My High Dividend Stocks Blog http://myhighdividendstocks.posterous.com Most recent posts at My High Dividend Stocks Blog posterous.com 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.

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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, 12 Aug 2011 11:17:53 -0700 Don't be fooled by Southern Copper's 8% dividend yield. Copper and Southern Copper are going down. http://myhighdividendstocks.posterous.com/dont-be-fooled-by-southern-coppers-8-dividend http://myhighdividendstocks.posterous.com/dont-be-fooled-by-southern-coppers-8-dividend

Southern Copper (SCCO) will go ex-dividend on Monday, but that is not the whole story.  The stock price will drop after the dividend and it will likely keep going down.

Southern Copper Stock To Go Ex-dividend Monday (SCCO)

Tweet

By TheStreet Wire 08/12/11 - 09:52 AM EDT

NEW YORK (TheStreet) -- The ex-dividend date for Southern Copper Corporation (NYSE:SCCO) is Monday, August 15, 2011. Owners of shares as of market close today will be eligible for a dividend of 62 cents per share. At a price of $31.41 as of 9:30 a.m. ET, the dividend yield is 8.5%.

The average volume for Southern Copper has been 3.5 million shares per day over the past 30 days. Southern Copper has a market cap of $24.7 billion and is part of the basic materials sector and metals & mining industry. Shares are down 36.8% year to date as of the close of trading on Thursday.

Southern Copper Corporation engages in mining, smelting, and refining mineral properties in Peru, Mexico, and Chile. The company has a P/E ratio of 12.4, equal to the average metals & mining industry P/E ratio and below the S&P 500 P/E ratio of 17.7.

* * * * * * *

Image004

Copper is an industrial metal that goes up in price during a global booms.  When the global economy busts the copper price goes down.  There was a bust in 2008 and then a false recovery 2009-2011.  Investors are beginning to realize that the bust must continue in order to liquidate all the malinvestments made during the boom.  Governments and central banks are hell bent on preventing the markets from liquidating those malinvestments quickly.  They will continue to implement policies that forestall and jeopardize a real recovery.  Southern Copper will suffer as a result.

If you buy, then know that you will be buying on the way down.  I expect a dividend cut.  This company will remain a high dividend stock after it cuts its dividend because the stock price will be falling with the copper commodity price.  Copper peaked in January 2011 at $4.64 per pound.  It is down to $4.05 now and grinding lower on the realization of a “global double-dip recession”.  Don’t be fooled by Southern Copper’s 8+% dividend yield.

Image007

Consider buying below $23.04 and sell it above $38.40.  The dividend is in jeopardy due to its dividend payout ratio exceeding 100%.  Its balance sheet is stagnant.

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Read my analysis of its fundamentals and technicals http://www.myhighdividendstocks.com/high-dividend-stocks/is-southern-copper-heading-north-or-south-from-34-74#more-515

Disclosure: I don’t own Southern Copper (SCCO)

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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, 15 Jun 2011 20:32:56 -0700 Don't buy Southern Copper (SCCO) now despite predictions of higher copper prices. http://myhighdividendstocks.posterous.com/dont-buy-southern-copper-scco-now-despite-pre http://myhighdividendstocks.posterous.com/dont-buy-southern-copper-scco-now-despite-pre

Southern Copper is a massive copper producer and it is a high dividend stock.  But you shouldn’t buy it now at such a high price and will a likely fall in the price of copper.  Motley Fool writer Ilan Moscovitz gave Southern Copper a clean bill of dividend health, but he did not explain how he came up with his dividend payout ratio numbers or mention the price of the shares.  Are they value priced or speculative?

I came up with a completely different and higher dividend payout ratio than Mr. Moscovitz’s 93%.  SCCO has 850 million shares outstanding.  The company is paying a quarterly dividend of $0.56 per share which equates to an annual dividend of $2.24 per share.  It earned $1.83 per share in 2010.  This equates to a 122% dividend payout ratio when using the current dividend divided by last year’s EPS.  I’m going to perform a second calculation using the five year average earnings per share (adjusted for changes in capitalization) of $1.92.  The dividend payout ratio would be 116% ($2.24 dividend/$1.92 avg EPS).  Where does he get 93%?  I checked the 1Q2011 financial statements and the company earned $0.56/share and it will pay a dividend of $0.56/share, so the dividend payout ratio is at least 100% if you consider the first quarter of 2011 indicative of its 2011 overall performance.  Sheeesh!  I’m beginning to think Mr. Moscovitz doesn’t know what he’s writing about.  The bottom line is that Southern Copper’s dividend is not safe at $0.56/quarter.

I think that SCCO is too expensive right now.  The stock is trading at roughly 18 times its five year average earnings of $1.92.  Wait until the global double dip takes it down below $24.00 before you risk your capital on this copper miner.

Southern Copper (SCCO) lives or dies on the price of copper in the global marketplace.  Copper has been priced in the $3.00 to $4.00 per pound for four of the past five years.  The 2009 price dropped to a low of around $1.50 per pound.  It finished the day at $4.11 per pound yesterday.  SCCO made a profit in 2009 of $929 million (down from $2.216 billion net income in 2007 at the height of the global infrastructure boom).  What direction will the price of copper go throughout the rest of 2011?  You must at least acknowledge this question before any serious investment in SCCO. 

I’m going to take you through an analysis of a Kitco.com article on copper price expectations.  My comments are in bold and bracketed.

Copper Expected To Languish Over Summer But Pick Up Into Year-End

15 June 2011, 2:16 p.m.
By Allen Sykora
Of Kitco News
http://www.kitco.com/

 

 

[Why should the price of copper languish over the summer?  Who are these faceless, unnamed analysts?]

(Kitco News) - Copper should languish over the summer after the early 2011 bullish enthusiasm, but analysts expect renewed demand later this year that could push prices again to near or above $10,000 a metric ton.

[The supply of copper in the London Metal Exchanges warehouses have been building since the end of late 2010.  LME stocks decrease when supply is constrained.  There is a report out by Bloomberg that domestic copper supplies in China are dwindling.  The Chinese government has created a real estate bubble that is going to pop.  That bubble consumes a lot of copper to build the equivalent all the real estate of Houston, Texas each month.  It will pop and the copper demand that these Keynesian economists are forecasting will evaporate.  The price of copper will fall.  The price of Southern Copper stock will fall.

]

Some already point to signs of some improvement, such as rising premiums for physical copper in key consuming regions. Any meaningful pick-up in demand should be supportive since supply remains constrained due to factors such as labor disruptions, declining grades and limited new major discoveries.

Three-months copper closed at $9,154 a metric Wednesday on the London Metal Exchange, down 10.2% from a record of $10,190 in mid-February.

[Why is the LME copper stock increasing if the supply side is restrained?  The demand side at $4.11/lb is definitely weakening due to the Chinese governments efforts to stop the price inflation and real estate bubble that they created with their Keynesian mercantilist policies]

“The supply side is pretty restrained on copper,” said Edward Meir, analyst with MF Global. “Not too many people are capable of cranking out extra output. But the demand side is weakening.”

Much of the U.S. economic data over the last month has been softer than expected, raising concerns about future consumption of industrial commodities such as copper.

[So why will there be a pickup in copper prices at the end of the year?  All this supporting evidence points to lower copper prices.]

Further, there are worries that Chinese authorities have been successful in slowing their economy to avoid an overheating. A massive spring earthquake in Japan also dented demand for some industrial metals. Meanwhile, inventories of copper in LME warehouses have risen to 475,750 from 377,550 at the end of 2010.

Several analysts said copper could fall some more in the next couple of months due to this uncertain backdrop, and also because of slower seasonal demand  during the vacation season and maintenance shutdowns in the Northern Hemisphere.

“There is so much that could go wrong,” said Leon Westgate, base-metals analyst with Standard Bank. “There is the potential for a Greek default. There is potential for China tightening even more aggressively and probably overdoing things.”

Chinese buyers have been largely sidelined. “The physical demand from China has picked up from the lows seen in March, but it’s still far from spectacular,” Westgate said.

Catherine Virga, director of research with CPM Group, suggested copper is “vulnerable in the near term” and could fall back to the $8,500 region. Meir figures copper could drop to $7,800 to $8,000 over the summer.

“We might not see a sharp turnaround until market conditions get a little bit tighter,” Virga said.

Weakness Seen By Many As Buying Opportunity

Some analysts, however, believe any copper weakness may well end up being a buying opportunity.

[There will be a double dip recession.  Keynesian deficit spending all over the world is destroying capital that will not be invested by entrepreneurs.]

“Fundamentally, I continue to like it,” said Bart Melek, head of commodity strategy, rates and foreign-exchange research with TD Securities. “But investors, traders and the community broadly will have to be convinced that the current soft patch in global economic growth…is temporary and will not morph into some sort of more insidious decline, with potential for a double-dip recession.”

[Mr. Melek expressed optimism that U.S. economic data will improve in the second half of the year.  What does he base his optimism on?  Keynesian economic theory that deficit spending by governments is beneficial to increase the standard of living for all.  The Austrian school refutes this.  Experience refutes this.  Read any of Gary North’s free articles for a good explanation of why Mr. Melek is clueless: http://www.lewrockwell.com/north/north-arch.html]

The market has not yet gotten sufficient data to confirm the recent economic slow patch is only temporary, which could mean more pressure on commodities generally. Copper could fall another 5%, Melek said. Nevertheless, he expressed optimism that U.S. economic data will improve in the second half of the year.

[The global economy is going to fall apart before it gets better.  The malinvestments of the boom haven’t been liquidated.  Banks are holding hundreds of billions in bad loans.  Central banks are printing money like never before.  All hope is placed on Chinese bureaucrats who are trying to quell possible rebellion due to high unemployment and high price increases.  The Eurozone is falling apart and the US federal, state, and local governments are broke.  Governments are trying to increase taxes.  This take money away from individuals.  It crowds out capital investment by individuals seeking profits and put their money in the hands of bureaucrats buying votes on money losing projects.]

“I would be buying these dips or corrections,” Melek said. “The fundamentals are strong. We here at TDS are quite convinced that the global economy isn’t going to fall apart. It’s going to grow at just under 4% or so.”

To be convinced of stronger fundamentals, the market may want to see more bullish monthly Chinese import figures and drawdowns in LME warehouse inventories of copper. Melek looks for LME warehouse stocks to decline later this year and points out that Shanghai Futures Exchange inventories are already down.

Already, there are some early signs of improvement in copper demand, Virga said. The premium in Shanghai rose to $112 a metric ton as last week wound down, well up from $20 in mid-May. European premiums rose to $92.50 from $57 in mid-May. 

Further, the premium between London and Shanghai exchange prices has narrowed from May, creating an incentive for China to start picking up more copper on the international market, Virga said.

Yet another potential supportive influence is pending exchange-traded funds that would be backed by copper holdings, should these be approved in the coming months by the U.S. Securities and Exchange Commission, Virga said. This would add to investment demand.

Demand Grows Less Quickly Than Expected, But 2011 Deficit Still Expected

[The expectations are all based on Chinese demand growth.  China is a bubble.  Watch the video in the top 10 search results for google search ‘China bubble Jim Chanos’ if you don’t believe me.  Chanos is not the only one calling a China bubble, but he is one of the most credible due to his shorting of Enron before it fell.]

Overall copper demand has not grown as robustly as some were forecasting last year, Virga said. “But it is still positive and is going to outpace supply, particularly because of so many disruptions.”

One such disruption getting attention lately is a strike at the world’s No. 5 copper mine, El Teniente in Chile.

Meir and Westgate both look for “modest” 2011 supply/demand deficits. Meir anticipates 150,000 to 200,000 tons. Westgate expects some 200,000 tons.

Others anticipate  larger deficits. CPM Group projects 390,000 tons,   Melek looks for 400,000, and Harbor Intelligence thinks there will be  a deficit between 500,000 and 600,000 tons.

Melek anticipates LME copper will get back near $10,000 in the second half of the year. CPM Group projects copper averaging $9,800 a metric ton in the third quarter and $10,250 in the fourth, Virga said.

Jesus Villegas, analyst with Harbor, looks for copper to hit all-time highs again either in the fourth quarter or else in early 2012, perhaps hitting $5 a pound and $11,000 a ton. By then, he said, copper will be past its seasonally slow period and fund and other speculative money should be flowing back into the market.

Meir, however, figures copper has already put in its high for the year. After a fall to $7,800-$8,000 in the next two to three few months, he anticipates a range of $8,000 to $9,500 for the remainder of the year.

Westgate looks for a 2011 average cash price of $9,525, with $9,750 in the fourth quarter. He anticipates the copper market will be tighter in 2012 than this year, with prices also rising next year.

By Allen Sykora of Kitco News; asykora@kitco.com

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Southern Copper: Dividend Dynamo or Blowup?

http://www.fool.com/investing/general/2011/06/15/southern-copper-dividend-dyn...

Ilan Moscovitz
June 15, 2011

Dividend investing is a tried-and-true strategy for generating strong, steady returns in economies both good and bad. But as corporate America's slew of dividend cuts and suspensions over the past few years has demonstrated, it's not enough simply to buy a high yield. You also need to make sure those payouts are sustainable.

Let's examine how Southern Copper (NYSE: SCCO  ) stacks up in four critical areas to determine whether it's a dividend dynamo or a disaster in the making.

1. Yield
First and foremost, dividend investors like a large yield. But if a yield gets too high, it may reflect investors' doubts about the payout's sustainability. If investors had confidence in the stock, they'd be buying it, driving up the share price and shrinking the yield.

Southern Copper yields 7.3% -- rather high and worthy of closer examination.

2. Payout ratio
The payout ratio might be the most important metric for judging dividend sustainability. It compares the amount of money a company pays out in dividends to the amount it generates. A ratio that's too high -- say, greater than 80% of earnings -- indicates that the company may be stretching to make payouts it can't afford.

Southern Copper's payout ratio is an aggressive 93%, though its free cash flow payout ratio is a more reasonable 61%.

3. Balance sheet
The best dividend payers have the financial fortitude to fund growth and respond to whatever the economy and competitors throw at them. The interest coverage ratio indicates whether a company is having trouble meeting its interest payments -- any ratio less than five is a warning sign. Meanwhile, the debt-to-equity ratio is a good measure of a company's total debt burden.

Let's examine how Southern Copper stacks up next to its peers:

Company

Debt-to-Equity Ratio

Interest Coverage Ratio

Southern Copper

70%

       15

Freeport-McMoRan (NYSE: FCX  )

30%

       24

Newmont Mining (NYSE: NEM  )

27%

       16

Teck Resources (NYSE: TCK  )

29%

        7

Source: Capital IQ, a division of Standard & Poor's.

Southern Copper's debt burden appears higher than its peers, though the absolute level is moderate.

4. Growth
A large dividend is nice; a large growing dividend is even better. To support a growing dividend, we also want to see earnings growth.

Over the past five years, Southern Copper's earnings per share have grown 3% annually, while its dividend has grown at 7%.

The Foolish bottom line
Southern Copper exhibits a fairly clean dividend bill of health. Its payout ratio appears somewhat aggressive, however, so maintaining or growing those payouts will depend on the company's ability to expand production and the prices of its commodities can fetch.

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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 May 2011 15:51:22 -0700 Is Southern Copper heading north or south from $34.74? http://myhighdividendstocks.posterous.com/is-southern-copper-heading-north-or-south-fro http://myhighdividendstocks.posterous.com/is-southern-copper-heading-north-or-south-fro

It is time to take another look at Southern Copper.  Its stock price has declined from its most recent peak of $48.96 at the beginning of 2011 down to $34.74 today.  That is a decline of about 29%.  Has this copper producer entered value territory yet?  I’m going to perform my quick valuation checks to see what is going on with this mega-copper producer.

Shares outstanding: 850 million (slight buyback or the past five years)

Dividend record

Dividend yield: 6.4% projected

Quarterly dividend: $0.56 ($2.24 annual rate)  This is a two cent cut from the previous quarter.

Dividend payout ratio: 116% of 5 yr. avg. earnings per share (this means that another dividend cut is possible unless earnings improve enough to bring the dividend payout ratio down to 80%.  Earnings would have to improve to $2.80 per share at the current quarterly dividend rate).

Earning power

Last 5 years earnings adjusted for slight changes in capitalization

            EPS     Net inc.           Adj. EPS

2006    $2.31   $2,038 M         $2.40

2007    $2.51   $2,216 M         $2.60

2008    $1.60   $1,407 M         $1.66

2009    $1.09   $929 M            $1.09

2010    $1.83   $1,554 M         $1.83

5 year average earnings per share: $1.92 @ 850 M shares.  SCCO is trading at 18.1 times its 5 year average earnings.  I like value stocks below 12 times earnings.  Above 20 is speculative.

Balance sheet

Book value: $4.58

Price to book value: 7.58 (bad)

Current ratio: 3.25 (over 2 is good; no short term liquidity problems)

Quick ratio: 2.65 (over 1 is good; no short term liquidity problems)

Technicals

The 3 year chart confirms the beating that SCCO has taken lately.  Its technicals show that there is room to fall further.  http://bit.ly/SCCO3yrChart

Conclusion

Wait for the double dip recession to buy Southern Cooper (SCCO) below $23.04.  It would be trading for 12 times its 5 year average earnings per share at that price.  The dividend will likely be cut again and it won’t be a high dividend stock with any sustainability until the market price and the dividend come down.  It traded near $23.00 as recently as May 2010. 

Demand for copper at today’s high prices of will wane once the global double dip recession become apparent to most investors.  Also, copper demand at today’s prices will also decrease when China’s construction bubble pops.

Disclosure: I don’t own SCCO or plan to own it above $23.04 per share.

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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