Author Archive

  • Looking at Financial Sector Dividends
    , October 13th, 2010 at 8:04 am

    Higher dividends are a major theme this year for investors. This is a welcomed change from 2008 and 2009 when huge numbers of firms cut back on their payouts.

    This is especially true for the financial services sector. Thanks to TARP restrictions (and bombed-out cash flows), many firms slashed their quarterly dividends to the bone — some even to one penny per share. To give you an example of how dramatic this has been, the Financial Sector ETF (XLF) paid out 26 cents per share for Q4 2007. Recently, it’s paid out three cents per quarter.

    At some point soon, we’re going to see much higher dividends from financial stocks. Below is a list of 32 major financial stocks. I’ve listed each stock’s peak quarterly dividend before the crisis, the current dividend, and what I feel is their dividend potential for next year.

    When I say “dividend potential,” I don’t mean this as a prediction. In fact, I doubt many firms will be willing to raise their dividends so dramatically. (For example, I doubt Goldman Sachs will do much of anything.) Consider my estimate to be at the high end. But I do believe it’s what they could do if they wanted. I’ve also added what the yield is based on my estimate of each stock’s dividend potential.

    Company Ticker Symbol Peak Dividend Current Dividend Dividend Potential Potential Yield
    Allstate ALL $0.41 $0.20 $0.34 4.2%
    Bank of America BAC $0.64 $0.01 $0.12 3.7%
    BB&T BBT $0.47 $0.15 $0.17 2.8%
    Bank of New York Mellon BK $0.24 $0.09 $0.22 3.3%
    Boston Properties BXP $0.68 $0.50 $0.56 2.6%
    Citigroup C $0.54 $0.00 $0.04 3.6%
    Comerica CMA $0.66 $0.05 $0.18 1.8%
    Capital One COF $0.38 $0.05 $0.36 3.6%
    First Horizon National FHN $0.43 $0.00 $0.04 1.5%
    Fifth Third Bancorp FITB $0.44 $0.01 $0.08 2.6%
    Goldman Sachs GS $0.35 $0.35 $1.49 3.8%
    Huntington Bancshares HBAN $0.27 $0.01 $0.04 2.4%
    Hartford Financial Services HIG $0.53 $0.05 $0.31 5.0%
    Host Hotels & Resorts HST $0.40 $0.01 $0.11 2.8%
    JP Morgan Chase JPM $0.38 $0.05 $0.38 3.8%
    KeyCorp KEY $0.38 $0.01 $0.03 1.6%
    Kimco Realty KIM $0.44 $0.16 $0.16 3.8%
    Legg Mason LM $0.24 $0.04 $0.16 2.0%
    Lincoln National LNC $0.42 $0.01 $0.31 5.0%
    Marshall & Ilsley MI $0.32 $0.01 $0.01 0.1%
    Morgan Stanley MS $0.27 $0.05 $0.26 4.0%
    ProLogis PLD $0.52 $0.15 $0.10 3.2%
    PNC Financial PNC $0.66 $0.10 $0.49 3.7%
    Regions Financial RF $0.38 $0.01 $0.03 1.5%
    Simon Property Group SPG $0.90 $0.60 $0.80 3.3%
    SunTrust Banks STI $0.77 $0.01 $0.07 1.0%
    State Street STT $0.24 $0.01 $0.31 3.2%
    U.S. Bancorp USB $0.43 $0.05 $0.18 3.2%
    Vornado Realty Trust VNO $0.95 $0.65 $0.67 3.1%
    Wells Fargo WFC $0.34 $0.05 $0.24 3.7%
    XL Group XL $0.50 $0.10 $0.20 3.6%
    Zions Bancorporation ZION $0.43 $0.01 $0.04 0.7%

  • Morning News: October 13, 2010
    , October 13th, 2010 at 7:57 am

    BEFORE THE BELL: US Stock Futures Higher On Strong Intel Data

    Inflation to Fall Short of Fed’s Goal Through 2012, Survey Says

    JPMorgan Net Rises 23% on Lower Credit Costs, Beats Estimates

    China Foreign-Exchange Reserves Jump to $2.65 Trillion

    Standard Chartered to Raise About $5.2 Billion in Rights Offer

    Across the U.S., Long Recovery Looks Like Recession

    Geithner Sees “No Risk” of Currency War

    Standard Chartered to Raise $5.2B in Rights Issue

    Chinese Exports Continue Surge in September

    Rising Corn Prices Bring Fears of an Upswing in Food Costs

  • Ritholtz Vs. Olick
    , October 12th, 2010 at 4:41 pm

    Here’s Diana Olick’s article from today: Foreclosure Fraud: It’s Worse Than You Think

  • Intel’s Q3 Earnings: 52 Cents Per Share
    , October 12th, 2010 at 4:16 pm

    After the bell, Intel (INTC) reported Q3 earnings of 52 cents per share. The Street’s consensus was 50 cents per share.

    That’s pretty close to what I was expecting. Earlier, I had said that I wasn’t expecting anything great from Intel this time around, unlike three months ago.

    The shares have rallied over the past few days. Three months ago, Intel stunned the Street when it reported earnings of 51 cents per share, eight cents more than expectations. But in August, the company lowered its sales forecast to $11 billion, plus or minus $200 million, which is why I was so eager to see what today’s results were. For Q3, sales came in at $11.1 billion. For Q4, Intel sees sales coming in at $11.4 billion, plus or minus $400 million.

    The PC industry has struggled in recent months with soft demand in the United States and Europe as well as rising inventories for chips and other components that have led some customers to reduce their orders for new parts.

    Global semiconductor sales could grow just 5 percent next year as the economy continues to struggle, according to market research firm iSuppli.

    The world’s top microchip maker expects gross margins of 67 percent in the fourth quarter, give or take a couple of percentage points, compared with 66 percent in the third quarter.

    Intel’s results were buoyed by a 3 percent sequential increase in data center sales in the quarter, a business with higher margins than chips for PCs.

    Some investors believe tech vendors’ sales will pick up in the final months of 2010 as shoppers warily spend on holiday gifts — with an out-sized amount going to smartphones and tablets such as Apple Inc’s iPad while sales of PCs flounder.

    Microprocessors made by Intel run 80 percent of the world’s computers, but the Santa Clara, California-based company has yet to develop much presence in smartphones and tablets, which are often powered by energy efficient processors designed by ARM Holdings.

    After hours, Intel is up to $20.22. With a quarter to go, Intel is probably on track to earn $2 per share for this year. That’s pretty good. Intel is a decent buy (though not a outstanding one) anytime it’s under $20.

  • Fed Minutes Reveal “Uncertainty”
    , October 12th, 2010 at 2:37 pm

    Are you ready for this one? The minutes of the last Fed meeting showed that members are, get this, uncertain about the state of the economy.

    Well, now we know!

    Minutes released Tuesday of the most recent meeting of the Federal Open Market Committee, the Fed panel that sets monetary policy, revealed that a considerable number of central bank officials “consider it appropriate to take action soon,” given the persistently high unemployment rate and the uncomfortably low inflation rate.

    But other Fed officials “saw merit in accumulating further information before reaching a decision,” according to the minutes of the Sept. 21 meeting, which lasted 5 hours and 10 minutes, longer than usual — an indication of the differences of opinion that can accompany any policy decision.

    Most Wall Street analysts now expect the committee to decide, at its meeting on Nov. 2 and 3, to resume the debt-buying strategy, known as quantitative easing. But the minutes suggested that while that outcome is certainly possible, it is not a done deal.

    At first, Wall Street rallied slightly on the uncertainty bombshell. After about 15 minutes, they had second thoughts. Feel the excitement!

  • Taleb’s Awful Bond Market Call
    , October 12th, 2010 at 12:41 pm

    From February 4 of this year:

    Nassim Nicholas Taleb, author of “The Black Swan,” said “every single human being” should bet U.S. Treasury bonds will decline, citing the policies of Federal Reserve Chairman Ben S. Bernanke and the Obama administration.

    It’s “a no brainer” to sell short Treasuries, Taleb, a principal at Universa Investments LP in Santa Monica, California, said at a conference in Moscow today. “Every single human being should have that trade.”

    How’s that no-brainer working out? Here’s the 10-year T-bond yield year-to-date:

  • UBS Says Expensive Stocks Are the Cheapest. Wait…What?
    , October 12th, 2010 at 10:32 am

    Today’s game is called, Spot the Logical Fallacy!

    Investors should purchase stocks with the highest price-to-earnings ratios because their valuation premium to the cheapest shares is too low, according to Jonathan Golub at UBS AG.

    The gap between the Standard & Poor’s 500 Index industries with the highest and lowest P/Es narrowed to 3.6 last month from 9.6 in 2006, according to UBS, which used projected earnings for its valuations.

    The disparity suggests purchasing expensive stocks may boost returns during the next 12 to 24 months, the UBS strategist said. The three industries with the highest multiples in the S&P 500 are industrials, consumer discretionary and consumer staples, according to UBS.

    “This is akin to purchasing a Picasso when high-priced artwork is out of favor,” Golub, the New York-based chief U.S. market strategist, said in a telephone interview yesterday. “On a relative basis, cheap stocks are overvalued because they are much closer to the market average. It’s not that I want to overpay for companies, but rather traditionally high P/E stocks are cheaper than they should be.”

    Did you find it? The problem is that this argument assumes that all the high-P/E Ratio stocks will stay the same. Even if the thesis is correct, the market may very well choose another cohort of stocks to send to the upper-P/E Ratio bin.

    This sloppy thinking happens a lot. Last year, Paul Collier wrote an influential book called The Bottom Billion. In it, he said that the poorest countries in the world regularly fall behind everyone else in terms of growth. Like most tautologies, that statement is true. Poor countries do indeed always fall behind everyone else. That’s why they’re poor.

    William Easterly wrote:

    Collier selected countries that were on the bottom at the end of a specific period, so naturally they would be more likely to have had among the worst growth rates in the world over the preceding period. This ex post selection bias makes the test of poor-country divergence invalid. The correct test would be to see who is poor at the beginning of the period and then see if they have worse growth than richer countries in the following years. When the test is run this way, there is no evidence that poor countries grow more slowly than richer countries.

  • Boring but Profitable
    , October 12th, 2010 at 9:59 am

    Here’s another example of my favorite kind of stock—totally boring, mostly unheard of and very, very good. I give you… Bemis (BMS)!

    Here’s a description:

    Bemis Company is a major supplier of flexible packaging and pressure sensitive materials used by leading food, consumer products, healthcare, and other companies worldwide. Founded in 1858, the Company is included in the S&P 500 index of stocks and reported pro forma 2009 net sales, giving effect to the Food Americas acquisition, of $4.8 billion. The Company’s flexible packaging business has a strong technical base in polymer chemistry, film extrusion, coating and laminating, printing, and converting. Headquartered in Neenah, Wisconsin, Bemis employs over 20,000 individuals worldwide.

    Dear Lord, that’s dull. I nearly fell asleep while reading that. But don’t let that fool you; this company makes a lot of money.

    In July, Bemis gave an outlook for Q3 of 55 to 60 cents per share. They raised their full-year EPS range from $2.00 to $2.15 to $2.12 to $2.20. That’s not bad for a stock going for around $33.

    Check out a 30-year chart compared with the S&P 500:

    Bemis has also increased its dividend every year since 1983. The current dividend yields 2.7%

  • Pfizer Buys the King
    , October 12th, 2010 at 9:39 am

    Here’s your basic equation for Merger Mania: lots of cash plus low stock prices equals mega-deals. It doesn’t get much more complicated than that. These deals continue to be a theme in the healthcare sector. The latest is that Pfizer (PFE) will buy King Pharmaceuticals (KG) for $3.6 billion.

    Pfizer is offering $14.25 for King which is a 40% premium to yesterday’s closing price. This is a big move for Pfizer. With the deal, Pfizer picks up muscle relaxant Skelaxin. Pfizer had to make some deals soon because next year its blockbuster Lipitor will face competition from generics. Pfizer said the deal will add about two cents per share to its profit in 2011 and 2012, and three to four cents per share in each of the next three years.

    I don’t have much to say about today’s market. Here are some quick unconnected thoughts:

    Intel (INTC) reports after the bell. Wall Street’s consensus is for 50 cents per share. I expect 50 or 51 cents, maybe 52 cents. The other big news today will come at 2 pm when the Federal Reserve releases the minutes of its last meeting.

    This stat caught my eye: Bloomberg reports that first-half operating expenses at the six biggest U.S. financial firms—Bank of America, JPMorgan, Citi, Wells Fargo, Goldman and Morgan Stanley— grew by $7.92 billion, or 5.9%. Revenue fell by $5.6 billion, or 2.2%.

    Finally, on Friday Kulicke and Soffa (KLIC) plunged 10%. No need to worry. Jefferies has just downgraded them to a Hold. Thanks, guys.

  • Morning News: October 12, 2010
    , October 12th, 2010 at 7:29 am

    Zacks Earnings Trends

    Bona Fide Fans Chase Rib-Free Rib Sandwich

    Asia Stiffens Resolve to Resist Capital Inflows

    OPEC Indicates Production Quotas Set to Be Unchanged as Economies Falter

    Marc Faber Says World Heading for ‘Major Inflection Point’

    Google and Marubeni in U.S. Submarine Power Cable JV

    Pandit Recruits Citigroup Army as Costs Erode U.S. Bank Margins

    DeNA to Buy iPhone Game Developer

    WSJ: Green Acres is the Place to Be

    Crazy Baby Otters