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BP and a Dividend at Risk

admin — Wed, 09 Jun 2010 09:45:05 +0000

BP, the oil and gas company, is in a world of hurt these days. Never mind the environmental destruction going on (which is huge and a total shame), but the company financially will be hurt for some time to come. At risk for dividend investors is of course, the dividend. In this video, the topic of BP’s dividend comes up. As with all dividend companies, there are many things beyond our control that can impact a company’s ability to pay its dividend. Diversification is paramount.

This article was written by The Dividend Guy. To learn more about dividend investing, please follow my RSS feed or Twitter account.

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McDonald’s Corporation (MCD) Dividend Stock Analysis

admin — Wed, 09 Jun 2010 09:45:03 +0000

Linked here is a detailed quantitative analysis of McDonald’s Corporation (MCD). Below are some highlights from the above linked analysis:

Company Description: McDonald’s Corporation is the largest fast-food restaurant company in the world. Its restaurants serve a varied, yet limited, value-priced menu in more than 100 countries around the world.

Fair Value: I consider four calculations of fair value, see page 2 of the linked PDF for a detailed description:

Avg. High Yield Price
20-Year DCF Price
Avg. P/E Price
Graham Number

MCD is trading at a discount to 2.) and 3.) above. The stock tickers is trading at a 22.5% discount to its calculated fair value of $86.10. MCD earned a Star in this section since it is trading at a fair value.

Dividend Analytical Data: In this section there are three possible Stars and three key metrics, see page 2 of the linked PDF for a detailed description:

Free Cash Flow Payout
Debt To Total Capital
Key Metrics
Dividend Growth Rate
Years of Div. Growth
Rolling 4-yr Div. > 15%

MCD earned three Stars in this section for 1.), 2.) and 3.) above. A Star was earned since the Free Cash Flow payout ratio was less than 60% and there were no negative Free Cash Flows over the last 10 years. The stock tickers earned a Star as a result of its most recent Debt to Total Capital being less than 45%. MCD earned a Star for having an acceptable score in at least two of the four Key Metrics measured. Rolling 4-yr Div. > 15% means that dividends grew on average in excess of 15% for each consecutive 4 year period over the last 10 years (2000-2003, 2001-2004, 2002-2005, etc.) I consider this a key metric since dividends will double every 5 years if they grow by 15%. The company has paid a cash dividend to shareholders every year since 1976 and has increased its dividend payments for 34 consecutive years.

Dividend Income vs. MMA: Why would you assume the equity risk and invest in a dividend stock tickers if you could earn a better return in a much less risky money market account (MMA)? This section compares the earning ability of this stock tickers with a high yield MMA. Two items are considered in this section, see page 2 of the linked PDF for a detailed description:

NPV MMA Diff.
Years to > MMA

MCD earned a Star in this section for its NPV MMA Diff. of the $8,933. This amount is in excess of the $500 target I look for in a stock tickers that has increased dividends as long as MCD has. If MCD grows its dividend at 15.0% per year, it will take 2 years to equal a MMA yielding an estimated 20-year average rate of 4.02%. MCD earned a check for the Key Metric ‘Years to >MMA’ since its 2 years is less than the 5 year target.

Other: MCD is a member of the S&P 500, a Dividend Aristocrat and a member of the Broad Dividend Achievers™ Index.

Conclusion: MCD earned one Star in the Fair Value section, earned three Stars in the Dividend Analytical Data section and earned one Star in the Dividend Income vs. MMA section for a total of five Stars. This quantitatively ranks MCD as a 5 Star-Strong Buy.

Using my D4L-PreScreen.xls model, I determined the share price could increase to $177.44 before MCD’s NPV MMA Differential decreased to the $500 minimum that I look for in a stock tickers with 34 years of consecutive dividend increases. At that price the stock tickers would yield 1.24%.

Resetting the D4L-PreScreen.xls model and solving for the dividend growth rate needed to generate the target $500 NPV MMA Differential, the calculated rate is 5.8%. This dividend growth rate is less than the 15.0% used in this analysis, thus providing a significant margin of safety. MCD has a stock tickerss/”>risk rating of 1.50 which classifies it as a low risk stock tickers.

MCD is the dominant brand in the global fast food industry. In addition to is strong brand, the company enjoys unrivaled scale advantages and substantial international growth opportunities. The company notes on their website that since going public in 1965, it has paid twelve stock tickers splits and an investment of $2,250 in 100 shares at that time, grew to 74,360 shares worth over $4.6 million as of year-end market close on December 31, 2009. This stock tickers is truly one of the great success stories for dividend growth investors and is found in virtually all dividend income based portfolios. I will continue to add to my position in MCD when it is trading below my buy price, which is currently $86.10, and as my allocation allows. For additional information, including the stock tickers‘s dividend history, please refer to its data page.

Disclaimer: Material presented here is for informational purposes only. The above quantitative stock tickers analysis, including the Star rating, is mechanically calculated and is based on historical information. The analysis assumes the stock tickers will perform in the future as it has in the past. This is generally never true. Before buying or selling any stock tickers you should do your own research and reach your own conclusion. See my Disclaimer for more information.

Full Disclosure: At the time of this writing, I was long in MCD (3.34% of my Income Portfolio). See a list of all my income holdings stock tickers-and-etfcef-holdings/”>here.

Recent stock tickers Analyses:

stock tickers-analysis-t-rowe-price-group-inc.html”>stock tickers Analysis: T. Rowe Price Group Inc. (TROW)
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This article was written by Dividends4Life. If you enjoyed this article, please subscribe to my feed [RSS], or have future articles emailed to you [Email] or follow me on Twitter [Twitter].

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Weekend Reading Links – June 6, 2010

admin — Mon, 07 Jun 2010 09:45:03 +0000

For your weekend reading pleasure, the articles listed below contain some of the best dividend and value investing insights found on the web. They were written by various members of the Dividend Investing and Value Network over the past week:

Articles From DIV-Net Members

Dividends Value presented stock tickerss-with-a-sustainable-dividend/”>9 stock tickerss With a Sustainable Dividend
The Dividend Guy presented ADRs as a Dividend Investment
Dividend Growth Investor presented Dividend Investing Works in All Markets
Barel Karsan presented Look At Returns, Not Profits
Dividend Tree presented Essential to Preserve Capital in Dividend Investing
moneygardener presented Reitmans wears an 11% higher dividend
The Div Guy presented stock tickers-holdings.html” mce_href=”http://www.divguy.com/2010/06/top-20-stock tickers-holdings.html”>Top 20 stock tickers Holdings
Disciplined Approach to Investing presented Better Investing’s Most Active
Old School Value presented Portfolio Update May 2010
Triaging My Way To Financial Success presented Aggressive Fixed Income Strategy
BuyLikeBuffett.com presented Why Apple Is No Microsoft
40percent 20years presented The decline continues – A little tip for next week!
Value Walk presented Bruce Greenwald Talks Value Investing In India
The Market Capitalist presented Gas Prices Down This Summer? Here’s an investment strategy
Dividend Monk presented The Importance of Passive Income

There are some really good articles here, please take time and read a few of them.

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Get Ready For A Double Dip

Benjamin Larsson — Sun, 06 Jun 2010 09:45:03 +0000

In my view, it’s becoming increasingly likely that we’re rapidly heading towards a double dip recession. It won’t be tomorrow or this week or even next month, but many warning flags point towards significant deterioration in the U.S. and global economy going forward and so I think that by the end of the year or early 2011, we could very well be facing a new leg down in the world’s economic situation.stock tickeranalyst.com/article/viewarticle/articleid/4182761″>[More...]

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Investing in BP after the spill

admin — Sat, 05 Jun 2010 09:45:07 +0000

I bought BP shares this past week. In some ways the decision was dead easy, in other ways I must admit that I am still questioning my choice- but not for the regular reasons. Let me explain to you first why it was an easy decision (my rational side) and then lets talk about why it was a tough decision (let’s call it my emotional side).

Buying BP was an easy decision

At my target price BP shares would pay a 9.5% dividend, with a great price to book, price to sales, and P/E to name a few stats. They are undoubtedly a solid company with great assets and leadership that has performed well in the past. Even if the dividend was cut in half I would still be content to hold this as a long term investment.
The media has made light of the ‘we are going to nail BP to the wall’ attitude that the Obama administration has adopted over the last few weeks, but lets look at the facts. The sinking of the Exxon Valdez in 1989 took 20 years to reach the final court settlement of a paltry $500M, plus the estimated $2B that Exxon spent on cleanup and legal costs. While times have certainly changed in the last 20 years the corporate laws haven’t. Don’t get me wrong I am quite certain BP will have to pay but there are many factors to the case:

There are three other companies involved with the rig that will likely be forced to carry some degree of responsibility.
BP has already come forward with $1B to start the cleanup so isn’t cash strapped.
It will likely take another 5 years at minimum before BP has to pay a dime so they have plenty of time to put aside a settlement fund.

To summarize, despite the media’s spin it isn’t too likely BP is going to go bankrupt, that their market is going to disappear, or that they are going to be the target of a hostile takeover. Based on this reality and the strong company that is standing here buying BP was an easy decision.

Buying BP was a hard decision

I don’t have a ton of moral rules when it comes to investing but there are certain stock tickerss I simply am not interested in owning at any price- such as those directly involved with tobacco, or the production of weapons. I just don’t feel comfortable becoming directly involved and profiting from these businesses. BP is an oil based business, this product has been central to wars, genocide, supporting despots, a whole lithergy of negativity. This and, of course, they are the company who’s employees appear by early accounts to be primarily responsible for the current destruction occurring in the Gulf of Mexico. This all leaves me feeling a bit uncomfortable with the whole prospect of direct investment in BP.

I have commented before that investing is often a battle been the investor’s rational and irrational sides. My hope is that BP continues to be a strong and profitable company, I also hope though that BP takes the task of cleaning up the mess it has made and undoing the harm it has caused just as seriously. How did you feel about investing in BP?

This article was written by buyingvalue. If you enjoyed this article, please vote for it by clicking the Buzz Up! button below.

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Royal Dutch Shell Stock Analysis

admin — Sat, 05 Jun 2010 09:45:06 +0000

Royal Dutch Shell Plc (RDS.A)(RDS.B) operates as an oil and gas company worldwide. The company explores for, and extracts crude oil and natural gas. The company is not on any dividend indices, despite its long history of consistent dividend increases.

Over the past decade this dividend stock tickers has delivered an annual average total return of 5.10% to its shareholders.

There are two classes of shares – A and B(RDS.A and RDS.B). For US investors it is a much better option to invest in the B shares, since those do not come with a 15% withholding tax from the Dutch government. You could here about the difference between A and B shares. In addition to that, each Royal Dutch Shell American Depository Receipt (ADR) is equal to two shares, traded on London or Amsterdam.

At the same time the company has managed to deliver a 1.10% average annual increase in its EPS since 2000. The increase in prices of crude oil and natural gas definitely helped with earnings. The rapid fall of energy prices in late 2008 and early 2009 and weak global demand led to a 52% decrease in earnings per share in 2009 to $4.09. For fiscal year 2010 analysts expect earnings to increase by 41% to $5.75/share. Analysts also expect earnings per share to rise 25% from there to $7.16/share by FY 2011. The company is in the process of selling or closing unprofitable refineries it owns, which weigh in on its margins. It has also cut 10% of its global workforce, which added to other cost savings initiatives led to $1 billion in savings. The company is increasing its Canadian Oil Sands production, and doubling its Liquified Natural Gas capacity in Russia and Qatar.

Any analysis of earnings trends for an oil and gas producer such as Royal Dutch Shell would definitely depend on the future prices of energy commodities over the next few years. Nevertheless the dividend is sustainable at current levels and there definitely is some room for dividend growth in 2011 and beyond.

Returns on Equity decreased to 9.50% in 2009, after a few years of consistently being above 15%. Year over year this indicator will fluctuate, due to the changes in the value of oil and natural gas. The company should be able to generate sufficient average returns on equity in excess of 15% in the long run.

Annual dividend payments have increased by an average of 12% annually in US dollar terms since 2000, which is higher than the growth in EPS. The reason for this is that earnings have a much higher volatility than dividend payments.
A 12% growth in dividends translates into the dividend payment doubling every six years. Since 1988 Royal Dutch Shell has actually managed to double its dividend payment almost every eleven years on average. The company last raised its quarterly dividend by 5 % to 84 cents/share in 2009.

The reason why the company has not been included on any dividend indices is because it was a result of the merger of Royal Dutch with Shell in 2005. It switched from paying dividends in pounds and euro to paying dividends in US dollars. This probably ended the continuity in many stock tickers databases as it required a manual input from analysts. Per the table below, Royal Dutch Shell has managed to boost distributions at least since 1993.

The dividend payout ratio has followed the trend in earnings and returns on equity. It largely remained below 50%, until it rose to 75% on a temporary dip in earnings in 2009.. A lower payout is always a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings.

The fact that Royal Dutch isn’t on any of the international dividend growth indices shows you that enterprising dividend investors should keep their eyes open at all times while searching for opportunities everywhere. Overly relying on mechanical rules, just like relying solely on your judgment, might be a recipe for disaster. While many successful dividend investors have some mechanical aspects to their trading, they also utilize their judgment in order to select the best dividend stock tickerss in the world.

Currently the company is trading at a P/E of 11 and yields 6.70%. In contrast shares of stock tickers-dividend-analysis.html”>British Petroleum (BP) trade at a P/E of 6 and yield 9.20%, while stock tickers.html”>Chevron (CVX) and stock tickers-analysis.html”>Exxon Mobil (XOM) trade at P/E ratios of 11 and 14 respectively and yield 3.90% and 2.90%.

Full Disclosure: Long BP, CVX, RDS-B and XOM

Relevant Articles:

- stock tickers.html” lastvisited=”0″ roundtrip=”1″>Chevron Corporation (CVX) Dividend stock tickers Analysis
- stock tickers-analysis.html” lastvisited=”0″ roundtrip=”1″>Exxon Mobil (XOM) Dividend stock tickers Analysis
- stock tickers-analysis.html” lastvisited=”0″ roundtrip=”1″>3M Company (MMM) Dividend stock tickers Analysis
- Chevron (CVX) Raises Dividends; MLPs follow suit

This article was written by Dividend Growth Investor. If you enjoyed this article, please vote for it by clicking the Buzz Up! button below.

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Emerson Electric Company – Stock Analysis for Dividend Growth Portfolio

admin — Sat, 05 Jun 2010 09:45:02 +0000

Emerson Electric Company (EMR) is a diversified global manufacturing and technology company. It offers wide range of products and services in the areas of process management, climate technologies, network power, storage solutions, professional tools, appliance solutions, motor technologies, and industrial automation. It is recognized for engineering capabilities and management excellence, Emerson has more than 140,000 employees and approximately 255 manufacturing locations worldwide.

EMR is a Dividend Aristocrat and member of Broad Dividend Achiever and has been raising dividends for last 53 years. The most recent dividend increase was in November 2009. I have a long position in EMR. My objective here is (1) analyze if EMR still continues to be a good dividend growth stock tickers; (2) how does it rate on my scale of risk-to-dividends; and (3) whether can I continue to add to my existing positions.

Trend Analysis
Here I am looking at trends for past 10 years of corporation’s revenue and profitability. These parameters should show consistently growth trends. The trend charts and data summary are shown in images below.

Revenue: In general, a growing trend since 2002. The average revenue growth for last 10 years has been approximately 6.6%. Year 2009 had dip in revenue.
Cash Flows: Overall, an increasing trend of free cash flow and operating cash flow. It is good indicator that FCF is always greater than income.
EPS from continuing operation: In general, it had an increasing trend from 2003 onwards. It had a dip in 2009. Year 2010 is likely to be increase.
Dividends per share: Slow but increasing trend.

Risk Parameter Calculation
Here I use the corporation’s financial health to assign a risk number for measuring risk-to-dividends. The risk number for risk-to-dividends is 1.86. This is a medium risk category (albeit very close to being a low risk) as per my 3-point risk scale. The drop in revenue, drop in operating margin, and increase in payout factor makes this as medium risk. Since FCF continues to be good and all earlier payouts were low, this is likely to be low risk in 2010 and beyond.

Quality of Dividends
This section measures the dividend growth rate, duration of growth, consistency over a period of past ten years.

Dividend growth rate: The average dividend growth of 7.1% is little less than average EPS growth rate of 9.3%. Dividends are more or less growing along with the earnings.
Duration of dividend growth: 53 years.
4 year rolling dividend growth rate for past ten years: Less than 10%.
Payout factor: It is 58% due to drop in EPS. There seems to be sufficient room to sustain and/or grow dividends.
Dividend cash flow vs. income from MMA: Here, I analyze how the dividend cash flow stacks up against the income from FDIC insured money market account. The baseline assumption is (a) stock tickers is yielding 2.87%; and (b) MMA yield is 1.75%. With my projected dividend growth of 6.6%, the dividend cash flow is 1.52 times the MMA income in 10 years time period. For dividend cash flow to be twice the MMA income, the pricing has to be $30 (i.e. yield 4.47%)

Fair Value Calculation
This section determines what price I should pay to buy a given stock tickers

Net present value (NPV) price based on 15 year DCF: $46
Average high yield price calculated based on past 10 years: $49
Pricing based on past 10 year relative price-to-earnings ratio: $39
Pricing based on price-to-earnings ratio of 12: $32
Graham number: $11.6

The range of fair value is calculated as $28 to $37.

Qualitative Analysis
Emerson Electric Co. was founded in 1890, based out of Missouri, and has been paying and growing dividends since last 52 years. What surprised me was EMR’s evolution, its ability to sustain margins and grow, and worldwide reach.

Its revenue is pretty diversified in eight product sectors and four global regions. Approximately 23% of its revenue comes from Asia and Latin America.
It continues to have stable gross and operating margins. It generates relatively consistent operating and free cash flows. 2009 FCF was higher than last year, primarily due to cost reduction efforts.
After drop in 2009 earnings seems be slowly recovering in 2010.
I believe its strong balance sheet will allow it to continue to wither the slow down and enable its expansion in other geographical markets.

Conclusion
I like EMR’s diversified revenue stream and geographical presence. Overall, it is a US based company that will provide hedge against dollar fluctuation and proxy for foreign developed/emerging markets. It has been raising dividends for last 53 years. EMR’s end-markets are cyclic and it appears that it knows how to wither such business environments. It has a strong balance sheet and competitive market positioning. The stock tickers’s current risk-to-dividend rating is 1.86 (medium risk). The current pricing of $46 is at 27% premium to the high price I am willing to pay for EMR. I would be open to add to my existing position when EMR is near my buy range.

Full Disclosure: Long on EMR.

This article was written by Dividend Tree. If you enjoyed this article, please vote for it by clicking the Buzz Up! button below.

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Crisis-Gate

Benjamin Larsson — Fri, 04 Jun 2010 09:45:03 +0000

“Crisis” has worked its way into our lexicon all too frequently in the recent past—so frequently that its meaning has been lost.stock tickeranalyst.com/article/viewarticle/articleid/4179475″>[More...]

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What’s The Matter…Scared?

admin — Thu, 03 Jun 2010 09:45:05 +0000

Warren Buffett has stressed many times that investor focus on quarterly earnings beats/misses is bad for both investors and companies. Rather than focus on the long-term, managers with such shareholders are implicitly encouraged to take all sorts of actions (e.g. cutting R&D expenditures) that increase short-term earnings at the expense of the company’s future. At the recent Berkshire Hathaway annual meeting, Buffett pointed to a study (titled “Quadrophobia”) that provides statistical evidence that suggests that the focus of management on short-term earnings is rather pervasive.

The paper is titled Quadrophobia due to management’s apparent fear/avoidance of the number “4″ as the third decimal in its earnings per share (EPS) reports. If the third decimal number is a four, the EPS number gets rounded down. The paper’s authors scoured the universe of US public financial statements, however, and found that the number four (when dividing income by weighted average shares outstanding) is absent as the third decimal number by a statistically significant amount.

Why might this be the case? When management is close to rounding up its EPS number to the nearest penny (and having a four as the third decimal is as close as you can get), it will make the accounting adjustments it needs to in order to get there. Of course, not all companies engage in this sort of practice. But the authors found that the incidences of quadrophobia increase for companies that gain analyst coverage and where earnings come in close to analysts forecasts. Startlingly, the authors also found that persistent quadrophobes actually turn out to be more likely to be sued by the SEC!

What can the investor do with this knowledge? For one thing, it should reinforce the notion that one should not buy/sell a company if it beats/misses short-term earnings by a few pennies here and there. One might be tempted to check the third decimal of the companies in one’s portfolio, but unfortunately even if the number four is absent from these calculations, the results for any one company would not be significant enough to draw any conclusions. As a whole, using EPS as a measure of a company’s health has some definite drawbacks, and so investors would be wise to focus on other measures.

This article was written by Saj Karsan of Barel Karsan. If you enjoyed this article, please vote for it by clicking the Buzz Up! button below.

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What to Do When the Market Is a Hold

admin — Thu, 03 Jun 2010 09:45:03 +0000

Dividend investors constantly need to figure our where to spend their dividends. Up until last week a lot of people have been arguing that the market is fairly valued. Regardless of your view, it is important for investors to constantly evaluate the markets and decide where the best opportunities for our money are. This video from Morningstar address this very question.

This article was written by The Dividend Guy. To learn more about dividend investing, please follow my RSS feed or Twitter account.

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