What’s the safest dividend in the Dow?
"Following last year's dismal market, investors are looking for something they can be sure of in the year ahead; and for income investors, that means finding a safe and rewarding dividend," says Carla Pasternak.
In her High Yield Investing, she offers a fascinating review to find the "safest dividend in the Dow." Here's her breakdown of the Dow and her top pick for dividend safety.
"The 30 members of Dow Jones Industrial Average represents some of the strongest names in America. So these corporate titans are a good place to start searching for the safest dividend.
"The first step in the process is not to look at the Dow at all, but to start with the 10-year Treasury note, currently yielding 3.86%.
"In theory, stocks represent more risk than Treasuries, so you want to make sure you're getting compensated for that risk with a higher yield.
"Using the yield of the 10-Year Treasury as our threshold eliminates most of the Dow. Though the Dow components pay an average dividend yield of 3.3%, about 40 basis points higher than the S&P 500 Index, we find that only seven Dow components yield more than the 10-Year Treasury.
Kraft (NYSE: KFT) -- 4.4%
Caterpillar (NYSE: CAT) -- 4.4%
Pfizer (NYSE: PFE) -- 4.5%
Merck (NYSE: MRK) - 5.9%
DuPont (NYSE: DD) -- 6.1%
Verizon (NYSE: VZ) 6.3%
AT&T (NYSE: T) -- 6.8%
"Next, I want to be sure the outlook for the company is stable. If there is notable trouble on the horizon, one place it will show up is in a company's projected earnings.
"For the purposes of this analysis, I'll shy away from any company expected to show more than a -5% decline in earnings this year, based on the consensus Bloomberg estimate.
"Considering the challenges of the current economic environment, it's not surprising that this analysis takes five more companies out of contention. As such, we're left with just two firms: Kraft and Verizon.
"Remember, safety is the first and most important criteria I look at when examining a dividend-paying stock.
"With that in mind, I decided to look into the most recently reported quarter for each company and compare net earnings to total dividends paid. We must exclude any company that paid more in dividends than it earned.
"That sort of arrangement is unsustainable. Any company whose dividend costs exceed its net earnings lacks the margin of safety that conservative income investors in this market must demand.
"This is a tough hurdle to clear: The first quarter of 2009 presented extremely difficult operating conditions. Any company able to comfortably maintain its distributions in such a challenging environment clearly has demonstrated a wide economic moat. Here are the results:
Kraft earned $662 million and paid out $426 million for a payout ratio of 64.7%.
Verizon earned $1.6 billion against its $1.3 billion dividend obligation for a payout ratio of 79.4%.
"We're still left with two companies. Both Kraft and Verizon have above-average yields, have a stable outlook and have demonstrated an ability to cover their dividends under tough economic conditions.
"At this point, I'll turn to history as a guidepost, looking at each company's average P/E, dividend growth rate and average annual total returns for the past five years.
"Amazingly, both companies are trading at almost identical discounts to their five-year average P/E. If each stock returned to its average P/E, Verizon would appreciate +37.1% while Kraft would appreciate +37.2%.
"Apparently that's not going to break a tie. Verizon does yield 1.9% more than Kraft, although Kraft has grown its dividend at a faster rate.
"Both companies also outperformed the S&P 500's annualized total returns for the past five years. But Verizon outgained Kraft by +1.7% a year -- by almost the same amount as its dividend premium over Kraft.
"As a telecommunications provider, Verizon is an essential service with high subscriber loyalty. Meanwhile, Kraft Foods includes strong consumer food brands like Kraft cheeses, Oscar Mayer meats and Nabisco cookies.
"Both companies boast of above-average yields and both dividends passed my stringent safety criteria.
"If pressed, I'd have to tip the scale to Verizon for the safest dividend in the Dow. Its higher 6.3% yield has made a positive impact on its total returns. And that difference is something we income investors can take to the bank."
Utility expert taps into water
"Investors have given up on the water industry -- the sector has fallen 60% -- but the best firms have hardly missed a beat," says Roger Conrad; here's two favorites in Personal Finance.
"The EPA stimates the US will have to spend $335 billion over the next decade to keep the taps turned on, given aging infrastructure and supply degradation.
"Service providers are the highest percentage way to play growth in global water spending. Demand fluctuates with weather depending on the season but has proven steady even during deep recessions, including this one.
"Water utilities’ earnings are based on the size of their rate base--the reservoirs, treatment centers, water mains and distribution pipes they use to provide service. The more money invested, the more rate base grows, which generates higher revenue, earnings and dividends.
"American Water Works (NYSE: AWK) and Aqua America (NYSE: WTR) are also growing via acquisitions. Some 85% of the US is still served by cash strapped municipal water systems.
"In 2002, German utility RWE bought out American Water Works at several times book value. Since 2007, however, it’s been selling off its holdings at barely book value. Their loss is our gain.
"RWE still owns 49% of shares, which is likely to weigh on the market for a while. American, however, continues to grow.
"It has a thriving business managing municipal systems and continues to pursue new contracts as well as outright acquisitions in the 32 US states it serves. American Water Works yields a safe 4.5%.
"Unlike American, Aqua has no system management business but owns 100% of the infrastructure it operates. The company has completed hundreds of acquisitions since former Pennsylvania regulator Nick DeBenedicitis took the reins in the early 1990s.
"This year it’s taken over another half a dozen, including a small municipal system in the Keystone State that could be the harbinger of more muni buys in the 13 states it serves.
"Aqua’s earnings growth has been a picture of consistency for years. And with the company on track to invest a record $300 million in 2009, there’s more ahead."
Allion Healthcare (ALLI)
Allion Healthcare Inc. (<a href=http://www.zacks.com/stock/quote/alli>ALLI</a>) is a national provider of specialty pharmacy and disease management services focused on HIV/AIDS patients. The company recently reported better-than-expected 1Q09 net income of $3.5M, or EPS of $0.13, compared with net income of $1.1M and EPS of $0.06 in 1Q08. <p> Organic growth in 1Q09 of the company's core Specialty HIV was 9% y/y, with the aggregate number of Specialty HIV prescriptions filled in 4Q08 tallying 265,455, an increase of 3.7% y/y. <p> We believe current initiatives, such as the partnering with large AIDS service organizations in Seattle, for example, bodes well for increased volume growth over the short term. We maintain our BUY rating at current levels.Latin American Markets
The outlook for Brazil remains quite encouraging. Brazil will lead the Latin American economic recovery. We recommend Vivo, Cemig, Petrobras and Embotelladora Andina.Embarq (EQ)
We maintain our Sell rating for Embarq (<a href=http://www.zacks.com/stock/quote/eq>EQ</a>), the fourth largest local telephone service provider in the U.S., as access line loss continues to erode traditional voice revenue, largely resulting in decreasing consolidated sales in the last quarter (below our expectations). Line losses have been accelerated with deactivations among business customers due to weak economic conditions. <p> EQ has received shareholder approval as well as the required state regulatory authorization for its consolidation with CenturyTel under an $11.6 billion merger deal (expected to close in 2Q 2009). We believe that the local phone business in North America, in particular service offered by regional carriers, has significant challenges ahead as consumers and business customers migrate to alternative solutions including VoIP, wireless and cable offerings. <p> Lower revenue forecasts for the second quarter of 2009 coupled with sustained access line losses support our thesis. We also believe pricing pressure and the need to invest further in broadband infrastructure may strain balance sheet conditions, considering EQ s limited liquidity and significant debt level.PureSpectrum, Inc. Releases Further Details Concerning Acquisition of International Medical Staffing, Inc.
SAVANNAH, GA--(Marketwire - June 25, 2009) - Effective June 3, 2009, PureSpectrum, Inc.
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PureSpectrum announced on June 8 that it had acquired control of IMSG, a fully reporting public company, by acquiring 64.29 percent of IMSG outstanding common stock. This transaction facilitates PSPM's financial and general corporate objectives to become a fully reporting company in order to increase shareholder value; become more transparent to existing shareholders; access other capital sources; increase the company's attractiveness as a marketing, manufacturing, distribution and licensing partner with other companies in the lighting industry; and improve the compan
PureSpectrum, Inc. Releases Further Details Concerning Acquisition of International Medical Staffing, Inc.
SAVANNAH, GA--(Marketwire - June 25, 2009) - Effective June 3, 2009, PureSpectrum, Inc.
(
PureSpectrum announced on June 8 that it had acquired control of IMSG, a fully reporting public company, by acquiring 64.29 percent of IMSG outstanding common stock. This transaction facilitates PSPM's financial and general corporate objectives to become a fully reporting company in order to increase shareholder value; become more transparent to existing shareholders; access other capital sources; increase the company's attractiveness as a marketing, manufacturing, distribution and licensing partner with other companies in the lighting industry; and improve the compan
Stem Cell Therapy International, Inc. Announces the Distribution of Histostem Products
TAMPA, FL--(Marketwire - June 25, 2009) - Stem Cell Therapy International, Inc. (
In anticipation of the finalization of the merger between Stem Cell Therapy International, Inc. and Histostem, David Stark, SCTI President and CEO, has been working closely with Histostem management to prepare the supply channels and to network with various retailers to enable AmStem International, Inc. to begin US distribution and immediately bolster the company's cash flow. Details about the manufacturing and shipping of the Stem Cell Facial Cream, for example, have been worked out and are ready for implementation.
Coastal Capital Acquisition Corporation Executes on Its Merger and Acquisition Strategy With the Merger of Housing and Security Software Developer Helix DC
ATLANTA, GA--(Marketwire - June 25, 2009) - Coastal Capital Acquisition Corp. (
Coastal Capital Acquisition Corp's President and CEO Tracy Anderson said: "This merger marks the beginning of the company's long line of M&A activity going forward. We have been in talks with Helix DC and our board is in high spirits to announce this merger as the first of many mergers to come. Helix DC owns, markets, and sells a much needed group of niche education related software products that are and can be utilized in various industries. With this merger our corporate agenda should be clear to shareholders and potential shareholders. Coastal Capital Acquisition Corporation will expose our share
Dow Theory’s mid-year favorites
"Midyear is as good a time as any to pause and reflect," says Richard Moroney in Dow Theory Forecasts -- a newsletter that has been published for over 50 years.
Here, he reviews the state of the market and offers a look at trio of favorite stocks which he considers "fundamentally superior" companies: Biogen Idec (NASDAQ: BIIB), Comcast (NASDAQ: CMCSA), and Oceaneering International (NYSE: OII).
"The Dow Theory indicator remains in the bearish camp, as the last confirmed signal was the move to new lows in March.
"But both the Industrials and Transports have staged significant rallies since March, so the pathway to a bull-market signal has been established.
"If at least one average can hold above a March low on a signifi cant market correction and then both averages rebound above the closing highs established in the current rally, the Dow Theory will return to the bullish camp.
"While the average U.S. stock is no longer particularly cheap, many attractive values are available. Among S&P 500 stocks, more than 100 have trailing P/E ratios below 10 — down from 230 in March but well above the 18-year norm of 42. Some 77 stocks in the S&P 500 have P/Es between 10 and 12 — more than double the 18-year norm.
"While bulls and bears appear sharply divided, we see no reason to make an all-or-nothing decision on be found among the fundamentally superior companies favored by Dow Theory Forecasts.
"Fortunes at Biogen Idec are leveraged to three drugs: Rituxan (rheumatoid arthritis and non-Hodgkin’s lymphoma), Avonex (multiple sclerosis), and Tysabri (Crohn’s disease and MS). Over the next 12 months, Biogen will rely on these drugs to sustain its operating momentum.
"Biogen plows its strong cash flow into research and development, spending an average of 32% of sales on R&D for the past five years. The pipeline includes 20 drug candidates in the late stages of clinical trials that could broaden Biogen’s portfolio.
"In May, a Tysabri patient fell ill with progressive multifocal leukoencephalopathy (PML), a rare but often fatal brain infection. This marks the seventh PML case linked to Tysabri since its reintroduction in July 2006, and the third in 2009.
"Despite its side effects, Tysabri has gained acceptance among neurologists; it is regarded as the most effective MS treatment available. Trading at 12 times trailing earnings, a discount to the three-year average of 31, Biogen is a Focus List Buy and a Long-Term Buy.
"Anticipating that subscribers will upgrade to more expensive packages, Comcast is shifting toward a fully digital platform.
"New services will include access to 10,000 OnDemand choices and also triple the number of high-definition stations to 100. The transition won’t require new TV set-top boxes and has been successful in test markets.
"Comcast plans to roll out the initiative in more than half of its markets this year and expects completion by 2010. Despite these plans, management expects to reduce capital expenditures ($5.75 billion, or 17% of sales, in 2008) in both dollars and as a percentage of sales in 2009.
"CEO Brian Roberts considers Comcast’s primary operations, video and broadband services, as intertwined.
"He says he does not expect a material impact from 'cord cutters' — those who cancel cable subscriptions and watch video on the Internet. Comcast is working on a Web service that will stream cable-TV shows only to subscribers.
"The consensus predicts 2009 per-share profits will increase 13% on 4% higher revenue. Over the next five years, profit growth is expected to average 11%. Already a Long-Term Buy, Comcast is being upgraded to a Focus List Buy.
"Whether it is deep sea or deep space, Oceaneering International helps customers reach distant environments.
"In March, Oceaneering won a $180 million contract to design NASA spacesuits, but the company gets 90% of its revenue from selling equipment and services to offshore oil and gas drillers.
"In 2009, Oceaneering will likely find growth in its Remotely Operated Vehicles (ROVs). Accounting for nearly half of operating income, the ROV fl eet should expand at least 8%, and most of these new vehicles already have contracts.
"Further out, prospects looks bright for the other segments. Oceaneering controls 30% of the global market for subsea umbilicals, for which orders are expected to leap 60% over the next five years.
"Deepwater markets have proved less vulnerable in the downturn because of their massive scale and contract lengths, which frequently exceed five years.
"This year, management expects per-share profits of $3.10 to $3.60. Oceaneering is not a bargain at current prices but trades at a reasonable 14 times trailing earnings, a 30% discount to the five-year average. Oceaneering is a Focus List Buy."