Archive for February, 2010
Altria Lights Up Its Dividend
We have noted in the past that regardless of one’s consumption of the tobacco industry’s profits, these stocks are worth a look for income investors hungry for consistent dividends with robust yields. Of the three largest U.S. cigarette makers, only Lorillard (NYSE: LO) has a yield below 6.7%. Still, Lorillard yields a tidy 5.2%. On the other hand, we Altria (NYSE: MO), the biggest U.S. cigarette maker, was yielding 6.7% as of Wednesday’s close and the maker of the Marlboro brand also announced on Wednesday that it will boost its quarterly dividend by 2.9% to 35 cents a share from 34 cents.
The new dividend is payable on April 9 to shareholders of record on March 15. Based on Wednesday’s closing price, Altria would yield almost 7% when factoring in the new dividend. The new dividend will take Altria’s payout ratio to 80% from 75%, a change the company had previously said it was targeting.
Altria, which makes 16 other brands in addition to Marlboro, is a prodigious generator of free cash, boasting a war chest of $4.27 billion at the end of 2008, making dividend increases easy for the company to digest. Of course it should be noted that with today’s dividend increase Altria has now boosted its dividend in 40 of the past 43 years.
Home Depot Builds A Bigger Dividend
Home Depot (NYSE: HD), the largest U.S. home improvement retailer, reported a fourth-quarter profit after positing a loss in the year-earlier period as same-store sales rose 1.2% for the company’s first gain on that front since the first quarter of 2006. The Dow component said it expects to earn $1.79 a share this year. That’s above the the $1.72 consensus estimate, and between Home Depot’s profit report today and the one issued by rival Lowe’s (NYSE: LOW) on Monday, it appears the worst may be behind the housing market.
While calling a bottom in housing and becoming immediately bullish on Home Depot and Lowe’s may or may not be the proper course of action to take right now, we do know that Home Depot also said it is boosting its quarterly dividend by 5% to 23.625 cents per share. That’s the company’s first dividend increase since 2006. The new dividend is payable on March 25 to shareholders of record on March 11.
Factoring in the higher dividend into Home Depot’s closing price on Tuesday the yield would move close 3.1% from 3%. Home Depot is the fourth Dow component to boost its payout in recent weeks, following United Technologies (NYSE: UTX), 3M (NYSE: MMM) and Coca-Cola (NYSE: KO).
Early Glimmers of Light from China’s Lunar New Year
Stock traders were the first to get back to business in Shanghai and Shenzhen as China’s Lunar New Year celebration draws to an end. Although the holiday travel period doesn’t officially end until March 10th, the early economic indicators from the festival are already in. Our first look at the numbers is encouraging to investors.
Retail sales in China during the Spring Festival rocketed by more than 17 percent compared to last year, a clear sign of growing confidence among Chinese consumers.
Shops across China rang up $49.8 billion dollars in sales. That is up 17.2 percent from the same period in 2009 according to the official Xinhua news agency.
The Chinese people splurged on food, tobacco and liquor as families across the country reunited to celebrate the beginning of the Lunar New Year. Food sales jumped 16.5 percent while sales of tobacco and liquor were up 13.2 percent during the holiday period.
Communications equipment sales (mainly cell phones) were up 19.2 percent, jewelry sales gained 19.1 percent, and home appliances were also popular, with a 15.4 sales increase.
Chinese stocks had been trending down in the weeks before the holiday, and there was considerable nervousness about the opening of the Shanghai Exchange after Beijing’s credit tightening during the holiday. It turns out that those fears were exaggerated.
The Shanghai Composite Index fell by only half a percent today. That is substantially less than the 2 percent pounding that U.S. investors gave the China ADR Index when credit tightening was first announced on the eve of the holiday.
Tourism was another sector showing growing consumer confidence and willingness to spend. China’s tourism revenue rose 26.9 percent to $9.46 billion during the Spring Festival. 125 million tourists travelled during the holiday period, up 14.8 percent from the same period last year.
One statistic was not up, but that might also be an encouraging sign. New home sales in Shanghai plunged 82 percent last week, as Chinese observers said a “wait-and-see” attitude apparently curbed buyers’ sentiments. Given the current fears of a real estate bubble, a pause in home buying may suggest an orderly cooling of the market.
Kimberly Clark Makes Good On Promise To Boost Dividend
Last month, we told that you consumer products giant Kimberly Clark (NYSE: KMB), the maker of Huggies diapers and Kleenex tissues, looked like a strong candidate for a dividend increase. Of course, we have to admit we were passing along news that the company itself said it would likely raise its dividend in a meaningful way this year.
Well, the Dallas-based company has made on its promise to shareholders by announcing a 10% dividend hike to its quarterly dividend. That takes the payout to 66 cents a share per quarter, up from 60 cents. With annual dividend of $2.40 a share, Kimberly Clark was already yielding a decent 4%, but based on Tuesday’s closing price, the shares would yield almost 4.4% when factoring in the new dividend.
And we cannot forget to mention that this is the 38th consecutive year that Kimberly Clark has raised its dividend. For some icing on the cake, as we noted last month, Kimberly Clark also plans to repurchase $500 to $600 million of its own stock this year.
A Nervous Time for China Investors?
New buying opportunities may be popping up as the investment community suffers from a prolonged attack of the jitters. The China ADR Index continues to slide because of uncertainty caused by a number of trends, all of them interacting in unexpected ways.
The number one concern for investors appears to be worry over Beijing’s efforts to rein in financial stimulus and protect the economy from overheating. Recent moves to raise banking reserve ratios and put the brakes on a torrent of lending in January sparked fears that the boom in China’s economy may be ending.
Professional shorts and doomsayers have added fuel to the fire. Jim Chanos’ now famous remark that “China is like Dubai times one thousand” has been echoed through the world’s investment media like the shot heard around the world. This week Dr. Doom himself, the legendary Marc Faber, chimed in with a warning that uncertainty in China could lead to a 20% fallback among U.S. equities.
There’s an expression among professional investors called “talking your book.” That means talking up investments you hold, or perhaps in this case talking down investments that you are shorting. Chanos and Faber can take credit for predicting some investment bubbles in the past, but neither has a record of previous insights into the unique world of China investing or the Chinese economy. How seriously should we take them?
The evidence shows that many investors have been spooked by Chanos, by China’s clampdown on stimulus as well as other unsettling events including the Google dispute with China. U.S. arms sales to Taiwan and President Obama’s recent meeting with the Dali Lama have also caused consternation in Beijing and added to the sense of unease about investing in China.
The evidence goes beyond the slide in the ADR Index. A new report from Bloomberg indicates that options traders are betting on further declines in Chinese shares.
Of course, a market downturn can create buying opportunities, especially if that downturn is disconnected from financial realities. That’s exactly where we stand now according to Gary Evans of HSBC. The Hong Kong-based strategist with HSBC Global Research sees a buying opportunity, telling The Street.com, “the [Chinese] market looked attractive on several valuation gauges, noting that most company’s earnings were forecast to grown by one-fifth on a per-share basis this year.”
This is a view that accurately encompasses the burgeoning economic climate in China, where the nation’s GDP is still increasing at a double-digit rate. There may indeed be overheating in the real estate sector but a pullback there would not have a catastrophic effect on the economy, as Jim Chanos appears to be predicting. China’s banks are much, much healthier than U.S. banks were before the United States’ own real estate implosion. Equity rules governing homeowners are much tougher for the Chinese than the “free money” binge that American lenders once indulged in.
Standing behind the banks in China is the central government, which holds a hoard of cash the likes of which have never been seen before. With $2.4 trillion in reserves, Beijing would certainly have the ammunition and the determination to deal with any sector of the economy in trouble.
In assessing the relative health of the U.S. and Chinese economies, it’s worth asking this question. What do the U.S. and Chinese stimulus packages have in common?
The answer. They’re both paid for with Chinese money.
America’s Banker Calls In Loans. Is China Losing Confidence?
Americans received yet another sobering reminder of China’s increasing economic strength and international clout this week. China sold a record amount of U.S. debt in December, raising speculation that Beijing is turning bearish on America.
Chinese investment in U.S. government securities dropped by $34.2 billion at the end of 2009 to $755.4 billion according to newly released figures from the Treasury Department. The decline is the greatest since Treasury data on Chinese holdings began in 2000.
Beijing’s cutback on the greenback puts Japan in the lead as the largest holder of US Treasury securities. Japan and Britain increased their holdings of U.S. long term securities in December but global demand still fell sharply. Foreign holdings of US Treasury securities plummeted by a whopping $53 billion, surpassing the previous record drop of $44.5 billion in April of 2009.
Beijing is leading the move away from U.S. debt instruments as President Barack Obama increases government borrowing to unprecedented levels to sustain economic recovery. In December, Obama increased the size of the marketable U.S. Treasury stock to a stunning record level $7.27 trillion.
If the trend continues, the United States will be forced to raise interest rates. That would put yet another strain on America’s ability to manage its mountain of debt.
Speculation about China’s intent has been running wild since the figures were released. Relations between Beijing and Washington are worsening almost daily. The deepening spat over Tibet, a controversy over U.S. arms sales to Taiwan, China’s dispute with Google and trade and currency disagreements are still festering. In the latest dispute, President Barack Obama’s administration rejected Beijing’s demand to cancel his meeting this week with the Dalai Lama.
Some analysts warn that China might be cutting purchases of U.S. Treasuries to flex its financial muscle. If so, Beijing’s economic leverage has its limits. America’s economic house is terribly fragile. Putting too much pressure on the U.S. economy could destroy America’s recovery or wreak even worse damage.
But Beijing is nothing if not pragmatic and there’s little chance that they would want to wreck the economy of their biggest customer, at least not now.
Most probably China is actively diversifying its holdings of foreign currency to defend its investments in dollar-denominated instruments against a decline in the greenback caused by excessive U.S. indebtedness.
Beijing holds most of the cards in this game. It is a chilling turn of events to realize that America’s economic viability lies at the mercy of a foreign power. It is even more unsettling to consider that Washington is consumed in political gridlock and is either unaware of the danger or unable to restore the underpinnings of a sound, sustainable economy.
Coke Continues Dividend-Raising Tradition
Coca-Cola (NYSE: KO), the world’s largest soft-drink maker, said it will raise its quarterly dividend by seven percent to 44 cents a share from 41 cents. That increases the annual to dividend to $1.76 from $1.64 a share. Coca-Cola, a member of the Dow Jones Industrial Average, is the third member of that index to boost its dividend in the past week, joining 3M (NYSE: MMM) and United Technologies (NYSE: UTX), which announced higher dividends last week.
Perhaps more impressive is the fact that this is the 48th consecutive year in which Coca-Cola has increased its payout. The new dividend is payable on April 1 to shareholders of record on March 15th. The company returned $5.3 billion to shareholders in 2009, $3.8 billion of it was in the form of dividends and the remainder was in share buybacks.
Over the past decade, Coca-Cola has seen its free cash flow double to $6 billion and Business Week estimates the value of the Coke brand is close to $69 billion. Warren Buffett’s Berkshire Hathaway is the largest owner of Coca-Cola stock, owning 200 million of the shares.
Headline-Worth Dividend Increases From The Media Sector
About: Media giant Time Warner (NYSE: TWX), Time Warner, AOL, News Corp. (Nasdaq: NWS), Class A and Class B shares, Wal Disney (NYSE: DIS), Dividend Genius, dividend stock, dividend stocks, stock dividend, stock dividends)
Media giant Time Warner (NYSE: TWX), buoyed by strength in its film and network businesses, reported a fourth-quarter profit after reporting a loss in the year-earlier period, beating analyst estimates along the way. For income investors, the good news comes in the form of Time Warner boosting its quarterly dividend by 13% to 21.25 cents a share. Time Warner paid a dividend of 18.8 cents a share in the third quarter and the shares currently yield 2.7%. Based on the new payout, Time Warner would yield about 3.07%.
The earnings report was Time Warner’s first following the spin-off the AOL business and the company said it expects 2010 earnings to grow in the “mid-teens.” Analysts are forecasting a 16% increase in 2010 earnings to $2.12 a share.
The news from Time Warner follows an announcement from rival News Corp. (Nasdaq: NWS), which said on Tuesday it would boost dividends on its Class A and Class B shares by 25% to 7.5 cents a share. That represents a yield of 1.1% on the Class A shares. News Corp. pays its dividend on a semiannual basis.
On Tuesday, News Corp. said it posted a fiscal second-quarter profit after enduring a loss in the year-earlier period. The company showed revenue growth across all its operating divisions except for the business that runs the popular MySpace social network.
The media sector isn’t exactly laden with high yielders, but it is worth noting that Time Warner offers a superior payout and yield to News Corp. and Wal Disney (NYSE: DIS), which only yields 1.2%.
Transocean Plans First Regular Dividend In 8 Years
About: Transocean (NYSE: RIG), Diamond Offshore (NYSE: DO), Transocean, Tranocean rival National Oilwell Varco (NYSE: NOV), Simmons & Co., Dividend Genius, dividend stock, dividend stocks, stock dividend, stock dividends)
Transocean (NYSE: RIG), the world’s largest operator of offshore oil rigs, is planning an annual dividend of $3.11 a share, the company’s first regularly scheduled payout since 2002. The company paid a special dividend in 2007, its last payout to shareholders. There have been some positive signs on the dividend front from the oil services sector over the past few months as Tranocean rival National Oilwell Varco (NYSE: NOV) announced its first quarterly dividend late last year and Diamond Offshore (NYSE: DO) continued its tradition of special dividends in addition to its regular payout.
Based on Tuesday’s closing price of $82.85, Tranocean would yield a decent 3.7%. In addition to the dividend announcement, Transocean said it will repurchase $3.2 billion of its own shares, equivalent to about 12% of its outstanding shares. Despite all of this news, investors seemed to be disappointed as Transocean shares were down a little bit on Tuesday.
Simmons & Co. had forecast a Transocean dividend in a note to clients late last month, but said the $3.11 payout missed its target of $4. Simmons said it views Transocean’s dividend announcement as “a minimum foundation for regular annual dividend.”
Sherwin-Williams Paints A Higher Dividend
Shrewin-Williams (NYSE: SHW), the maker of Dutch Boy paints and Minwax coatings, said it will raise its quarterly dividend by 1.4% to 36 cents, costing the company $2.2 million per year. The new dividend is payable on March 12th to shareholders of record on February 26th. Assuming Sherwin-Williams trades around $65, the new dividend gives the stock a yield of 2.2%.
While neither the increase nor the yield are exceptional, Sherwin-Williams’ dividend history is. With today’s increase, the company has increased its payout for 32 consecutive years. The stock currently trades at 13 times forward earnings and 4.3 times book value.