My High Dividend Stocks Blog http://myhighdividendstocks.posterous.com Most recent posts at My High Dividend Stocks Blog posterous.com Mon, 09 Apr 2012 21:24:52 -0700 Some examples of high price to tangible book values. http://myhighdividendstocks.posterous.com/some-examples-of-high-price-to-tangible-book http://myhighdividendstocks.posterous.com/some-examples-of-high-price-to-tangible-book

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

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

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

AT&T (T) tangible book value

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

Verizon (VZ) tangible book value

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

Terra Nitrogen (TNH) tangible book value

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

Goldcorp (GG) tangible book value

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

Southern Copper (SCCO) tangible book value

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

Apple (AAPL) tangible book value

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

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

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http://files.posterous.com/user_profile_pics/697493/v_for_vendetta_guy_fawkes_mask11.jpg http://posterous.com/users/4wuf4tt8LZzb Jason Brizic myhighdividendstocks Jason Brizic
Wed, 31 Aug 2011 14:21:41 -0700 When should you sell Terra Nitrogen (TNH)? http://myhighdividendstocks.posterous.com/when-should-you-sell-terra-nitrogen-tnh http://myhighdividendstocks.posterous.com/when-should-you-sell-terra-nitrogen-tnh

When should you sell Terra Nitrogen (TNH) if you own it or are considering shorting it?  Terra Nitrogen's stock price has increased 43.6% in the past year while the S&P 500 has only risen 0.9%.  I don’t know why the stock’s price has rocketed since April 2011.

Image001

http://stockcharts.com/h-sc/ui?s=TNH&p=W&b=5&g=0&id=p33864843115

The stock is currently yielding 8.1% at today's price of $183.38 per share.  It is now paying a $3.75 quarterly dividend on $3.95 in earnings per quarter.  This brings the dividend payout ratio up to a worrying 95%.  I like dedicated dividend payouts of between 50% and 80% (dedicated, but not too high).

TNH has an average adjusted earning power of $9.97 over the past five years.  Consider buying at or below $119.64 (12 times average adjusted earnings).  Consider sell at or above $  $199.40 (20 times average adjusted earnings).  It is almost sell time.

Their balance sheet is strong.  To read the other articles I’ve written on Terra Nitrogen click here: http://www.myhighdividendstocks.com/category/high-dividend-stocks/terra-nitrogen

Disclosure: I don’t own Terra Nitrogen (TNH).

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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, 20 Jul 2011 23:44:14 -0700 Should you buy, sell, or hold Terra Nitrogen (TNH) at today's 52 week high? http://myhighdividendstocks.posterous.com/should-you-buy-sell-or-hold-terra-nitrogen-tn http://myhighdividendstocks.posterous.com/should-you-buy-sell-or-hold-terra-nitrogen-tn
Terra Nitrogen (TNH) hit a new 52 week high today of $157.00 per share.  This fertilizer company has skyrocketed since April 2011.  I'll bet you're wondering if you should you buy, sell, or hold TNH shares at $157.00?  You should hold them if you own them because TNH is only trading at 15.7 times the company's five year average adjusted earnings of $9.97 per share.  Sit back and collect the dividend until the shares climb to 20 times average earnings which would be $199.40 per share.
 
 
Terra Nitrogen is not a high dividend stock right now due to the huge stock price advance since July 2010.  The company is paying a $1.36 quarterly dividend per share.  There was a special dividend last quarter that is confusing all the online dividend yield calculations.  The dividend yield is closer to 3.4% when the special dividend is removed.  That is still a good dividend compared to the pathetic S&P 500 average of around 2%.
 
If you don't own Terra Nitrogen, then consider buying it when it drops back to the $90 - $119 range.  The stock would be trading at 12 times its five year average earnings when the price is at $119.  At $90 TNH would sport a dividend yield of 6% if it keeps its $1.36 quarterly dividend in place.  The dividend is fairly safe.  In the 1st quarter of 2011 TNH earned $3.60 per share and paid out $1.36 in dividends.  That is a low 37.7% dividend payout ratio.  Let's look at this even more cautiously: assume for a moment that the company only earns its five year average in earnings - $9.97 per share.  The dividend payout ratio at the end of 2011 would only climb to 54.5% ($5.44 annual dividend / $9.97 average annual earnings).
 
Terra Nitrogen has a strong balance sheet.  It has $252.1 million in current assets (most of that is cash and cash equivalents) and only $55.5 million in current liabilities.
 

CONSOLIDATED BALANCE SHEETS

March 31, December 31,
2011 2010
(in millions, except for units)
ASSETS
Current assets:
Cash and cash equivalents $ 221.7 $ 124.8
Demand deposits with affiliate 10.7 6.1
Accounts receivable, net 1.2

33.4
Inventories, net 16.7 27.6
Prepaid expenses and other current assets 1.8 1.2
Total current assets 252.1 193.1
Property, plant and equipment, net 82.6 83.2
Plant turnaround, net 11.9 13.4
Other assets 6.8 7.0
Total assets $ 353.4 $ 296.7
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable and accrued liabilities $ 22.0 $ 24.3
Customer advances 33.1 61.2
Other current liabilities 0.4 0.8
Total current liabilities 55.5 86.3
Noncurrent liabilities 0.7 0.4
Partners' capital:
Limited partners' interests, 18,501,576 Common Units
authorized, issued and outstanding 250.0 208.5
Limited partners' interests, 184,072 Class B Common Units
authorized, issued and outstanding 1.4 0.6
General partners' interest 45.8 0.9
Total partners' capital 297.2 210.0
Total liabilities and partners' capital $ 353.4 $ 296.7
 
To read the other articles I've written on Terra Nitrogen click here: http://www.myhighdividendstocks.com/category/high-dividend-stocks/terra-nitrogen
 
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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, 30 Jun 2011 13:03:32 -0700 Miscellaneous news on AGNC, TNH, and SCCO. http://myhighdividendstocks.posterous.com/miscellaneous-news-on-agnc-tnh-and-scco http://myhighdividendstocks.posterous.com/miscellaneous-news-on-agnc-tnh-and-scco
American Capital Agency Corp. (AGNC) news:
Title of article is "Mortgage REIT dividends look risk free this summer".  I generally agree that the MREITs are going to do well this summer.  It takes awhile for an inverted yield curve to develop and wreck their profits.  But the people who write these articles do not understand how the Federal Reserve works.  The chairman of the Federal Reserve Board, Ben Bernanke, says he's keeping a key interest rate low for an extended period of time.  That interest rate is known as the Fed Funds Rate.  It is the rate that banks charge each other for overnight loans to meet reserve balance requirements.  However, the big banks have over $1 trillion in excess reserves.  They aren't lending to each other over night because they are stuffed full of reserves.  Commercial bankers are keeping the Fed Funds rate low not Ben Bernanke.

Its a good thing they commercial bankers aren't expanding lending because if they did loan those excess reserves, then prices would more than double from what they are today.  Think $10/gallon gasoline.

http://www.marketwatch.com/story/mortgage-reit-dividends-look-risk-free-this-summer-2011-06-30?reflink=MW_news_stmp

Conclusion: Don't buy AGNC for an investment, but you can buy it for a short term trade.  In the not too distant future interest rates will rise and destroy its asset values and net income profits.

Terra Nitrogen (TNH) news:
Shares of Terra Nitrogen Company, L.P. (NYSE: TNH) fell by 6.44% or $-9.13/share to $132.75. In the past year, the shares have traded as low as $66.38 and as high as $143.50. On average, 44595 shares of TNH exchange hands on a given day and today's volume is recorded at 52049. The shares are currently trading above the 50-day moving average which indicates that the shares have been experiencing strong upward momentum as the 50 DMA is above the 200 DMA. The stock may come back down to test the 50-day moving average, so look for a move back to the $124.35 area where the stock will likely see buying pressure.

Conclusion: Buy it way down in the $90.00 range when it is on sale.

Southern Copper (SCCO) news:

Southern Copper (SCCO) Showing Bearish Technicals With 7.23% Dividend Yield

Southern Copper (NYSE:SCCO) closed Wednesday's winning trading session at $32.25. In the past year, the stock has hit a 52-week low of $25.65 and 52-week high of $50.35. Southern Copper (SCCO) stock has been showing support around $31.50 and resistance in the $33.34 range. Technical indicators for the stock are Bearish. For a hedged play on Southern Copper (SCCO), look at the Aug '11 $32.00 covered call for a net debit in the $30.65 area. That is also the break-even stock price for this trade. This covered call has a duration of 51 days, provides 4.96% downside protection and an assigned return rate of 4.40% for an annualized return rate of 31.52% (for comparison purposes only). A lower-cost hedged play for Southern Copper (SCCO) would use a longer term call option in place of the covered call stock purchase. To use this strategy look at going long the Southern Copper (SCCO) Jan '12 $25.00 call and selling the Aug '11 $32.00 call for a total debit of $6.40. The trade has a lifespan of 51 days and would provide 2.64% downside protection and an assigned return rate of 9.37% for an annualized return rate of 67.1% (for comparison purposes only). Southern Copper (SCCO) has a current annual dividend yield of 7.23%. [THA-Seven Summits Research]


Conclusion: Technical analysis means nothing without an understanding of the fundamentals of the copper commodity price.  Wait until this stock drops to $23.04 (which is 12x average earnings).  The dividend isn't safe.


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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, 14 Jun 2011 18:29:31 -0700 Terra Nitrogen hits 52 week high; dividend yield decreases. When should you buy? http://myhighdividendstocks.posterous.com/terra-nitrogen-hits-52-week-high-dividend-yie http://myhighdividendstocks.posterous.com/terra-nitrogen-hits-52-week-high-dividend-yie

Terra Nitrogen hit its 52 week high today at $132.98.  The move upward in price has dropped the dividend yield down to 4.09%, but some of the online investing sites compute the yield wrong because of the special dividend that TNH paid last quarter.  For example, Google Finance reports Terra Nitrogen’s current dividend yield at 7.49.  TNH is paying a $1.36 quarterly dividend that equates to $5.44 annually.  $5.44 dividend divided by $132.98 market price equals a yield of 4.09%.

Motley Fool writer Dan Dzombak dug up some reassuring dividend safety info on Terra Nitrogen (TNH) which you can read below.  I agree with his conclusions on the dividend’s safety.

I still think that Terra Nitrogen is approaching the speculative price territory.  See my recent article:

http://www.myhighdividendstocks.com/high-dividend-stocks/two-views-of-terra-nitrogen-tnh-value-or-investment#more-440

Terra Nitrogen would become a high dividend stock again at the price of $90.66 per share.  I would wait until the stock falls somewhere between $90 and $70 to purchase.  A general stock market correction will take Terra Nitrogen down along with many other medium dividend stocks.  You can see in this chart how recently TNH traded in the $60’s:

http://stockcharts.com/h-sc/ui?s=TNH&p=W&b=5&g=0&id=p69438073925

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By Dan Dzombak

Motley Fool

Image001

updated 6/12/2011 7:30:00 AM ET 2011-06-12T11:30:00

Dividend investors know that it pays to follow how much of a company's money goes toward funding its payouts. A nice yield now won't matter much if the company can't keep making those payments going forward.

Here, we'll highlight a given company and its closest competitors to see just how safe their dividends are, with a little help from three crucial tools:

  • The interest coverage ratio, or earnings before interest and taxes, divided by interest expense. The interest coverage ratio measures a company's ability to pay the interest on its debt. An interest coverage ratio less than 1.5 is questionable; a number less than 1 means that the company is not bringing in enough money to cover its interest expenses.
  • The EPS payout ratio, or dividends per share divided by earnings per share. The EPS payout ratio measures the percentage of earnings that go toward paying the dividend. A ratio greater than 80% is worrisome.
  • The FCF payout ratio, or dividends per share divided by free cash flow per share. Earnings alone don't always paint a complete picture of a business' health. The FCF payout ratio measures the percentage of free cash flow devoted toward paying the dividend. Again, a ratio greater 80% could be a red flag.

Let's examine Terra Nitrogen and three of its peers.

Company

Yield

Interest Coverage

EPS Payout Ratio

FCF Payout Ratio

Terra Nitrogen

15.4%

962.7

64.5%

64.4%

Mosaic (NYSE: MOS)

0.3%

54.3

4.0%

7.3%

Potash Corp. (NYSE: POT)

0.5%

23.5

7.3%

38.4%

Scotts Miracle-Gro (NYSE: SMG)

1.9%

8.8

23.6%

17.8%

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

With an interest coverage of 962.7, Terra Nitrogen covers every $1 in interest expenses with over $900 in operating earnings, meaning the company barely has any debt at all. Given that its EPS payout ratio and FCF payout ratio are below 70%, you shouldn't have to worry that Terra Nitrogen will need to cut its dividend anytime soon.

Link to original article: http://www.msnbc.msn.com/id/43370848/ns/business-motley_fool/

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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, 05 May 2011 21:40:32 -0700 Terra Nitrogen's dividend increased 255% this quarter. What's up with that? http://myhighdividendstocks.posterous.com/terra-nitrogens-dividend-increased-255-this-q http://myhighdividendstocks.posterous.com/terra-nitrogens-dividend-increased-255-this-q Terra Nitrogen (TNH) reported stellar earnings today and the company announced a much higher dividend payment for the first quarter.  But will that much higher dividend payment be the new norm for Terra Nitrogen.  The RTTNews article below makes it sound like TNH will up their quarterly dividend from $1.36 per common unit (share) to $4.84 per common unit.  That is an unbelievable 255% dividend rate increase.

Terra Nitrogen Co. L.P. (TNH: News ) said Thursday its first-quarter profit rose from the prior year, due to higher ammonia and urea ammonium nitrate selling prices and volumes.  For the quarter, net earnings to common units grew to $$66.6 million or $3.60 per common unit from $$32.9 million or $1.78 per common unit a year earlier.  Results for the quarter included an unrealized non-cash mark-to-market gain on natural gas derivatives of $1.2 million.  Net sales for quarter were $196.0 million, up from $118.8 million last year. This increase was due to higher ammonia and urea ammonium nitrate selling prices and volumes.  The increase in prices, the company said, resulted from an improved global supply/demand balance for nitrogen products and higher expected crop plantings in North America.  Additionally, the company said its Board has declared a quarterly cash distribution of $4.84 per common limited partnership unit payable May 27 to holders of May 16.  Terra Nitrogen Co. L.P. produces and distributes nitrogen fertilizer products to agricultural and industrial customers.

Link to original article: http://www.rttnews.com/Content/QuickFacts.aspx?Node=B1&Id=1616708

That sounded too good to be true so I did a little digging.  I went searching for the company's earnings press release for today to see if Terra Nitrogen said it was increasing their quarterly dividend to $4.84.  Morningstar.com has the company's short press release: http://news.morningstar.com/all/ViewNews.aspx?article=/BW/20110505007332_univ.xml

In TNH's press release on Morningstar I read the following concerning the dividend increase:

TNCLP reported today that its Board of Directors has declared a cash distribution for the quarter ended March 31, 2011, of $4.84 per common limited partnership unit payable May 27, 2011, to holders of record as of May 16, 2011.

Cash distributions depend on TNCLP's earnings, which can be affected by nitrogen fertilizer selling prices, natural gas costs, seasonal demand, production levels and weather, as well as cash requirements for working capital needs and capital expenditures. Cash distributions per limited partnership unit also vary based on increasing amounts allocable to the General Partner when cumulative distributions exceed targeted levels.

Announced distributions for the first quarter of 2011 exceed distributions in the previous and year-ago quarters due to higher net earnings allocable to common units and a one-time working capital benefit associated with implementing the previously announced new operating agreement with CF Industries. With this distribution, TNCLP cumulative distributions continue to exceed targeted levels.

That doesn't sound like they expect to keep the dividend payments at $4.84 per common unit per quarter in the future.  The company only earned $3.60 per common unit.  That makes this quarter's dividend payout ratio 134% and we all know that isn't sustainable.  But this will increase the yield for the year.

I have calculated in the past that Terra Nitrogen has a five year average earning power of $9.97 per common unit.  If the company can match this quarters results for the remainder of the year, then that average should be moving up at the end of the year.  The company is currently trading at 10.9 times it five year average earnings.  Any amount below 12 times average earnings is value territory.

The stock closed at $108.71 today, but it only has a book value of $11.35.  That sort of bothers me, but I haven't done the detailed analysis of their balance sheet yet justify my concern.  I like very low price to book values and this one is closer to 10.  I'm going to keep my eye on Terra Nitrogen to see if these earnings are just the result of higher prices and seasonality.  It makes sense to me that farmers by their fertilizers in the 1st quarter of the year.

I'm putting this stock on my watch list.

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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, 20 Apr 2011 12:21:33 -0700 Two views of Terra Nitrogen (TNH) VALUE or INVESTMENT? http://myhighdividendstocks.posterous.com/two-views-of-terra-nitrogen-tnh-value-or-inve http://myhighdividendstocks.posterous.com/two-views-of-terra-nitrogen-tnh-value-or-inve

Terra Nitrogen (TNH)

Market price: $110.75

Shares: 18.5 million

Dividend yield: 4.9%

Quarterly dividend: $1.36

Book value: $11.35

            EPS                   Net inc.             Adj. EPS

2006     $2.45                $45.73 M           $2.47

2007     $10.90              $205.782 M       $11.12

2008     $14.90              $422.385 M       $22.83

2009     $5.40                $100 M              $5.41

2010     $8.01                $148.2 M           $8.01

At first glance Terra Nitrogen appears to be a VALUE investment trading 11.1 times its 5 yr. average earnings.

Five year average earnings $9.97

12 times five year average earnings = $119.64

20 times five year average earnings = $199.40

If you believe that the last 5 years are more representative of Terra Nitrogen’s future performance, then TNH is a value at $110.75 per share.  However, the numbers change if you take a 10 year view of Terra Nitrogen.

Ten year average net income: $108.3 million

Ten year average earnings per share: $5.85

12 times ten year average earnings = $70.20

20 times ten year average earnings = $117.00

Terra Nitrogen is trading at 18.93 times its 10 yr. average earnings.  This is in the INVESTMENT basis range, and at nearly 20 times 10 yr. average earnings it is almost SPECULATIVE.

I like to take the longer term view when possible to be conservative.  I would buy TNH below $70.20.  It was priced below $70 in June 2010.  The stock has been on a large run since June 2010.  By waiting for a correction you can get a better dividend yield, the price to book value would be improved, and the price relative to earnings would be in the VALUE range.

Disclosure: I don’t own Terra Nitrogen (TNH).

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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, 14 Apr 2011 10:19:13 -0700 The practical significance of book value. Plus 15 book values of stocks mention on this blog. http://myhighdividendstocks.posterous.com/the-practical-significance-of-book-value-plus http://myhighdividendstocks.posterous.com/the-practical-significance-of-book-value-plus

There is no hard fast rule for price to book value ratios, but lower is definitely better.  I like the ratio too be less than 2.0.  Here is a list of many of the high dividend stocks mentioned on this blog with their most recent price, book value (BV)/share, Price/BV ratio, and dividend yield.  The results might surprise you.  Most of the book values per share are as of December 21st, 2010 unless otherwise noted.

Ticker              Price                BV/share         P/BV   Div. yield

=================================================

AGNC            $28.58             $24.24             1.18     19.51%

SB                   $8.26               $3.86               2.14     6.79%

SDRL              $34.42             $9.78               3.52     5.6%

TNH                $108.96           $11.35             9.6       4.94%

EXC                $39.97             $20.45             1.95     5.13%

FE                   $37.90             $28.02             1.35     5.99%

FRO                $22.59             $9.57               2.36     1.62%

MCD               $76.66             $13.55             5.66     3.27%

NGG               $48.80             $12.87 (ttm)    3.79     4.28%

PM                  $65.90             $1.90               34.68   4.01%

PCL                 $42.13             $8.47               4.97     3.96%

TNK                $10.15             $10.46             0.97     9.02%

VOD               $28.85             $17.06 (ttm)    1.69     3.18%

WIN                $12.41             $1.77               7.01     7.73%

T                      $30.27             $18.80             1.61     6.11%

Excelon (EXC), First Energy (FE), Teekay Tankers (TNK), and AT&T (T) warrant further examination for their high dividend yields and low price/book value ratios.

Philip Morris (PM) has an extremely high price/book value ratio which needs to be examined to make sure it’s not some weird artifact of how Google Finance and Morningstar display financial information.

Here is quick excerpt for Chapter 42 of Security Analysis 2nd edition on the practical significance of book value.

* * * * * * *

Practical Significance of Book Value. The book value of a common stock was originally the most important element in its financial exhibit. It was supposed to show “the value” of the shares in the same way as a merchant’s balance sheet shows him the value of his business. This idea has almost completely disappeared from the financial horizon. The value of a company’s assets as carried in its balance sheet has lost practically all its significance. This change arose from the fact, first, that the value of the fixed assets, as stated, frequently bore no relationship to the actual cost and, secondly, that in an even larger proportion of cases these values bore no relationship to the figure at which they would be sold or the figure which would be justified by the earnings. The practice of inflating the book value of the fixed property is giving way to the opposite artifice of cutting it down to nothing in order to avoid depreciation charges, but both have the same consequence of depriving the book-value figures of any real significance. It is a bit strange, like a quaint survival from the past, that the leading statistical services still maintain the old procedure of calculating the book value per share of common stock from many, perhaps most, balance sheets that they publish.

* * * * * * *

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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 Mar 2011 15:43:03 -0700 Time For a PE Ratio History Lesson. http://myhighdividendstocks.posterous.com/time-for-a-pe-ratio-history-lesson http://myhighdividendstocks.posterous.com/time-for-a-pe-ratio-history-lesson

The S&P 500 index has had quite a run since its March 2009 bottom.  It hit bottom at 666 points on March 9th, 2009 and has powered 94.5% higher to 1,249 today.

http://bit.ly/SP5003yrs

I think it’s time to reexamine the S&P 500 PE ratio.  Are we closer to a market top or a market bottom?  The price to earnings ratio for the S&P 500 is currently 18 (http://www.decisionpoint.com/tac/Swenlin.html ).  It has been around or above 20 since 2003.  I don’t think that the market is anywhere near the value level.

Time for a little price to earnings ratio history lesson.  The following excerpt comes from the book Security Analysis (2nd Edition) pg. 536 and it is enlightening 71 years later.

* * * * * * *

In previous chapters various references have been made to Wall Street’s ideas on the relation of earnings to values.  A given common stock is generally considered to be worth a certain number of times its current earnings.  This number of times, or multiplier, depends partly on the prevailing psychology and partly on the nature and record of the enterprise.  Prior to the 1927-1929 bull market ten times earnings was the accepted standard of measurement.  More accurately speaking, it was the common point of departure for valuing common stocks, so that an issue would have to be considered exceptionally desirable to justify a higher ratio, and conversely.

            Beginning about 1927 the ten-times-earnings standard was superseded by a rather confusing set of new yardsticks.  On the one hand, there was a tendency to value common stocks in general more liberally than before.  This was summarized in a famous dictum of a financial leader implying that good stocks were worth fifteen times their earnings.1  There was also the tendency to make more sweeping distinctions in the valuations of different kinds of common stocks.  Companies in especially favored groups, e.g., public utilities and chain stores, in 1928-1929, sold at a very high multiple of current earnings, say, twenty-five to forty times.  This was true also of the “blue chip” issues, which comprised leading units in miscellaneous fields.  As pointed out before, these generous valuations were based upon the assumed continuance of the upward trend shown over a longer or shorter period in the past.  Subsequent to 1932 there developed a tendency for prices to rule higher in relation to earnings because of the sharp drop in long-term interest rates.

* * * * * * *

This chart confirms that there has been a change in investor valuation of common stocks over the years.  The bottoms of S&P 500 has been rising.  Too bad the chart cuts off in 2003.

Image001

  How low did the S&P 500 P/E ratio fall to during the Panic of 2008-2009?

It didn’t fall during the panic.  On the contrary, it skyrocketed because earnings were falling faster than stock prices.    It has settled in the 18-20 PE range since the end of 2009.  Dividend yields tend to be highest at market bottoms.  The last time the S&P 500 yielded over 6% was in 1982.  We are closer to the top of the market than the bottom.  If you are in the market, then you should make plans to get out before the next financial crisis.

Current price to earnings ratios of stock mentioned often on this blog:

American Capital Agency Corp. (AGNC) – 4.00

SafeBulkers Inc. (SB) – 4.98

SeaDrill (SDRL) – 13.70

Terra Nitrogen (TNH) – 13.51

AGNC and SafeBulkers are high dividend stocks in the value zone, but only SafeBulkers has earning power and a strong balance sheet.

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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, 17 Feb 2011 19:11:01 -0800 Terra Nitrogen will become a high dividend stock during pullbacks. TNH Basic Financial Metrics. http://myhighdividendstocks.posterous.com/terra-nitrogen-will-become-a-high-dividend-st http://myhighdividendstocks.posterous.com/terra-nitrogen-will-become-a-high-dividend-st

Terra Nitrogen (TNH) Basic Financial Metrics.  Buy Terra Nitrogen on stock market corrections that make this stock yield more than 6% again.  This stock has strong basic financial metrics that will improve even more on pullbacks.

Disclosure: I do not own Terra Nitrogen stock.

Terra Nitrogen Company, L.P. (TNCLP) is a Master Limited Partnership consisting of one nitrogen manufacturing facility in Verdigris, Oklahoma, and terminal operations in Blair, Nebraska and Pekin, Illinois. TNCLP’s New York Stock Exchange ticker symbol is TNH.  TNCLP is the sole limited partner of Terra Nitrogen, Limited Partnership (TNLP), owner of the Verdigris, Oklahoma manufacturing facility and related assets. Terra Nitrogen GP Inc., an indirect, wholly-owned subsidiary of CF Industries Holdings, Inc., is the General Partner of TNCLP and exercises full control over all of TNCLP's business affairs.

TNCLP has the capacity to produce annually 1.9 million tons (32% nitrogen basis) of urea ammonium nitrate solutions (UAN) and 1.1 million tons of ammonia, the basic ingredient for most nitrogen fertilizer and many industrial products.

Sales per share. Terra Nitrogen’s sales for trailing 12 months ended December 31st, 2010 were $564,600,000.  At the end of 4Q 2010 there were 18,501,576 common units (shares) outstanding.  By dividing $564,600,000 by 18,501,576, we get sales per share of $30.52.

Earnings per share. Terra Nitrogen’s earnings per share of $10.90 for the trailing 12 months were calculated by dividing net income (income statement) by outstanding shares (balance sheet).  They earned $201,600,000 over the last 12 months.

Dividends per share. By dividing $148,200,000 in dividends paid in the last 12 months by 18,501,576 common units (shares) outstanding, we find that Terra Nitrogen had dividends per share for the last 12 months of $8.01.

Cash flow per share. The cash flow per share of $11.53 for the last 12 months was calculated by taking net income of $201,600,000 and adding back in the depreciation of $11,810,000 (estimated as 11.4% of long-term assets; same as 3Q2010 quarterly SEC filing) on their income statement, which has no impact on cash flow (income statement), and then dividing by the 18,501,576 shares outstanding (balance sheet).

Dividend yield. Terra Nitrogen’s stock had a dividend yield on December 31st, 2010, of 7.4 percent.  The dividend yield is calculated by dividing the dividend per share of $8.01 per share at the close of 2010 by the stock price of $108.11.  The stock is currently yielding 4.4% ($1.36 quarterly dividend / $122.51 stock price).

Now let’s begin our analysis of the ability of Terra Nitrogen to meet its maturing loan obligations and current cash flow needs by computing its liquidity and debt coverage ratios.

Quick ratio

The quick ratio is an important liquidity ratio that is computed by removing inventory from current assets and then dividing by the remainder by current liabilities.  This information can be found on Safe Bulkers’ balance sheet.  Since inventories are typically the least liquid of a company’s current assets and are likely to produce a loss if liquidated, it is prudent to look at the firm’s ability to cover short-term liabilities without relying on them.  The rule of thumb is that a company with a quick ratio over 1 or better indicates that it could cover all current liabilities with the liquid assets it has on hand, thereby reducing any need to cut its dividend.

Terra Nitrogen’s quick ratio for the last 12 months is 1.92, more than the standard rule of thumb that you would like to see.  The higher the ratio, the better we like the company.

Calculation: $193,100,000 current assets in 2010 minus $27,600,000 inventory divided by $86,300,000 in current liabilities in 2010.

Debt coverage ratio

The short-term debt coverage ratio allows you to quickly see if the company’s short-term debt obligations can easily be paid by using the cash that is being generated from company operations.  This ratio is calculated by dividing income from operations by current liabilities or short-term debt (balance sheet).  This ratio should equal at least 2.0.

Terra Nitrogen’s short-term debt coverage ratio equals 2.34 for the last 12 months.  This means that the company is generating more than twice the cash flow it needs from operations to pay off all of its short-term obligations.  Taken by itself, this ratio would indicate that the dividend is pretty secure and would also indicate that there is sufficient operating income to offset a slightly lower liquidity position if that were indicated by the company’s quick ratio.

Valuation ratios

There are two important ratios that can help you identify companies with good value characteristics.

Price-to-sales ratio. We rank companies with low price-to-sales ratios higher than those companies whose stock is pricey relative to the sales being generated.  You can calculate the ratio by dividing the stock price at the end of 4Q2010 ($108.11) by sales per share ($30.52).  Terra Nitrogen’s price-to-sales ratio for the last twelve months is 3.54, which is not better than our 2.00 rule of thumb ratio that we use to indicate good value.

Price-to-earnings ratio (P/E). Also known as the price-to-earnings multiple, this ratio tells you how expensive the stock is from a price standpoint given earnings that the stock is generating.  Historically, stocks are a good value when the ratio or multiple is below 10, but we consider stocks that have a P/E of less than 12 – the lower the ratio the better.  You can calculate the ratio by dividing the stock’s price by the earnings per share being generated.  Terra Nitrogen’s price-to-earnings ratio for the last 12 months was is 9.91 ($108.11 stock price divided by $10.90 per share).  It is slightly higher today at 11.23.

Dividend ratios

Dividend coverage ratio. This ratio shows how secure the dividend is based on the cash flow being generated by the company.  Instead of applying the cash flow to analyze whether the company can meet its debt obligations, we analyze this ratio to assess how easily the company can keep making its dividend payments.  To calculate this ratio, you divide cash flow per share ($11.53) by dividend per share ($8.01).  The higher the dividend coverage from cash flow, the better we like it.

Terra Nitrogen has a dividend coverage ratio of 144 percent.

Dividend payout ratio.
This ratio tells you how much profit the company is paying out to shareholders in dividends.  Once again, the higher the better, so long as the ratio does not exceed 100 percent.  Since a company can only pay dividends from current or retained earnings, it is a warning sign if a company is paying dividends that exceed current earnings.

Terra Nitrogen’s dividend payout ratio is 73.4 percent and is calculated by dividing its dividend per share ($8.01) by earnings per share ($10.90).  We tend to look for companies that have payout ratios of at least 50 percent, which to us indicates that company is committed to rewarding shareholders through dividend payouts.

Growth ratios

One-year revenue growth ratio.  This ratio measures the one-year percentage change in revenue growth.  It is calculated by subtracting last year’s revenue ($507.7 million) from the current year’s revenue ($564.6 million) to find the difference ($56.9 million), and then dividing that difference ($56.9 million) by last year’s revenue ($507.7 million) to find the percentage change.  Terra Nitrogen’s revenue growth rate for 2010 is 11.2 percent indicating that revenue has improved by slightly more than our 10 percent rule of thumb.

One-year earnings growth ratio.  This ratio measures the one-year percentage change in earnings growth.  It is calculated by subtracting last year’s earnings ($144.3 million) from the current year’s earnings ($201.6 million) to find the difference ($57.3 million), and then dividing that difference ($57.3 million) by last year’s earnings ($144.3 million) to find the percentage change.  Terra Nitrogen’s earnings growth rate was 39.7 percent in 2010, which is several times greater than our 10 percent rule of thumb for earnings growth rate.  With both revenue and profits rising, Terra Nitrogen’s stock price should reflect this positive trend and move higher.

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