My High Dividend Stocks Blog http://myhighdividendstocks.posterous.com Most recent posts at My High Dividend Stocks Blog posterous.com Wed, 26 Sep 2012 12:12:13 -0700 A First Look at Giant Miner Rio Tinto http://myhighdividendstocks.posterous.com/a-first-look-at-giant-miner-rio-tinto http://myhighdividendstocks.posterous.com/a-first-look-at-giant-miner-rio-tinto

I use Google Alerts on “high dividend stocks” to see what is being published online on the subject.  Insider Monkey’s article got my attention because I hadn’t done a first look on any of his “5 High-growth, High Dividend Stocks”.  The five stocks are Rio Tinto (RIO), Enterprise Product Partners (EPD), Siemens AG (SI), Taiwan Semiconductor (TSM), and British Sky Broadcasting Group PLC (BSY)

http://www.insidermonkey.com/blog/5-high-growth-high-dividend-stocks-20007/

I write a first look at article on each of these.  Rio Tinto PLC (RIO) is the first one up.

Rio Tinto (RIO)

Price: $47.46

Shares: 1.85 billion

Market capitalization: $87.9 billion

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What does the company do to earn profits?  Rio Tinto searches for and extracts a variety of minerals worldwide, with the heaviest concentrations in North America and Australia. Major products include aluminum, copper, diamonds, energy products, gold, industrial minerals, and iron ore. The 1995 merger of RTZ and CRA, via a dual-listed structure, created the present-day company. The two operate as a single business entity. Shareholders in each company have equivalent economic and voting rights in Rio as a whole.

Morningstar’s take: Rio Tinto is a top-tier global miner along with BHP Billiton BHP, Brazil's Vale VALE, and U.K.-based Anglo American AAUKY. A world-class asset base and capable management make Rio Tinto one of the few miners to earn more than its cost of capital through the commodity cycle. Geographic and product diversification give the company relatively stable cash flows and lower operating risk than many of its mining peers. Most revenue comes from the relative safe havens of Australia, North America, and Europe, though operations span six continents.

Bonds outstanding: none

Times bond interest earned: not applicable

Preferred stock: none.

DIVIDEND RECORD  Rio Tinto pays a semi-annual dividendThe dividend payment amounts vary and are not predictable.  Here is the 5 year dividend history chart:

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Dividend: $1.65 (annual dividend from FEB 2012 $0.91 and AUG 2012 $0.74)

Dividend yield: 3.4% ($1.65 annual dividend / $47.46 share price)

Dividend payout ratio: 73% using earning power of $2.24 per share from Google Finance –OR- 42% using average adjusted EPS of $3.91

EARNING POWER – $3.91 @ 1.85 billion shares

(Earnings adjusted for changes in capitalization)

Year

EPS

Net Income

Shares

Adjusted EPS

2006

$5.56

$7,438 M

1,339 M

$4.02

2007

$5.66

$7,312 M

1,291 M

$3.95

2008

$2.85

$3,676 M

1,334 M

$1.99

2009

$2.75

$4,872 M

1,770 M

$2.63

2010

$7.26

$14,324 M

1,973 M

$7.74

2011

$3.01

$5,826 M

1,936 M

$3.15

2012

?

?

1,850 M

?

Six year average adjusted earnings per share is $3.91

Consider contrarian buying below $31.28 (8 times average adjusted EPS)

Consider value buying below $46.92 (12 times average adjusted EPS)

Rio Tinto is currently trading at 12.1 times average adjusted EPS.  This stock is priced for investment.

Consider speculative selling above $78.20 (20 times average adjusted EPS)

BALANCE SHEET – Morningstar’s database is not working properly, so I don’t have the five year balance sheet data for Rio Tinto.

Book value per share: $33.98 ($62.861 B equity / 1.85 B shares)

Price to book value ratio: 1.4 (under 1.0 is good)

Tangible book value: $21.00 (equity - $23.997 B in intangibles / 1.85 B shares)

Price to tangible book value ratio: 2.26 (under 1.0 is really good)

Current ratio: 1.51 (over 2.0 is good) latest quarter

Quick ratio: 1.07 (over 1.0 is good)

Debt to equity ratio: 0.35 (lower is better)

Percent of total assets:

            Real assets (property, plant, and equipment) – 58.06%

            Current assets – 15.76%

            Intangibles – 13.38%

            Other long term assets – 12.8%

CONCLUSION – Rio Tinto is currently a decent dividend stock, but its dividend is not entirely safe.  The global recession currently underway will drop Rio Tinto’s price.  Their price will drop because worldwide demand for commodities lessens during recessions.  Their customers will buy less mined commodities at lower prices, which will hurt profitability.  Stay away from RIO until the depths of the recession.  This could be a long time.

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DISCLOSURE – I don’t own Rio Tinto (RIO).

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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 Aug 2012 11:04:50 -0700 Stay away from European Equities and Why. http://myhighdividendstocks.posterous.com/stay-away-from-european-equities-and-why http://myhighdividendstocks.posterous.com/stay-away-from-european-equities-and-why

MarketWatch commentator Charles Sizemore wrote an article that says that the German government’s actions are key to the future of the Euro and the Eurozone.  He’s right about that because Germany is the most solvent of the EU nations, but he has way too much faith that the German government will come to the rescue of the PIIGS (Portugal, Italy, Ireland, Greece, and Spain) governments.  My comments are in red.

http://www.marketwatch.com/story/heres-what-keeps-me-awake-at-night-2012-08-14?dist=countdown

Aug. 14, 2012, 12:01 a.m. EDT

Here's what keeps me awake at night

By Charles Sizemore

September 12, 2012. This is the date that may ultimately decide the fate of the euro zone.

It has nothing to do with Greece, Spain, Italy or any of the other problem children of Europe. No, it is Europe's stern school mistress Germany that holds the fate of the currency zone in the balance.

On Sept. 12, the eight justices of Germany's constitutional court will meet to decide the legality of the euro zone's rescue fund or, more accurately, the legality of Germany's participation in the bailout fund under the German constitution. Should Germany back out due a court veto, it's difficult to see the euro surviving the crisis of confidence that would follow.

The German government can’t afford to bail the PIIGS out forever.  The PIIGS have social welfare programs that are still growing.  There is no “real” austerity going on.  The PIIGS simply cut back on the rate of growth and call that “austerity”.  They will be back for more handouts.  The German Constitutional Court knows this.

Source: http://marginalrevolution.com/marginalrevolution/2012/05/how-savage-has-european-austerity-been.html

Americans are no strangers to debates over constitutionality. The 5-4 decision to uphold the Obama administration’s health care overhaul was one of the biggest headlines of 2012. But the German debates are a very different animal.

There are two competing clauses in the German constitution. One declares Germany to be "a democratic and federal state" with power determined "through elections and other votes."

This would seem to preclude Germany from granting control of its budget to an EU watchdog or obligating the German state to bail out euro zone neighbors; the judges have already questioned whether such transfers of sovereignty are permissible.

But then, the German constitution also calls for Germany to strive for a "united Europe," which would be presumed to include some degree of fiscal union. In effect, the fate of Europe depends on which clause of the German constitution the justices decide take precedence.

When clients ask me "what keeps you up at night," this is it. I fear that lack of German commitment could cause the entire European project to unravel.

This obviously doesn’t keep him up at night because he says later in this article that he is long European equities.  He’s so worried at night that he has an overweight allocation to European equities.

If the German court finds the bailouts unconstitutional, then Germany would have to amend or even rewrite its constitution in order to participate — which would require a referendum. And how likely does that sound?

The German voters will not support an amendment to their constitution that signs them up for a permanent bailout of the PIIGS.  Only the German politicians are eager to tax the German people for the money.

Even if a charismatic leader were to convince German voters that constitutional change is the right thing to do, these things take time, and time is a luxury that Europe doesn't have at the moment.

Now that I have sufficiently scared you, I should point out that I do not see the German constitutional court torpedoing the bailouts. They know what is at stake, and they don't want to be responsible for the death of the European project.

The German Constitutional Court knows what is at stake.  They know that the PIIGS will be back for more, and more, and more.  They know the Euro is in serious danger and  will likely die anyways, so why drag Germany down with it.  The court members have not staked their careers and legacy on the idea of the United States of Europe.

I am comfortable being invested in European equities, and Sizemore Capital has an overweight allocation to European equities in its Tactical ETF and Sizemore Investment Letter portfolios.

Charles Sizemore is a Keynesian investor and is going to lose a lot of money for himself and his clients if he believes that the Euro can be saved by Germany and the ECB printing press.  The Euro would have been saved already after 23 summit meetings if it could be.  There is no way to stop the PIIGS from defaulting if they don’t implement drastic government spending cuts.  Look at the voter backlash in Greece.  The voting population doesn’t want austerity.  The Greece voters want the free handouts from the northern European countries like Germany and Finland.  It can’t go on forever.

Still, investors have to consider the "what ifs" when they put capital at risk, and it makes sense to keep a little cash on the sidelines — just in case. It wouldn't be the first time that ideology trumped pragmatism in a high-profile court case.

A growing number of Greek citizens are putting their money in German banks so that it is out of the country if Greece exits the Euro.  Some are converting it to Bitcoins to escape a possible devaluation in the event that Greece leaves the Eurozone before Germany or Finland.

If we get a selloff in the days leading up to the court's decision, I would view it as a buying opportunity. But if the German court strikes down the bailout facility or attaches so many conditions as to make it unworkable, I recommend that investors consider selling all European equities and all but your highest-conviction core American positions as well. Because at that point, the probability of a full-blown meltdown on par with that of 2008 becomes uncomfortably high.

Let’s assume that the German court approves of the bailout facility and attached so few conditions to make it completely workable.  This will only slightly delay the day of reckoning for the Euro.  Again, the PIIGS have not changed any social welfare policies that go them into the unsustainable mess.  There is no real austerity (drastic government spending cuts).  So, they will be back for more bailouts, but the next time it will be time for the Germans and other northern Europeans turn to pay up.  What happens to the European stocks at that point in time?  They go down.  Why do they go down?  Because saved capital will be diverted from equities to taxation or the buying of PIIGS and European government bonds.

Stay away from European equities and Mr. Sizemore’s investments.

Disclosure: I own no equities at this time.

This commentary does not constitute individualized investment advice. The opinions offered herein are not personalized recommendations to buy, sell or hold securities.

Disclosure: Mr. Sizemore is long European equities.

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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, 13 Jul 2012 09:26:43 -0700 First Look at DOW 30 Component Walt Disney Co. (DIS) http://myhighdividendstocks.posterous.com/first-look-at-dow-30-component-walt-disney-co http://myhighdividendstocks.posterous.com/first-look-at-dow-30-component-walt-disney-co

Today I take a look at Dow 30 component stock Walt Disney (DIS).  Disney is a phenomenal dividend payer and grower.  However, the stock is speculatively priced at today’s price of $47.07 and their balance sheet is weak.  To see how I came to these conclusions read on.

Walt Disney (DIS)

Image004

Price: $47.07

Shares: 1.79 billion

Market capitalization: $84.15 billion

Image005

What does the company do: Disney owns the rights to some of the most famous characters ever created, including Mickey Mouse and Winnie the Pooh. These characters and others are featured in several theme parks Disney owns or licenses around the world. Disney makes live-action and animated films under several labels and owns ABC, Disney Channel, and ESPN. Disney also owns a 42.5% stake in A&E, The History Channel, and Lifetime Networks. The company generates about 25% of its sales from outside the United States.

Morningstar’s take: Disney owns a collection of valuable assets, but its media networks, which generate more than half of the company's operating profit, are the backbone of this conglomerate.

Bonds: $11.0 billion outstanding

Times interest earned: 11 times (DIS earned $4.807 billion as of 3Q 2011 / $435 million interest expense).  That far exceeds Benjamin Graham’s recommendation of earning at least five times interest expenses.  Disney’s bonds do not threaten the dividend at all.

Image012

Preferred stock: none.

DIVIDEND RECORD: Walt Disney Co. has paid a dividend since at least 1987.  Disney paid a $0.02 annual dividend in 1987 and it has grown that dividend to $0.60 annually today.   That is 2,900% straight-line dividend growth over 25 years or 116% annual straight-line dividend growth per year.  Disney has been a phenomenal dividend grower.  Note: they paid a quarterly dividend from 1987 until 1997.  In 1998 they switched to an annual dividend.

Image013

Dividend: $0.60 annual dividend paid late in the year

Dividend yield: 1.27% ($0.60 / $47.07 share price) Disney will become a 6%  high dividend stock at $10.00

Dividend payout: 21.5% using the Google Finance reported EPS of $2.79 –OR- 27.7% using the average adjusted earning power of $2.16

I’d like to see Disney pay out at least 50% of their average adjusted earnings in the form of dividends.  That would work out to an annual dividend of $1.08.  Even better would be a quarterly dividend of $0.27 per share instead of the annual dividend.

EARNING POWER: $2.16 per share at 1.79 billion shares

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

Date

EPS

Net Income

Shares

Adjusted EPS

9/2005

$1.22

$2,533 M

2,089 M

$1.41

9/2006

$1.64

$3,374 M

2,076 M

$1.88

9/2007

$2.25

$4,687 M

2,092 M

$2.62

9/2008

$2.28

$4,427 M

1,948 M

$2.47

9/2009

$1.76

$3,307 M

1,875 M

$1.85

9/2010

$2.03

$3,963 M

1,948 M

$2.21

9/2011

$2.52

$4,807 M

1,909 M

$2.69

Seven year average adjusted earnings per share is $2.16

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)

Walt Disney Co. (DIS) is currently trading at 21.8 times average adjusted EPS.  This is speculatively priced; consider shorting.

BALANCE SHEET – Disney has a weak balance sheet.  The price to book value ratios and other measures of financial strength are weak.

Image014

Book value per share: $21.26 ($38.049 B equity / 1.79 B shares)

Price to book value ratio: 2.2 (under 1.0 is good) ($47.07 share price / $21.26 BV)  Investors are paying $2.20 for each $1.00 in book value.

Tangible book value per share: $4.35 (equity - $25.113 B goodwill - $5.142 B intangibles)

Price to tangible book value: 10.8 ($47.07 share price / $4.35 TBV)  40.2% of Walt Disney’s assets are in intangibles which explains why the P/TBV increased so much.

Current ratio: 1.14 latest quarter (over 2.0 is good) ($14.537 B current assets / $12.724 B current liabilities)

Quick ratio: 0.29 latest quarter (over 1.0 is good) ($3.731 B cash and equivalent / $12.724 B current liabilities)

Debt to equity ratio: 0.33 (lower is better)

Percentage of total assets in plant, property, and equipment: 27.7% (the higher the better) Disney has massive intangible assets at 40.2% of total assets, current assets were 19.52%, and other long term assets were 12.76%

Working capital trend (w/ 3 year moving average trendline): Up slightly in the long run, but I don’t like the several year stint of negative working capital.

Image018

CONCLUSION – Walt Disney Co. bottomed near $15.00 in early 2009 near the height of the financial crisis.  That price represented an extreme contrarian buying opportunity at 6.9 times average adjusted earnings.  The stock price has tripled since that time and has entered speculative price territory at 21.8 times average adjusted earnings.  I would consider shorting Disney above $43.20.  A return of the worldwide recession will hurt Disney’s theme park revenues and media sales.  Disney’s dividend yield is less than the S&P 500 average of 2.2%.  I wish the board  of directors would increase the payout from 27% to 50% or more.  A high payout would increase yield.  Disney’s real weakness is its balance sheet.  The price to tangible book value is horrible.  Also, Disney has weak financial strength in the current ratio and quick ratio metrics.  I would stay away from Disney until the stock drops back to the $25 to $17 dollar range.

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DISCLOSURE – I don’t own Walt Disney Co. (DIS).

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, 28 Jun 2012 21:53:49 -0700 First Look at DOW 30 Component United Technologies (UTX) http://myhighdividendstocks.posterous.com/first-look-at-dow-30-component-united-technol http://myhighdividendstocks.posterous.com/first-look-at-dow-30-component-united-technol

Today I continue my series on the Dow 30 component stocks with United Technologies (UTX).  They are a long time dividend payer and accomplished dividend grower.  Their stock price is a little expensive at 16.3 times average adjusted earning power.  Lastly, UTX’s balance sheet is awful and should keep you away from this stock.  To see how I came to these conclusions read on.

United Technologies (UTX)

Price: $73.63

Shares: 911.36 million

Market capitalization: $67.1 billion

Image004

What does the company do: United Technologies is a $54 billion diversified conglomerate with business operations serving primarily construction and aerospace markets. Otis elevators, Carrier air conditioners, Pratt & Whitney engines, and Sikorsky helicopters are key United Technologies product lines.

Morningstar’s take: Durability and balance are trademarks of the portfolio of United Technologies. While the company may not boast the flashy growth prospects found in some of its diversified industrial peers, we think management's consistency and commitment to shareholders separate this wide-moat franchise from the cohort.

Image005

Bonds: $9.4 billion outstanding

Times interest earned: 7.4 times.  UTX earned $4.979 billion in 2011 and had interest expenses of $673 million in 2011.  7.4 times earned exceeds Benjamin Graham’s recommendation of earning at least five times interest expenses.  United Technologies’ bonds do not threaten the dividend at all.

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Preferred stock: none.

DIVIDEND RECORD: United Technologies paid a $0.04 quarterly dividend in 1987.  They have grown the dividend to $0.54 quarterly today.  That is 1,250% straight line over 25 years or 50% annual straight line growth.

Dividend: $0.54

Dividend yield: 2.9% ($2.16 / $73.63 share price)

Dividend payout: 39% using the Google Finance reported EPS of $5.49 –OR- 48% using the average adjusted earning power of $4.53

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EARNING POWER: $4.53 @ 911.36 million shares

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

EPS

Net income

Shares

Adjusted EPS

2005

$3.03

$3,069 M

1,014 M

$3.37

2006

$3.71

$3,762 M

1,006 M

$4.13

2007

$4.27

$4,224 M

989 M

$4.63

2008

$4.90

$4,689 M

956 M

$5.15

2009

$4.12

$3,829 M

929 M

$4.20

2010

$4.74

$4,373 M

923 M

$4.80

2011

$5.49

$4,979 M

907 M

$5.46

Seven year average adjusted earnings per share is $4.53

Consider contrarian buying below $36.24 (8 times average adjusted EPS)

Consider value buying below $54.36 (12 times average adjusted EPS)

United Technologies (UTX) is currently trading at 16.3 times average adjusted EPS.  This is stock is priced for investment.

Consider speculative selling above $90.60 (20 times average adjusted EPS)

BALANCE SHEET – United Technologies has a weak balance sheet.

Image010

Book value per share: $24.70 ($22.492 B equity / 911.36 shares)

Price to book value ratio: 2.98 (under 1.0 is good) ($73.63 share price / $24.70 book value per share)  UTX investors are paying $2.98 for each $1.00 of book value.  That is a large premium.

Tangible book value per share: $2.83 (equity - $16.169 B goodwill - $3.742 B intangibles / 911.36 M)

Price to tangible book value: 26 ($73.63 share price / $2.98 tangible book value)  UTX investors are paying $26.00 for each $1.00 of tangible book value.  That is insanely expensive.

Current ratio: 1.52 latest quarter (over 2.0 is good) ($27.847 B current assets / $18.33 B current liabilities)

Quick ratio: 0.34 latest quarter (over 1.0 is good) ($6.285 B cash / $18.33 B current liabilities)

Debt to equity ratio: 0.42 (lower is better)

Percentage of total assets in plant, property, and equipment: 9.45% (the higher the better) other assets as a percentage of total assets were: current assets 45.12%, intangibles 32.26%, and other long term assets 13.17%

Working capital trend: Up slightly in the long run.  Up nicely from $3.848 B to $7.142 B.

Image011

CONCLUSION – United Technologies bottomed at $38.54 in March 2009?  It was at an extreme value price back then at 8.5 times average adjusted earnings.  Presently UTX is trading at 16.3 times average adjusted earnings.  That’s too high for a value investor like me.  UTX has a slightly above average dividend yield at 2.9% and the company is a dedicated dividend payer/grower.  It would be a high dividend stock if it returns to its 2009 low.  I think it will return to its 2009 low because there is a worldwide recession brewing in China, Europe, and the USA.  Its main product divisions are related to two industries that will be harmed by another worldwide recession: defense and construction.  Also, their balance sheet stinks due to high price to value ratios, poor current and quick ratios, and stagnant shareholder equity growth.  My recommendation is to wait for this stock to drop to $40 or below.

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DISCLOSURE – I don’t own United Technologies (UTX).

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, 21 Jun 2012 16:33:46 -0700 First Look at DOW Component Cisco Systems (CSCO). http://myhighdividendstocks.posterous.com/first-look-at-dow-component-cisco-systems-csc http://myhighdividendstocks.posterous.com/first-look-at-dow-component-cisco-systems-csc

Today I continue my series of articles on the Dow 30 component stocks with a first look at Cisco Systems (CSCO).  Cisco just started paying a dividend last year.  They have meager dividend yield of 1.86%.  The stock is priced for investment at only 13.7 times earnings.  Best of all – Cisco has a strong balance sheet due to their large cash assets.  To see how I came to these conclusions read on.

Cisco Systems (CSCO)

Price: $17.17

Shares: 5.36 billion

Market capitalization: $91.95 billion

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What does the company do: Cisco Systems is the world's leading supplier of data networking equipment and software. Its products include routers, switches, access equipment, and network-management software that allow data communication among dispersed computer networks. The firm has also entered newer markets, such as video conferencing, web-based collaboration, and data center servers.

Morningstar’s take: Significant scale advantages, meaningful customer switching costs, and a reputation as the go-to provider of enterprise-class networking equipment give Cisco a durable competitive advantage in its core markets of routing and switching. Although Cisco faced a challenging 2011 characterized by aggressive competition, restructuring, and rocky product transitions, the firm has largely recovered from missteps with its market share intact and improving operating results. We believe Cisco is well positioned in 2012 to maintain share and expand its operating margin.

Image007

Bonds: $16 billion outstanding

Times interest earned: Cisco earned 12.32 times their interest expenses in the trailing twelve months.  They earned $7.356 billion in the trailing twelve months and paid $597 million in interest expenses.  Cisco’s bonds are not a threat to their dividend.

Image009

Preferred stock: none

DIVIDEND RECORD: Cisco started paying a quarterly dividend in the first quarter of 2011.  They started paying a $0.06 quarterly dividend and have grown it to $0.08 presently.  That is 33% straight-line growth over less than two years.  If Cisco keeps growing their dividend at their present pace, then they will become a powerful dividend stock.

Dividend: $0.08 quarterly

Dividend yield: 1.86% ($0.32 annual dividend / $17.17 share price)

Dividend payout: 24% using the 2011 EPS of $1.35 –OR- 25.6% using their average adjusted earnings of $1.25

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EARNING POWER: $1.25 @ 5.36 billion shares

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

EPS

Net income

Shares

Adjusted EPS

7/2005

$0.87

$5,741 M

6,612 M

$1.07

7/2006

$0.89

$5,580 M

6,272 M

$1.04

7/2007

$1.17

$7,333 M

6,265 M

$1.37

7/2008

$1.31

$8,052 M

6,163 M

$1.50

7/2009

$1.05

$6,134 M

5,857 M

$1.14

7/2010

$1.33

$7,767 M

5,848 M

$1.45

7/2011

$1.17

$6,490 M

5,563 M

$1.21

Seven year average adjusted earnings per share is $1.25

Consider contrarian buying below $10.00 (8 times average adjusted EPS)

Consider value buying below $15.00 (12 times average adjusted EPS)

Cisco Systems (CSCO) is currently trading at 13.7 times average adjusted EPS.  This is stock is priced for investment.

Consider speculative selling above $25.00 (20 times average adjusted EPS)

BALANCE SHEET – Cisco has an strong balance sheet loaded with current assets.

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Book value per share: $9.58 ($51.357 B equity / 5.36 B shares)

Price to book value ratio: 1.79 (under 1.0 is good)  ($17.17 share price / $9.58 BV)

Tangible book value per share: $6.01 (equity - $17.006 B goodwill - $2.134 B intangibles / 5.36 B shares)

Price to tangible book value: 2.86 ($17.17 share price / $6.01 TBV)

Current ratio: 3.57 latest quarter (over 2.0 is good) ($61.212 B current assets / $17.124 B current liabilities)

Quick ratio: 2.83 latest quarter (over 1.0 is good) ($48.412 B cash & equivalents / $17.124 B current liabilities)

Debt to equity ratio: 0.33 (lower is better)

Percentage of total assets in plant, property, and equipment: 3.99% (the higher the better)  Disposition of other assets categories: Current assets 67.15%, Intangibles 21.00%, and Other long term assets 7.86%

Working capital trend: Up huge.  This is what a working capital chart should look like.

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CONCLUSION – As usual, the best time to buy Cisco Systems in recent years was back in March 2009 when the stock price was $14.18.  It was a value investment back then at 11.3 times average earning power.  Cisco System is a new dividend payer and grower.  Their dividend record is too short to know if they’ll keep paying and growing their dividend during the next financial crisis.  The company is priced for investment at this time as 13.7 times average earning power.  The balance sheet is strong.  Their current ratio and quick ratio are some of the only good ones in the Dow 30 stocks.  There company has plenty of cash to finance current liabilities.  They are not dependent on any banks for funding in a crisis.  I’d look to buy Cisco below 15.00 when the stock market declines from the worldwide recession just getting started.

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DISCLOSURE – I don’t own Cisco Systems (CSCO).

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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, 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

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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.

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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.

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

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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, 12 Jun 2012 11:38:47 -0700 First Look at DOW 30 Component DuPont (DD). http://myhighdividendstocks.posterous.com/first-look-at-dow-30-component-dupont-dd http://myhighdividendstocks.posterous.com/first-look-at-dow-30-component-dupont-dd

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Today I take a first look at DOW 30 component DuPont (DD).  This article continues my series on the Dow 30 stocks.  I learned that DuPont pays a decent dividend that they have grown over many years, their share price is approaching speculative pricing, and their balance sheet is pretty weak.  I wouldn’t buy DuPont at today’s prices.  To see a conservative price to buy and learn how I came to these conclusions read on.

E.I. du Pont de Nemours & Company (DD) aka DuPont

Price: $48.76

Shares: 937.04 million

Market capitalization: $45.76 billion

Image005

What does the company do: DuPont is a diversified chemical company operating in more than 80 countries. Its massive portfolio includes agriculture, coatings, electronics and communication, construction and transportation, and safety and protection. DuPont has increased its research into genetically modified seed technologies over the years, making it one of the most prominent global seed providers.

Morningstar’s take: Founded in 1802, E. I. du Pont de Nemours and Company started as a gunpowder mill. Over the years, the company expanded into specialty chemicals, including coating and coloring, safety equipment, textiles, and genetically modified seed production, and became a dominant global chemical conglomerate. We believe product innovation and successful market penetration will remain long-term sources of support for DuPont's earnings power. We are changing our economic moat rating for DuPont to narrow from none, as the company's specialty operations now make up more than half of its earnings.

Image008

Bonds: $12.2 billion outstanding

Times interest earned: DuPont earned $3.464 billion in 2011 and they paid 447 million in interest expenses in the same year.  Therefore, they earned 7.74 times their interest expenses.  I like to see companies earn at least eight times their interest expenses.  Their bonds are a moderate threat to the future dividend growth.

Image011

Preferred stock: DuPont paid a small dividend of $10 million in 2011.

DIVIDEND RECORD: DuPont paid a $0.13 quarterly dividend in 1987.  Today it pays $0.43 quarterly.  That is 230% straight-line growth over 25 years or 9.2% annual straight-line growth.  DuPont did not cut their dividend during those 25 years.  They are a dedicated dividend payer and grower.

Dividend: $0.43 quarterly

Dividend yield: 3.52% ($1.72 annual dividend / $48.76 share price)

Dividend payout: 46% ($1.72 / $3.73 EPS in 2011) –OR- 61% ($1.72 / $2.81 average earning power)

High dividend stock (6% dividend yield) at $28.67

Image013

EARNING POWER: $2.81 @ 937.04 million shares

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

EPS

Net income

Shares

Adjusted EPS

2005

$2.07

$2,053 M

987 M

$2.19

2006

$3.38

$3,148 M

928 M

$3.36

2007

$3.22

$2,978 M

925 M

$3.18

2008

$2.20

$2,007 M

907 M

$2.14

2009

$1.92

$1,755 M

909 M

$1.87

2010

$3.28

$3,021 M

922 M

$3.22

2011

$3.68

$3,464 M

941 M

$3.70

Seven year average adjusted earnings per share is $2.81

Consider contrarian buying below $22.48 (8 times average adjusted EPS)

Consider value buying below $33.72 (12 times average adjusted EPS)

DuPont (DD) is currently trading at 17.3 times average adjusted EPS.  This is stock is priced for investment, but it’s getting close to speculative.

Consider speculative selling above $56.20 (20 times average adjusted EPS)

BALANCE SHEET – DuPont’s balance sheet contains too much debt and high price to book values.  DuPont has a large percentage of total assets in intangibles.  Their current ratio and quick ratio are substandard.

Image018

Book value per share: $10.63 ($9.96 billion in total equity / 937.04 million shares)

Price to book value ratio: 4.6 (under 1.0 is good)

Tangible book value per share: -$0.95 (total equity - $5.443 B goodwill - $5.41 B in intangibles / 937.04 million shares)

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

Current ratio: 1.58 latest quarter (over 2.0 is good) ($19.809 B current assets / $12.536 B current liabilities)

Quick ratio: 0.29 latest quarter (over 1.0 is good) ($3,601 B cash / $12.536 B current liabilities)

Debt to equity ratio: 1.16 (lower is better)  You can see the high debt (red) to equity (green) on the balance sheet graph above.

Percentage of total assets in plant, property, and equipment: 26.67% (the higher the better) Here are the other assets as a percentage of total assets: Current assets were 39.4%, intangibles 21.61%, and other long term assets 12.28%

Working capital trend: slightly up.

Image020

CONCLUSION – DuPont bottomed in March 2009 at a price of $16.87 at extreme contrarian pricing of 6 times average adjusted earnings.  They have been a good dividend grower and dividend payer for at least 25 years.  Their 3.5% yield is above the S&P average.  DuPont (DD) will become a high dividend stock at $28.67 if they keep paying their current dividend.  DuPont is a little expensive because it is trading at 17.3 times average adjusted earnings.  DuPont’s balance sheet stinks.  They have a lot of debt and most of the other measurements of balance sheet strength are weak such as: current ratio, quick ratio, and price to book values.  I would pass up DuPont until they strengthen their balance sheet.  Then I’d wait until their share is down below the $28.67 price range.

Image022

DISCLOSURE – I don’t own DuPont (DD).

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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, 08 Jun 2012 12:56:36 -0700 First Look at DOW 30 Component McDonalds (MCD). http://myhighdividendstocks.posterous.com/first-look-at-dow-30-component-mcdonalds-mcd http://myhighdividendstocks.posterous.com/first-look-at-dow-30-component-mcdonalds-mcd

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Today I take a first look at Dow 30 component McDonalds (MCD).  Micky Dee’s is a phenomenal dividend growers and sports an above average 3.18 dividend yield.  However, the stock is speculatively priced at the current price.  Their balance sheet could definitely be improved.  Read on to see how I came to these conclusions.

McDonalds (MCD)

Price: $88.16 (two days ago)

Shares: 1.02 billion

Market capitalization: $89.59 billion

Image008

What does the company do: McDonald's generates revenue through company-owned restaurants, franchise royalties, and licensing pacts. Restaurants offer a uniform value-priced menu, with some regional variations. As of March 2012, there were 33,500 locations in 119 countries, including 27,100 franchisees/affiliates units and 6,400 company units.

Morningstar’s take: McDonald's continues to thrive despite an increasingly challenging environment for restaurant operators. Although we doubt the firm can duplicate the almost 1,500 basis points of operating margin expansion it posted during the last five years, we are optimistic that it is capable of generating superior returns on invested capital over an extended horizon. Our confidence stems from unrivaled scale advantages, an incredibly strong brand, and ample international growth opportunities. We don't expect these qualities to abate anytime soon, thus earning McDonald's the widest economic moat in the restaurant category.

Image010

Bonds: $11.1 billion outstanding

Times interest earned: McDonalds earned 22.5 times it interest expenses in 2011.  They earned $5.503 billion in 2011 and paid $493 million in interest expenses.  McDonalds’ bonds are not a threat to their dividend.

Image011

Preferred stock: none.

DIVIDEND RECORD: McDonalds has been a mind blowing dividend grower.  In 1987, they paid a $0.02 quarterly dividend.  By 1999 McDonalds grew the quarterly dividend to $0.05.  They switched to growing annual dividends until 2008.  McDonalds has grown their dividend to $0.70 quarterly.  Therefore, their annual dividend has grown from $0.08 annually to $2.80 today.  That is a 3,400% straight line gain over 25 years or 136% straight line annual dividend growth.  That it some of the highest dividend growth I’ve ever seen.

Dividend: $0.70 quarterly

Dividend yield: 3.18% ($2.80 annual dividend / $88.16 share price)  This is around double the S&P500 average.  McDonalds becomes a 6% yielding high dividend stock at a price of $46.66.

Dividend payout: 52% using 2011 EPS of $5.35 –OR- 72% using average adjusted earning power of $3.90.  I seriously doubt they will be able to grow their dividend as much as they did over the last 25 years without huge earnings increases in a highly competitive market.

Image015

EARNING POWER: $3.90 @ 1.02 billion shares

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

EPS

Net income

Shares

Adjusted EPS

2005

$2.04

$2,602 M

1,274 M

$2.55

2006

$2.83

$3,544 M

1,252 M

$3.47

2007

$1.98

$2,395 M

1,212 M

$2.35

2008

$3.76

$4,313 M

1,146 M

$4.23

2009

$4.11

$4,551 M

1,107 M

$4.46

2010

$4.58

$4,946 M

1,080 M

$4.85

2011

$5.27

$5,503 M

1,045 M

$5.40

Seven year average adjusted earnings per share is $3.90

Consider contrarian buying below $31.20 (8 times average adjusted EPS)

Consider value buying below $46.80 (12 times average adjusted EPS)

Consider speculative selling above $78.00 (20 times average adjusted EPS)

McDonalds (MCD) is currently trading at 22.6 times average adjusted EPS.  This is stock is speculatively priced.

BALANCE SHEET – Very high price to book value ratios.  Current ratios and quick ratios show some weakness.

Image017

Book value per share: $14.37 ($14.661 B equity / 1.02 B shares)

Price to book value ratio: 6.13 (under 1.0 is good)  New McDonalds investors are paying a large premium for the company’s equity.  Investors are paying $6.13 for each $1.00 of equity.

Tangible book value per share: $11.71 (equity - $2.219 B in goodwill / 1.02 shares)

Price to tangible book value: 7.53 (near 1.0 is good) Investors are paying $7.53 for each $1.00 of tangible book value.

Current ratio: 1.17 latest quarter (over 2.0 is good) ($4.255 B current assets / $3.646 B current liabilities)

Quick ratio: 0.63 latest quarter (over 1.0 is good) ($2.289 B in cash / $3.646 B current liabilities)

Debt to equity ratio: 0.82 (lower is better)

Percentage of total assets in plant, property, and equipment: 69.91% (the higher the better) other percentages of total assets are 12.76% in current assets, 9.17% other long term assets, and 8.16% in intangibles.

Working capital trend: Averaging $1 billion in working capital in the past five years.

Image020

CONCLUSION – McDonalds weathered the Panic of 2008 – 2009 fairly well compared to the rest of the Dow 30 and the S&P500 stocks.  McDonalds’ pre-crisis peak was $65.67 in August of 2008.  Most big companies saw their stock drop 40% – 50% during the height of the panic.  However, McDonalds only suffered a 20% decline.  Its post crisis bottom formed around $52.12 in March 2009.    Why do I provide all this history?  Because you should be aware how the stock performed during the most recent crisis so you can be prepared for the next crisis.  McDonalds has had quite a run since the post-crisis lows up to just over $100 at the start of 2012.  McDonalds is still speculatively priced at 22.6 times average adjusted earnings.

McDonalds has been a phenomenal dividend grower for the past 25 years.  The yield is not high, but it is nearly double the S&P 500 average at 3.2%.  I like McDonalds below $46.80 for price appreciation and dividend yield.

Their balance sheet is not strong due to high price to book value ratios and low current/quick ratios.

Image024

DISCLOSURE – I don’t own McDonalds (MCD).

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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, 05 Jun 2012 15:53:40 -0700 First Look at DOW 30 Component Cheveron (CVX). http://myhighdividendstocks.posterous.com/first-look-at-dow-30-component-cheveron-cvx http://myhighdividendstocks.posterous.com/first-look-at-dow-30-component-cheveron-cvx

Today I continue my series on the DOW 30 component stocks.  Let’s take a first look at super oil major Chevron (CVX).  Chevron has a decent dividend yield and excellent dividend growth.  The stock is trading cheap at only 10.2 times average adjusted earnings.  CVX’s balance sheet is good with the exception of the current and quick ratios.  To see how I came to these conclusions read on.

Chevron (CVX)

Price: $96.58

Shares: 1.97 billion

Market capitalization: $190.52 billion

Image002

What does the company do: Chevron is an integrated energy company with exploration, production, and refining operations worldwide. With production of 2.67 million of barrels of oil equivalent a day (69% oil), Chevron is the second-largest oil company in the U.S. Refineries are located in the United States, South Africa, and Asia for total refining capacity of almost 2 million barrels of oil a day. Proven reserves at year-end 2011 stood at 11.2 billion barrels of oil equivalent (58% liquids).

Morningstar’s take: Like its fellow supermajor integrated peers, Chevron is finding it increasingly difficult to expand production and add reserves in a world with a shrinking investable resource base. Much of the remaining pools of cheap, easily accessible resources large enough to interest the larger players reside in the hands of governments and national oil companies. Resource-rich nations are bolstering their nationally owned or controlled energy companies in an attempt to capture more value for their own countries. While this trend can create an opportunity for firms that can offer oil and gas development expertise, it also forces them to greater lengths to acquire reserves. In Chevron's case, that means focusing on deep-water exploration.

Image008

Bonds: $4.7 billion

Times interest earned: approximately 537 times.  Chevron earned $26.895 billion in 2011 and according to Morningstar.com they paid no interest in 2011.  I don’t think that is right given the $4.7 billion in bonds outstanding.  However, I do have some interest expense information from 2010.  Chevron paid $50 million in interest expense in 2010.  Their bonds are definitely not a threat to the dividend.

Image009

Preferred stock: none

DIVIDEND RECORD: I only have Chevron historical dividend data going back to the 4th quarter of 2001.  CVX paid a $0.35 quarterly dividend in late 2001.  They haven’t cut the dividend at all since then.  In fact, they have grown the dividend through the financial crisis of 2008-2009 when others S&P500 companies cut their dividends.  Today the dividend stands at $0.90 per quarter.  That is 157% straight-line growth over 11 years or straight-line annual dividend growth of 14.3%.  They can proclaim themselves as part of the excellent dividend growers club.

Dividend: $0.90 quarterly

Dividend yield: 3.7% ($3.60 annual dividend / $96.58 share price)

Dividend payout: 26% ($3.60 / $13.61 using 2011 EPS) –OR- 38% ($3.60 / $9.45 using average adjusted earning power)

Image011

EARNING POWER: $9.45 @ 1.97 billion shares

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

EPS

Net income

Shares

Adjusted EPS

2005

$6.54

$14,099 M

2,156 M

$7.16

2006

$7.80

$17,138 M

2,197 M

$8.70

2007

$8.77

$18,688 M

2,132 M

$9.49

2008

$11.67

$23,931 M

2,050 M

$12.15

2009

$5.24

$10,483 M

2,001 M

$5.32

2010

$9.48

$19,024 M

2,007 M

$9.66

2011

$13.44

$26,895 M

2,001 M

$13.65

Seven year average adjusted earnings per share is $9.45

Consider contrarian buying below $75.60 (8 times average adjusted EPS)

Chevron (CVX) is currently trading at 10.2 times average adjusted EPS.  This is stock is value priced.

Consider value buying below $113.40 (12 times average adjusted EPS)

Consider speculative selling above $189.00 (20 times average adjusted EPS)

BALANCE SHEET – Good balance sheet except for current and quick ratios.

Image017

Book value per share: $63.71 ($125.507 B equity / 1.97 B shares)

Price to book value ratio: 1.5 (under 1.0 is good) ($96.58 share price / $63.71 book value per share)

Tangible book value per share: $61.85 (equity - $4.641 B in goodwill)

Price to tangible book value: 1.57 (near 1.0 is good) ($96.58 / $61.35 tangible book value per share)

Current ratio: 1.61 latest quarter (over 2.0 is good) ($55.272 B current assets / $34.257 B current liabilities)

Quick ratio: 0.57 latest quarter (over 1.0 is good) ($19.768 B cash / $34.257 B current liabilities)

Debt to equity ratio: 0.07 (lower is better)

Percentage of total assets in plant, property, and equipment: 58.08% (the higher the better)

Working capital trend: up huge!

Image018

CONCLUSION – Chevron will become a 6% high dividend stock if they continue the present dividend and their share price drops to $60.00 per share.  Right now the stock has an above S&P 500 average yield of 3.7%.  However, the coming worldwide recession will drop the price of oil and Chevron’s stock price.  They’ve proven themselves to be dedicated dividend payers and growers during the 2008-2009 financial crisis.  Chevron’s stock price bottomed in October 2008 at $57.83.  That panic provided a rare contrarian buy opportunity at only 6.1 times average adjusted earnings .  I think that you will get another opportunity to buy CVX near $60.00 per share again when Europe, Asia, and the US all reenter recession territory due to failed Keynesian economic policies.  Chevron has a good balance sheet.  Their current ratio and quick ratio are not satisfactory for me.  I looked at their current ratio over the past 10 years and they are improving toward 2.0.

DISCLOSURE – I don’t own Chevron (CVX).

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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 May 2012 15:09:47 -0700 First Look at DOW 30 Component Boeing (BA). This one is going down on budget cuts. http://myhighdividendstocks.posterous.com/first-look-at-dow-30-component-boeing-ba-this http://myhighdividendstocks.posterous.com/first-look-at-dow-30-component-boeing-ba-this

Today I continue my series on the DOW 30 component stocks.  I take a first look at Boeing (BA).  Boeing is an exceptional dividend grower.  The stock is almost speculatively priced.  Lastly, Boeing’s balance sheet is horrible.  I wouldn’t even consider buying this bloated defense contractor given its balance sheet and massive defense budget cuts in the near future.  To see how I arrived at these conclusions read on.

Boeing (BA)

Price: $69.95

Shares: 749.05 million

Market capitalization: $52.40 billion

What does the company do: Boeing manufactures commercial airplanes, provides defense equipment, and maintains a small captive finance division. Its headquarters in Chicago, the firm actively competes with Airbus in commercial aviation, and Lockheed Martin, Northrop Grumman, and General Dynamics in defense operations. Sales are nearly split 50/50 between the airplane and defense segments. The firm generated $69 billion in sales and employed 171,700 people in 2011.

Morningstar’s take: Boeing currently operates in a duopoly with Airbus EAD, following the acquisition of McDonnell Douglas in 1997. Though this duopoly is under threat as new competition from Bombardier BBD.B, COMAC, and others enter the single-aisle arena, Boeing's focus on innovation and its symbiotic relationship with key suppliers and customers help provide a narrow economic moat around its business and should power a high return on invested capital for years to come.

Image009

Bonds: $8.3 billion outstanding

Times interest earned: 8 times.  Boeing paid $498 million in interest expenses in 2011 and they earned $4.018 billion in that same year.  The interest expense is not a threat to the dividends at this time.

Image010

Preferred stock: none.

DIVIDEND RECORD: Boeing has an excellent dividend growth record.  They paid a $0.08 quarterly dividend in 1987 and been able to grow the dividend to $0.44 quarterly.  That is 450% straight line growth over 25 years or 18% annual straight line growth.

Dividend: $0.44 quarterly

Dividend yield: 2.52% ($1.76 annual dividend / $69.95 share price)

Dividend payout: 30% ($1.76 / $5.75 using 2011 EPS) –OR- 46% ($1.76 / $3.85 using average adjusted earning power)

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EARNING POWER: $3.85 @ 749.05 million shares

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

EPS

Net income

Shares

Adjusted EPS

2005

$3.20

$2,572 M

803 M

$3.43

2006

$2.85

$2,215 M

788 M

$2.96

2007

$5.28

$4,074 M

773 M

$5.44

2008

$3.67

$2,672 M

729 M

$3.57

2009

$1.84

$1,312 M

713 M

$1.75

2010

$4.45

$3,307 M

744 M

$4.41

2011

$5.34

$4,018 M

753 M

$5.36

Seven year average adjusted earnings per share is $3.85

Consider contrarian buying below $30.80 (8 times average adjusted EPS)

Consider value buying below $46.20 (12 times average adjusted EPS)

Boeing is trading at 18.2 times average adjusted EPS.  This is stock is priced for investment, but it is approaching speculative territory.

Consider speculative selling above $77.00 (20 times average adjusted EPS)

BALANCE SHEET – Boeing has a very weak balance sheet.

Image013

Book value per share: $6.71 ($5.027 B total equity / 749.05 M shares)

Price to book value ratio: 10.42 (under 1.0 is good)  Boeing investors are paying $10.42 for each $1.00 of book value.  That is a ridiculous premium to pay.

Tangible book value per share: -$3.89  (total equity - $4.950 B in goodwill - $2.993 B in intangibles / 749.05 M shares)

Price to tangible book value: N/A  Boeing’s tangible book value is a negative number.

Current ratio: 1.21 latest quarter (over 2.0 is good)  ($50.131 B in current assets / $41.305 B in current liabilities)

Quick ratio: 0.25 latest quarter (over 1.0 is good)  ($10.516 B in cash or equivalents / $41.305 B in current liabilities)

Debt to equity ratio: 1.75 (lower is better)  You can see this in the balance sheet chart with the huge liabilities (red) compared to the small amount of equity (green)

Percentage of total assets in plant, property, and equipment: 11.72% (the higher the better) Their other assets as a percentage of total assets are: 62.5% in current assets (mostly inventories), 15.87% in other long term assets, and 9.9% in intangibles.

Working capital trend:  Boeing has a nice upward trend since 2009.

Image014

CONCLUSION – The best time to buy Boeing (BA) in recent years was in February 2009.  It was a value investment back then.  Boeing is a steady dividend payer and grower, but the current yield is just average.  If Boeing’s stock price falls back to the 2009 lows and the company keeps the current dividend, then you’ll be able to get Boeing with a 5.5% dividend yield.  The company is almost speculatively priced at 18.2 times average adjusted earning power.  Add Boeing to you watchlist at under $46.20.  The balance sheet is weak by many measurements.  Worse of all is that over 50% of Boeing’s business comes from the US government.  There will be trillion dollar federal budget deficits from here to as far as the eye can see.  The defense budget is going to get slashed significantly and Boeing will be hurt badly by those cuts.  I’d ignore Boeing until it hits 2009 lows again.

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DISCLOSURE – I don’t own Boeing (BA).

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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, 24 May 2012 16:38:04 -0700 First Look at DOW 30 Component 3M (MMM). http://myhighdividendstocks.posterous.com/first-look-at-dow-30-component-3m-mmm http://myhighdividendstocks.posterous.com/first-look-at-dow-30-component-3m-mmm

Today I continue my series on the DOW 30 component stocks.  I will be examining 3M (MMM).  3M is an exceptional dividend grower with an average yield.  Its priced for investment, but its balance sheet has some weakness.  To see how I came to those conclusions read on.

3M (MMM)

Price: $84.40

Shares: 693.87 million

Market capitalization: $58.56 billion

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What does the company do: Based in St. Paul, Minn., 3M manufactures a diversified array of industrial products. Known especially for popular consumer products such as Scotch Tape and Post-It Notes, the company's portfolio also offers liquid crystal display films, health-care technology, heavy-duty adhesives, and more than 40 other technology platforms. 3M is an S&P 500 component and a part of the Dow Jones Industrial Average.

Morningstar’s take: Over its long history, 3M has invented some of the world's greatest products. We think the firm's innovative culture, bottom-line focus, and low-cost manufacturing have carved a wide moat around its business that will enable the company to reap outsized rewards over the long run. That said, the company tends to feel the pinch of economic slowdowns relatively early, and near-term headwinds could crimp the firm's results for several quarters.

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Bonds: $5.8 billion outstanding

Times interest earned: 3M’s earned 23 times its bond interest expenses in 2011.  They earned $4.283 billion and paid $186 million in interest expenses in 2011.  Their bonds are not a threat to the dividend at the present time.  Although, it looks like they have some big bonds due in the 2013-2017 timeframe.

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Preferred stock: none.

DIVIDEND RECORD: I don’t see any cuts going back to 1987 which is as far as I can see on Google Finance.  They have grown their quarterly dividend from $0.12 in 1987 to $0.59 today.  That is a straight line gain of 391% over 25 years or 15.6% straight line annual dividend growth.

Dividend: $0.59 quarterly

Dividend yield: 2.8% ($2.36 annual dividend / $84.40 share price)

Dividend payout: 39% using 2011 EPS of $6.06 –OR- 44% using average adjusted earning power of $5.39

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EARNING POWER: $5.39 @ 693.87 million shares

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

EPS

Net income

Shares

Adjusted EPS

2005

$4.12

$3,199 M

777 M

$4.61

2006

$5.06

$3,851 M

761 M

$5.55

2007

$5.60

$4,096 M

732 M

$5.90

2008

$4.89

$3,460 M

707 M

$4.99

2009

$4.52

$3,193 M

707 M

$4.60

2010

$5.63

$4,085 M

726 M

$5.89

2011

$5.96

$4,283 M

719 M

$6.17

Seven year average adjusted earnings per share is $5.39

Consider contrarian buying below $43.12 (8 times average adjusted EPS)

Consider value buying below $64.68 (12 times average adjusted EPS)

3M (MMM) is currently trading at 15.7 times average adjusted EPS.  This is stock is priced for investment.

Consider speculative selling above $107.80 (20 times average adjusted EPS)

BALANCE SHEET – Horrible price to book value ratios.  Quick ratio (Cash/Current Liabilities) looks weak.

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Book value per share: $23.32 ($16.182 B equity / 693.87 million shares)

Price to book value ratio: 3.61 (under 1.0 is good) 3M investors are paying $3.61 for each $1.00 in book value.  That is a huge premium to pay.

Tangible book value per share: $10.42 (equity - $7.090 B goodwill - $1.865 B intangibles / 693.87 million shares)

Price to tangible book value: 8.10 (near 1.0 is good)  Wow! Investors are paying $8.10 for each $1.00 in tangible assets.  The is a substantial premium.

Current ratio: 2.37 latest quarter (over 2.0 is good)  ($12.853 B current assets / $5.408 B current liabilities)

Quick ratio: 0.69 latest quarter (over 1.0 is good) 3M has huge amounts of receivables and inventory.

Debt to equity ratio: 0.28 (lower is better)

Percentage of total assets in plant, property, and equipment: 24.2% (the higher the better)  Other assets percentages of the total assets are: current assets 40.15%, intangibles 27.97%, and other long term assets 7.66%

Working capital trend: Nicely upward

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CONCLUSION – The best time to buy 3M in recent years was in early March 2009 when the price dropped to $41.83.  That was below contrarian pricing of $43.12.  Their dividend growth has been phenomenal over the past 25 years.  However, the dividend yield is just average for a DOW 30 stock.  3M is currently priced for investment at 15.7 times, but that seems quite expensive when you consider where the stock price has been.  3M’s net income has been incredibly stable even at the height of the financial panic of 2008-2009.  3M’s balance sheet is very weak mostly due to extremely high price to book value ratios.  I would put 3M on your watchlist with an alert set for below $64.68 per share.

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DISCLOSURE – I don’t own 3M (MMM).

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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, 22 May 2012 19:31:16 -0700 First look at DOW 30 Component Alcoa (AA) http://myhighdividendstocks.posterous.com/first-look-at-dow-30-component-alcoa-aa http://myhighdividendstocks.posterous.com/first-look-at-dow-30-component-alcoa-aa

Today’s article continues my series on the DOW 30 companies.  I take a look at aluminum producer Alcoa.  I’ll bet you didn’t know that Alcoa has a pretty dark past regarding the introduction of fluoride into your local drinking water.  Here is the link if you’re interested: http://www.lewrockwell.com/rothbard/rothbard85.html 

Alcoa’s earning have suffered greatly since the Panic of 2008, its dividend yield is smaller than the S&P 500 average, they cut the dividend big time every crisis, and their balance sheet is not strong.  The return of a worldwide recession will crush Alcoa’s share price further.  Read on to see how I came to this conclusion.

Alcoa (AA)

Price: $8.49

Shares: 1.07 billion

Market capitalization: $9.06 billion

Image005

What does the company do: Alcoa is the largest player in the global aluminum market, producing 20% of the world's alumina and 10% of its aluminum. Alcoa is involved in bauxite mining; alumina refining; aluminum smelting; and producing aluminum products such as beverage cans, aerospace components, and auto and building products. The company has operations on every continent and has been actively expanding its operations in lower-cost regions such as South America and the Middle East.

Morningstar’s take: Alcoa is one of the top players in the aluminum industry, as the largest producer of alumina; a major smelter of aluminum; and a leading manufacturer of aluminum products for beverages, cars, aircraft, and building construction. The company's size and vertical integration enable strategic advantages such as lower input costs, greater efficiency, and access to financial resources. But, like all commodity industries, aluminum is a challenging business, as profitability is linked to cyclical demand and volatile price movements.

Image007

Bonds: $8.4 billion outstanding

Times interest earned: Alcoa earned $611 million in 2011 and paid $524 million in interest expenses in the same year.  This means that Alcoa only earned 1.16 times its interest expenses in 2011.  The interest expenses are a threat to the dividend.  The dividend is threatened when net income is less than five times interest expenses.

Image011

Preferred stock: none.

DIVIDEND RECORD: Alcoa has a history of huge dividend cuts.  In 1997, they cut their dividend 50% from $0.06 to $0.03.  One year later they cut their dividend by 66% from $0.03 to $0.01.  They grew the dividend from $0.01 to $0.17 over the next decade, but then they had another huge 82% dividend cut from $0.17 to $0.03 in Q2 2009.

Dividend: $0.03

Dividend yield: 1.4% ($0.12 annual dividend / $8.49 share price)

Dividend payout: 22% ($0.12 / $0.55 2011 EPS) –OR- 16% ($0.12/$0.76 average earning power)  Alcoa does not pay a substantial portion of its earning to owners in the form of dividends.

Image018

EARNING POWER: $0.76 @ 1.07 billion shares

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

EPS

Net income

Shares

Adjusted EPS

2005

$1.40

$1,233 M

879 M

$1.15

2006

$2.57

$2,248 M

874 M

$2.10

2007

$2.95

$2,562 M

869 M

$2.39

2008

($0.10)

($74 M)

813 M

($0.07)

2009

($1.23)

($1,151 M)

935 M

($1.08)

2010

$0.24

$254 M

1,025 M

$0.24

2011

$0.55

$611 M

1,161 M

$0.57

Seven year average adjusted earnings per share is $0.76

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

Alcoa (AA) is currently trading at 11.2 times average adjusted EPS.  This is stock is value priced.

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

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

BALANCE SHEET – Stagnant.  Not horrible, but not strong either.  Their tangible book value per share is definitely a high point.

Image019

Book value per share: $13.22 ($14.142 B equity / 1.07 B shares)

Price to book value ratio: 0.64 (under 1.0 is good)

Tangible book value per share: $8.29 (equity – $5.271 B goodwill / 1.07 shares)

Price to tangible book value: 1.02 (near 1.0 is good)

Current ratio: 1.25 latest quarter (over 2.0 is good)

Quick ratio: 0.27 latest quarter (over 1.0 is good)

Debt to equity ratio: 0.61 (lower is better)

Percentage of total assets in plant, property, and equipment: 48.18% (the higher the better)  Here are the totals for the other asset classes: Other long term assets were 19.49%, current assets were 19.37%, and intangibles were 12.95%

Working capital trend: unchanged near $1.7 billion

Image020

CONCLUSION – Alcoa’s share price bottomed on March 6th, 2009 at $5.22 per share.  All of the problems present in the world economy back then are still present today.  In fact, the economies of the world are even worse due to all the money printing of the central banks such as the US Federal Reserve, the European Central Bank, the Bank of Japan, the Bank of China, and other lesser know central banks.  You will get an opportunity to buy Alcoa below $5.22 per share in the next couple of years when Keynesian central bank inflation backfires.

Alcoa’s dividend record is horrible.  They make big dividend cuts whenever the market takes a significant dive.  Why do they do this when their dividend payout ratio is relatively low?  I think the answer is the increasing bond interest expenses that Alcoa suffers from.  The bond interest expense is a threat to the dividend.

Alcoa’s balance sheet is somewhat respectable for its stability.

I’d stay away from this stock because it is susceptible to the return of the worldwide recession that was papered over by the world’s central banks.

The price of aluminum will determine the fate of Alcoa’s share price.  Aluminum on the spot market fell almost 60% in 2008 due to the Great Recession.  The price of aluminum rose back to 2007 levels to $1.20 per pound in March 2011 following the March 2009 lows.  However, the price has retreated nearly 30% since the summer of 2011 due to fears of a Chinese recession and an worsening of the European sovereign debt crisis.  China will have a recession and Europe will get worse.  Therefore Alcoa will suffer in the next two years.

Image021

The London Metals Exchange publishes daily warehouse inventory levels.  The chart below shows the incredible buildup of aluminum inventories following the Panic of 2008.  Aluminum warehouse stock buildups indicating increasing supplies.  Increased supplies do not lead to increasing aluminum prices.  This is bad for Alcoa.

DISCLOSURE – I don’t own Alcoa (AA).

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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, 16 May 2012 15:26:36 -0700 First Look at DOW 30 Component Home Depot (HD). http://myhighdividendstocks.posterous.com/first-look-at-dow-30-component-home-depot-hd http://myhighdividendstocks.posterous.com/first-look-at-dow-30-component-home-depot-hd

Today I return to the DOW 30 component stocks with Home Depot (HD).  Home Depot has a typical S&P 500 dividend yield and payout ratio.  It has be an exceptional dividend grower.  It is approaching speculative pricing and it has some weak aspects to it’s balance sheet.  To see how I came to those conclusions read on.

Home Depot (HD)

Price: $48.83

Shares: 1.52 billion

Market capitalization: $74.45 billion

What does the company do: Home Depot is the world's largest home-improvement specialty retailer, operating 2,250 warehouse-format stores throughout the United States, Canada, Mexico, and China. The company's stores offer products and services for home construction, renovation, remodeling, and maintenance. The firm is based in Atlanta and employs more than 300,000 people.

Morningstar’s take: Home Depot, the world's largest home-improvement retailer with more than $70 billion in annualized revenue, spent the last three years battling economic headwinds and updating its distribution network. After a decade of aggressive expansion and store and concept growth, the company changed course; it sold its professional supply business in 2007 and closed its ancillary retail businesses in early 2009. Home Depot is now solely focused on its orange box stores and is engaged in a strategic overhaul of its supply chain. We believe the ongoing upgrades will strengthen the firm's competitive position, particularly as macroeconomic pressures abate in the coming years. The firm earns a wide economic moat rating because of its substantial economies of scale.

Image004

Bonds: $10.3 billion outstanding

Times interest earned: Home Depot earned $3.883 billion in the year ending the first quarter of 2012.  For some reason Morningstar’s financials aren’t displaying last year’s interest expenses, so I will use the average over the previous four years ($631.5 million).  Home Depot earned 6.15 times its interest expenses; its bonds are not a threat to its dividend.  Earning more than five times the interest expenses demonstrates that the interest expenses are not a threat to the dividend.

Image006

Preferred stock: none

DIVIDEND RECORD: Home Depot has been growing its dividend since at least 1987.  Back in 1994 the quarterly dividend was $0.01 per share.  Today the dividend is $0.29 quarterly.  That is 2,800% straight-line growth over 18 years or 155% per year.  The missing dividend payment in 4Q 2009 on the picture below is just a Google Finance display problem.  Home Depot made that dividend payment.

Dividend: $0.29 quarterly

Dividend yield: 2.4% ($1.16 annual dividend / $48.83 share price)

Dividend payout: 44% using most recent EPS of $2.65 –OR- 45% using average adjusted earning power of $2.57

Image009

EARNING POWER: $2.57 @ 1.52 billion shares

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

EPS

Net income

Shares

Adjusted EPS

1/2006

$2.26

$5,001 M

2,216 M

$3.29

1/2007

$2.72

$5,838 M

2,147 M

$3.84

1/2008

$2.37

$4,395 M

1,856 M

$2.89

1/2009

$1.34

$2,260 M

1,686 M

$1.49

1/2010

$1.57

$2,661 M

1,692 M

$1.75

1/2011

$2.01

$3,338 M

1,658 M

$2.20

1/2012

$2.47

$3,883 M

1,570 M

$2.55

Seven year average adjusted earnings per share is $2.57

Consider contrarian buying below $20.56 (8 times average adjusted EPS)

Consider value buying below $30.84 (12 times average adjusted EPS)

Home Depot (HD) is currently trading at 19 times average adjusted EPS.  This is stock is priced for investment, but at 20 times it will be speculatively priced.

Consider speculative selling above $51.40 (20 times average adjusted EPS)

BALANCE SHEET – Declining assets and stagnant shareholder equity.  The price to book value ratios by any measure are extremely high.  I don’t like HD’s quick ratio because they have so little cash to weather another financial crisis.

Image012

Book value per share: $11.77 ($17.878 B shareholder equity / 1.52 B shares)

Price to book value ratio: 4.15 (under 1.0 is good)  HD investors are paying $4.15 for each $1.00 of book value for each share.

Tangible book value per share: $11.04  (shareholder equity less intangibles of $1.12 B / 1.52 B shares)

Price to tangible book value: 4.42 (near 1.0 is good)  HD investors are paying $4.42 for each $1.00 of tangible book value.  That is a huge premium.

Current ratio: 1.55 latest quarter (over 2.0 is good)  Why don’t corporations improve the strength of their balance sheets instead of buying back shares?

Quick ratio: 0.21 latest quarter (over 1.0 is good)  HD has very little cash compared to its current liabilities.  Another financial crisis will produce a crisis at Home Depot.

Debt to equity ratio: 0.60 (lower is better)

Percentage of total assets in plant, property, and equipment: 60.34% (the higher the better)  All those big box stores add up.  Other asset percentages of the total assets were: current assets 35.84%, intangibles 2.76%, and other long term assets were 1.06%

Working capital trend: up slightly

Image014

CONCLUSION – Home Depot could be bought in March 2009 for $18.00 per share.  The stock was much closer to a value investment at that price.  It is trading for 19 times its average adjusted earnings which is very close to speculative pricing.  I would sell it now if I owned it because the US economy is visibly reentering recession and the European sovereign debt crisis is putting pressure on world stock markets.  I wouldn’t even consider buying Home Depot until it drop below $30.00 per share.  Home Depots 2.4% dividend yield is near the S&P 500 average dividend yield of 2.2%.  They shine with their dividend growth.  They could strengthen their balance sheet by using some of the share buyback money to put into current assets.

Image017

DISCLOSURE – I don’t own Home Depot (HD).

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, 15 May 2012 12:20:18 -0700 First Look at Speedway Motorsports Inc. (TRK). This Stock Won't Make the Sprint Cup Chase Anytime Soon. http://myhighdividendstocks.posterous.com/first-look-at-speedway-motorsports-inc-trk-th http://myhighdividendstocks.posterous.com/first-look-at-speedway-motorsports-inc-trk-th

Image002

Today I take a break from my series of articles on the DOW 30 stocks to cover the business of racing.  I love racing.  So imagine my joy when I learned that track operator Speedway Motorsports (TRK) pays a decent dividend yield of 3.7%.  While the action on the track has been thrilling the last few years, the action in the stands has been disappointing.  High unemployment, high gasoline prices, and a Keynesian induced economic bust has hurt TRK badly.  I’ve been watching most NASCAR races on TV since 1997 and I’ve never seen the stands more empty than since the financial crisis of 2008.  This New York Times blog summed it up in late 2008.  Nothing has changed in the stands since then.

http://wheels.blogs.nytimes.com/2008/10/17/perfect-storm-brewing-for-nascar/

Speedway Motorsports Inc. (TRK)

Price: $16.23

Shares: 41.46 million

Market capitalization: $672.89 million

What does the company do: Speedway Motor Sports owns and operates Atlanta Motor Speedway, Bristol Motor Speedway, Infineon Raceway, Las Vegas Motor Speedway, Lowe’s Motor Speedway, and Texas Motor Speedway. The company derives a majority of its revenue from activities related to NASCAR sponsored events such as ticket sales, broadcast licensing, and sales commissions.

Image003

Bonds: $1.3 billion outstanding

Times interest earned:  Speedway Motorsports net income did not cover its interest expenses in 2011.  Their bonds are a threat to the dividend.  TRK lost $6.444 million dollars in 2011 and they had interest expenses of $42.414 million dollars.  I like it when company earn at least five times their interest expenses.  TRK is deficient in this regard and this will not change until the US economy improves.  That isn’t going to happen anytime soon, so this is a real threat to the dividend.

Image008

Preferred stock: none.

DIVIDEND RECORD:  TRK started paying dividends in 2002.  They paid around a $0.31 dividend once a year from 2002 until 2008.  Those dividends yielded about 1%-2%.  Then in late 2008 they began paying a quarterly dividend of $0.34.  That dividend only lasted one quarter because the Panic of 2008 occurred at that time.  In 1Q 2009 they cut their dividend significantly to $0.09 per share quarterly.  Since then they have grown the dividend to $0.15 per quarter, but their payout ratio keeps rising.  The grandstands are just as empty as they were following the financial crisis.  They haven’t shown themselves to be dedicated dividend growers.

Image009

Dividend: $0.15 quarterly

Dividend yield: 3.7% ($0.60 annual dividend / $16.23 share price)

Dividend payout: n/a using the 2011 EPS of ($0.16) per share –OR- 48% using the average adjusted earning power of $1.26 per share.

Image015

EARNING POWER: $1.26 with 41.46 million shares

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

EPS

Net income

Shares

Adjusted EPS

2005

$2.45

$108 M

44 M

$2.60

2006

$2.53

$111 M

44 M

$2.68

2007

$0.87

$38.4 M

43.9 M

$0.93

2008

$1.84

$80 M

43.4 M

$1.93

2009

($0.24)

($10.3) M

42.7 M

($0.25)

2010

$1.06

$44.5 M

41.9 M

$1.07

2011

($0.16)

($6.4) M

41.5 M

($0.16)

Seven year average adjusted earnings per share is $1.26

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

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

Speedway Motorsports Inc. (TRK) is currently trading at 12.9 times average adjusted EPS.  This is stock is priced for investment.

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

BALANCE SHEET – Speedway Motorsports has a average balance sheet.  The steady decline in assets is not comforting.  Their price to book value ratio looks good until you compare it to the price to tangible book value ratio.  Their current ratios and quick ratios are sort of weak.  I do like their large percentage of net property and equipment.  Most of their assets are bound up in their big racetracks.  The working capital trend is down.  That is expected given the sparse attendance at the races.

Image017

Book value per share: $20.29  ($841.180 M total shareholder equity / 41.46 M shares)

Price to book value ratio: 0.80 (under 1.0 is good)

Tangible book value per share: $7.42 (total shareholder equity less goodwill of $138.717 M and intangibles of $394.96 M / 41.46 M shares)

Price to tangible book value: 2.19 (near 1.0 is good)

Current ratio: 1.17 latest quarter (over 2.0 is good)

Quick ratio: 0.98 latest quarter (over 1.0 is good)

Debt to equity ratio: 0.66 (lower is better)

Percentage of total assets in plant, property, and equipment: 60.46% (the higher the better)  Intangibles made up 27.51% of total assets, current assets were 8.29%, and other long term assets comprised 1.82%.

Working capital trend: down slightly as expected.

Image018

CONCLUSION – I think it is great that Speedway Motorsports is paying a dividend yielding 3.7%, but the dividend is not safe given the US economic conditions and the company’s present debt load.  This company will rebound when the US economy rebounds.  However, a recovery is going to take many years due to the depression that Keynesian central bankers have put us in.  The middle class fans are the ones that attend races and they’ve been hit hard by unemployment and rising prices of consumer products cause by Fed money printing going back to 2002-2003.  The bust arrived in 2008 and racetrack operators have suffered because of it.  I think that this stock will go lower due to the continuing depression/recession.  Look to pick it up at or below 2009 lows of around $10.00 per share.  The stock will be yielding a high dividend of 6% at that price and will only be trading at a slight premium to tangible book value.  Do that any you’ll get the Lucky Dog pass to get out from being a lap down in the race for total return.

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DISCLOSURE – I don’t own Speedway Motorsports Inc. (TRK).

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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, 14 May 2012 17:09:44 -0700 First Look at DOW Component JP Morgan Chase (JPM). Never Buy a Financial Stock. http://myhighdividendstocks.posterous.com/first-look-at-dow-component-jp-morgan-chase-j http://myhighdividendstocks.posterous.com/first-look-at-dow-component-jp-morgan-chase-j

JP Morgan Chase is part of the banking cartel.  This bank is run by Keynesian morons.  Even the Keynesian financial press is catching on: http://www.google.com/finance/company_news?q=NYSE:JPM#  The politicians are using JPM’s losses to campaign for more government intervention into the financial markets.  The problem is not JPM’s proprietary trading losses.  The problem is the moral hazard created by Federal Reserve System bailouts.  These bankers would not take so much risk if the Federal Reserve was behind them with a bailout.  I would never buy a bank stock even if it had a high dividend because you never know what assets they really own.  However, I decided to do some First Look analysis on JP Morgan Chase for those of you who will buy a bank stock.

JP Morgan Chase (JPM)

Price: $36.15

Shares: 3.81 billion

Market capitalization: $137.57 billion.  Most of JP Morgan’s capitalization is in the form of debt.  Benjamin Graham, the father of value investing, recommended that you avoid ordinary industrial companies in which more than 30% of their total capitalization is in bonds.  Graham also warned investors against the purchase of financial companies and insurance companies because their composition of their assets are opaque.

Image006

What does the company do: JP Morgan Chase is one of the largest financial institutions in the U.S., with more than $2 trillion in assets and operations in more than 60 countries. The company is organized into six business segments: investment banking, commercial banking, treasury and securities services, asset management, retail financial services, and credit card businesses. JP Morgan Chase is a major player in the derivatives markets.

Morningstar’s take: Jamie Dimon, Morningstar's 2002 CEO of the Year, has a well-deserved reputation as one of the best bankers in the business. Indeed, JP Morgan Chase made it through the worst of the financial crisis in remarkably good shape, adding Washington Mutual's retail banking operations and Bear Stearns' investment bank to its already wide-ranging lines of business. In our view, much of JP Morgan Chase's outperformance was due to common sense risk management. For example, the bank carried far more tangible capital than Citigroup C in early 2008, providing a much larger buffer against subsequent losses. Additionally, JP Morgan Chase bought Washington Mutual in an FDIC-assisted transaction, while Bank of America BAC may be on the hook for billions of dollars in additional liabilities thanks to its open market purchase of Countrywide and certain subsequent actions. As a result, JP Morgan Chase is now the largest bank holding company in the U.S., with more than $2 trillion in assets.

Image009

Bonds: $525.8 billion outstanding.  That is a huge amount of debt.

Times interest earned:  In 2011, JPM had net income for its common stock of $17.568 billion.  They amassed $13.604 billion in interest expenses on their bonds.  Therefore, they only earned 1.29 times their interest expenses.  I believe that their interest expenses are a threat to their dividend because they earned significantly less than five times their interest expenses.

Image011

Preferred stock:  JPM paid $1.408 billion in preferred stock dividends in 2011.

DIVIDEND RECORD: JPM cut its dividend severely in 2000 and 2009.  In 2000, the dividend was nearly $1.00 per share quarterly.  They cut it to $0.38 per quarter.

Dividend: $0.30 quarterly

Dividend yield: 3.32% ($1.20 / $36.15 share price)

Dividend payout: 27% ($1.20 / $4.50 using 2011 EPS) –OR- 38% ($1.20 / $3.20 using average earning power)

Image013

EARNING POWER: $3.20 @ 3.81 billion shares

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

EPS

Net income

Shares

Adjusted EPS

2005

$2.38

$8,483 M

3,557 M

$2.23

2006

$4.04

$14,444 M

3,574 M

$3.79

2007

$4.38

$15,365 M

3,508 M

$4.03

2008

$1.35

$4,931 M

3,522 M

$1.29

2009

$2.26

$8,774 M

3,880 M

$2.30

2010

$3.96

$15,764 M

3,977 M

$4.14

2011

$4.48

$17,568 M

3,920 M

$4.61

Seven year average adjusted earnings per share is $3.20

Consider contrarian buying below $25.60 (8 times average adjusted EPS)

JP Morgan Chase (JPM) is currently trading at 11.3 times average adjusted EPS.  This is stock is value priced.

Consider value buying below $38.40 (12 times average adjusted EPS)

Consider speculative selling above $64.00 (20 times average adjusted EPS)

BALANCE SHEET – The assets are not real thanks to accounting fictions, but the liabilities are real.  Too much debt (red)!!

Image014

Book value per share: $48.18  ($183.573 B equity / 3.81 B shares)

Price to book value ratio: 0.75 (under 1.0 is good), but I don’t trust the accounting standards regarding bank asset values.

Tangible book value per share: $32.80 (equity less goodwill and intangibles = $124.955 B / 3.81 B shares)

Price to tangible book value: 1.10 (near 1.0 is good).  Same comment as above.  I don’t trust the asset values.

Current ratio: N/A latest quarter (over 2.0 is good)  Banks are borrowed short and lent long.

Quick ratio: N/A latest quarter (over 1.0 is good)  Banks are borrowed short and lent long.

Debt to equity ratio: 1.41 (lower is better)

Percentage of total assets in plant, property, and equipment: 0.61% (the higher the better)

Working capital trend: Not available because bank balance sheets do not break out current assets and current liabilities; otherwise, the investors would realize how leveraged they are.  Banks and financial institutions are always borrowed short and lent long.

CONCLUSION – If you must own a bank stock, then wait for the next Keynesian banking crisis.  You won’t have to wait too long thanks to the central bankers and commercial bankers in Europe.  JPM traded for below $20.00 per share during the height of the Panic of 2008.  You’ll be able to get it for the same price or less during the next crisis.  Their 3.32% dividend yield is currently better than the S&P 500 average of 2.2%, but beware: JPM has a history of dividend cuts during financial crisis.  The stock is value priced compared to their average adjusted earning power, but it will decline a lot during the coming financial crisis.  The balance sheet is that of a standard too-big-to-fail bank…it is loaded with toxic sovereign debts of the PIIGS and other Keynesian malinvestments.  Don’t buy it.

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DISCLOSURE – I don’t own JP Morgan Chase (JPM) 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
Wed, 09 May 2012 20:42:48 -0700 First Look at Dow 30 component Caterpillar (CAT). Little DIV Yield, Huge DIV Growth. http://myhighdividendstocks.posterous.com/first-look-at-dow-30-component-caterpillar-ca http://myhighdividendstocks.posterous.com/first-look-at-dow-30-component-caterpillar-ca

Today I take a first look at heavy equipment giant Caterpillar (CAT).  This is the second stock in a series I’m writing on the Dow 30 stocks since many of them are dividend payers.  The dividend yield is puny, but the dividend growth has been tremendous.  It is speculatively priced today.  Lastly, their balance sheet is really ugly.  It’s not the ugliest I’ve seen, but it is pretty close.  To see how I came to these conclusions read on.

Caterpillar (CAT)

Price: $95.99

Shares: 666 million fully diluted at the end of 2011

Market capitalization: $62.63 billion (based on the undiluted 652.5 million shares)

What does the company do: Based in Peoria, Ill., Caterpillar is the world's largest manufacturer of heavy construction machinery such as bulldozers, excavators, and loaders and equipment for surface and underground mines. The firm also produces engines for its own off-highway vehicles and others' machines. Cat supports its machinery and engine revenue with a financial services arm, a logistics business, and remanufacturing service work.

Morningstar’s take: Caterpillar is the largest heavy equipment manufacturer in the world and holds an especially dominant share in the U.S. market. With its rebounding end markets, we don't think Cat has lost its competitive edge.

Image002

Bonds: $12.2 billion

Times interest earned: 3.95 times (over 5.0 is adequate)  Caterpillar earned $4.928 billion in 2011 and it paid $1.222 billion in interest expense in the same year.  Caterpillar’s bonds are a growing threat to the dividend, but since their dividend payout ratio is less than 50% it will take a few more years to really threaten the dividend.

Image004

Preferred stock: none.

DIVIDEND RECORD: No dividend cuts all the way back to 1987 (that’s the limit on Google Finance’s dataset).  Caterpillar has grown its dividend from $0.02 quarterly per share in 1987 to $0.46 quarterly in 2011.  That is a 2,200% straight-line gain over 25 years.  That equates to 88% per year straight-line dividend growth.

Dividend: $0.46 quarterly

Dividend yield: 1.9% ($1.84 annual dividend / $95.99 share price)

Dividend payout: 23% (using recent 2011 EPS of $7.92) –OR- 39% (using average adjusted earning power of $4.72)

Image009

EARNING POWER: $4.72 per share at 666 million shares

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

EPS

Net income

Shares

Adjusted EPS

2005

$4.04

$2,854 M

706 M

$4.29

2006

$5.17

$3,537 M

684 M

$5.31

2007

$5.37

$3,541 M

660 M

$5.32

2008

$5.66

$3,557 M

628 M

$5.34

2009

$1.43

$895 M

626 M

$1.34

2010

$4.15

$2,700 M

650 M

$4.05

2011

$7.40

$4,928 M

666 M

$7.40

Seven year average adjusted earnings per share is $4.72

Consider contrarian buying below $37.76 (8 times average adjusted EPS)

Consider value buying below $56.64 (12 times average adjusted EPS)

Consider speculative selling above $94.40 (20 times average adjusted EPS)

Caterpillar (CAT) is currently trading at 20.3 times average adjusted EPS.  This is stock is speculatively priced.

BALANCE SHEET – Way too much total liabilities (Red) compared to shareholder equity (Green)!!  Some of the assets are likely overvalued because CAT has a financing business, but the liabilities are real.

Image013

Book value per share: $19.34

Price to book value ratio: 4.96 (under 1.0 is good)  CAT investors are paying $4.96 for each $1.00 in book value at the present time ($12,883 M in shareholder equity / 666 million shares).  That’s way too high for me.

Tangible book value per share: $2.15

Price to tangible book value: 44.65 (near 1.0 is good)  This is extremely high.

Current ratio: 1.49 latest quarter (over 2.0 is good)

Quick ratio: 0.52 latest quarter (over 1.0 is good)

Debt to equity ratio: 1.68 (lower is better)

Percentage of total assets in plant, property, and equipment: 17.37% (the higher the better)  Here are the other percentages: Current Assets were 47.92%, Other long term assets were 21.17%, and Intangibles were 13.55%

Working capital trend: nicely upward

Image014

Here are some questions you had better be able to answer before you buy Caterpillar:

Image019

CONCLUSION – The best time to buy Caterpillar in recent years was in February 2009 when the stock bottomed at $24.61.  It was in definite contrarian price territory because the average earning power from 2005 – 2009 was $4.32.  Since then it has more than tripled, but I think its heading back down again due to the return of the worldwide recession.  Caterpillar doesn’t have a high dividend yield, but it is an amazing dividend grower through boom and bust.  However, today Caterpillar is speculatively priced at 20.3 its seven year average earning power of $4.72 per share.  That’s where the good news ends because Caterpillar’s balance sheet is horribly weak.  Almost every measure of balance sheet strength shows weakness.  The price to book value ratios, current ratios, quick ratios, and debt to equity are deep into the red.  The working capital position is about the only good part of the balance sheet.  I suspect the financial arm is contributing to that weakness because banks borrow short and lend long, but I haven’t read all the financial statements.  I would ignore CAT until it drops back down in $56.64 value price territory.  Recessions hurt equipment manufacturers like CAT.  The stock price will be hurt greatly.

Image020

DISCLOSURE – I don’t own Caterpillar (CAT).

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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, 08 May 2012 11:29:52 -0700 First look a DOW 30 component IBM. http://myhighdividendstocks.posterous.com/first-look-a-dow-30-component-ibm http://myhighdividendstocks.posterous.com/first-look-a-dow-30-component-ibm

I’m going to take a look at the Dow Jones Industrial Average 30 stocks over the next few weeks that I’ve never examined.  Today I take a look at IBM.  Their dividend is unremarkable, the stock price is too high, and the balance sheet is weak.  To see how I came to that conclusion read on.

International Business Machines (IBM)

Price: $207.08 (last week)

Shares: 1.15 billion

Market capitalization: $238.86 billion

What does the company do: IBM is one of the largest information technology companies with an array of offerings, including system hardware, infrastructure software, outsourcing, and systems integration services. The firm has operations in more than 170 countries and generates about 65% of revenue from abroad.

Morningstar’s take: IBM's technological leadership and sticky products and services will enable the company to deliver steady recurring revenue for a long time.

Image006

Bonds: $27.5 billion outstanding

Times interest earned:  There are a multitude of bonds coming due between now and 2019.  These bonds are not a threat to the dividend.  IBM paid $411 million in interest expenses in 2011.  The company earned $15.885 billion in 2011.  This means that IBM earned its interest expenses by 38.6 times. 

Image008

Preferred stock: none

DIVIDEND RECORD: IBM cut its quarterly dividend of $0.30 per share down to $0.14 for the 1st and 2nd quarters of 1993.  Then they cut the dividend further down to $0.06 in the 3rd quarter of 1993.  They have grown the dividend to $0.75 per share over the next 19 years.

Dividend: $0.75 quarterly

Dividend yield: 1.5% ($3.00 annual dividend / $207.08 share price)

Dividend payout: 22% ($3.00 / $13.41 EPS in 2011) –OR- 28.7% ($3.00 / $10.47 average adjusted earning power)

Image012

EARNING POWER: $10.47 @ 1.150 billion shares

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

EPS

Net income

Shares

Adjusted EPS

2005

$4.87

$7,934 M

1,628 M

$6.90

2006

$6.11

$9,492 M

1,554 M

$8.25

2007

$7.18

$10,418 M

1,451 M

$9.06

2008

$8.89

$12,334 M

1,388 M

$10.73

2009

$10.01

$13,425 M

1,341 M

$11.67

2010

$11.52

$14,833 M

1,287 M

$12.90

2011

$13.06

$15,855 M

1,214 M

$13.79

Seven year average adjusted earnings per share is $10.47

Consider contrarian buying below $83.76 (8 times average adjusted EPS)

Consider value buying below $125.64 (12 times average adjusted EPS)

Consider speculative selling above $209.40 (20 times average adjusted EPS)

IBM (IBM) is currently trading at 19.8 times average adjusted EPS.  This is stock is so close to speculatively pricing that I’m going to call it speculative pricing.

BALANCE SHEET – More red (liabilities) than green (shareholder equity) coupled with declining assets is never a strong balance sheet.

Image014

Book value per share: $17.51 ($20,138 M shareholder equity / 1,150 million shares)

Price to book value ratio: 11.8 (under 1.0 is good) IBM investors are paying $11.80 for each $1.00 in book value.  That is a huge premium to book value that a conservative business man would never pay for a non-public company.

Tangible book value per share: N/A  (IBM had $20,138 M in shareholder equity less $26,213 M in goodwill and $3,392 M in intangibles leaving a negative tangible book value per share)

Price to tangible book value: N/A

Current ratio: 1.21 latest quarter (over 2.0 is good) IBM had $50,928 M in current assets at the end of 2011 and $42,123 M in current liabilities.

Quick ratio: 0.28 latest quarter (over 1.0 is good) IBM had only $11,922 M in cash or equivalents at the end of 2001 and $42,123 M in current liabilities.  I’m surprised how little cash they had onhand given all the claims the financial press have written accusing corporation of hoarding cash.

Debt to equity ratio: 1.24 (lower is better)  You can see a lot of red (total liabilities) relative to green (shareholder equity) on the balance sheet graphic above.

Percentage of total assets in plant, property, and equipment: 12% (the higher the better)  IBM had 42% in current assets, 27% in intangibles, and other long term assets 19%.

Working capital trend: slightly positive.

Image016

CONCLUSION – IBM bottomed at $75 in November 2008 at 7.2 times average adjusted earnings.  It has climbed to almost 20 times average adjusted earnings since then.  IBM’s dividend yield of 1.5% is unremarkable  Its actually lower than the S&P500 average of 2.2%.  The company has been buying back shares the past seven years which could have been used to increase dividends significantly.  I don’t like the fact that management in 1993 cut the dividend significantly.  Dividend growth is nothing special.  IBM’s balance sheet is very weak.  I would ignore IBM until its share price drops below $125.64.  The dividend yield would be higher and you would have a much better chance at some capital appreciation.  This will give IBM some time to reduce debts and to build up its current ratio and quick ratio.

Image018

DISCLOSURE – I don’t own International Business Machines Corp. (IBM).

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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, 30 Apr 2012 12:41:47 -0700 First Look at Arch Coal (ACI). Stock price -75% over past 52 weeks. Should you buy? http://myhighdividendstocks.posterous.com/first-look-at-arch-coal-aci-stock-price-75-ov http://myhighdividendstocks.posterous.com/first-look-at-arch-coal-aci-stock-price-75-ov

Arch Coal’s stock price has declined over 75% in the past 52 weeks.  Should you buy like this article recommends?  http://seekingalpha.com/article/473521-4-reasons-why-analysts-expect-arch-coal-s-stock-to-double.  The answer is no because the dividend isn’t safe and the balance sheet is weak.  Read on to see how I came to that conclusion.

Arch Coal (ACI)

Price: $9.76

Shares: 213.29 million

Market capitalization: $2.08 billion

What does the company do: Arch Coal is the nation's second-largest coal producer. Based in St. Louis, Arch provides coal for 6% of the United States' electricity generation. The company owns and operates mining facilities in the Appalachian region in West Virginia, Virginia, and Kentucky; the Powder River Basin in Wyoming; and the Western Bituminous Region in Colorado and Utah. In 2011, Arch sold 155 million tons of coal.

Morningstar’s take: Arch Coal is the second-largest coal producer in the United States, with significant assets in the Powder River Basin (PRB), Central Appalachia, and various Western states (Western Bituminous). The PRB is ruled by a stable oligopoly of firms and is Arch's best asset. However, the company's purchase of International Coal Group, which was struck months before the European crisis, may have put that advantage in jeopardy. With the Chinese economy showing signs of slowing, an investment in Arch is now more of a souped-up play on global economic recovery than methodical value creation.

Image002

Bonds: $9.0 billion outstanding.  The bonds are a threat to the common dividend.

Times interest earned:  Arch Coal paid $230 million on interest charges in 2011.  They earned $142 million net income in 2011.  This is troubling.  They only earned 0.62 times their interest expenses.  The father of value investing, Benjamin Graham, likes to see a company earn at least four times their fixed charges (interest expenses).  All of these bonds are ahead of the common dividend.

Image003

Preferred stock: none.

DIVIDEND RECORD: Arch Coal cut their quarterly dividend by 50% in late 1999 from $0.06 to $0.03.  They have grown it back to $0.11 since late 1999.

Dividend: $0.11 quarterly

Dividend yield: 4.5% ($0.44 annual dividend / $9.76 share price)

Dividend payout: 58.6% ($0.44 / $0.75 2011 EPS) –OR- 56% ($0.44 / $0.79 average adjusted earning power)

Image007

EARNING POWER: $0.79 per share @ 213.29 million shares

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

EPS

Net income

Shares

Adjusted EPS

2005

$0.18

$38 M

129 M

$0.18

2006

$1.80

$261 M

145 M

$1.22

2007

$1.21

$175 M

144 M

$0.82

2008

$2.45

$354 M

144 M

$1.66

2009

$0.28

$42 M

151 M

$0.20

2010

$0.97

$159 M

163 M

$0.75

2011

$0.74

$142 M

191 M

$0.67

Seven year average adjusted earnings per share is $0.79

Consider contrarian buying below $6.32 (8 times average adjusted EPS)

Consider value buying below $9.48 (12 times average adjusted EPS)

Arch Coal (ACI) is currently trading at 12.4 times average adjusted EPS.  This is stock is priced for investment.  It isn’t as cheap as the happy faced articles portray.

Consider speculative selling above $15.80 (20 times average adjusted EPS)

BALANCE SHEET – The price to book and tangible book values look great.  But the company has little current assets to pay its current liabilities.  The overall balance sheet is not strong.

Image008

Book value per share: $16.78 ($3,578 M equity / 213.29 M shares)

Price to book value ratio: 0.58 (under 1.0 is good)

Tangible book value per share: $13.98

Price to tangible book value: 0.70 (under 1.0 is really good)

Current ratio: 1.16 latest quarter (over 2.0 is good) ($1,183 M current assets / $1,021 M current liabilities)

Quick ratio: 0.14 latest quarter (over 1.0 is good) Horrible!! No cash!  ($138 M cash or equivalents/ $1,021 M current liabilities)

Debt to equity ratio: 1.05 (lower is better)  Too much debt to equity.

Percentage of total assets in plant, property, and equipment: 77.8% (the higher the better).  Current assets = 11.58%, intangibles = 5.84%, and other long term assets = 4.76%

Working capital trend: Their trend is certainly not up, but at least 90% of the last 10 years are positive numbers.

Image016

CONCLUSION – Arch Coal is cheaper not than during the Panic of 2008 – 2009.  It has lost over 75% of its share price in the last 52 weeks, but that doesn’t mean you should buy it.  The dividend is 4.5%, but it is not safe due to the bonds.  They have cut the dividend drastically in the past and I see no reason why they wouldn’t do that again in the future.  Coals main competitor, natural gas, is extremely cheap.  That will inhibit earnings growth in the coal industry until the price of natural gas goes much higher.  Arch coal’s share price is currently flirting with value territory of less than 12 times average adjusted earning power.  I think poor commodity fundamentals and a worldwide double dip recession are going to sink this stock further.  The weak balance sheet real is a deal breakers.  They are going to have to sell more shares in a secondary offering or take on more debt to pay for their current liabilities.  I think that Arch Coal should not be bought until they strengthen their balance sheet by paying of debts.

Image017

DISCLOSURE – I don’t own Arch Coal (ACI).

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
Wed, 11 Apr 2012 17:49:13 -0700 First Look at General Electric. Malaise! http://myhighdividendstocks.posterous.com/first-look-at-general-electric-malaise http://myhighdividendstocks.posterous.com/first-look-at-general-electric-malaise

I’ve read several articles which tout General Electric as a good large cap dividend stock.  Here are just two examples of lackluster initial analysis.

Gurufocus.com ran an article April 3rd, 2012 on “High-Dividend Yielders for 2012”.  General Electric (GE) was one the five stocks recommended in the article.  Apparently the author of the article thinks that a 3% dividend yield is a high dividend.  I think that a stock needs to yield at least 6% to be considered a high dividend stock.

http://www.gurufocus.com/news/170209/5-highdividend-yielders-for-2012

The author has this to say about GE:

General Electric (GE) – General Electric has performed well over the last few months and the stock is up about 13%. It has a trailing price to earnings ratio of about 15.8 which puts it a little higher than the market multiple so it is not a great bargain, but its 3.6% dividend yield is quite a bit higher than that of the market. Also, with a payout ratio of only 50% investors can sleep well knowing that it is safe.

General Electric is unique but can probably be best compared to Siemens AG ADR (SI), which is a much smaller company with a market cap of only $88 billion compared to GE’s $207 billion. Siemens looks a little cheaper at first glance with a trailing 12 month price to earnings ratio of 11.5 compared to almost 16 for GE as noted above, but GE has significantly higher gross margins and operating margins at 37.9% and 12.1% respectively. A good article detailing GE’s current situation can be found here.

The stock trades at a price that is near its 52 week high of $20.85 and is not cheap as mentioned above. However, it is a great company that will offer yield-starved investors a place to earn a decent yield and I would be a buyer at $19 per share or less.

Seeking alpha contributor, DividendInvestr, wrote the article titled “7 High Dividend Large Cap Stocks For Income Investors”

http://seekingalpha.com/article/485891-7-high-dividend-large-cap-stocks-for-income-investors

He had this to say about GE:

6. General Electric Company: General Electric Company operates as a technology and financial services company worldwide. GE recently traded at $19.49 and has a 3.5% dividend yield. GE lost 1.7% during the past 12 months. The stock has a market cap of $206.2 billion, P/E ratio of 15.9 and Total Debt/Equity ratio of 3.89. GE also had an EPS growth rate of -7.2% during the last five years. Ken Fisher holds the largest position in GE with his $397 million investment. Ken Fisher reduced his position in GE by 30% during the last quarter of 2011.

Read on to see when GE was a contrarian stock worth buying.

General Electric (GE)

Price: $19.01

Shares: 10.58 billion

Market capitalization: $201.15 billion

What does the company do – General Electric is a diversified manufacturer and is organized into four segments: technology infrastructure, energy infrastructure, home and business services, and capital services. Financial services accounted for 25% of the firm's profit from continuing operations in 2010.

Morningstar’s take - General Electric positions itself to be a leader in all markets in which it competes. After shedding underperforming businesses during the past few years, the firm has energy infrastructure square in its sights. We believe GE will emerge as a leader in the power infrastructure market, which will be the backbone for the firm's growth.

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Preferred stock: GE paid $1.031 billion in preferred dividends last year.  They reported that they retired the preferred dividend on their 4Q 2011 earnings webcast.

Bonds: $112.6 billion outstanding.  That is a really ugly bond chart.  GE loves issuing debt.

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DIVIDEND RECORD: Not good because of their huge dividend cut in 2Q 2009.  GE cut the dividend from $0.31 to $0.10 quarterly.  They have since increased the dividend to $0.17 quarterly at the present time.

Dividend: $0.17

Dividend yield: 3.6% ($0.68 annually/$19.01 share price)

Dividend payout: 55% using 2011 earnings of $1.23 –OR- 48% using the average adjusted earning power of $1.41

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EARNING POWER: $1.41 @ 10.58 billion shares

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

EPS

Net income

Shares

Adjusted EPS

2007

$2.17

$22,208 M

10,218 M

$2.10

2008

$1.72

$17,335 M

10,098 M

$1.64

2009

$1.01

$10,725 M

10,615 M

$1.01

2010

$1.06

$11,344 M

10,678 M

$1.07

2011

$1.23

$13,120 M

10,620 M

$1.24

Five year average adjusted earnings per share is $1.41

Consider contrarian buying below $11.28 (8 times average adjusted EPS)

Consider value buying below $16.92 (12 times average adjusted EPS)

General Electric (GE) is currently trading at 13.5 times average adjusted EPS.  This is stock is priced for investment.

Consider speculative selling above $28.20 (20 times average adjusted EPS)

BALANCE SHEET – GE is a company in decline and the balance sheet shows it.  The balance sheet is not strong.  GE forgot how to compound shareholder equity.  The entire balance sheet should remain suspect because of the bailed out GE Capital.

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Book value per share: $11.00 ($116.438 B equity divided by 10.58 billion shares = $11.00 per share)

Tangible book value per share: $3.00 ($116.438 B equity - $72.625 B goodwill - $12.068 B intangibles = $31.745 B tangible book value divided by 10.58 billion shares = $3.00 per share)

Price to book value ratio: 1.73 (under 1.0 is good)

Price to tangible book value ratio: 6.33 Horrible!!

Current ratio: 2.29 latest quarter (over 2.0 is good)

Quick ratio: 2.21 latest quarter (over 1.0 is good)

Debt to equity ratio: 2.16 (lower is better)  Notice all the red above the green on the balance sheet chart.  They love debt.

Percentage of total assets in plant, property, and equipment: 9.17% (the higher the better) Wow! That number really shocked me.  I though GE was an industrial conglomerate with a large percentage of its assets in net PPE.  10 years ago they were at 8.21% net PPE.  Current assets comprise 63.18% of total assets (42.87% accounts receivable & 18.39% cash equivalents), other long term assets comprise 15.85%, and intangibles made up 11.81% of total assets.

The working capital trend is up.

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CONCLUSION –   As usual, the best time to buy GE in recent years was in March 2009.  It was a contrarian investment back then at $7.06 per share.  General Electric was a steady dividend payer and grower from 1987 to 2009, but then they panicked and cut the dividend from $0.31 to $0.10 quarterly.  GE had plenty of retained earnings to continue to pay the dividend during the recession of 2009.  I think they really damaged their reputation as a dedicated dividend payer.  They pay a modest dividend and are cautiously growing the dividend since the cut.  The stock is still priced for investment at 13.5 times average adjusted earning power.  But the coming worldwide double-dip recession will drag the price of the stock back down to value pricing territory.  The balance sheet is weak when you look at increasing debt and a lack of shareholder equity growth, the price to tangible book value ratio is just horrible, and the net assets in property, plant, and equipment.   I would ignore this stock until if falls below $13.00.  Those are some key support levels from June 2010 and September 2011.

GE Capital owns Greek bonds!!  Complete idiots are running that part of the company.  Enough said.

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DISCLOSURE – I don’t own General Electric (GE) and I would never own it as long as GE Capital is part of the company.

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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, 10 Apr 2012 22:22:25 -0700 First Look at Dividend Grower Merck (MRK). http://myhighdividendstocks.posterous.com/first-look-at-dividend-grower-merck-mrk http://myhighdividendstocks.posterous.com/first-look-at-dividend-grower-merck-mrk

Gurufocus.com ran an article April 3rd, 2012 on “High-Dividend Yielders for 2012”.  Merck (MRK) was one the five stocks recommended in the article.  Apparently the author of the article thinks that a 3% dividend yield is a high dividend.  I think that a stock needs to yield at least 6% to be considered a high dividend stock.  Merck has some volatility in it’s earnings and it is approaching speculative pricing territory.  Read on to see when Merck was a value stock worth buying.

http://www.gurufocus.com/news/170209/5-highdividend-yielders-for-2012

Merck (MRK)

Price: $38.58

Shares: 3.04 billion

Market capitalization: $117.47 billion

What the company does – Merck & Co., Inc. (Merck) is a global health care company. Merck delivers health solutions through its prescription medicines, vaccines, biologic therapies, animal health, and consumer care products. It operates in four segments: Pharmaceutical, Animal Health, Consumer Care and Alliances. Pharmaceutical segment includes human health pharmaceutical and vaccine products marketed either directly by Merck or through joint ventures. Human health pharmaceutical products consist of therapeutic and preventive agents, sold by prescription, for the treatment of human disorders. It sells these human health pharmaceutical products to drug wholesalers and retailers, hospitals, government agencies and managed health care providers. In September 2011, it sold its 50% interest in the Johnson & Johnson-Merck Consumer Pharmaceuticals Co. joint venture. In December 2011, it announced establishment of an Asia Research & Development headquarters for drug discovery and development located in Beijing, China.

Morningstar’s take - Facing increased competition, patent losses, and a pipeline of late-stage drugs with poor chances of approval, Merck greatly improved its long-term outlook by acquiring Schering-Plough. Without Schering, Merck's prospects were muddled, despite its recent success launching several new blockbusters. Now, with the addition of Schering, we believe Merck is favorably positioned for long-term growth.

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Preferred stock: none that I’m aware of.

Bonds: $8.9 billion outstanding.  Some big bonds are coming due in 2015, but they aren’t threatening this year’s dividend.

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DIVIDEND RECORD: Merck paid a $0.03 quarterly dividend in 1987.  The quarterly dividend has grown to $0.42 per share in 2012.  It has increased its dividend 1,300% over 25 years.  Merck is a dedicated dividend grower.

Dividend: $0.42 quarterly

Dividend yield: 4.35%  (Merck becomes a 6% high dividend stock at a price of $28.00 per share)

Dividend payout: 82.8% using recent EPS of $2.03 –OR- 82.3% using average adjusted earning power of $2.04

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EARNING POWER: $2.04 @ 3.04 billion shares

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

EPS

Net income

Shares

Adjusted EPS

2007

($1.04)

$3,275 M

2,193 M

$1.08

2008

$3.63

$7,808 M

2,145 M

$2.57

2009

$5.65

$12,853 M

2,273 M

$4.23

2010

$0.28

$859 M

3,120 M

$0.28

2011

$2.02

$6,257 M

3,040 M

$2.06

Merck’s five year average adjusted earnings per share is $2.04

Consider contrarian buying below $16.32 (8 times average adjusted EPS)

Consider value buying below $24.48 (12 times average adjusted EPS)  Merck’s stock price bottomed at $23.45 in April 2009.

Merck (MRK) is currently trading at 18.9 times average adjusted EPS.  This is stock is priced for investment, but is nearing speculative pricing.

Consider speculative selling above $40.80 (20 times average adjusted EPS)

BALANCE SHEET – 44% of Merck’s assets are comprised of goodwill and intangibles ($46.457 billion of $105.128 billion).  From 2003 through 2007 intangible assets only comprised about 4% of Merck’s total assets.  I don’t like so much subjectivity determining asset values.  The price to book value is too high.  The price to tangible book value is astronomical.

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Book value per share: $17.93

Tangible book value per share: $2.65  TBV is found by subtracting goodwill ($12.155 B) and intangibles ($34.302 B) from shareholder equity ($54.517 B) and then dividing by the number of shares (3.04 B)

Price to book value ratio: 2.15 (under 1.0 is good)

Price to tangible book value radio: 14.6

Current ratio: 2.04 latest quarter (over 2.0 is good)

Quick ratio: 0.92 latest quarter (over 1.0 is good)

Debt to equity ratio: 0.28 (lower is better)

Percentage of total assets in plant, property, and equipment: 15.5% (the higher the better)  Current assets account for 31.6%, long term assets 5.46%, and other equity/investments 3.29%.

Working capital trend is way up.  Working capital equals current assets less current liabilities.  Financially strong companies have a positive upward trend.

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CONCLUSION – As usual, the best time to buy MRK in recent years was in April 2009.  It was a value investment back then.  Merck is a steady dividend payer and grower.  The dividend yield is nothing special until the stock takes a beating.  The company is still priced for investment at this time, but it’s getting dangerously close to 20 times average adjusted earnings.  I think it is time to get out of Merck.  Scale out of it above $40.80.  The balance sheet is weak when you look at the price to book value ratio and the tangible book value ratio.  Much of its assets are intangibles.  That in never a good sign.  Pharmaceutical companies are always a the mercy of FDA bureaucrats and their clinical trial approvals.  I don’t like the Sword of Damocles hanging over my investments.  I wouldn’t buy Merck until it is back below $24.48, if at all.

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DISCLOSURE – I don’t own Merck (MRK).

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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