit.ly/6percentDIV.  But don’t let that article distract you.  The focus of this article is going to be on the balance sheet measure known as the current ratio.

There are many measurements of strong balance sheets.  A company’s current ratio is one such measure of a strong balance sheet.  The current ratio is the company’s current assets (usually cash, equivalents, and accounts receivable) divided by its current liabilities (those are liabilities due within one year such as accounts payable and the current portion of the long term debt, etc.).

One of my favorite companies is Safe Bulkers (SB).  They are a dry bulk shipping company.  Unfortunately their current ratio has dropped in the last few quarters.  It currently stands a 0.73.  The father of value investing, Benjamin Graham, consider a current ratio of 2.0 the minimum for investment.  He wrote that back in his book Security Analysis in the 1930’s.  Safe Bulkers current ratio seems really low.  That made me wonder how all the other shipping companies compare.  Here is what I found:  (Note - The size of the bubbles represent the company’s market capitalization in millions of dollars.  For example, Knightsbridge Tankers has a market cap of $303 million.)

Image002

Here is a table with most of the largest publicly traded shipping companies used in the graphic above:

Company

Ticker

Market Capitalization (Millions of dollars)

Current Ratio

Dividend Yield

Kirby Corp.

(KEX)

$                          3,710

1.48

0.00%

Golar LNG Limited

(GLNG)

$                          2,920

0.41

3.13%

Teekay LNG Partners

(TGP)

$                          2,700

0.58

6.44%

Teekay Corp.

(TK)

$                          2,490

1.00

3.51%

Alexander & Baldwin

(ALEX)

$                          2,230

0.99

2.44%

Seacor Hldgs.

(CKH)

$                          1,960

2.59

0.00%

Golar LNG Partners

(GMLP)

$                          1,350

0.49

4.85%

DryShips

(DRYS)

$                          1,310

0.78

0.00%

Ship Finance Intl.

(SFL)

$                          1,060

1.11

8.85%

Seaspan Corp.

(SSW)

$                          1,030

2.74

4.30%

Navios Maritime Partners

(NMM)

$                             901

1.12

10.60%

Costamare Inc.

(CMRE)

$                             832

0.61

10.64%

Diana Shipping

(DSX)

$                             650

9.00

0.00%

Frontline Ltd.

(FRO)

$                             488

2.45

3.38%

Safe Bulkers

(SB)

$                             475

0.73

8.65%

Danaos Corp.

(DAC)

$                             444

0.40

0.00%

Navios Maritime

(NM)

$                             384

1.47

6.38%

Overseas Shipholding

(OSG)

$                             359

2.44

0.00%

Knightsbridge Tankers

(VLCCF)

$                             303

7.30

16.09%

Intl. Shipping Corp.

(ISH)

$                             150

1.30

4.88%

Box Ships

(TEU)

$                             147

0.96

13.17%

Star Bulk Carriers

(SBLK)

$                               53

0.62

6.26%

The average current ratio of the shipping industry is 1.84.  If you throw out the highest and lowest current ratios, then you get 1.56.  So the average of the industry by either measure is below what Graham considered acceptable.  That is interesting.  What was the ratio of the shipping industry in Graham’s day?  Fortunately for use he produced a gem of a table in his 1937 book Interpretation of Financial Statements which I’ve included here:  The 8 companies in shipping had an average current ratio of 3.7.

Image006

I have a sickening feeling that almost every industry nowadays will have an average current ratio below 2.0.  My hypothesis is that decades of Keynesian MBA finance grads have abandoned saving money to ensure financial resilience in a bad economy (like 2008-2009).  Keynesians hate savings because they believe that it causes consumer spending to go down and therefore the economy goes down.  If you want to learn more about this, then read Henry Hazlitt’s The Failure of the New Economics available free from www.mises.org.  He’s got a whole section on the faulty logic of Keynes’ “Paradox of Thrift”.

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That’s all for now.

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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
Wed, 25 Apr 2012 13:30:46 -0700 First look at Enerplus Corporation (ERF). Huge dividend, weak balance sheet. http://myhighdividendstocks.posterous.com/first-look-at-enerplus-corporation-erf-huge-d http://myhighdividendstocks.posterous.com/first-look-at-enerplus-corporation-erf-huge-d

Seeking Alpha contributor, EFSinvestment, wrote that Enerplus Corporation (ERF) is a buy at today’s price of $17.76.  His article is here: http://seekingalpha.com/article/513701-dividend-stock-ideas-2-buys-3-holds .  He pays no attention to the effects of a worldwide recession on oil and natural gas prices.  That will hurt earning further.  And he pays no attention to the balance sheet.  This is what he wrote:

Enerplus Corporation - Buy

With a dividend yield of 12.1%, Enerplus is one of the top-yielding Canadian commodity stocks. In the last year, the company paid $389 million in dividends. While it might be claimed that the payout ratio is unsustainable, I think the dividend is pretty safe. It is more than fully covered by the company's operating cash flow. Enerplus generated an operating cash flow of $641 million in the last 12 months.

(click to enlarge)

(Source: Finviz.com)

Due to company's exposure to natural gas-related assets, the stock has lost more than 26% in this year alone. However, it looks like a cheap deal after the recent sell-off. Enerplus is trading near its book value. The P/S and P/CF ratios stand at 2.4, and 5.3, respectively. The company has substantial assets in the Marcellus and Bakken shales. Morningstar claims that these assets could prove highly productive in the long term.

My FED+ fair model suggests a fair value range of $20 - $38. Analysts mean target price of $26.79 fits almost perfectly at the middle of my fair value range. The current price of $18 suggests that Enerplus is deeply undervalued. I think the stock is oversold, and ready for a big bounce. That is why I rate it as a buy.

Here is my first look analysis of Enerplus Corporation

Enerplus Corporation (ERF)

Price: $17.76

Shares: 196.30 million

Market capitalization: $3.48 billion

All the financial numbers are in Canadian dollars.  Fortunately the US dollar and Canadian dollar are at near parity.  Here is a Google Finance chart of the last 10 years of USD to CAD exchange rates.

Image006

What does the company do – Enerplus, based in Calgary, Alberta, is an independent energy company engaged in the exploration for and production of oil and gas in the Western Canadian Sedimentary Basin and Pennsylvania's Marcellus Shale. At the end of 2010, the company reported proven reserves of 219.4 million barrels of oil equivalent. Daily net production averaged about 83,139 barrels of oil equivalent per day in 2010 at a ratio of 58% gas/42% liquids.

Morningstar’s take - The passing of 2010 marked a series of changes for Enerplus as it converted from an income trust to a corporation. The company sold off conventional and oil sands assets, using the proceeds to build its acreage position in Pennsylvania's Marcellus Shale and the Bakken in North Dakota and Saskatchewan. We think the company will continue to pay an attractive dividend and aggressively pursue production growth in the Marcellus and Bakken.

Image008

Bonds: According to Morningstar.com Enerplus Corp has no bond data available.

Times interest earned:  ERF’s 2011 net income was $109 million and the company paid $60 million in interest charges.  This means that the company earned only 1.81 times the interest on its long term debts.  The father of value investing, Benjamin Graham, believed that a company should earn fully four times the interest charges to warrant the purchase of shares of an industrial preferred stock.

Preferred stock: none

Margin of profit: 8.19%  Profit margins were between 18.7% and 37.9% from 2002 through 2008.  Since then they have ranged between 6.9% and 9.4%.

DIVIDEND RECORD: Enerplus Corporation cut its dividend 57% from $0.42 monthly in late 2008 to $0.18 monthly since the beginning of 2009.  There has been no dividend growth since the cut.

Dividend: $0.18 monthly

Dividend yield: 12.16%  ($2.16 annual dividend / $17.76 share price)

Dividend payout: 386% ($2.16 / $0.56 EPS in 2011) –OR- 133% ($2.16 / $1.62 average adjusted earning power).  Either way ERF the dividend is not safe by any measure.  The world is reentering recession.  That will drive the price of oil down and natural gas price will not recover anytime soon.  I expect another significant dividend cut in the next year.

Image013

EARNING POWER: $1.62* @ 196.3 million shares

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

EPS

Net income

Shares

Adjusted EPS

2005

$3.95

$432 M

109 M

$2.20

2006

$4.47

$545 M

122 M

$2.78

2007

$2.66

$340 M

128 M

$1.73

2008

$5.53

$889 M

161 M

$4.53

2009

$0.53

$89 M

170 M

$0.45

2010

($1.02)

($179 M)

176 M

($0.91)

2011

$0.61

$109 M

180 M

$0.56

Seven year average adjusted earnings per share is $1.62

Consider contrarian buying below $12.96 (8 times average adjusted EPS)

Enerplus Corporation (ERF) is currently trading at 10.96 times average adjusted EPS.  This is stock is value priced.

Consider value buying below $19.44 (12 times average adjusted EPS)

Consider speculative selling above $32.40 (20 times average adjusted EPS)

BALANCE SHEET – ERF’s current ratio and quick ratio reveal how tenuous their balance sheet is.

Image014

Book value per share: $16.69 ($3,277 million shareholder equity / 196.3 million shares)

Tangible book value per share: $15.90 (shareholder equity – intangible assets of $155 million / shares)

Price to book value ratio: $1.06 (under 1.0 is good)

Price to tangible book value ratio: 1.11 (under 1.0 is great)

Current ratio: 0.27 latest quarter (over 2.0 is good)

Quick ratio: 0.011 latest quarter (over 1.0 is good)

Debt to equity ratio: 0.26 (lower is better)

Percentage of total assets in plant, property, and equipment: 90.98% (the higher the better)

Working capital trend is down.  That means that ERF must find funding to make up the difference.  This is a bad sign coupled with the extreme dividend payout ratio.

Image015

CONCLUSION – The best time to buy Enerplus Corporation in recent years was in 2009 when the stock bottomed around $15 per share.  However there is a worry-some downward spike in the price during the “flash crash” of May 2010.  I don’t like stocks that get pummeled in flash crashes.  ERF is a high dividend stock yielding over 12%, but the dividend is not safe based on the expected earnings in the near future.  The world is slipping back into recession.  Europe is already in recession, China is moving towards recession, and the US data keeps getting worse.  Recessions cause oil prices to drop.  That will reduce ERF’s earnings like in 2009.  Natural gas has dropped, dropped, dropped.  Maybe it stabilizes at around $2 per MCF or $3, but the point is that it will not miraculously go back up to $10 - $14 per MCF with all the supply increases due to the fracking technology.  I expect ERF to cut their dividend significantly again when its obvious to the common man that worldwide recession is back.  The stock price is value now, but it will be even cheaper in the near future.  ERF’s balance sheet has several weaknesses.  Their low current ratio and quick ratio shows that the company has little current assets to pay for current liabilities.  Those liabilities will need to be funded through additional stock offerings or increasing long term debts.  This isn’t a single year issue.  Look at the working capital trend to see a company that is always short of paying its current liabilities from current assets.  I would ignore this company until they cut their dividend and improve their balance sheet.

Image017

DISCLOSURE – I don’t own Enerplus Corporation (ERF).

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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
Wed, 18 Apr 2012 14:28:41 -0700 The Interpretation of Financial Statements - Ratio Analysis using Safe Bulkes (SB) as an example http://myhighdividendstocks.posterous.com/the-interpretation-of-financial-statements-ra http://myhighdividendstocks.posterous.com/the-interpretation-of-financial-statements-ra

I recently finished reading Benjamin Graham’s 1937 classic The Interpretation of Financial Statements.  Graham explains the financial statement concepts in clear English.  At the end of the book he walks the reader through the analysis of a balance sheet and income statement using the ratio method.  His example was Bethlehem Steel Corporation.

I will do the same with Safe Bulkers (SB).

A number of the ratios used in the analysis of an industrial company’s income account and balance sheet are presented herewith by the use of a single example – namely the financial statements of the Safe Bulkers corporation for 2011.  Various items in the Balance Sheet and Income account are numbered.  This will facilitate the explanation as to the method of computing ratios.  For example margin of profit, the first ratio computed in this study, is operating income divided by sales.  On the Income Account operating income is item No. 4 and sales is item No. 1.  The method of computing margin of profit is expressed at (4) ÷

0image007
(1) or in actual amounts $108,936,000 ÷
0image007
$172,036,000 = 63.3%

SAFE BULKERS

Income Account Year Ended December 31, 2011

(1)

Revenues

$172,036,000

Commissions

(3,128,000)

(2)

Voyage, vessel operating, general and administrative expenses

(36,542,000)

Early redelivery income

207,000

(3)

Depreciation

(23,637,000)

(4)

Operating Income

$108,936,000

Add – interest, dividends, and other misc income

0

(5)

Total Income

$108,936,000

(6)

Deduct-Interest charges

(19,202,000)

(7)

Net Income

$89,734,000

(8)

Deduct-Dividends on Preferred Stock

0

(9)

Net for Common Stock

$89,734,000

Deduct-Dividends on Common Stock

$42,536,652

(10)

Transferred to Surplus

$47,197,348

BALANCE SHEET

SAFE BULKERS

December 31st, 2011

ASSETS

Current Assets:

(11)

Cash, time deposits

$28,121,000

(12)

Other current assets

9,838,000

(13)

Accounts and notes receivable

0

(14)

Inventories

0

(15)

Total Current Assets

$37,959,000

Advances for vessel acquisition and vessels under construction

$122,307,000

Restricted cash non-current

5,423,000

Long-term investment

50,000,000

Other non-current assets

6,226,000

(16)

Vessels

?

(17)

Less reserve for depreciation and depletion

0

(18)

Vessels, net

$655,356,000

Total Long Term Assets

$ 839,312,000

Total Assets

$877,271,000

LIABILITIES

Current Liabilities:

Current portion of long-term debt

$18,486,000

Other current liabilities

$33,187,000

(19)

Total Current Liabilities

$ 51,673,000

(20)

Long-term debts, net of current portion

$465,805,000

(21)

Other non-current liabilities

$27,951,000

Total Non-current Liabilities

$493,756,000

(22)

Common stock 70,894,420 shares, no par value?

0

(23)

Shareholder equity (Surplus)

$331,842,000

Total Shareholder Equity

$331,842,000

Total Liabilities

$877,271,000

Margin of Profit

Operating income divided by Sales.

Formula: (4) ÷

0image007
(1)

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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
Mon, 09 Apr 2012 21:24:52 -0700 Some examples of high price to tangible book values. http://myhighdividendstocks.posterous.com/some-examples-of-high-price-to-tangible-book http://myhighdividendstocks.posterous.com/some-examples-of-high-price-to-tangible-book

Last Friday I wrote my “Tip of the Week” on book value and its calculation.  I used the original writing of legendary value investor Benjamin Graham in that article.  If you missed it, then you can get it here:

http://www.myhighdividendstocks.com/high-dividend-stocks/tip-of-the-week-book-value-or-equity-and-how-to-calculate-book-value-per-share

At the end of the article I calculated the tangible book value of Safe Bulkers (SB).  Today I will take a look at the tangible book value of a few more stocks: AT&T (T), Verizon (VZ), Terra Nitrogen (TNH), Goldcorp (GG), Southern Copper (SCCO), and Apple (AAPL).

AT&T (T) tangible book value

Shareholder equity equals $105.534 billion.  Subtract goodwill and intangibles from share holder equity to calculate tangible book value (aka net book value).  AT&T claimed $70.842 billion in goodwill assets as of 4Q2011 and $59.343 billion in intangibles.  AT&T’s tangible book value is negative $24.651 billion dollars.  The company has 5.93 billion shares outstanding.  AT&T’s tangible book value per share is negative $4.15 dollars.  That really stinks.  Maybe Verizon has a positive net book value per share.  AT&T stock sold for $30.64 recently.  Their price to tangible book value ratio is negative.

Verizon (VZ) tangible book value

Shareholder equity equals $35.97 billion.  Subtract goodwill and intangibles from share holder equity to calculate tangible book value (aka net book value).  Verizon claimed $23.357 billion in goodwill assets as of 4Q2011 and $79.128 billion in intangibles.  Verizon’s tangible book value is negative $66.515 billion dollars.  The company has 2.84 billion shares outstanding.  The tangible book value per share is negative $23.42 dollars.  That really stinks also.  Verizon stock sold for $37.46 recently.  Their price to tangible book value ratio is negative.

Terra Nitrogen (TNH) tangible book value

Shareholder equity equals $269.3 million.  Subtract goodwill and intangibles from share holder equity to calculate tangible book value (aka net book value).  Terra Nitrogen claimed no goodwill or intangibles as of 4Q2011.  Terra Nitrogen’s tangible book value is $269.3 million.  The company has 18.69 million shares.  The tangible book value per share is $14.41.  That is very low compared to the current stock price.  Terra Nitrogen stock sold for $262 per share recently.  Their price to tangible book value ratio is 18.18.  Shareholders that bought at $262 are paying $18.18 for each $1.00 in tangible assets.  That is a whopping premium on invested capital.  A smart businessman would never overpay so much for so little assets.  Stay away from Terra Nitrogen because there is much more risk than reward.

Goldcorp (GG) tangible book value

Shareholder equity equals $21.272 billion.  Subtract goodwill and intangibles from share holder equity to calculate tangible book value (aka net book value).  Goldcorp claimed no goodwill of $1.737 billion as of 4Q2011.  Goldcorps’s tangible book value is $19.535 billion.  The company has 810 million shares.  The tangible book value per share is $24.11.  Goldcorp stock sold for $41.04 per share recently.  Their price to tangible book value ratio is a respectable 1.7.  Goldcorp stock will be cheap when the price is near one times tangible book value.

Southern Copper (SCCO) tangible book value

Shareholder equity equals $4.015 billion.  Subtract goodwill and intangibles from share holder equity to calculate tangible book value (aka net book value).  Southern Copper claimed intangibles of $110 million as of 4Q2011.  Southern Copper’s tangible book value is $3.905 billion.  The company has 840.98 million shares.  The tangible book value per share is $4.64.  Southern Copper’s stock sold for $30.46 per share recently.  Their price to tangible book value ratio is an overpriced 6.56.  SCCO share holders who bought near $30.46 are paying $6.56 for each dollar of invested capital.

Apple (AAPL) tangible book value

Shareholder equity equals $76.615 billion.  Subtract goodwill and intangibles from share holder equity to calculate tangible book value (aka net book value).  Apple claimed $896 million in goodwill and $3.536 billion in intangible in their 4Q2011 financials.  Apple’s tangible book value is $72.183 billion.  The company has 932.37 million shares.  The tangible book value per share is $77.42.  Apple’s stock sold for $636.23 per share recently.  Their price to tangible book value ratio is grotesque 8.22.  AAPL share holder who bought near $636 are paying $8.22 for each dollar of invested capital.

Goldcorp is the only stock on this short list with a price to tangible book value under 2.0 and even that isn’t cheap.  I wrote this article to serve as a warning to value investors and high dividend stock investors.

Subscribe today for free at 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
Fri, 06 Apr 2012 15:32:56 -0700 TIP OF THE WEEK - Book Value or Equity and How to Calculate Book Value per Share http://myhighdividendstocks.posterous.com/tip-of-the-week-book-value-or-equity-and-how http://myhighdividendstocks.posterous.com/tip-of-the-week-book-value-or-equity-and-how

Book Value or Equity and How to Calculate Book Value per Share

Jason Brizic

April 6th, 2012

Knowing the book value of a company helps the intelligent investor to buy low.

You want to buy assets that produce profits as cheap as possible.

The following comes from Benjamin Graham’s 1937 book The Interpretation of Financial Statements.

The book value of a security is in most cases a rather artificial value.  It is assumed that if the company were to liquidate, it would receive in cash the value at which its various tangible assets are carried on the books.  Then the amounts applicable to the various securities in their due order would be their book value.  (The word “equity” is frequently used instead of book value in this sense, but it is generally applied only to common stocks and to speculative senior securities.)

As a matter of fact, if the company were actually liquidated the value of the assets would most probably be much less than their book value as shown on the balance sheet.  An appreciable loss is likely to be realized on the sale of the inventory, and a very substantial shrinkage is almost certain to be suffered in the value of the fixed assets.  In practically every case the adverse conditions which would lead to a decision to liquidate the business would also make it impossible to obtain anywhere near cost or reproduction price for the plant and machinery.

The book value really measures, therefore, not what the stockholders could get out of their business (its liquidating value), but rather what they have put into the business, including undistributed earnings.  The book value is of some importance in analysis because a very rough relationship tends to exist between the amount invested in a business and its average earnings.  It is true that in many individual cases we find companies with small asset values earning large profits, while others with large asset values earn little or nothing.  Yet in these cases some attention must be given to the book value situation, for there is always a possibility that large earnings on the invested capital may attract competition and thus prove temporary; also that large assets, not now earning profits, may later be made more productive.

CALCULATING BOOK VALUE

As has already been said, in calculating book value it is assumed that the company’s assets are worth the figure shown on the balance sheet.  Indeed, book value simply means the value as shown by the books or balance sheet.

To take a simple example, a company’s balance sheet is as follows:

Fixed Property

$1,000,000

Capital Stock

$1,700,000

Good-will

500,000

Surplus

100,000

Current Assets

500,000

Current Liabilities

200,000

$2,000,000

$2,000,000

In this case the capital stock is represented by 17,000 shares of $100 par value common stock.  To find the book value of the common stock, add the $100,000 surplus to the $1,700,000 value shown for the stock, making a total of $1,800,000.  Then look on the asset side of the balance sheet for intangibles.  You will find $500,000 good-will.  This is then deducted from the $1,800,000, leaving $1,300,000 equity available for the 17,000 common shares.  Incidentally, the figure $1,300,000 is often referred to as the “net tangible assets” of the company.  Dividing this out, the net book value per share would be $76.47.

If you had not deducted the intangibles and had simply divided the $1,800,000 by the 17,000 shares you would have found the book value per share to be $105.88.  You will not that there is quite a difference between this book value and the net book value of $76.47 a share.  If only “book value” of the stock is mentioned, tangible or net book value is usually meant.  The larger figure may be termed: “Book value, including intangibles.”

I will perform this calculation on one of my favorite high dividend stocks – Safe Bulkers (SB)

Fixed Property

$777,663,000

Capital Stock

$71,000

Intangibles

0

Additional Paid-in Capital

114,918,000

Current Assets

37,959,000

Retained Earnings

216,853,000

Other Investments

11,649,000

Current Liabilities

51,673,000

Other Long Term Assets

50,000,000

Non-current Liabilities

493,756,000

$877,271,000

$877,271,000

All of this balance sheet information is as of 4Q 2011.  Safe Bulkers has since added another 5,750,000 shares and $37,375,000 in additional paid-in capital since the 4Q 2011 report.  Safe Bulkers had 70,896,924 shares at the time of the 4Q 2011 financials report.

Safe Bulkers had $331,842,000 in book value at the end of 4Q 2011 (equity values – intangibles; highlighted in yellow above).  Divided that by 70,896,924 shares and you get a book value per share of $4.68.  That would be a very nice, low price to buy Safe Bulkers at.  Safe Bulkers sold for $3.00 - $2.50 per share at the depths of the 2009 recession.

Safe Bulkers book value per share rises to $4.82 if you include the additional paid-in capital the company raised after 4Q 2011.  This also assumes they didn’t incur any new liabilities in the meantime either.

For more tips, go here:

http://www.myhighdividendstocks.com/category/tip-of-the-week

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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
Mon, 02 Apr 2012 14:22:10 -0700 American Capital Agency Corp (AGNC) Cut Its 1Q 2012 Dividend 10.7% http://myhighdividendstocks.posterous.com/american-capital-agency-corp-agnc-cut-its-1q http://myhighdividendstocks.posterous.com/american-capital-agency-corp-agnc-cut-its-1q

It was only a matter of time until American Capital Agency Corp. (AGNC) cut its dividend.  AGNC was paying out more than they were earning for several quarters.  Their dividend payout ratio was over 100%.  I warned about this back on December 13th, 2011.

http://tinyurl.com/blcxzln

At that time faceless, nameless Wall Street analysts expected AGNC to earn $1.18 per share for the 4th quarter of 2011.  Their 4Q 2011 financials revealed that they only earned $0.99.  That pushed the dividend payout ratio all the way up to 141%.  This madness had to stop.  It finally did.

On February 6th, 2012 AGNC’s board of directors announced a 10.7% dividend cut.

http://www.reuters.com/finance/stocks/AGNC.O/key-developments/article/2475150

They cut the dividend from $1.40 per quarter down to $1.25 per quarter for March 2012.  That breaks their streak of ten consecutive quarters of $1.40 dividend payments.

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The Federal Reserve will likely buy more agency mortgage-backed securities in the future.  This will bid up the price of those securities.  That will eat into AGNC’s shrinking profits.  The cost of borrowing is increasing and the asset yield is decreasing.  You can read about that here in AGNC’s 4Q 2011 financials release: http://tinyurl.com/bq5fgfz  

The dividend is not secure.  AGNC is leveraged 7.6 times.  Leverage giveth and leverage taketh away.  I expect another cut in a few quarters.

Disclosure: I don’t own American Capital Agency Corp. (AGNC).

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
Mon, 26 Mar 2012 16:04:00 -0700 First Look at 9% High Dividend Stock Vector Group LTD (VGR). Stop Smoking and Stop Buying VGR. http://myhighdividendstocks.posterous.com/first-look-at-9-high-dividend-stock-vector-gr http://myhighdividendstocks.posterous.com/first-look-at-9-high-dividend-stock-vector-gr

Today I take a look at tobacco company Vector Group LTD (VGR).  I’d never heard of Vector before running a high dividend stock screen recently.  They are a 9% high dividend stock, but is their dividend safe?  No.  How is the stock priced relative to earning power?  Speculatively priced.  What about their balance sheet?  It is awful.  Read on to see how bad the numbers are for this company.  There is a reason the company’s stock price has only increased 0.32% in 10 years while price inflation has eroded over 30% of the dollars purchasing power in the same time.

Vector Group LTD (VGR)

Price: $17.72 (last week)

Shares: 79.57 million

Market capitalization: $1.41 billion

Image002

Preferred stock: None.

Bonds: $1.7 billion outstanding.  Nothing is due soon, but Vector has other debt troubles (see balance sheet below).

Image004

What does the company do?  Vector Group manufactures cigarettes through subsidiaries. Its Liggett Group subsidiary produces cigarettes under discount brands and private labels. The company also produces cigarettes in Russia. Recently, Vector Group has launched QUEST, which it claims is a genetically engineered nicotine-free cigarette.

DIVIDEND RECORD: Vector Group is a steady dividend payer and grower, but the money company is paying out more than it earns.

Dividend: $0.40

Dividend yield: 9%  ($1.20 annual dividend / $17.72 share price)

Dividend payout: 129%  ($1.20 / $0.93 recent EPS) –OR- 164% ($1.20 / $0.73 average adjusted earning power)

Image009

EARNING POWER: $0.73 per share @ 79.57 million shares

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

EPS

Net income

Shares

Adjusted EPS

12/2007

$0.93

$74 M

74 M

$0.93

12/2008

$0.69

$61 M

82 M

$0.77

12/2009

$0.31

$25 M

77 M

$0.31

12/2010

$0.68

$54 M

78 M

$0.68

12/2011

$0.93

$75 M

79 M

$0.94

Five year average adjusted earnings per share is $0.73

Consider contrarian buying below $5.84 (8 times average adjusted EPS)

Consider value buying below $8.76 (12 times average adjusted EPS)

Consider speculative selling above $14.60 (20 times average adjusted EPS)

Vector Group LTD (VGR) is currently trading at 24 times average adjusted EPS.  This is stock is speculatively priced.

BALANCE SHEET – Hideous!!  Negative equity!

Image013

Most of the damage to the balance sheet has been due to an increase of short-term debts and other long-term liabilities.

Fiscal year ends in December. $USD in millions except per share data.

2007-12

2008-12

2009-12

2010-12

2011-12

Current liabilities

Short-term debt

21

97

22

52

135

Accounts payable

7

6

4

9

10

Deferred income taxes

24

93

17

37

36

Taxes payable

12

44

30

25

Accrued liabilities

34

69

46

40

42

Other current liabilities

24

19

15

59

68

Total current liabilities

109

296

149

227

315

Non-current liabilities

Long-term debt

277

Deferred taxes liabilities

142

49

45

52

61

Accrued liabilities

2

Pensions and other benefits

35

34

39

46

Other long-term liabilities

156

304

512

678

593

Total non-current liabilities

575

388

591

769

702

Total liabilities

684

684

740

996

1017

Book value per share: ($1.12)  Vector Group has a negative book value per share.  This means stay away at any price.  There are much better stocks to buy.

Price to book value ratio: Not applicable because of the negative book value (under 1.0 is good)

Current ratio: 1.61 latest quarter (over 2.0 is good)

Quick ratio: 1.00 latest quarter (over 1.0 is good)

Debt to equity ratio: Not applicable because they have no equity. (lower is better)

Percentage of total assets in plant, property, and equipment: 6.1% (the higher the better)  Other assets include: Current assets 54.94%, Intangibles 11.59%, and Long Term Assets 27.32%

CONCLUSION – Vector Group LTD is a 9% high dividend stock, but I don’t trust their ability to payout the dividend in the future.  They are going to have to issue more shares or debt to finance the dividend.  The stock is speculatively priced at 24 time average adjusted earning power.  The balance sheet is horrifying.  They have negative equity and no plan to fix the situation.  I wouldn’t buy this stock until its balance sheet is repaired.  Stay away from Vector Group LTD.  It is headed for a cliff when the worldwide recession reappears.  This appears to be a poorly run company.

Image014

DISCLOSURE – I don’t own Vector Group LTD (VGR)

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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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
Thu, 15 Mar 2012 12:21:10 -0700 A First Look at Ship Finance International (SFL). Floating or Sinking? http://myhighdividendstocks.posterous.com/a-first-look-at-ship-finance-international-sf http://myhighdividendstocks.posterous.com/a-first-look-at-ship-finance-international-sf

Today I take a look at diversified ship operator, Ship Finance International (SFL).  They are a high dividend stock yielding 8.8% at present.  But is the dividend safe?  Are they a steady dividend grower?  Is the stock over or under priced?  Is their balance sheet strong?  Read on to find out.

Ship Finance International (SFL)

Price: $13.74

Shares: 79.12 million

Market capitalization: $1.09 billion

Image002

What do they do – Ship Finance International leases a fleet of 57 crude oil tankers exclusively to a company called Frontline Shipping Limited. Ship Finance purchased the oil tankers from Frontline Ltd., the parent company of Frontline Shipping. Ship Finance also provides administrative and maintenance services for the vessels through a partnership with Frontline Management Ltd., another subsidiary of Frontline Ltd.

Preferred stock: none.

Bonds: $1.7 billion outstanding

Image004

DIVIDEND RECORD: Spotty.  They have a pattern of growth and cuts.  In 2007 the dividend was $0.55 quarterly.  In 4Q2008 it grew to $0.60.  Then they cut it in half in 2009.  It grew from $0.30 to $0.39 in 2009 to 2011.  This quarter it was cut to $0.30 again.

Dividend: $0.30 quarterly

Dividend yield: 8.8% ($1.20 annual dividend / $13.74 share price)

Dividend payout: 57% ($1.20 / $2.09 recent EPS) –OR- 55% using average adjusted earning power ($1.20 / $2.16)

Image010

EARNING POWER: $2.16 @ $79.12 million shares

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

EPS

Net income

Shares

Adjusted EPS

2006

$2.48

$181 M

73 M

$2.29

2007

$2.30

$168 M

73 M

$2.12

2008

$2.50

$182 M

73 M

$2.30

2009

$2.59

$193 M

74 M

$2.44

2010

$2.09

$166 M

79 M

$2.10

2011 (est)

$1.56

$133.45 M

79.12 M

$1.68

2011 earnings quarter by quarter

EPS

Net income

Shares

Adjusted EPS

2011 Q1

$0.40

$32.1 M

79.12 M

$0.405

2011 Q2

$0.40

$41.47 M

79.12 M

$0.524

2011 Q3

$0.35

$27.45 M

79.12 M

$0.346

2011 Q4 (est)

$0.41

$32.43 M

79.12 M

$0.409

2011 Total (est)

$1.56

$133.45 M

79.12 M

$1.68

Six year average adjusted earnings per share is $2.16

Ship Finance International (SFL) is currently trading at 6.36 times average adjusted EPS.  This is stock is in contrarian territory.

Consider contrarian buying below $17.28 (8 times average adjusted EPS)

Consider value buying below $25.92 (12 times average adjusted EPS)

Consider speculative selling above $43.20 (20 times average adjusted EPS)

BALANCE SHEET – You would be paying a 30% premium to book value at today’s share price.  The company is strapped for cash and current assets.  Too much debt for my liking.

Image011

Book value per share: $10.61

Price to book value ratio: 1.3 (under 1.0 is good)

Current ratio: 1.0 latest quarter (over 2.0 is good)

Quick ratio: 0.49 latest quarter (over 1.0 is good)

Debt to equity ratio: 2.2 (lower is better)

Percentage of total assets in plant, property, and equipment: 4% (the higher the better)

CONCLUSION – Ship Finance International is a high dividend stock yielding 8.8% despite the recent dividend cut.  The amount of the dividend has been irregular, but it has paid 31 quarters of consecutive dividends.  The company’s share price has been pummeled into contrarian territory at only 6.36 times average adjusted earnings.  I like this company below book value of $10.61.  It has traded below book value as recently as December 2011.  The rest of the balance sheet is weak.  It has very little current assets relative to current liabilities (current ratio).  I’d like to see them pay down their long term debts with their free cash flow.  The return of the worldwide recession will drive SFL’s stock price down again.  You’ll have your chance to buy it below $10.61.

Image014

DISCLOSURE – I don’t own Ship Finance International (SFL).

Subscribe today for free at 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
Tue, 13 Mar 2012 10:27:43 -0700 First Look at 12% Dividend Yielder Capital Product Partners (CPLP) http://myhighdividendstocks.posterous.com/first-look-at-12-dividend-yielder-capital-pro-79714 http://myhighdividendstocks.posterous.com/first-look-at-12-dividend-yielder-capital-pro-79714

Its back to the high dividend stocks that I’ve never examined before.  Today I take a look at oil tanker company Capital Product Partners (CPLP).  I’ll bet your wondering if their 12% dividend yield safe?  Read on the find out.

Capital Product Partners (CPLP)

Price: $7.59

Shares: 70.79 million

Market capitalization: $537.28 million

Image002

What they do – Based in Piraeus, Greece, Capital Product Partners owns and leases small to medium-sized ships for the transportation of refined oil products. These rental contracts are typically long-term and range from three to 10 years. The company outsources vessel management to parent company Capital Maritime. Spun out from Capital Maritime in 2007, ownership in Capital Product Partners represents a limited-partnership stake.

Capital Product Partners LP. is an international tanker company. The Company is engaged the seaborne transportation services of crude oil and refined petroleum products, edible oils and soft chemicals, by chartering its vessels under medium to long-term time and bareboat charters. Its fleet consisted of 27 modern high specification vessels with an average age of approximately 4.0 years as of January 31, 2012, including two very large crude carrier tankers, four Suezmax crude oil tankers, 18 modern MR tankers. As of December 31, 2011, it charter 24 of our 27 vessels under medium to long-term time and bareboat charters to charterers, such as BP Shipping Limited, Petroleo Brasileiro S.A., Cosco Bulk Carrier Co. Ltd., Capital Maritime and subsidiaries of Overseas Shipholding Group Inc. On June 9, 2011, the Company acquired Patroklos Marine Corp.

Preferred stock: This company has a small amount of preferred stock.  In 2010, they paid $359K out of $17,936K (about 2%) in preferred dividends.  In 2011, they paid $1,742K out of $87,120K (about 1.9%) in preferred dividends.  The preferred does not threaten the common stock dividend at this time.

Bonds: no bonds.

DIVIDEND RECORD: CPLPs grew its dividend from $0.36 quarterly in 2007 to $0.41 in 2010 Q1.  Boom! Then they cut the dividend in almost half and it been there ever since.

Dividend: $0.23 quarterly

Dividend yield: 12.12%  ($0.92 annual dividend / $7.59 share price)

Dividend payout: 51.6% using 2011 reported unadjusted earnings of $1.78 –OR- 153% using average adjusted earning power of $0.60 per share

Image004

EARNING POWER: $0.60 per share @ 70.79 million shares

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

EPS

Net income

Shares

Adjusted EPS

2007

$0.95

$27.8 M

22.3 M

$0.39

2008

$1.54

$50.7 M

24.2 M

$0.72

2009

$1.15

$29.2 M

24.8 M

$0.41

2010

$0.54

$17.5 M

32.4 M

$0.25

2011

$1.78

$85.4 M

47.1 M

$1.21

Six year average adjusted earnings per share is $0.60

Consider contrarian buying below $4.80 (8 times average adjusted EPS)

Consider value buying below $7.20 (12 times average adjusted EPS)

Capital Product Partners (CPLP) is currently trading at 12.65 times average adjusted EPS.  This is stock is priced for investment.

Consider speculative selling above $12.00 (20 times average adjusted EPS)

BALANCE SHEET – Nice equity growth.  The company doesn’t have much in the way of current assets to cover current liabilities.  Great price to book value ratio.

Image009

Book value per share: $7.30

Price to book value ratio: 1.03 (under 1.0 is good)

Current ratio: 1.05 latest quarter (over 2.0 is good)

Quick ratio: 0.94 latest quarter (over 1.0 is good)

Debt to equity ratio: 1.18 (lower is better)

Percentage of total assets in plant, property, and equipment: 89.78% (the higher the better)

CONCLUSION - Capital Product Partners (CPLP) is a high dividend stock yielding over 12%.  However, I’m a little troubled by the high dividend payout ratio using the average adjusted earning power.  You need to really dig into the annual reports and quarterly reports to determine if its earning power will grow enough to protect the current dividend.  Remember that CPLP cut its dividend almost in half in 2010.  I’m always leery of dividend cutters.   It is priced for investment at barely over 12 times average adjusted earning power and the stock was contrarian cheap as recently as August 2010.  The only ding on the balance sheet is the low current ratio.  The return of the worldwide recession will drop CPLPs price.  You will have another opportunity to buy this stock between $7.20 to $4.80.  Wait for it.  Read the annuals and quarterly reports while you are waiting.  I haven’t read them yet, but I will: http://www.capitalpplp.com/sec.cfm

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http://stockcharts.com/c-sc/sc?s=CPLP&p=W&b=5&g=0&i=p59203526393&r=2148

DISCLOSURE – I don’t own Capital Product Partners (CPLP).

Subscribe today for free at 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
Tue, 07 Feb 2012 12:28:49 -0800 Don't Be Fooled By Annaly's High Dividend Yield. http://myhighdividendstocks.posterous.com/dont-be-fooled-by-annalys-high-dividend-yield http://myhighdividendstocks.posterous.com/dont-be-fooled-by-annalys-high-dividend-yield

Today I take a look at Annaly Capital Management, Inc. (NLY).  This is the fifth article out of fifteen on stocks that appeared as recommendations by Seeking Alpha contributor Insider Monkey.  Most of these stocks are 4-5% dividend yielding stocks, but NLY is different.  NLY and AGNC are mortgage REITs.  They follow some different government rules to avoid paying taxes, so they tend to have much higher dividend yield than regular businesses.  They are highly leverages and in my opinion are much riskier that most investor can appreciate.

Annaly Capital Management, Inc. (NLY)

Share price: $17.12

Shares: 970.08 million

Market capitalization: $16.61 billion

Image002

Bonds outstanding: $600 million, and there are some preferred shares.

Image004

What the company does - Formerly known as Annaly Mortgage Management, Annaly Capital Management is a real estate investment trust which invests in mortgage pass-through certificates, collateralized mortgage obligations, and other mortgage-backed securities. Interest and principal payments on the firm's investments are guaranteed by government-sponsored agencies including Fannie Mae, Freddie Mac, and Ginnie Mae. Annaly commenced operations in 1997 and is based in New York City.

DIVIDEND RECORD – Annaly has been cutting it dividend since its peak in 4Q 2009.  This ship is sinking.

Dividend: $0.57 quarterly

Dividend yield: 13.3% ($2.28 annual dividend/$17.12 share price)

Dividend payout ratio: 118% ($2.28 annual dividend/$1.92 recent Google Finance EPS) –OR- 300% using the six year average adjusted earnings ($2.28/$0.76)

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EARNING POWER – $0.76 per share @ 970.08 million shares

(Earnings adjusted for changes in capitalization; Annaly issues stock all the time to stay afloat)

EPS

Net income

Shares

Adjusted EPS

2006

$0.44

$74 M

168 M

$0.08

2007

$1.31

$393 M

306 M

$0.41

2008

$0.64

$325 M

507 M

$0.34

2009

$3.52

$1,943 M

553 M

$2.00

2010

$2.04

$1,249 M

625 M

$1.28

2011 (est)

$0.60

$422.53 M

970.08 M

$0.44

EPS

Net income

Shares

Adjusted EPS

2011 Q1

$0.89

$696 M

791 M

$0.72

2011 Q2

$0.14

$117 M

828 M

$0.12

2011 Q3

($0.98)

($926 M)

949 M

($0.95)

2011 Q4 (est)

$0.55

$535.53 M

970.08 M

$0.55

2011 total (est)

$0.60

$422.53 M

970.08 M

$0.44

Six year average adjusted earnings per share is $0.76

Consider contrarian buying below $6.08 (8 times average adjusted EPS)

Consider value buying below $9.12 (12 times average adjusted EPS)

Consider speculative selling above $15.20 (20 times average adjusted EPS)

Annaly Capital Management is currently trading at 22.5 times average adjusted EPS.  This stock is speculatively priced.

BALANCE SHEET – Toxic assets falsely valued at full face value and a mountain of short term liabilities that are real.  The company’s equinity can disappear in moments.  The company possesses no plant, property, or equipment used to produce goods.  That means no real assets; just deficit spending government non-guaranteed mortgage backed securities.

Image012

Book value per share:  $16.40 ($15,910 M/ 970.08 M shares), but the equity is a phony number because the assets are artificially valued higher than the free market would price them.

Price to book value ratio: 1.04 (under 1.0 is good)

Current ratio: 0.04 (over 2.0 is good) ($4.311 B in current assets / $97.165 B in current liabilities)

Quick ratio: (over 1.0 is good) ($3.474 B in cash / $97.165 in current liabilities)

Debt to equity ratio: 6.14 (lower is better) (total liabilities / total equity)

Percentage of assets in plant, property, and equipment: 0%

CONCLUSION – Never own a bank or financial stock.  Annaly Capital Management suffers from all the same ills of American Capital Agency Corp. (AGNC). 

http://www.myhighdividendstocks.com/category/high-dividend-stocks/american-capital-agency-corp

They are borrowed short and lent long.  They are susceptible to bankruptcy if the financial markets seize up again like in 2008.  Their assets are toxic, but are carried at full face value even though the market would never buy them at such prices if the company where to be liquidated.  Stay away from the siren song of the high dividend yield.  Besides, the shares are speculatively priced based on earnings and book value.  If I can’t convince you to stay away from financial stocks, then at least buy under $9.00.

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DISCLOSURE – I don’t own Annaly Capital Management, Inc. (NLY) and I never will.

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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
Tue, 24 Jan 2012 18:27:46 -0800 A First Look at Enbridge Energy Partners (EEP). http://myhighdividendstocks.posterous.com/a-first-look-at-enbridge-energy-partners-eep http://myhighdividendstocks.posterous.com/a-first-look-at-enbridge-energy-partners-eep

I keep looking for high dividend stocks with earning power and strong balance sheets in the energy sector.  But all I found today is another high dividend stock in the energy sector that offers more risk than reward.  Don’t be fooled by the high current dividend yield.  Danger lurks below the hood on this one.

Enbridge Energy Partners (EEP)

Share price: $33.55

Shares: 273.15 million

Market capitalization: $9.16 billion

Image005

Bonds outstanding: $4.8 billion

Image006

What the company does - Enbridge Energy Partners LP is one of the largest crude-oil transporters in America. The company operates the U.S. portion of the Lakehead pipeline system, the world's longest crude pipeline, which stretches 3,300 miles from the Canadian oil fields in Alberta to Chicago, points east, and is currently being expanded toward the Gulf Coast. The company has several other smaller crude pipelines in the U.S. as well as a sizable natural gas gathering and processing business.

Morningstar’s take - Enbridge Energy Partners, L.P. EEP is a master limited partnership operated by its general partner, Canadian pipeline giant Enbridge Inc. ENB. We're big fans of EEP's crude oil business. While its natural gas gathering and processing operations detract somewhat from an otherwise wide moat, they also bring attractive growth potential thanks to booming unconventional natural gas liquids (NGL) production.

DIVIDEND RECORD – EEP issues stock and debt to pay for its dividends not covered by earnings (see cash flow chart further below).  Dividend gaps in 2007 and 2009.

Dividend: $0.53 quarterly

Dividend yield: 6.3% ($2.12/$33.55)

Dividend payout ratio: 203% using the most recent EPS ($2.12 DIV/$1.04 EPS) or 252% using average adjusted EPS ($2.12 DIV/$0.84 avg adj. EPS)

Image008

EARNING POWER – $0.84 six year average adjusted earnings @ 273.15 million shares

(Earnings adjusted for changes in capitalization)

EPS

Net income

Shares

Adjusted EPS

2006

$1.81

$285 M

140 M

$1.04

2007

$1.23

$250 M

173 M

$0.92

2008

$1.82

$403 M

194 M

$1.48

2009

$1.12

$261 M

233 M

$0.96

2010

($1.09)

($260 M)

239 M

($0.95)

2011 (est)

$1.64 (est)

$429.5 M (est)

273.15 M

$1.58 (est)

EPS

Net income

Shares

Adjusted EPS

2011 Q1

$0.38

$97 M

253 M

$0.36

2011 Q2

$0.51

$130 M

255 M

$0.48

2011 Q3

$0.36

$96 M

265 M

$0.35

2011 Q4 (est)

$0.39 (est)

$106.5 M (est)

273.15 M

$0.39 (est)

2011 total (est)

$1.64 (est)

$429.5 M (est)

273.15 M

$1.58 (est)

Six year average adjusted earnings per share is $0.84

Consider contrarian buying below $6.72 (8 times average adjusted EPS)

Consider value buying below $10.08 (12 times average adjusted EPS)

Consider speculative selling above $16.80 (20 times average adjusted EPS)

Enbridge Energy Partners is currently trading at 40 times average adjusted EPS.  This is highly speculative pricing.

CASH FLOW – Capital expenditures and dividends are being funded from debt and stock issuance; not operating profits.

Image012

BALANCE SHEET – Poor book value to stock price ratio; stagnant increase in equity.

Image015

Book value per share: $14.03

Price to book value ratio: 2.39 (under 1.0 is good)

Current ratio: 1.05 latest quarter (over 2.0 is good)

Quick ratio: 0.91 (over 1.0 is good)

Debt to equity ratio: 1.39 (lower is better)

CONCLUSION – Enbridge Energy Partners (EEP) is a high dividend stock that lacks enough earning power to pay for that dividend out of operating profits.  It funds its dividend from periodic equity and debt issuances.  The stock is speculatively priced at 40 times average adjusted earnings.  The balance sheet is weak due to a high book value per share ratio.  EEP does not have a lot of current assets to pay for its current liabilities.  I would wait until the price drops below $10.08 per share (12 times average earnings).  The European double dip recession and sovereign debt crisis will spread to the USA.  This will tank the stock market.  Buy EEP on sale if you want to.

Image016

DISCLOSURE – I don’t own Enbridge Energy Partners (EEP).

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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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
Thu, 19 Jan 2012 12:41:58 -0800 First look at Energy Transfer Partners (ETP). http://myhighdividendstocks.posterous.com/first-look-at-energy-transfer-partners-etp http://myhighdividendstocks.posterous.com/first-look-at-energy-transfer-partners-etp

I believe that natural gas pipelines are generally a good investment.  I recent stock screen turned up Energy Transfer Partners (ETP) with a dividend yield of 7.2%

Energy Transfer Partners (ETP)

Share price: $47.98

Shares: 209.59 million

Market capitalization: $10.06 billion

Image003

Bonds outstanding: $7.7 billion.  There are there a bunch on bonds due in the next decade.

Image005

What the company does - Energy Transfer Partners is a master limited partnership primarily engaged in natural gas transportation and storage. The partnership operates more than 17,500 miles of natural gas gathering and intrastate transportation pipelines in Texas and Louisiana and the 2,500-mile Transwestern interstate pipeline. Energy Transfer Partners is also the third-largest retail marketer of propane in the United States, serving more than a million customers across the country.

Morningstar’s take - Energy Transfer has grown into one of the largest master limited partnerships through a steady buildout of large-diameter natural gas pipelines and a few transformative acquisitions. Energy Transfer's Texas intrastate pipeline system is a phenomenal machine for moving gas around and out of Texas, and its interstate pipelines only increase market access and fee-based cash flows. With the LDH acquisition, however, Energy Transfer has now entered the natural gas liquids business. We think this shift in strategy could lead to considerable growth opportunities for the partnership.

DIVIDEND RECORD – Energy Transfer Partners has been a dividend grower since 1997, but the payout ratio has grown to over 100%.  The dividend hasn’t grown since 2008 Q3.

Dividend: $0.89 quarterly

Dividend yield: 7.2%

Dividend payout ratio: 263% using the most recent EPS ($3.56 annual dividend / $1.35 TTM EPS) or 168% using the average adjusted EPS ($3.56 / $2.12 avg. adj EPS)

Image007

EARNING POWER – $2.12 six year average earnings per share

(Earnings adjusted for changes in capitalization)

EPS

Net income

Shares

Adjusted EPS

8/2006

$3.15

$516 M

109 M

$2.46

8/2007

$3.31

$676 M

133 M

$3.23

8/2008

$3.74

$550 M

147 M

$2.62

8/2009

$2.53

$426 M

168 M

$2.03

8/2010

$1.19

$229 M

189 M

$1.09

8/2011

$1.37

$271 M

209.59 M

$1.30

EPS

Net income

Shares

Adjusted EPS

2010 Q4

$0.66

$127 M

192 M

$0.61

2011 Q1

$0.71

$140 M

195 M

$0.67

2011 Q2

$0.19

$42 M

210 M

$0.20

2011 Q3

($0.19)

($38 M)

209.59 M

($0.18)

2011 total (est)

$1.37

$271 M

209.59 M

$1.30

Six year average adjusted earnings per share is $2.12

Consider contrarian buying below $16.96 (8 times average adjusted EPS)

Consider value buying below $25.44 (12 times average adjusted EPS)

Consider speculative selling above $42.40 (20 times average adjusted EPS)

Energy Transfer Partners is currently trading at 22.6 times average adjusted EPS.  This stock is speculatively priced.

BALANCE SHEET – ETP has a weak balance sheet

Image009

Book value per share: $24.59 ($5,153 M in equity / 209.59 M shares)

Price to book value ratio: 1.95 (under 1.0 is good)

Current ratio: 0.84 (over 2.0 is good)

Quick ratio: 0.53 (over 1.0 is good)

Debt to equity ratio: 1.49 (lower is better)

CONCLUSION – Energy Transfer Partners (ETP) is a high dividend stock, but it is not earning enough money to sustain the dividend at its current rate.  The company has an earning power of $2.12 per share @ 209.59 million shares.  At a current stock price of 47.98 is it speculatively priced at 22.6 times average adjusted earnings.  Lastly, it balance sheet is weak.  This stock shouldn’t be bought above $25.00 per share.  It will probably suffer a dividend cut and drop back to that price.  You can buy it then for much cheaper and less downside risk.

Image013

DISCLOSURE – I don’t own Energy Transfer Partners (ETP).

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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
Wed, 21 Dec 2011 11:30:03 -0800 First look at Transocean (RIG) http://myhighdividendstocks.posterous.com/first-look-at-transocean-rig http://myhighdividendstocks.posterous.com/first-look-at-transocean-rig

Transocean (RIG)

Market price: $39.83

Shares: 319.86 million

Market capitalization: $12.74 billion

Morningstar’s take: In our opinion, Transocean is the best-positioned driller to capitalize on numerous drilling technology breakthroughs, as well as higher oil and gas prices. This positioning has led to strong secular trends supporting high levels of offshore exploration and development well into the next decade. Because Transocean owns the world's largest offshore drilling fleet, it will collect billions from customers eager to exploit large discoveries under the sea floor.

Image001

Transocean is an offshore drilling company. Its fleet of 135 vessels includes drill ships, semisubmersibles, and jackups, which operate in technically demanding environments such as Brazil, Nigeria, and the North Sea. It contracts primarily with some of the largest global exploration and production companies.

DIVIDEND RECORD – Transocean paid an adjusted $0.03 quarterly dividend from 1993 – 2002.  Then it stopped all dividend payments.  Three quarters ago it started paying a $0.79 quarterly dividend.  It went from a no dividend stock to a high dividend stock instantaneously.

Image002

Dividend: $0.79 quarterly

Dividend yield: 7.9% ($3.16 annual DIV / $39.83 share price)

Dividend payout ratio: 200% ($3.16 / $1.58 2011 adjusted EPS) or 103% ($3.16 / $3.06 eleven year average adjusted EPS)

EARNING POWER – $3.06 eleven year average adjusted earnings @ 320 million shares

(earnings adjusted for changes of capitalization)

                        EPS                   Net inc.             Shares               Adj EPS

2001                 $0.80                $254 M              315 M                $0.79

2002                 ($11.69)            ($3,732 M)        319 M                ($11.66)

2003                 $0.06                $19 M                321 M                $0.06

2004                 $0.47                $152 M              325 M                $0.48

2005                 $2.13                $716 M              339 M                $2.24

2006                 $4.28                $1,385 M           325 M                $4.33

2007                 $14.14              $3,131 M           222 M                $9.78

2008                 $13.09              $4,202 M           321 M                $13.13

2009                 $9.84                $3,181 M           321 M                $9.94

2010                 $2.99                $961 M              320 M                $3.00

2011 E              $1.09                $504 M              320 M                $1.58

-----------------------------------------------------------------------------------

2011 Q1            $0.40                $309 M              320 M                $0.97

2011 Q2            $0.53                $154 M              320 M                $0.48

2011 Q3            ($0.19)             ($71 M)             320 M                ($0.22)

2011 Q4            $0.35 E*            $112 M              320 M                $0.35

* Q4 2011 earnings estimates comes from Reuters.com

$3.06 eleven year average adjusted earnings @ 320 million shares

Consider contrarian buying below $24.48 (8 times average adjusted EPS)

Consider value buying below $36.72 (12 times average adjusted EPS)

Transocean is currently trading at 13 times average adjusted EPS

Consider speculative selling above $61.20 (20 times average adjusted EPS)

BALANCE SHEET – Thirty-nine percent of Transocean assets is comprised of goodwill.  Why?  I don’t know yet.  The price to book value ratio would rise to about 1.0 if we exclude the $8.1 billion in goodwill.

Image003

Book value per share: $65.10

Price to book value per share ratio: 0.61 this is good ($39.83 price / $65.10 BV per share)

Current ratio: 1.54 (over 2.0 is good)

Quick ratio: 0.77 (over 1.0 is good)

Debt to equity ratio: 0.71

CONCLUSION – Transocean is currently a high dividend stock, but I’m not convinced that it has the earning power to cover the current dividend for the next few years.  The company is currently trading at 13 times average adjusted earnings, but its earning power is highly variable.  A deeper analysis is necessary to determine why there is so much volatility in Transocean’s earning power.  Other companies in this sector do not have the same volatility in earning power.  RIG’s balance sheet is okay right now, but without more earnings it will deteriorate.

I would wait buy until the dividend situation stabilizes and the price falls closer to contrarian territory in the mid-20’s.  China’s looming recession will lower demand for oil at the current price.  That’s not good for Transocean.

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DISCLOSURE – I don’t own Transocean (RIG).

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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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
Tue, 13 Dec 2011 11:38:20 -0800 AGNC declares another $1.40 quarterly dividend. Dividend payout ratio up to 118%, again. http://myhighdividendstocks.posterous.com/agnc-declares-another-140-quarterly-dividend http://myhighdividendstocks.posterous.com/agnc-declares-another-140-quarterly-dividend American Capital Agency Corp. has just declared another $1.40 dividend
payable on January 27th, 2012 to common shareholders of record as of
December 22nd, 2011, with an ex-dividend date of December 20th, 2011.

http://tinyurl.com/7banmep

This will be the 10th consecutive quarterly dividend payment of $1.40.
However, the trend of dividend payout ratio over 100% also continues.

Reuters.com financial website shows analyst's concensus estimates for
AGNC's 4th quarter earnings at $1.18 per share. If they are right,
then AGNC's dividend payout ratio will be 118%. They will probably
announce a secondary share offering soon to finance their dividend
deficit. Then the share price will drop again. This has been the
pattern for the last few quarters.

AGNC is not earning enough money to cover their dividend payments at
$1.40 per share. There is a substantial downside risk to your capital
if you buy AGNC at today's price.

DISCLOSURE - I don't own AGNC.

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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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
Fri, 09 Dec 2011 10:26:40 -0800 TIP OF THE WEEK - http://myhighdividendstocks.posterous.com/tip-of-the-week http://myhighdividendstocks.posterous.com/tip-of-the-week
Reuters.com has easy to find earnings estimates
December 9th, 2011
Jason Brizic
 
Knowing a company's earning power should help you determine when the company's shares are relatively value priced.  Companies are value priced when they are trading at less than 12 times average adjusted earnings.
 
I like to factor the current year's earnings into my long term average adjusted earnings.  I use Morninstar.com's website to gather the earnings per share, net income, and number of shares for the past five years.  That usually gets me 2006-2010.  But I still need 2011.  I switch the view from annual to quarterly to get Q1, Q2, and Q3 of the current year.  That leaves Q4 as an unknown.
 
This is where Reuters.com comes in.  I use Reuters.com to get an estimate for the next quarter to complete the year.  Its okay if a company beats or misses this estimate because it has little effect on a five or six year average adjusted earnings calculation.
 
Let's do this for one of my favorite stocks, Safe Bulkers (SB).  This data comes from Morningstar.com's financials tab.
(Earnings adjusted for changes in capitalization - Safe Bulkers has issued shares in the past two years)
Year        EPS       Net inc.       Shares      Adj EPS
2006        $1.78     $97 M         55 M         $1.47
2007        $3.84     $209 M       55 M         $3.17
2008        $2.19     $119 M       55 M         $1.81
2009        $3.03     $165 M       55 M         $2.50
2010        $1.73     $110 M       63 M         $1.67
 
For some reason unknown to me Morningstar.com wouldn't show me the quarterly data for Safe Bulkers, so I used Google Finance to find the data I need for Q1-Q3 2011
 
Year        EPS       Net inc.      Shares       Adj EPS
2011 Q1  $0.41     $27.31 M   65.88 M     $0.41
2011 Q2  $0.47     $31.13 M   65.88 M     $0.47
2011 Q3  $0.33     $22.01 M   65.88 M     $0.33
 
Click on the Analysts tab
Scroll down to Consensus Recommendations
You will see Safe Bulkers next quarter consensus estimate of $0.35 per share
 
Now we can complete the estimated earnings for 2011
Year        EPS       Net inc.      Shares      Adj EPS
2011 Q4  $0.35 E  $23.06 M   65.88 M    $0.35
 
Total        $1.56 E  $103.5 M   65.88 M   $1.56 E
 
Compute the six year average adjusted earnings, which equals $2.03 per share @ 65.88 million shares.  Safe Bulkers is trading at $6.16 as I write this, so it is only trading at 3.03 times its six year average earnings.  What a value especially with the 9.79% dividend yield.  However, its stock price will decline in a global recession and a China hard landing so I think you can get it even cheaper in the $3 - $4 range.
 
 
For more tips like these go to www.myhighdividendstocks.com/tip-of-the-week
 
 

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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
Thu, 08 Dec 2011 07:39:11 -0800 Dividends Are Sexier Than You Think by Addison Wiggin http://myhighdividendstocks.posterous.com/dividends-are-sexier-than-you-think-by-addiso http://myhighdividendstocks.posterous.com/dividends-are-sexier-than-you-think-by-addiso

Addison Wiggin demonstrates that much of the total return stocks provide comes in the form of dividends.  Also, I love this quote from the article:

“Better the common equity of an adaptive and profitable American enterprise than the inert emissions of the US Treasury” – James Grant

* * * * * * * * * *

Dec 7, 2011

Dividends Are Sexier Than You Think

from The Daily Reckoning

Last month, the dividend yields on American AAA corporations moved above the yield on 30-year Treasury bonds! That had never happened before.

Even after last week’s stock market rally (which pushed dividend yields lower), the stocks of America’s four AAA companies still yield about 3%, on average, which is not quite as high as the yield on 30-year Treasury bonds, but still much higher than the yield on every Treasury bond of 24 years or less.

So you’ve got an opportunity here to forgo the dubious promise of a bankrupt nation and to invest, instead, in some of the strongest companies on the planet — those that are most capable of expanding, those that are most able to respond to government caprice and move operations wherever they need to move them, those with the most cash on their balance sheets. These are the companies that are going to lead the global economy for the next 10, 20, 30 years.

The story is much the same throughout the developed markets of Europe and North America.

In England, the FTSE index yields almost 4%. Ten-year British government bonds yield less than 3%. In France, The CAC 40 index yields 5.0%. Ten-year French government bonds yield around 3%. In Germany, the DAX yields 4%. German 10-year bonds yield 2%. In the US the S&P 500 dividend yield — at 2.08% — is higher than the 10-year Treasury yield for only the second time since 1958.

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In fact, many, many world-leading American companies now pay dividend yields higher than long-dated Treasuries.

As James Grant framed this contrast in the Oct. 7, 2011 edition of Grant’s Interest Rate Observer, “Better the common equity of an adaptive and profitable American enterprise — say, Molson Coors (NYSE: TAP/A) — than the inert emissions of the US Treasury…Today, the stock is quoted at 39… at 11.1 times earnings with the yield of 3.25%. Meanwhile, the utterly unadaptive 10-year note of Timothy Geithner’s negative-cash-flow Treasury is quoted at 1.83% [now 2.03%].”

Grant also highlights Campbell Soup (NYSE:CPB) as a compelling alternative to long-term Treasury securities. At the current quote of $33, Grant observes, this blue chip stock is selling for about 13 times trailing earnings and yielding 3.5%. “Campbell, which traces its corporate ancestry back to 1869 and which incorporated in 1922, early on conceived the bright idea of draining the water from canned soup. The shipping expense thereby saved was enough to allow a price reduction to a dime per can from 30 cents.”

The company has flourished ever since. “From 1955 to the present,” Grant points out, “dividends have grown at an 8.9% compound rate.”

Now, I realize that dividends sound very boring — kind of like watching paint dry… I can almost hear you saying, “C’mon, Addison! This isn’t the Great Depression! I don’t want to invest for dividends, clip bond coupons and store canned peas in my basement. I want something that’s high-growth. Something sexy.”

My answer to that is: Sexy sometimes sneaks up on you.

What if I had told you on Jan. 1, 2000, to sell all your tech stocks — those highflying stocks that were doubling and tripling every few months — and to spread the proceeds equally across three very boring investments: gold, 10-year Treasury bonds and stodgy old dividend-paying stocks — like the ones inside the Vanguard Dividend Growth Fund (VDIGX), the mutual fund we highlighted in Apogee.

You would have looked at me as if I had lost my mind. You might have even felt sorry for me and tried to offer me some intelligent investment advice. But with the benefit of hindsight, we know what happened next.

The high-flying tech stocks that comprised the Nasdaq Composite Index crashed…and still have not recovered their losses, even after all this time. The Nasdaq is down 28% since the end of 1999. Even the “blue chip” S&P 500 stocks are down 15% during that time frame… until you add back those boring dividends.

With dividends included, the S&P 500’s 15% loss flips to a 6% gain. That’s still a miserable return for an entire decade, but it illustrates the point that dividends matter. In fact, for long periods of time in the stock market’s history, dividends have been the only thing that mattered.

Without dividends, the S&P 500 index would have produced a loss for the 25 long years from August 1929 to August 1954. Then again, without dividends, the S&P 500 produced a 5% loss during the 13 years from September 1961 to September 1974. But with dividends included, the S&P’s loss became a 46% gain.

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If you think that’s just a bunch of “ancient history”, think again. During the last 12 years — from early November 1999 until this very moment — the S&P 500 has produced a loss…unless you include dividends.

The moral of the story is simple: Dividends matter. In fact, they may even be a little bit sexy. Over the course of the last half-century, dividends have contributed more than half of the stock market’s total return — 56%, to be exact.

So what happened to all that boring stuff you could have purchased at the dawn of the new millennium? Well, the Vanguard Dividend Growth Fund delivered a total return of 50%, 10-year Treasuries produced a total return of 162% and the “barbarous relic” gold provided a dazzling total return of nearly 500%. Average return of the three investments: 236%!

We would expect the Vanguard Dividend Growth Fund to outperform their low-dividend or no-dividend counterparts over the next few years…and to greatly outperform the return of long-term government bonds. As James Grant observes, “Better the common equity of an adaptive and profitable American enterprise than the inert emissions of the US Treasury.”

Regards,

Addison Wiggin,
for The Daily Reckoning

Dividends Are Sexier Than You Think originally appeared in the Daily Reckoning. The Daily Reckoning provides over 400,000 readers economic news, market analysis, and contrarian investment ideas.

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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
Fri, 02 Dec 2011 16:00:57 -0800 Visual evidence of the European soverign debt crisis and worldwide recession. http://myhighdividendstocks.posterous.com/visual-evidence-of-the-european-soverign-debt http://myhighdividendstocks.posterous.com/visual-evidence-of-the-european-soverign-debt

The New York Times employs a bunch of Keynesian socialists, but they do produce some quality interactive visual graphics.  They recently produced an excellent visualization of the European sovereign debt crisis that you should take a look at.

http://www.nytimes.com/interactive/2011/10/23/sunday-review/an-overview-of-the-euro-crisis.html

Italy will defalt along with Greece.  The French banks are doomed without central banker bailouts.  The bailouts will be inflationary.  Europe is back in recession.   The US is next.  Stock markets will fall.  There will be high dividend stock bargains.  Keep your powder dry until near the next bottom.

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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