My High Dividend Stocks Blog http://myhighdividendstocks.posterous.com Most recent posts at My High Dividend Stocks Blog posterous.com Fri, 15 Jun 2012 12:21:30 -0700 First Look at DOW 30 Component Procter & Gamble (PG). http://myhighdividendstocks.posterous.com/first-look-at-dow-30-component-procter-gamble http://myhighdividendstocks.posterous.com/first-look-at-dow-30-component-procter-gamble

Today I continue my series on the Dow 30 component stocks with consumer staples giant Procter & Gamble (PG).  Their stock price is okay and the dividend growth continues to be phenomenal, but their balance sheet is horrible.  To see how I came to these conclusions read on.

Procter & Gamble (PG)

Price: $63.31

Shares: 2.74 billion

Market capitalization: $173.17 billion

Image004

What does the company do: Since its founding in 1837, Procter & Gamble has become the world's largest consumer product manufacturer, with a lineup of famous brands. The brands are sold through three global business units, and include Tide laundry detergent, Charmin toilet paper, Pantene shampoo, Cover Girl cosmetics, and Iams pet food. Since 2001, the company has doubled the sales it derives from developing markets; acquired and integrated Wella and Gillette; and sold its pharmaceutical, coffee, and food businesses.

Morningstar’s take: During the past several years, Procter & Gamble has divested noncore businesses, repositioned its product portfolio toward more value offerings, significantly increased spending to reclaim and defend market share, and aggressively expanded in overseas markets. Unfortunately, the firm's stock hardly budged. Frustrated investors were asking whether P&G was doing enough to fix its problems, which included a bloated cost structure and sluggish top-line growth. In February, management responded with a massive $10 billion cost savings plan that will dramatically reduce headcount as the firm aims to return to 8% to 10% EPS growth and free up funds to reinvest in its business. This overhaul is significant, and while we're not entirely convinced that the firm can pull it off, we don't see much downside to the shares at current prices. That said, the stock gave up gains it enjoyed in the wake of its February restructuring announcement when during a a rocky third-quarter conference call management detailed pressures from slowing growth rates, competitive pricing, and negative foreign exchange. None of these pressures are new, so they were perceived as more excuses for a weak quarter, and that's not what investors expect of P&G management.

Image005

Bonds: $24.6 billion outstanding

Times interest earned: 13.9 times.  PG earned $11.564 billion in 2011 and had interest expenses of $831 million in the same year.  Their bonds are not an immediate threat to the dividend payments, but PG has a lot of big bonds due in 2014.  If interest rates rise between not and 2014 (and I think they will), then PG will have a real challenge refinancing those bonds.

Image007

Preferred stock: PG has a small amount of preferred stock.  They paid about $233 million in preferred dividends in 2011.  The preferred stock is not a threat to the common dividends.  You can see on the market capitalization graphic above that the preferred stock is a very small percentage of total capitalization.

DIVIDEND RECORD: Procter & Gamble has been an excellent dividend payer and grower over the last 25 years.  They paid a $0.04 quarterly dividend in 1987.  Today they pay a $0.56 quarterly dividend.  That is 1,300% straight-line dividend growth over 25 years or 52% straight-line annual growth.

Dividend: $0.56 quarterly

Dividend yield: 3.56% ($2.24 annual dividend / $63.31 share price)

Dividend payout: 70% using 2011 EPS of $3.21 –OR- 57% using average adjusted earning power of $3.93

Image012

EARNING POWER: $3.93 at 2.74 billion shares

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

EPS

Net income

Shares

Adjusted EPS

2005

$2.66

$7,257 M

2,726 M

$2.65

2006

$2.64

$8,684 M

3,286 M

$3.17

2007

$3.04

$10,179 M

3,317 M

$3.71

2008

$3.64

$11,899 M

3,317 M

$4.34

2009

$4.26

$13,244 M

3,154 M

$4.83

2010

$4.11

$12,517 M

3,099 M

$4.57

2011

$3.93

$11,564 M

3,022 M

$4.22

Seven year average adjusted earnings per share is $3.93

Consider contrarian buying below $31.44 (8 times average adjusted EPS)

Consider value buying below $47.16 (12 times average adjusted EPS)

Procter & Gamble (PG) is currently trading at 16.1 times average adjusted EPS.  This is stock is priced for investment.

Consider speculative selling above $78.60 (20 times average adjusted EPS)

BALANCE SHEET – Equity growth is stagnant, price to book value is bad at the current stock price, tangible book value is a negative number because of a huge percentage of intangible assets, their liquidity is horrible also.  Weak balance sheet.

Image017

Book value per share: $23.81 ($65.265 B in equity / 2.74 B shares)

Price to book value ratio: 2.65 (under 1.0 is good) ($63.31 share price / $23.81 BV)  PG investors are paying $2.65 per $1.00 of book value.  That is not a bargain price.

Tangible book value per share: -$7.66 (equity - $54.833 B goodwill - $31.429 B intangibles)

Price to tangible book value: N/A because negative number

Current ratio: 0.86 latest quarter (over 2.0 is good) ($23.108 B current assets / $26.904 B current liabilities)

Quick ratio: 0.15 latest quarter (over 1.0 is good) ($3.991 B cash / $26.904 B current liabilities)

Debt to equity ratio: 0.33 (lower is better)

Percentage of total assets in plant, property, and equipment: 15.14% (the higher the better)  Other assets as a percentage of total assets: 64.09% intangibles, 17.17% current assets, and other long term assets 3.6%

Working capital trend: Horrible.  This company relies on just in time financing and will be at risk during a financial crisis like the one in 2008 and the next one brewing right now.  They have to finance about $5 billion dollars each year just to pay their current liabilities.

Image018

CONCLUSION – Procter & Gamble bottomed in March 2009 at $45.59.  That is a little under 12 times average adjusted earnings.  I would wait to buy this stock below 12 times average adjusted earnings of $47.16.  The stock currently yields 3.56%, which is a lot more than the S&P 500 average of around 2.2%.  They continue their awesome dividend growth pattern, but a worldwide recession can harm even the consumer staple stocks.  Poorly run finances can threaten the dividend in the future.  This company has a horrible balance sheet.  I relies on just in time financing like banks to operate.  A worldwide repeat of the financial crisis will hurt PG badly.  I would stay away until they fix their weak balance sheet.

Image021

DISCLOSURE – I don’t own Procter & Gamble (PG).

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Fri, 13 May 2011 15:29:34 -0700 TIP OF THE WEEK - Why the dividend/earning yield ratio is better than the dividend payout ratio http://myhighdividendstocks.posterous.com/tip-of-the-week-why-the-dividendearning-yield http://myhighdividendstocks.posterous.com/tip-of-the-week-why-the-dividendearning-yield

Why the dividend/earning yield ratio is better than the dividend payout ratio

Jason Brizic

May 13, 2011

Rock solid high dividend stocks earn more than they payout in dividends year after year.  This ratio between earnings per share and dividends per share is commonly known as the dividend payout ratio.  A dividend payout ratio above 100% signals a possible dividend cut (especially the longer it stays above 100%).

The dividend payout ratio is nice but it only shows you the difference between the two numbers being compared.  There is another number that called the earnings yield that can be compared to the dividend yield.  Let’s compare three companies with some similar ratios.  Proctor & Gamble (dividend aristocrat) and Safe Bulkers have similar dividend payout ratios and div yield/earnings yield ratios, but much different dividend yields.  Safe Bulkers and WWE have high dividend yields, but very different ratios.

Proctor & Gamble (PG)

Safe Bulkers (SB)

World Wrestling Ent.(WWE)

Dividend/share

$2.10

$0.60

$1.44

Earnings/share

$4.32

$1.73

$0.72

Dividend Payout Ratio

48.6%

34.7%

200%

Dividend yield

3.0%

7.3%

13.9%

Earnings yield

5.7%

19.2%

4.8%

Div yld./Earning yld.

52.6%

38.0%

289%

It should be no surprise that WWE cut its dividend recently and now its dividend yield is in the 4-5% range.

You can use Morningstar.com to quickly find these yields.  Go to www.morningstar.com.  Type your stock ticker into the box at the top.  Then click on the Valuations tab.  Scroll down to the bottom of the page’s contents and you will see the dividend and earnings yields.  It looks like this:

Image002

I like to see double digit earnings yields with a slightly smaller dividend yield.  Safe Bulkers (SB) is a beautiful thing.  Click here to be taken right to the page:

http://financials.morningstar.com/valuation/price-ratio.html?t=SB

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
Thu, 31 Mar 2011 08:43:47 -0700 Examples of Speculative and Investment Common Stocks You've Got to See. http://myhighdividendstocks.posterous.com/examples-of-speculative-and-investment-common-0 http://myhighdividendstocks.posterous.com/examples-of-speculative-and-investment-common-0

The second edition of Security Analysis provided several examples of speculative and investment common stocks.  The examples are so illustrative, but they are from 1940.  I wanted to bring the text of this section of the book into this blog with examples from several of the stocks that I have blogged about on www.myhighdividendstocks.com .

I chose the following stocks for examples: Goldcorp (GG), Proctor & Gamble (PG), American Capital Agency Corp. (AGNC), Seadrill Limited (SDRL), Safe Bulkers (SB), and AT&T.  Let me tell you why I chose these stocks.  I wanted to also include Terra Nitrogen (TNH), but the results table would have been too unreadable.

Goldcorp (GG)  I used to own Goldcorp when it was priced in the high teens and twenties.  I wanted to revisit it because it is also in many gold mining stock funds such as FSAGX.  I currently own FSAGX in my 401(k) account and I’m considering selling it.  You will see why momentarily.

Proctor & Gamble (PG)  This stock is often written about in dividend aristocrat articles.  It pays a modest dividend and grows its dividend annually like clockwork.  Many people watch this dividend stock.

American Capital Agency Corp. (AGNC)  I’ve included it because I have written many articles on this ultra-high dividend stock.  I don’t like it because its earnings can’t support the current dividend payout.  It balance sheet is horrible like all financial institutions (e.g. banks).

Seadrill Limited (SDRL)  This stock turned up on one of my high dividend stock screens and warrants further investigation to determine if it is speculative or investment grade.

Safe Bulkers (SB)  I love this high dividend stock with earning power and a strong balance sheet.  You will see why in moments.

AT&T (T)  I pays almost a 6% dividend and it is and dividend aristocrat.  Many eyes are on this one so I want to know at what price is it a value buy.

* * * * * * *

Examples of Speculative and Investment Common Stocks.  Our definition of an investment basis for common-stock purchases is a variance with the Wall Street practice in respect to common stocks of high rating.  For such issues a price of considerably more than 20 times average earnings is held to be warranted, and furthermore these stocks are designated as “investment issues” regardless of the price at which they sell.  According to our view, the high prices paid for “the best common stocks” make these purchases essentially speculative, because they require future growth to justify them.  Hence common-stock investment operations, as we define them, will occupy a middle ground in the market, lying between low-price issues that are speculative because of doubtful quality and well-entrenched issues that are speculative, none the less, because of their high price.

* * * * * * *

Image001

There were three groups of examples in Security Analysis.  Group A were common stocks speculative in December 1938 because of their high price (figures were adjusted to reflect changes in capitalization).  The companies in group A were: General Electric, Coca Cola, and Johns-Manville.  Proctor & Gamble and AT&T sort of fit into the Group A category.

Group B were common stocks speculative in December 1938 because of their irregular record.  Group B in 1938 was comprised of the following companies: Goodyear Tire and Rubber, Simmons, and Youngstown Sheet and Tube.  American Capital Agency Corp., Seadrill Limited and Goldcorp are definitely Group B.  Goldcorp also has a poor divided and a high price.  AGNC is irregular with a high price.

Group C were common stocks meeting investment tests in December 1938 from the quantitative standpoint.  They included Adams-Millis, American Safety Razor, and J.J. Newberry.  I have never heard of any of these stocks.  The only stock in my example that makes this cut is Safe Bulkers.  This is why Safe Bulkers is in my best dividend stocks category.

* * * * * * *

Comments on the Various Groups.  The companies listed in Group A are representative of the so-called “first-grade” or “blue-chip” industrials, which were particularly favored in the great speculation of 1928-1929 and in the markets of ensuing years.  They are characterized by a strong financial position, by presumably excellent prospects and in most cases by relatively stable or growing earnings in the past.  The market price of the shares; however, was higher than would be justified by their average earnings.  In fact the profits of the best year in the 1929-1938 decade were less than 8% of the December 1938 market price.  It is also characteristic of such issues that they sell for enormous premiums above the actual capital invested.

            The companies analyzed in Group B are obviously speculative, because of great instability of their earning records.  They show varying relationships of market price to average earnings, maximum earnings, and asset values.

            The common stocks shown in Group C are examples of those which meet specific and quantitative tests of investment quality.  These tests include the following:

1.      The earnings have been reasonably stable, allowing for the tremendous fluctuations in business conditions during the ten-year period.

2.      The average earnings bear a satisfactory ratio to market price.

3.      The financial set-up is sufficiently conservative, and the working-capital position is strong.

Although we do not suggest that common stock bought for investment be required to show asset values equal to the price paid, it is non the less characteristic of Group C that, as a whole, they will not sell for a huge premium above the companies’ actual resources.

            Common-stock investment, as we envisage it, will confine itself to issues making exhibits of the kind illustrated by Group C.  But the actual purchase of any such issue must require also that the purchaser be satisfied in his own mind that the prospects of the enterprise are at least reasonably favorable.

* * * * * * *

Safe Bulkers is a dry bulk shipper with around sixteen ships rented out to various customers.  The dry bulk market suffering due to the global recession and a glut of ships built during the boom, but Safe Bulkers is well positioned to prosper in even that harsh environment.  Its prospects and the industries are good.

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
Wed, 30 Mar 2011 14:46:45 -0700 Examples of Speculative and Investment Common Stocks You've Got to See. http://myhighdividendstocks.posterous.com/examples-of-speculative-and-investment-common http://myhighdividendstocks.posterous.com/examples-of-speculative-and-investment-common

The second edition of Security Analysis provided several examples of speculative and investment common stocks.  The examples are so illustrative, but they are from 1940.  I wanted to bring the text of this section of the book into this blog with examples from several of the stocks that I have blogged about on www.myhighdividendstocks.com .

I chose the following stocks for examples: Goldcorp (GG), Proctor & Gamble (PG), American Capital Agency Corp. (AGNC), Seadrill Limited (SDRL), Safe Bulkers (SB), and AT&T.  Let me tell you why I chose these stocks.  I wanted to also include Terra Nitrogen (TNH), but the results table would have been too unreadable.

Goldcorp (GG)  I used to own Goldcorp when it was priced in the high teens and twenties.  I wanted to revisit it because it is also in many gold mining stock funds such as FSAGX.  I currently own FSAGX in my 401(k) account and I’m considering selling it.  You will see why momentarily.

Proctor & Gamble (PG)  This stock is often written about in dividend aristocrat articles.  It pays a modest dividend and grows its dividend annually like clockwork.  Many people watch this dividend stock.

American Capital Agency Corp. (AGNC)  I’ve included it because I have written many articles on this ultra-high dividend stock.  I don’t like it because its earnings can’t support the current dividend payout.  It balance sheet is horrible like all financial institutions (e.g. banks).

Seadrill Limited (SDRL)  This stock turned up on one of my high dividend stock screens and warrants further investigation to determine if it is speculative or investment grade.

Safe Bulkers (SB)  I love this high dividend stock with earning power and a strong balance sheet.  You will see why in moments.

AT&T (T)  I pays almost a 6% dividend and it is and dividend aristocrat.  Many eyes are on this one so I want to know at what price is it a value buy.

* * * * * * *

Examples of Speculative and Investment Common Stocks.  Our definition of an investment basis for common-stock purchases is a variance with the Wall Street practice in respect to common stocks of high rating.  For such issues a price of considerably more than 20 times average earnings is held to be warranted, and furthermore these stocks are designated as “investment issues” regardless of the price at which they sell.  According to our view, the high prices paid for “the best common stocks” make these purchases essentially speculative, because they require future growth to justify them.  Hence common-stock investment operations, as we define them, will occupy a middle ground in the market, lying between low-price issues that are speculative because of doubtful quality and well-entrenched issues that are speculative, none the less, because of their high price.

* * * * * * *

There were three groups of examples in Security Analysis.  Group A were common stocks speculative in December 1938 because of their high price (figures were adjusted to reflect changes in capitalization).  The companies in group A were: General Electric, Coca Cola, and Johns-Manville.  Proctor & Gamble and AT&T sort of fit into the Group A category.

Group B were common stocks speculative in December 1938 because of their irregular record.  Group B in 1938 was comprised of the following companies: Goodyear Tire and Rubber, Simmons, and Youngstown Sheet and Tube.  American Capital Agency Corp., Seadrill Limited and Goldcorp are definitely Group B.  Goldcorp also has a poor divided and a high price.  AGNC is irregular with a high price.

Group C were common stocks meeting investment tests in December 1938 from the quantitative standpoint.  They included Adams-Millis, American Safety Razor, and J.J. Newberry.  I have never heard of any of these stocks.  The only stock in my example that makes this cut is Safe Bulkers.  This is why Safe Bulkers is in my best dividend stocks category.

Item

Goldcorp (GG)

Proctor & Gamble (PG)

American Capital Agency Corp. (AGNC)

Seadrill Limited (SDRL)

Safe Bulkers (SB)

AT&T (T)

Dividend Yield

0.84%

3.14%

19.50%

7.46%

6.85%

5.77%

Earnings per share

2001

?

?

-

-

-

?

2002

?

?

-

-

-

?

2003

?

?

-

-

-

?

2004

?

?

-

-

-

?

2005

$0.35

?

-

-

?

?

2006

$0.51

$3.05*

-

$0.56

$1.48

$1.24

2007

$0.58

$3.64*

-

$1.32

$3.18

$2.02

2008

$1.85

$4.25*

$0.28

($0.43)

$1.81

$2.18

2009

$0.30

$4.73*

$0.94

$3.31

$2.51

$2.05

2010

$1.64

$4.47*

$2.30

?

$1.66

$3.36

10-yr. average

?

?

-

-

-

?

5-yr. average (2006-2010)

$0.98

$4.03

3-yr. average

$1.17

4-yr. average

$1.19

$2.13

$2.17

12 times 5Y average earnings

$11.71

$48.36

$14.08

$14.28

$25.56

$26.04

20 times 5Y average earnings

$19.60

$80.60

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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, 29 Mar 2011 12:26:54 -0700 A Mechanical Check for Investment in Common Stocks. The First in a Series. http://myhighdividendstocks.posterous.com/a-mechanical-check-for-investment-in-common-s http://myhighdividendstocks.posterous.com/a-mechanical-check-for-investment-in-common-s

In this blog post I’m going discuss some aspects of the mechanical tests your should apply to common stocks you are considering to buy and at what price.

On March 16th, 2011 I wrote about not buying a common stock generally above 20 times average earnings in this post: http://bit.ly/MaxAvgPE .  I have to admit that I was a little lazy.  Like most people I used 20 times the current annual earnings to complete the table in that blog post because it the info was readily available, but a five or ten year average is more through and enlightening.  It takes a while to find all the earnings data for the past ten years and then to make adjustments for changes in capitalization, warrants, and convertible preferred stocks.

The excerpt below from Benjamin Graham’s Security Analysis 2nd edition is a devastating indictment on how speculative so-called investors are both in 1940 and today.

Over the next couple of days I’m going to calculate many values for testing common stocks for investment basis that I’ve already written about on this blog.  The goal is separate the speculative stocks from the investment stocks.  The list includes: GoldCorp (GG), Proctor & Gamble (PG), American Capital Agency Corp. (AGNC), SeaDrill (SDRL), Safe Bulkers (SB), and AT&T (T).

* * * * * * *

Higher Prices May Prevail for Speculative Commitments.  The intent of this distinction must be clearly understood.  We do not imply that it is a mistake to pay more than 20 times average earnings for any common stock.  We do suggest that such a price would be speculative.  The purchase may easily turn out to be highly profitable, but in that case it will have proved a wise or fortunate speculation.  It is proper to remark, moreover, that very few people are consistently wise or fortunate in their speculative operations.  Hence we may submit, as a corollary of no small practical importance, that people who habitually purchase common stocks at more than about 20 times their average earnings are likely to lose considerable money in the long run.  This is the more probable because, in the absence of such a mechanical check, they are prone to succumb recurrently to the lure of bull markets, which always find some specious argument to justify paying extravagant prices for common stocks.

            Other Requisites for Common Stocks of Investment Grade and a Corollary Therefrom.  It should be pointed out that if 20 times average earnings is taken as the upper limit of price for an investment purchase, then ordinarily the price paid should be substantially less than this maximum.  This suggests that about 12 or 12.5 times earnings may be suitable for the typical case of a company with neutral prospects.  We must emphasize also that a reasonable ratio of market price to average earnings is not the only requisite for a common-stock investment.  It is a necessary but not sufficient condition.  The company must be satisfactory also in its financial set-up and management, and not unsatisfactory in its prospects.

            From this principle there follows another important corollary, viz.: An attractive common-stock investment is an attractive speculation.  This is true because, if a common stock can meet the demand of a conservative investor that he get full value for his money plus not unsatisfactory future prospects, then such an issue must also have a fair chance of appreciating in market value.

* * * * * * * *

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