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.

First Look at PPL Corp,

Today I take a look at the utility company PPL Corp. (PPL).  This is the ninth article of fifteen based on an article I read by Seeking Alpha contributor Insider Monkey.  He provided a list of fifteen dividend stocks that he liked for the long run.  Most of them were in the 4%-5% dividend yield range.  These stocks could easily yield over 6% when the stock market declines again due to worldwide recession.  Europe is already in recession, China will experience one also, and the US isn’t far behind.  So, my goal is to take a first look at these stocks to know which ones are potential buys at lower prices.

PPL Corporation (PPL)

Share price: $28.31

Shares: 578.3 million

Market capitalization: $16.37 billion

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Bonds outstanding: $1.8 billion; nothing big due until 2019.  The company’s bonds are not a threat to the dividend.

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What the company does - PPL is an integrated energy holding firm with four segments. Supply owns and operates about 11,200 megawatts of generating capacity. The international regulated delivery segment operates distribution networks providing electricity service to customers in the United Kingdom. The Pennsylvania regulated delivery and transmission segment provides distribution to 1.4 million customers in central and eastern Pennsylvania.

Morningstar’s take - PPL has shifted its business profile from its competitive electricity generation and marketing segment to a profile focused on its regulated utility business. Prior to the acquisition of Louisville Gas & Electric, Kentucky Utilities, and Central Networks, PPL derived 75% of its earnings from its competitive supply segment. By 2013, PPL's regulated business will generate 75% of EBITDA. While this diversification offers a more stable earnings outlook, investors will be less able to partake in the upside when power prices eventually rebound. However, PPL is still able to earn higher returns than its fully regulated peers.

DIVIDEND RECORD – PPL grew dividends until a 19% dividend cut in 1998.  Growth from the cut to today’s $0.35 quarterly dividend.

Dividend: $0.36 quarterly (starting in MAR 2012).  Last dividend was $0.35 quarterly.

Dividend yield: 5.1% ($1.44 annual dividend in MAR 2012 / $28.31)

Dividend payout ratio: 55% ($1.44 / $2.62 recent Google Finance EPS) OR 86% using average earning power ($1.44 / $1.67 six year average adjusted earning power)

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EARNING POWER – $1.67 @ 578.3 million shares

(Earnings adjusted for changes in capitalization)

EPS

Net income

Shares

Adjusted EPS

2006

$2.24

$813 M

363 M

$1.41

2007

$3.35

$1,288 M

384 M

$2.23

2008

$2.47

$930 M

375 M

$1.61

2009

$1.08

$407 M

376 M

$0.70

2010

$2.17

$938 M

432 M

$1.62

2011 (est)

$2.59

$1,422.67 M

578.3 M

$2.46

EPS

Net income

Shares

Adjusted EPS

2011 Q1

$0.82

$401 M

484 M

$0.69

2011 Q2

$0.35

$196 M

562 M

$0.34

2011 Q3

$0.76

$444 M

578 M

$0.77

2011 Q4 (est)

$0.66

$381.67 M

578.3 M

$0.66

2011 total (est)

$2.59

$1,422.67 M

578.3 M

$2.46

Six year average adjusted earnings per share is $1.67

Consider contrarian buying below $13.36 (8 times average adjusted EPS)

Consider value buying below $20.04 (12 times average adjusted EPS)

PPL Corp. is currently trading at 16.95 times average adjusted EPS.  This stock is still priced for investment, but it is headed toward speculative pricing.

Consider speculative selling above $33.40 (20 times average adjusted EPS)

BALANCE SHEET – What assets did PPL Corp. buy from 2009 – 2011?  They doubled their assets in two years.

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Book value per share: $18.75

Price to book value ratio: 1.51 (under 1.0 is good)

Current ratio: 1.19 (over 2.0 is good)

Quick ratio: 0.33 (over 1.0 is good)

Debt to equity ratio: 1.63 (lower is better)

Percentage of assets in property, plant & equipment: 65%

CONCLUSION – PPL has been a fairly consistent dividend payer and grower since 1998.  The high dividend payout ratio of 86% using average earning power is a little disconcerting especially since PPL has large capital expenditures that also compete for net income.  I think the company will have to issue more debt to make ends meet and to sustain the dividend.  The stock price is a little too high for me at 16.95 times average adjusted earnings of $1.67.  PPL should be bought below $22.  At that price there would be a high dividend yield of 6.5%.   Their balance sheet looks okay, but the low current ratio (current assets / current liabilities) and quick ratio (cash / current liabilities) bothers me.  Where is PPL going to get the money to cover their current liabilities.  I’d like to see the stock price drop closer to the book value per share before I would consider buying.

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DISCLOSURE – I don’t own PPL Corp. (PPL).

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Should you buy Intel at near $20.00 per share?

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One of my competitors asked in a blog if Intel (INTC) is a buy at $19.64.  Their answer was yes.  They wrote, “Intel derives approximately 90 per cent of its revenues from the PC market. Over the years it has dominated and trampled its main competitor Advanced Micro Devices (AMD), and left other chip producers such as Texas Instruments (TXN) far behind. It also has a generous dividend yield of 4.30%, a debt to equity ratio of 0.40, a low PE ratio of 9.01, and a low dividend payout ratio of 38.5%. Intel currently has revenue of 48.44 billion (trailing twelve months), with a quarterly revenue growth of 21%. The balance sheet is certainly solid, and with the price at USD $19.64, off -17.7% from May highs, Intel is looking to be an attractive buy.”

http://www.dividendstocksonline.com/2011/09/is-intel-a-good-buy/

I take issue with their claim that Intel has a low PE ratio of 9.01.  If you take a longer view of Intel you will find that it is trading at 15.9 times its five year average earnings adjusted for changes in capitalization.  Intel has been buying back their stock.  In order to compare 2006 earnings with 2010 you have to adjust for the reduction in shares to get an apples to apples comparison.  For example, in 2006 Intel reported $0.86 earnings per share.  It had a net income of $5.044 billion dollars and it also had 5.88 billion shares outstanding.  Intel only has 5.25 billion shares outstanding now.  Take the net income of $5.044 billion and divided by the 5.25 billion shares.  The 2006 EPS has been adjusted to $0.96 for comparison with any other year.  You will see below how I arrived at the 15.9 PE ratio that is not a value investment.

Intel (INTC)

Market price: $20.01

Market capitalization: $101.50 billion

Shares: 5.25 billion shares

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You can see that there was ample opportunity to buy Intel below $15.12.  The technical indicators that I use gave the buy signal in January 2009.  The CCI was deep in the red, the price lifted off the lower Bollinger Band,  the MACD turned upward.  I’ll go through the fundamentals below.

Dividend Record: Intel has been a steady dividend grower for the past 10 years.  It will be interesting to see if they keep up the dividend when the market crashes again.  They have the money to keep paying their dividend.  It looks like they missed on dividend payment in 2006 –OR- Google Finance could be wrong.  Intel is currently paying a quarterly dividend of $0.21 per share.  This equates to a 4.4% yield.  If the stock dropped to $14.00 per share and they keep their dividend constant, then Intel would become a high dividend stock yielding 6%.  That price coincides nicely with my value computations below.

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Here is a graphic of the last five years of dividends:

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Earning Power: $1.26 average earnings @ 5.25 billion shares

(earnings adjusted for changes in market capitalization)

            EPS                   Net inc.             Adj. EPS            Shares

2006     $0.86                $5,044 M           $0.96               

2007     $1.18                $6,976 M           $1.33

2008     $0.92                $5,292 M           $1.00

2009     $0.77                $4,369 M           $0.83

2010     $2.01                $11,464 M         $2.18

Five year average adjusted EPS = $1.26

Definite buy at or below $10.08 (8 times average EPS; INTC becomes a high dividend stock at $14.00 per share)

Consider buying at or below $15.12 (12 times average EPS)

Consider selling at or above $25.20 (20 times average EPS)

Intel is currently trading at 15.9 times average earnings.  This is not cheap, but it isn’t speculative either.

Balance Sheet:  Excellent

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Book value per share: $8.68

Price to book value: 2.31 (good)

Current ratio: 2.23 (over 2.0 is good)

Quick ratio: 1.44 (over 1.0 is good)

Conclusion – Intel (INTC) is a buy below $15.12 and even better below $14.00.  If you own it now, then sell it at a price higher than $25.20.

Disclosure: I don't own Intel

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