Time to Buy This Top Ranked Dividend ETF – ETF News And Commentary
The low interest rate environment in the economy has many investors looking beyond the conventional sources of income for higher yielding avenues. Not only has this highlighted the desperation of the yield hungry investors, but it has also distorted the highly fragile risk return tradeoff of the typically conservative income seeking investors (read Cambria Launches Shareholder Yield ETF (SYLD)).
This has led to a great deal of pressure on the domestic high yielding equity space for quite some time now as most of the securities and dividend ETFs have seen a considerable amount of interest over the past year or so. While this might still not ring alarm bells yet, it is a certain fact that their valuations have reached high levels.
Having said this, it is still prudent to note that income equity ETFs have a tradition of exhibiting far lesser realized volatility than most ETFs whose primary objective is capital growth. Consequently, for investors seeking to ride out the drought in the yield front, the dividend focused ETFs are probably still great choices in this type of environment (read What Does Your Income ETF Focus On?).
This is of course assuming a predefined level of risk tolerance for the investors who are unwilling to undertake additional ounces of risk in their portfolio. A prime example in this context would be international dividend equity ETFs, as these provide income opportunity with reasonable valuations, but have an extremely vulnerable component associated with their investments—currency risk.
Nevertheless, for investors seeking to stay within their domestic boundaries in their quest for yields, the Vanguard Dividend Appreciation ETF (VIG) fits the bill like no other. This is due to its extremely conservative approach, as well as its top Zacks ETF Rank, which suggests that outperformance could be ahead for this fund too.
About the Zacks ETF Rank
This technique provides a recommendation for the ETF in the context of our outlook of the underlying industry, sector, style box, or asset class. Our proprietary methodology also takes into account the risk preferences of investors as well.
The aim of our models is to select the best ETFs within each risk category. We assign each ETF one of five ranks within each risk bucket. Thus, a Zacks Rank reflects the expected return of an ETF relative to other ETFs with similar level of risk (see Zacks ETF Rank Guide).
Using this strategy, VIG has received a top Rank of 1 or ‘Strong Buy’, and thus could be an interesting choice for investors. For those intrigued by this, we have highlighted this dividend ETF in greater detail below:
VIG in Focus
VIG was launched in April of 2006 and is one of the most popular choices available to the investors in the U.S. equity dividend ETF space. It has a massive asset base of about $16 billion and charges a paltry 13 basis points in fees and expenses (read Time for Preferred Stock ETFs?).
From a sector viewpoint the ETF has maximum exposure in the defensive and high yielding Consumer Staples sector with around 24% allocation. This is followed by Industrials and Consumer Discretionary sectors with around 18.30% and 13.10% allocation respectively.
The ETF follows the NASDAQ US Dividend Achievers Select Index which tracks the performance of stocks which have a historical trend of increasing dividend payments. The time frame in consideration for this shortlist of stocks is based on increased dividend payments for at least 10 years, resulting in a 30 Day SEC yield of 2.1%.
Naturally, the underlying investment objective seems quite sound, as companies which increase dividends for the preceding 10 years can be considered to have reasonably sound business fundamentals, and low risk profiles (see Time to Buy Top Ranked Retail ETFs?).
As such, we have a ‘Low’ risk outlook for VIG in the near term. However, being termed as low risk definitely does not mean low returns for the ETF.
In fact, in a long term look, VIG seems to have outperformed the broad market, as represented by the SPDR S&P 500 ETF (SPY). This has been a pretty long term trend too, as you can see in the five year comparative chart below:
As we can see, VIG has comfortably beaten SPY over these long time frames as well. Also, with the current interest rate scenario expected to remain low for some more time, VIG surely seems to be a good place for domestic investors who are searching for a winning combination of yields and outperformance in the months ahead as well.
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Bayer Files Riociguat in Japan – Analyst Blog
The HealthCare segment of Bayer (BAYRY) recently submitted a regulatory application for its chronic thromboembolic pulmonary hypertension (CTEPH) candidate, riociguat, in Japan.
Bayer mentioned in its press release that riociguat is the first candidate to demonstrate clinical efficacy in the treatment of inoperable CTEPH patients or patients suffering from persistent or recurrent CTEPH after surgery. The regulatory submission of riociguat was on the basis of positive results from the placebo-controlled pivotal, global phase III CHEST-1 study.
Results from the study revealed that after 16 weeks, riociguat showed a statistically significant improvement from baseline in the six-minute walk test compared to placebo. Riociguat was also well tolerated during the study.
We note that riociguat is currently under the US Food and Drug Administration (FDA) review for the treatment of patients suffering from inoperable CTEPH and pulmonary arterial hypertension (PAH). The candidate is enjoying priority review process in the US. A final decision from the US regulatory body is expected by Oct 2013.
Bayer is also seeking EU approval of the candidate in the EU for the same indication. We believe riociguat’s approval will strengthen Bayer’s cardiovascular portfolio.
Riociguat is expected to face stiff competition in the PAH market on approval. The market already has players like United Therapeutics Corporation (UTHR) and Actelion Ltd. (ALIOF).
The HealthCare segment received encouraging news recently when the FDA approved its oncology drug, Xofigo for the treatment of patients with castration-resistant prostate cancer (CRPC). Xofigo is also under review in the EU for the same indication.
Bayer presently carries a Zacks Rank #3 (Hold). Other stocks like Alexion Pharmaceuticals Inc. (ALXN) currently look more attractive. Alexion carries a Zacks Rank #2 (Buy).
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Accenture Secures Tokyo Gov’t Job – Analyst Blog
Accenture plc. (ACN) has secured a big job order from the Tokyo Metropolitan Government (“TMG”). As per the new task order, Accenture has been entrusted by TMG with the responsibility of recruiting 10 or more foreign companies to establish their Asian regional headquarters or research and development (R&D) centers in Tokyo’s Special Zone by the end of Mar 2014.
By using its management consulting skills and capabilities, Accenture would be drawing up a list of foreign companies fit to set up their bases in Tokyo’s regional business district, which would in turn make Tokyo an ideal destination for business expansion.
Accenture will persuade and help companies to set up their bases in this region. Apart from this, Accenture will assist TMG in improving the business, governance and living environment so as to further improve the attractiveness of the business district.
This is a new area of activity for the technology company. Previously, Accenture was not directly involved in developing a business district for any government. This exposure will improve Accenture’s experience and if successful, will enable it to contract such business in the future as well.
The emerging markets are the key growth area for Accenture’s global delivery capabilities, which includes countries such as India, Philippines, China, LATAM, among others. The company is also intensifying its focus on working with local clients. Geographic diversification of revenues is a key step in decreasing risk from slower performance of some developed economies.
The firm has been on a winning streak, as far as clients in emerging high-growth markets are concerned. The company continues to make investments to enhance growth as far as emerging markets are concerned. Moreover, Accenture is strengthening its foothold in other under-penetrated economies, such as the Middle East.
Accenture has been able to maintain a steady pace of deal wins over the last few years. This will provide the much-needed support to the company’s revenue base. The consulting and outsourcing business has made a meaningful contribution to the company’s revenues over the years.
On the other hand, sensing the opportunity in the Asian and other such emerging markets, Cognizant Technology Solutions Corp (CTSH) and IBM Corp. (IBM) are also winning business deals and offering services at competitive rates. The stiff competition in Asia and persistent weakness in Europe are telling on Accenture’s results.
Accenture currently has a Zacks Rank #3 (Hold). Another technology company, Information Services Group Inc. (III), carries a Zacks Rank #1 (Strong Buy), and is therefore worth considering.
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Positive Data on Novartis’ Afinitor – Analyst Blog
Novartis (NVS) recently announced positive results on Afinitor, from a phase III trial, BOLERO-3. The study is evaluating Novartis’ Afinitor plus Roche’s (RHHBY) Herceptin and vinorelbine for the treatment of women suffering from HER2 positive (HER2+) advanced breast cancer.
It was observed in the trial (n= 569) that Afinitor plus Herceptin and vinorelbine significantly extended progression-free survival (PFS) after prior therapy vis-à-vis placebo plus Herceptin and vinorelbine.
Novartis will present detailed results at the upcoming annual meeting of the American Society of Clinical Oncology (ASCO).
Novartis estimates that approximately 140,000 women are suffering from HER2 positive advanced breast cancer across the world.
Hence, the successful development and commercialization of Afinitor for the above-mentioned indication will further boost the sales potential of the drug. Afinitor generated sales of $797 million in 2013, up 85% year over year.
We remind investors that Afinitor is already approved in the US and EU (trade name: Votubia) for the treatment of advanced renal cell carcinoma following vascular endothelial growth factor-targeted therapy along with other indications.
In 2012, Afinitor received approval from both European Medicines Agency (EMA) and US Food and Drug Administration (FDA) for the treatment of HR+/HER2- advanced breast cancer in combination with Pfizer’s (PFE) Aromasin, in postmenopausal women whose disease has returned or progressed even after undergoing treatment with a non-steroidal aromatase inhibitor.
We note that Afinitor is an important part of Novartis’ portfolio and are pleased with the company’s efforts to expand the label.
Novartis currently carries a Zacks Rank #3 (Hold). Right now, Salix Pharmaceuticals (SLXP) looks attractive with a Zacks Rank #1 (Strong Buy).
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Yahoo to Open Office in Times Square – Analyst Blog
Yahoo! Inc. (YHOO) recently announced that it will open a new corporate office in New York’s Times Square and also introduced a new design for its photo-sharing service Flickr.
The company announced a lease agreement with Blackstone Group LP (BX) for a 176,000 square foot (16,400 square meter) office space in the old New York Times building. The company will occupy floors 9–12 in the office building.
The New York Times building is positioned at 229 West 43rd Street in New York City, famous as the erstwhile home of The New York Times. The Blackstone Group acquired the building in 2011 for $160 million.
Yahoo’s decision to set up an office in Manhattan comes on the heels of its recent agreement to purchase Tumblr Inc. New York-based Tumblr is a micro blogging platform and includes some social networking features. The acquisition of Tumblr is the biggest since Mayer took control and brings a younger population of users, which the company badly needed to ensure continued growth.
Additionally, the company redesigned its Flickr photo sharing site. Users can now get a terabyte of storage space for free, sufficient to store nearly 538,000 photos. Recent enhancements to Flickr include high resolution photo displays and quicker uploads.
The recent acquisition of Tumblr and the redesigning of Flickr come amid growing competition in the mobile and photo-sharing space. Last week Google (GOOG) unveiled a host of new photo-editing tools for its social networking service, Google+, which has gained popularity among photographers. Facebook’s (FB) mobile photo sharing app Instagram have also gained popularity.
Though Yahoo remains far behind Facebook and Google, Mayer is clearly taking Yahoo into a new era. This is reflected in the upward movement in its share price. Over the last six months, Yahoo shares have appreciated 47.9%.
Yahoo shares currently have a Zacks Rank #2 (Buy). Another stock that has been performing well and is worth a look includes Akamai Technologies (AKAM), which carries a Zacks Rank #1 (Strong Buy).
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Parker Hannifin Reaches 52-Week High – Analyst Blog
Shares of Parker-Hannifin Corp. (PH) reached a new 52-week high of $100.58 on Monday, May 20, 2013. The new high was primarily driven by the company’s ability to consistently raise dividends and supported by its strong balance sheet. In addition, the company reported improved results for the third quarter of fiscal 2013.
The closing price of this fluid power systems and electromechanical controls manufacturer on May 20 was $100.58, representing a robust one-year return of about 21.53% and a decent year-to-date return of about 14.7%. Average volume of shares traded over the last three months was approximately 1,196K.
Parker has been delivering positive earnings surprises more often than not, although the last four quarters have averaged out at 0.06%. This Zacks Rank #3 (Hold) company has a market cap of $15.01 billion and a long-term expected earnings growth rate of 5.7%.
Parker’s Strengths
Parker has a strong balance sheet and generates strong cash flow. Over the past decade or so, Parker Hannifin has doubled its operating cash flow from just $0.5 billion in 2001 to $1.5 billion in 2012. In addition, Parker has returned value to shareholders in the form of share repurchases and dividends.
While dividend increases have been fairly consistent in the last few years, the company increased the dividend by a couple of cents (or roughly 5%) in each of the last two quarters.
In addition, Parker follows a “Win Strategy” that primarily aims to measure customer service excellence through efficient business and cash management strategies.
Improved 3Q13 Earnings
Parker-Hannifin reported third-quarter 2013 earnings per share of $1.68, a penny above the Zacks Consensus Estimate.
Total revenue in the third quarter however declined 2.5% year over year to $3.30 billion, down from $3.39 billion in the prior-year quarter. Weak international markets and not very good returns from the American market continued to affect revenue in the quarter.
Conclusion
Although the quarterly earnings as well as revenue were not very encouraging for Parker, the company expressed confidence about a better fiscal 2013 given the improvement in its order trends.
Other Stocks to Consider
Other stocks in the machinery industry that are currently performing well and have a good visibility include Graco Inc (GGG) with a Zacks Rank #1 (Strong Buy) and Broadwind Energy, Inc. (BWEN) and Altra Holdings Inc. (AIMC), both with a Zacks Rank #2 (Buy).
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Goldman to Buy Keppel REIT Stake – Analyst Blog
The Goldman Sachs Group, Inc. (GS) announced its intention to buy a 6.7% stake in Keppel REIT from a subsidiary of Keppel Corporation (KPELY) for S$279.9 million ($223 million). Keppel is the world’s largest oil-rig maker. On completing this transaction, Keppel Corp.’s stake in the REIT will be reduced to 51.5%. The deal is expected to close by May 27.
Goldman Sachs will acquire 180 million shares of the real estate investment trust for S$1.555 per unit ($1.238). The price reflects a discount of 3.5% to Keppel REIT’s (KREIT) closing price on May 20, 2013.
Keppel REIT qualifies as the largest proprietor of office assets in Singapore and Goldman is depending on the expected rise in office building rents in 2014. Moreover, for locations in prime areas, rents are expected to increase 13% per annum in 2 years time.
Goldman is not new to the REIT sector. Earlier in July 2012, the banking major had plans to venture into Japan’s property market through its asset management wing. The U.S. investment bank aimed to expand private real estate investment trust (REIT) in the Japanese soil to 300 billion yen ($3.7 billion) till 2017.
The company’s decision to purchase stake in Keppel REIT is engendered by the expected boom which it foresees in the Singaporean real estate market. It believes that investing in Singapore properties will yield higher returns over the long term, once the economy stabilizes and the government’s policies come into effect extensively.
Currently, Goldman carries a Zacks Rank #3 (Hold). Better performing banks include Meta Financial Group, Inc. (CASH) and Provident Financial Holdings, Inc. (PROV), both carrying a Zacks Rank #1 (Strong Buy).
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RenaissanceRe to Issue Preferred Shares – Analyst Blog
Recently, RenaissanceRe Holdings Ltd. (RNR) announced a public offer to sell 11 million 5.375% Series E preference shares of $275 million or $25 per share, having liquidity preference. The offer is underwritten and is expected to be completed on May 28, 2013, subject to customary closing conditions.
Moreover, in case of over-allotment, the underwriters have the option of buying another 1.65 million preference shares of Renaissance within 30 days. This amounts to aggregate liquidation preference of $41.25 per share.
RenaissanceRe will pay a non-cumulative dividend of 5.375% of the liquidation preference per annum on the preference shares. Moreover, the dividend will be paid only if the board of directors approves it.
RenaissanceRe plans to enlist the new shares on the New York Stock Exchange under the ticker “RNRPRE.” The company holds the right to redeem all or a part of the new preference shares for $25 per share any time after Jun 1, 2018.
RenaissanceRe will use the proceeds from the issue to redeem the outstanding 6.6% Series D preference shares. The remaining proceeds will be used to redeem all or a part of the outstanding 6.08% Series C preference shares. The company had 6 million Series D preference shares and 10 million Series C preference shares outstanding as of Mar 31, 2013.
RenaissanceRe currently caries a Zacks Rank #3 (Hold). Other property and casualty insurers worth considering are Montpelier Re Holdings Ltd. (MRH), ProAssurance Corp. (PRA) and AXIS Capital Holdings Ltd. (AXS). All these companies carry a Zacks Rank #1 (Strong Buy).
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XenoPort Candidate Disappoints – Analyst Blog
XenoPort, Inc. (XNPT) recently reported disappointing results on arbaclofen placarbil (AP) from a pivotal late-stage study (n=228).
Results from the phase III trial showed that AP failed to achieve statistically significant improvement compared to placebo in patients suffering from spasticity due to multiple sclerosis (MS).
AP’s failure in the phase III study is a major disappointment and setback for the company.
The company was looking to submit a new drug application (NDA) for AP in the US at the end of 2013.
However, XenoPort has now decided to terminate any further studies on this program.
Shares were down 15.2% on the news.
We believe that the successful development and commercialization of AP would have boosted XenoPort’s portfolio which currently comprises only one approved drug, Horizant.
Going forward, XenoPort will shift its focus to its fumarate product candidate XP2389 along with investing in the commercialization of its prime drug, Horizant.
We note that XenoPort obtained the development and commercialization rights on Horizant in the US from GlaxoSmithKline plc (GSK), effective May 1, 2013, following the termination of their collaboration agreement in Nov 2012.
Horizant is approved in the US for the treatment of moderate-to-severe primary restless legs syndrome (RLS) as well as for the management of postherpetic neuralgia (PHN) in adults.
However, Horizant faces stiff competition for both indications. Pfizer’s (PFE) Neurontin competes with Horizant for the PHN indication.
XenoPort currently carries a Zacks Rank #3 (Hold). Right now, Anika Therapeutics, Inc. (ANIK) looks attractive with a Zacks Rank #1 (Strong Buy).
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Softbank Softens Sprint Deal Terms – Analyst Blog
Japanese cellphone company SoftBank Corp. has finally loosened its proposed terms with Sprint Nextel Corp. (S), providing the latter a scope to consider DISH Network’s (DISH) bid. Although, Sprint had previously drawn a waiver from SoftBank to seek more information on DISH’s proposal, it did not receive any relaxation on terms that would allow it to disclose non-public information. Further, Sprint was also not allowed to consider the acquisition bid offer from DISH.
In Oct 2012, it was reported that the company was in negotiations to sell about 70% of its stake to Softbank for a total consideration of $20.1 billion. However, this offer was trumped by DISH which made a counter offer of $7 per share (inclusive of $4.76 in cash and 0.05953 shares in DISH for each Sprint share).
Despite some of the major shareholder’s of Sprint walking in favor of the DISH proposal considering it lucrative, the company specified that its support toward SoftBank’s acquisition proposal remains unchanged. The reason behind such consideration could be the negatives attached to the DISH offer.
While the successful completion of the deal might enable Sprint to overcome its spectrum shortage issue and gain financial strength, the deal will also result in a few negative synergies for both the companies. The complete acquisition of Sprint Nextel will inflate DISH Network’s leverage position by a huge margin as the combined debt of both the companies will stand at nearly $28 billion. Further, the merged company will have to pay nearly $600 million as break-up fee to SoftBank, if it wishes to terminate its arrangements with the latter.
We believe the fate of the Sprint, Softbank and DISH trilogy will meet some conclusion in mid summer when Sprint shareholders vote for the approval of the SoftBank deal on Jun 12. Meanwhile, DISH and SoftBank both are gearing up for their big buyout.
According to market reports, SoftBank raised around $3.3 billion in Apr 2012 in a dual-tranche bond issued in dollars and Euros to fund the Sprint acquisition, following issuance of 300 billion yen in bonds March. Recent reports suggest that the company is also issuing 400 billion yen ($3.9 billion) in bonds to retail investors to fund its billion dollar Sprint buyout
On the other hand, DISH is also adopting similar strategies to fund its proposed deal. DISH Network raised $2.3 billion debt from the market and is further negotiating with firms like Barclays Plc, Macquarie Group, Jefferies and the Royal Bank of Canada to facilitate around $9 billion in debt to get through the Sprint deal.
Sprint, which operates with telecom giants AT&T Inc. (T) and Verizon Communications (VZ) currently has a Zacks Rank #3 (Hold).
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