Benzinga staff writer, Jonathan Chen, wrote an article on what he called “3 High Dividend Stocks The Smart Money Is Buying”. His three stocks were Philip Morris International Inc. (PM), Pfizer (PFE), and Johnson & Johnson (JNJ).
These aren’t high dividend stocks. I believe that high dividend stocks begin above 6% yield because they should be higher than bonds because common stocks are subordinate to bonds for claims on the company’s assets in the event of a liquidation. Also, the long term rate of price inflation is much higher than the 2-3% that the Federal Reserve reports as part of its CPI numbers. These stocks are barely yielding over 3 percent. I would consider these stocks moderate dividend stocks. PFE had to half its dividend in 2009, so it isn’t a great dividend grower. JNJ is the best dividend grower of the bunch.
These stocks are not cheap. They are closer to speculative pricing of 20 times average earnings than value territory below 12 times average earnings.
Philip Morris is trading at 18.5 times its five year average earnings.
Pfizer is trading at 18.24 times its five year average earnings.
Johnson & Johnson is trading at 15.14 times its five year average earnings.
So, when should you buy these so-called high dividend stocks? Buy them when they are values below 12 times average earnings. The yields will be higher then also. Then next stock market crash in reaction to the fiscal and monetary insanity of the US government and Federal Reserve will drive the prices of these stocks lower. Buy them on sale (low); sell them when everyone thinks the market will continue up forever (high). The smart money should be selling these stocks now if they bought them back in 2009-2010.
Consider buying Philip Morris under $44.04 per share. PM traded below $44.00 in June 2010.
Consider buying Pfizer under $13.44 per share. PFE traded below $13.44 in May 2009, but is has been down in the $14.00’s several times since then.
Consider buying Johnson & Johnson under $52.68 per share. JNJ traded below $52.68 in May 2009.
Philip Morris Intl. (PM)
Market price: $68.05
Shares: 1.78 billion
Dividend record:
Dividend yield: 3.76%
Dividend: $0.64 quarterly
Dividend payout ratio: 62.6% ($2.56 annual dividend divided by $4.09 recent EPS)
Earning power: $3.67 per share @ 1.78 billion shares
Earnings adjusted for changes in capitalization
EPS Net inc. Adj. EPS
2006 $2.91 $6,130 M $3.44
2007 $2.86 $6,038 M $3.39
2008 $3.31 $6,890 M $3.87
2009 $3.24 $6,342 M $3.56
2010 $3.92 $7,259 M $4.08
Five year average earnings = $3.67
Value below 12x average earnings = $44.04
Market price at 18.5x average earnings = almost speculatively priced
Speculative above 20x average earnings = $73.40
Strength of balance sheet: Quite weak (liabilities are rising faster than assets)
Book value per share: $1.90 (Really? That’s bad) I calculated it at $1.97 which is still horrible
Price to book value: 35.81 (Wow!! That’s horrible)
Current ratio: 1.07 (Less than 2.0 is bad)
Quick ratio: 0.37 (Less than 1.0 is bad)
Pfizer (PFE)
Market price: $20.43
Shares: 7.90 billion
Dividend record:
Dividend yield: 3.92%
Dividend: $0.20 quarterly
Dividend payout ratio: 76% ($0.80 annual dividend divided by $1.05 recent EPS)
Earning power: $1.12 per share @ 7.90 billion shares
Earnings adjusted for changes in capitalization
EPS Net inc. Adj. EPS
2006 $2.66 $11,019 M* $1.40
2007 $1.17 $8,140 M $1.03
2008 $1.20 $8,104 M $1.04
2009 $1.23 $8,635 M $1.09
2010 $1.02 $8,257 M $1.05
* Net income was $19,332 M but $8,313 M was from discontinued operations. I removed the discontinued ops so the earnings wouldn’t be skewed too much.
Five year average earnings = $1.12
Value below 12x average earnings = $13.44
Market price at 18.24x average earnings = almost speculatively priced
Speculative above 20x average earnings = $22.40
Strength of balance sheet: Fairly stable
Book value per share: $11.17
Price to book value: 1.83 (good)
Current ratio: 2.00 (Over 2.0 is good)
Quick ratio: 1.66 (Over 1.0 is good)
Johnson & Johnson (JNJ)
Market price: $66.49
Shares: 2.74 billion
Dividend record:
Dividend yield: 3.43%
Dividend: $0.57 quarterly
Dividend payout ratio: 51.7% ($2.28 annual dividend divided by $4.41 recent EPS)
Earning power: $4.39 per share @ 2.74 billion shares
Earnings adjusted for changes in capitalization (PFE has been buying back shares)
EPS Net inc. Adj. EPS
2006 $3.73 $11,053 M $4.03
2007 $3.63 $10,576 M $3.86
2008 $4.57 $12,949 M $4.73
2009 $4.40 $12,266 M $4.48
2010 $4.78 $13,334 M $4.87
Five year average earnings = $4.39
Value below 12x average earnings = $52.68
Market price at 15.14x average earnings = priced for investment
Speculative above 20x average earnings = $87.80
Strength of balance sheet: Strong (That’s what I like to see…shareholder equity covering up the liabilities – nice.)
Book value per share: $21.51
Price to book value: 3.09 (decent)
Current ratio: 2.05 (Over 2.0 is good)
Quick ratio: 1.57 (Over 1.0 is good)
Disclosure: I don’t own any of these stocks.
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3 High Dividend Stocks The Smart Money Is Buying
By Jonathan Chen
Created 06/20/2011 - 11:59am
Posted on 06/20/11 at 11:59am by Jonathan Chen [1]
In times of uncertainty, investors look to high-dividend paying stocks for some sort of normalcy. Every investor looks for dividends to juice yields and returns, as dividends are an important source of income for many, especially retirees.
We also want to be playing the same game the "smart money" is playing. The hedge funds, the legendary investors, the institutions. They are all known as the "smart money," so why should they benefit and not us?
Here is a list of a few low-risk, high dividend stocks that will allow investors to play the same game the "smart money" is playing, and hopefully, generate the same returns.
Philip Morris International Inc. (NYSE: PM [2]) is a low-risk, large-cap stock that sports a hefty 3.7% dividend yield, in addition to strong growth from outside the U.S. Philip Morris International was spun off from Altria (NYSE: MO [FREE Stock Trend Analysis] [3]) last decade as a way to unlock the value from the company's international presence, and not deal with the regulatory scrutiny here in the U.S. Shares trade at 13.6 times earnings, and have risen 17% this year, best among the tobacco stocks only behind Lorillard (NYSE: LO [4]). Capital Research Global Investors, Blackrock, and State Street are among Philip Morri's largest investors.
Pfizer Inc. (NYSE: PFE [5]) is another low-risk defensive play, and sports a dividend yield of 3.9%. The company is currently in the process of divesting businesses as a way to unlock shareholder value. Shares have been stagnant for what seems like forever, but it looks as if shares are starting to perk up a bit. The company has a rock solid balance sheet, trades at less than 9 times earnings, and counts State Street, BlackRock and Vanguard among major shareholders. The stock is also a hedge fund favorite.
The last name to consider is Johnson & Johnson (NYSE: JNJ [FREE Stock Trend Analysis] [6]). The New Brunswick-based company is the maker of things like Band-Aids, Tylenol, and other products we use everyday, but don't really think about it. Johnson & Johnson has one investor in it that will make other shareholders sleep better at night: Warren Buffett.
Late last year, the company issued one of the lowest yields over U.S. Treasuries on record, indicating the strong demand for its debt. Johnson & Johnson boasts a triple-A credit rating from Standard & Poor's, a distinction shared by only three other U.S. industrial firms. It trades at just 12.8 times earnings, and is one of the safest companies out there.
Link to original article: http://www.benzinga.com/trading-ideas/long-ideas/11/06/1183851/3-high-dividend-stocks-the-smart-money-is-buying
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