My High Dividend Stocks Blog

My High Dividend Stocks
This is my high dividend stocks site where I help site members find high dividend stocks with earning power and strong balance sheets.

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

Image003

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:

Image005

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.

Image009

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

Subscribe today for free at www.myhighdividendstocks.com/feed to discover high dividend stocks with earning power and strong balance sheets.

Be seeing you!

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.

Subscribe today for free at www.myhighdividendstocks.com/feed to discover high dividend stocks with earning power and strong balance sheets.

Be seeing you!

First Look at DOW 30 Component Walt Disney Co. (DIS)

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.

Image021

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.

Be seeing you!

First Look at DOW 30 Component United Technologies (UTX)

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.

Image007

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

Image009

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.

Image012

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.

Be seeing you!

First Look at DOW Component Cisco Systems (CSCO).

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

Image005

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

Image013

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.

Image014

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.

Image018

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.

Image021

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

Subscribe today for free at www.myhighdividendstocks.com/feed to discover high dividend stocks with earning power and strong balance sheets.

Be seeing you!

First Look at DOW 30 Component Procter & Gamble (PG).

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

Procter & Gamble (PG)

Price: $63.31

Shares: 2.74 billion

Market capitalization: $173.17 billion

Image004

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

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

Image005

Bonds: $24.6 billion outstanding

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

Image007

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

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

Dividend: $0.56 quarterly

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

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

Image012

EARNING POWER: $3.93 at 2.74 billion shares

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

EPS

Net income

Shares

Adjusted EPS

2005

$2.66

$7,257 M

2,726 M

$2.65

2006

$2.64

$8,684 M

3,286 M

$3.17

2007

$3.04

$10,179 M

3,317 M

$3.71

2008

$3.64

$11,899 M

3,317 M

$4.34

2009

$4.26

$13,244 M

3,154 M

$4.83

2010

$4.11

$12,517 M

3,099 M

$4.57

2011

$3.93

$11,564 M

3,022 M

$4.22

Seven year average adjusted earnings per share is $3.93

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

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

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

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

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

Image017

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

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

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

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

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

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

Debt to equity ratio: 0.33 (lower is better)

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

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

Image018

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

Image021

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

Subscribe today for free at www.myhighdividendstocks.com/feed to discover high dividend stocks with earning power and strong balance sheets.

Be seeing you!

First Look at DOW 30 Component DuPont (DD).

Image003

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).

Subscribe today for free at www.myhighdividendstocks.com/feed to discover high dividend stocks with earning power and strong balance sheets.

Be seeing you!

First Look at DOW 30 Component McDonalds (MCD).

Image004

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).

Subscribe today for free at www.myhighdividendstocks.com/feed to discover high dividend stocks with earning power and strong balance sheets.

Be seeing you!

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).

Subscribe today for free at www.myhighdividendstocks.com/feed to discover high dividend stocks with earning power and strong balance sheets.

Be seeing you!

(download)

First Look at DOW 30 Component Boeing (BA). This one is going down on budget cuts.

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)

Image012

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.

Image015

DISCLOSURE – I don’t own Boeing (BA).

Subscribe today for free at www.myhighdividendstocks.com/feed to discover high dividend stocks with earning power and strong balance sheets.

Be seeing you!