Dividend Inc.

Research: CenturyTel (CTL) at $33.47

Today's Dividend Achiever Research recommendation is on CenturyTel (CTL). According to Mergent's Online, "CenturyTel is an integrated communications company engaged primarily in providing an array of communications services, including local and long distance voice, Internet access and broadband services. Co. also provides fiber transport, local exchange carrier, security monitoring, and other communications and business information services. Co. conducts its operations in 25 states located in the continental U.S. As of Dec 31 2007, Co.'s local exchange telephone subsidiaries operated approximately 2.1 million telephone access lines, primarily in rural areas and small to mid-size cities in 24 states, with over 68.0% of these lines located in Missouri, Wisconsin, Alabama, Arkansas and Washington."

According to Yahoo quotes, CenturyTel (CTL) is now trading 6% above the 1 year low making this a timely investment opportunity. On a technical basis, CTL is trading above its $33 support from 1999. Such a technical support level from so far back in time indicates that the worst case scenario is that this stock will likely trade down to the 25 level but not go much further.

On the upside, CenturyTel (CTL) seems capped at the $50 level as far back as 1999. After hitting $50 in 1999, 2000 and 2007 the next run will be back to $50 with serious implications. An ascent back to the $50 level will occur with either a MAJOR breakout to the upside or a total collapse of the price. Either way this is a stock to watch with short term trading and long-term investing opportunities.

According to Valueline, CenturyTel (CTL) normally trades at around the 5x cash flow. If CTL were to trade at 5x based on last year's cash flow it would be trading at $41. Keep in mind that Valueline, from 1985 to 1997, used to have CenturyTel (CTL) trading at 8x cash flow. At 8x cash flow, CenturyTel (CTL) would be trading at a mean price of $64. We have to take the conservative route on this and project towards the $41 level.

Another compelling element of CenturyTel (CTL) is the fact that shares outstanding have decreased from 144 million down to the 108 million. All this at the same time that long term debt from 2003 to 2007 also decrease from 47% of equity to 44% of equity. Meaning, the company isn't taking on more debt solely for the purpose of reducing shares outstanding reflecting good management policy. Also, of particular interest is the fact that CTL is trading at 6% above book value.

Take the time to do the research on this stock and learn something new about the market for rural telephone service. After doing the research you too might be convinced that this company with its 31 years of dividend increases proves it is a quality short and long term investment. Touc.

Research: Illinois Tool Works (ITW) at $50.34

Today's research recommendation is on Illinois Tool Works (ITW). This company has increased its dividend at least 42 consecutive years in a row. According to Mergent's Online, "Illinois Tool Works is a manufacturer of industrial products and equipment. Co. has eight business segments: Industrial Packaging that produces steel, plastic and paper products; Power Systems & Electronics that produces equipment and consumables related with power conversion; Transportation that produces components for transportation-related applications; Construction Products that produces tools for construction applications; Food Equipment that produces commercial food equipment; Decorative Surfaces that produces decorative surfacing materials; Polymers & Fluids that produces adhesives and sealants; and All Other, which produces products such as plastic packaging and metal fasteners."

When looking at the last Valueline report dated March 21, 2008 you can see that ITW's stock price is projected to conservatively increase 17% annually through 2013. Valueline also indicates that ITW normally trades at 13.5x cash flow. Currently, ITW is trading, based on 2007 cash flow, at 11x cash flow. If Valueline's price/cash flow projections are correct ITW is projected to trade up to 63.45 at minimum. The last time ITW traded above the 13.5x cash flow was back in 2004. After it's most divergent fall below the mean the stock may be poised for its next move higher.

An interesting characteristic about ITW is the steady decline in shares outstanding since 2003. At it's peak, ITW had 617 million shares outstanding. As of Dec. 2007, ITW had only 530 million shares outstanding. Along with the reduction of shares there has been a steady year over year increase in earnings since 2001. What this translates into is greater per share earnings and even greater value for the company. However, we must be aware of the company taking on too much debt either to buy back shares or expansion. Currently ITW has total debt at $2.9 billion with long term debt at $1.8 billion.

With ITW at 50.34 a share the stock is 12% above it's 1 year low and could be researched further as your next dividend achiever investment. Touc.

Research: Clorox (CLX) at $56.64

At $56.64 Clorox is trading within 2% of its 1 year low which is no guarantee of profits however it is a better starting point than the 1 year high. When pursuing a starting point I first like to look at the current earnings compared to the dividend payout. In the case of CLX the trailing twelve month earnings are at $3.33 per share while the dividend payout is expected to be $1.60 annually.

After determining that the dividend is within the sphere of trailing earnings I look at the Valueline metric that indicates where the stock normally trades. In the case of CLX the stock normally trades at around 16x cash flow. This means that when the stock is trading below this measure the shares are undervalue and above this level the stock is overvalue. All that undervalued and overvalued means is that the stock is more likely to rise or decline. According to Valueline of April 4, 2008, CLX is trading at 12x cash flow and is therefore likelier to rise than fall. Keep in mind that according to Valueline during the period from 1981 to 1997, CLX normally traded around 12x cash flow. This indicates that Valueline has raised the level at which CLX is expected to trade around on a cash flow basis.

CLX has increased its dividend for 30 consecutive years in a row at a ten year compounded annual rate of growth of 8.79%. An annual increase of the dividend is management's view that prospects for the company overall are decent at worst and are probably going to get better.

The downside to CLX is that it is heavily indebted which is not going to change soon. Also a negative is CLX's reliance on commodity price movements. As the continued increase in commodities goes on CLX's profit margins will be whittled away. However, if you consider the fact that this company has increased its dividend every year since 1978, during periods of intensive commodity price increases, there is good reason to believe management will get through the threats of commodity inflation. Touc.

For additional quality insight on CLX please go to:

http://dividendgrowth.blogspot.com/2008/03/clorox-clx-dividend-analysis.html

On the Watch

The following are stocks worth researching and possibly purchasing. All are Dividend Achievers and all are within 10% of their 1 year low. It is suggested that you consider banking, real estate and commodity based companies as speculative investments at this time. Please verify all information before buying. Touc.

On the Watch

The following is a review of previously recommended stock for research and possible investment.

ANAT: Has fallen from the Feb. 2, 2008 level of 127 to today's 104.
AWR: Has risen from the 2/2/2008 level of 34 to today's 36.
ARTNA: Has fallen from the previous level of 19 to today's 18.
BRC: Has risen from 31 to 33.
CWT: Up from 35 to 38.
ED: Down from 43 to 39.
HNZ: Up from 42 to 46.
MDT: No change has occured possibly indicating that accumulation is taking place.
PAYX: Up from 33 to 34.
PGN: Down from 45 to 41.
QUIX: Down an amazing 50% from 16 to 8. Must be verified as a viable going concern.
SLE: Down from 14 to 13.
TDS: Down a sizable amount from 54 to 39.
ADP: Up 39 to 42.

All stocks that are down from the previous period are candidates worth researching as possible purchases. Touc

Sell Recommmendations & Realized Gains

The following are the percentage returns and the time held for each stock that received a Research recommendation followed by a Sell recommendation in the given year:

2009 Sell Recommendations

American National Insurance (ANAT) +18.27% in 630 days
Northwest Natural Gas (NWN) +10.53% in 80 days
AquaAmerica (WTR) +10% in 46 days
Air Products & Chemical (APD) 9% in 345 days
Walgreen Co. (WAG) +11.03% in 338 days
Sysco Corp. (SYY) +10.85% in 253 days
Bard Corp. (BCR) +10.11% in 126 days
Bank of Hawaii (BOH) +11.36% in 207 days
Matthews International (MATW) +10.25% in 126 days
Cardinal Health (CAH) +10.28% in 54 days
Meridian Biosciences (VIVO) +11.75% in 78 days
H&R Block (HRB) +11.50% in 18 days
Altria (MO) +13.11% in 52 days
Helmerich and Payne (HP) +15.88% in 16 days

2008 Sell Recommendations

Helmerich and Payne (HP) +141.50% in 684 days
CenturyTel (CTL) +17.87% in 159 days
Clorox (CLX) +10% in 161 days
Carlisle Companies (CSL) +7.45% in 124 days
Briggs and Stratton (BGG) +8.44% in 156 days
Archer Daniels-Midland (ADM) +9.09% in 61 days

What is important about these performance numbers is that the Research recommendation, which precedes the sell recommendation, isn't necessarily a buy signal. Instead, the Research recommendation requires doing your homework and then putting these stocks on a watch list. Once an opportune time has arrived then a purchase can be made. Most, but not all, Research recommendations will contain an "ideal" price to buy a stock which is usually lower than the price posted on the blog. Touc .

Something to ponder...

The chart above depicts the wholesale inflation rate from 1749-1980. The wonderful chart comes from The Wall Street Waltz by Kenneth L. Fisher manager of Fisher Investment and columnist at Forbes. What I would like to point out is that during this war we have experienced relatively little inflation. In fact, no other congressionally approved war except for Gulf War I did we not have to feel the consequences in the way of significantly higher prices at the pump and other basic necessities.

Please take a look at the rate of inflation before and after each warring period in U.S. history. During the period of the American Revolution inflation jumped 300%. During the War of 1812, inflation increased approximately 70%. The Civil War experienced inflation spike of 80%. World War I saw a surge of inflation by 115%. World War II had an increase of inflation of 100%. A small increase in inflation occured during the Korean War tallying a 12% jump which was a continuation of the WWII inflation. Finally, the Viet Nam War resulted in an inflationary spike of 290%.

What are the causes of these large spikes in inflation? The huge amount of government spending to finance each of these wars. The current war is no exception. Why didn't we get hit with high inflation during or after that last Gulf War? Government spending was put in check by a relatively quick end to the war. Also, the U.S. economy was in the middle of it's 18 year boom. While the booming economy wasn't a guarantee, in retrospect we could easily give an explantion as to the factors contributing to it.

Since we're not feeling the inflationary heat right now we can only expect that, at some point soon, we will experience inflation on the level of what happened during and after the Viet Nam War. If, for some reason, we're able to stave off inflation somehow I expect that we'll see the impact somewhere else in the world. Matters of inflation do not exist in a vacuum. Keep in mind that on every equation both sides need to be equal. The only difference in the world of economics is that it takes time for the equation to be reconciled.

More news on AFLAC...

This post contains updated information regarding my research recommendation of Aflac (AFL) on March 9, 2007.

In the April 9, 2007 edition of Forbes magazine, John Rogers advises the purchase of AFL. I promise I didn't get an advanced copy of the magazine. Rogers makes two very interesting points about AFL. Point number one, AFL "has payroll deduction arrangements with employees at 91% of the companies traded on the Tokyo Stock Exchange." As Rogers points out, this is a monopoly if there ever was one. Point two, AFL shares "trade at a 21% discount."

John Rogers' opinion carries a lot of weight in my book. I suspect that AFL might be able to fall another 5%-10%. Despite my downside projections the upside reward far exceeds the potential risks.

Near the Bottom...

Today's post will provide us with the Dividend Achievers that are within 5% of their 1 year low. You'll notice that there are a lot of stocks which are in the banking sector. It is very important that you take care before buying the banking stocks. This sector is most vunerable to a decline if the mortgage industry continues to decline. This does not mean avoid banks, rather, consider carefully those that you choose to include in your portfolio.

Brown and Brown (BRO)
Brady Corp (BRC)
Cincinnati Financial (CINF)
Citizens Banking (CRBC)
Cullen Frost Bankers (CFR)
First Charter (FCTR)
FirstMerit Corp (FMER)
Fulton Financial (FULT)
Progressive (PGR)
Protective Life (PL)
Sallie Mae (SLM)

Personally, my favorite sector to invest in is the insurance industry. I highly recommend considering Progressive Insurance (PGR) and Protective Life (PL). Consider that insurance, by law, is required in all 50 states and you've got the formula for a winning product. Insurance companies also have the distinction of being able to calculate the odds of an accident occurring (threat of paying a claim.) This accurately assess the costs associated with a particular claim. Furthermore, when a claim is actually filed, insurance companies typically don't pay out the full amount of the money requested. Enjoy.

Please read my previous article of Protective Life in my post dated Feb. 8th 2006.

Performance Update of Select Dividend Achievers

The following is the performance of Divivdend Achievers within the last year from March 21, 2006 until March 21, 2007. Keep in mind that the percentage change of these stocks does not include the annual dividend that would have been received over the same period of time.

As you’ll notice, companies with 10 to 35% returns were not included. However, if they were included during this time frame I would have had to add many more companies to the list. If anyone were to complain about receiving only 30% percent in one year with significantly reduced risk then investing in stocks isn't their cup of tea.

Despite the performance of these stocks I would not buy any of them since they are at or near their 1 year high. I currently hold a large position in Helmerich & Payne which I bought near the 1 year low. I always focus on those stocks that are within 5% of their 1 year low. At that time I determine if the stock is actually worth buying. Once I find another stock that is worth buying I will then jump ship.

Investment Tip: The larger your stake in a particular investment the better. While diversification is the general rule it is only sufficient when you don't understand the risks associated.

Stocks to Consider...

The following are what I consider to be the most compelling Dividend Achievers to research and possibly buy at this time. All of these stocks share similar characteristics. First, all of these stocks are trading in a range or near a new low. Any stock that has been able to return to the investor income (and earnings) while the price has remained essentially the same over an extended period of time translates into an underappreciated asset. Also, according to Geraldine Weiss' IQTrends (www.iqtrends.com) model some of these stocks are near their respective buying levels based on her dividend yield model. These stocks have also increased their dividend every year for at least 10 consecutive years in a row. The dividend for these stocks do not exceed company earnings.

AFLAC (AFL): This company is among the leading insurance companies in the U.S. and Japan. This company has traded in the $45 - $50 range since 2005 while the dividend has increased over 17% annually over the same period. According to IQTrends (www.iqtrends.com) written by Geraldine Weiss, AFL is undervalued when the dividend reaches 2%. The current dividend yield is at 1.60%. AFL has increased it's dividend for 22 years in a row.
Bank of Hawaii (BOH): BOH is the largest bank in the state of Hawaii. BOH has increased it's dividend for 27 consecutive years in a row. This stock has traded in a range for the last 3 years. According to IQTrends BOH is undervalued with a dividend yield of 4%. BOH is yielding around 3.20%. While I am hesitant to dive into banking stocks, especially after the rash of mortgage loan delinquencies, I believe that BOH will prove profitable since it finances some of the most valuable real estate in the world. BOH has traded in $50 range since 2004.
Lancaster Colony (LANC): This company is a diversified consumer product company that produces packaged foods to automotive parts. LANC has increased it's dividend for 35 years straight. This stock has traded in a range since 2002.
Leggett and Platt (LEG): LEG has traded in the $20 -$30 since 1998. This translates into an incredible amount of untapped value. LEG has increased it's dividend for 33 years.

Good luck with your research. Please note that this list is expected to change.

Famous Last Words...

New Century Financial (NEW) is one of the latest real estate investment trusts that is on the brink of all out collapse. It is worth reviewing what management of NEW said during an earnings conference call back in November 2, 2006. Analyst Miguel Fidalgo of Noonday Asset Management asked if, in light of competitors revising their loan losses higher, NEW felt any need to revise their loan loss provisions for the upcoming quarter. Patti Dodge of NEW replied:

"...we have several years worth of losses built up in the current allowance for loan losses."

At the time, NEW had a closing price of $35.90. Today, NEW trades at $3.87. With such a brazen and flippant response, one has to wonder if the management team at NEW was thinking clearly at the time.

Source Citation: "Q3 2006 New Century Financial Corporation Earnings Conference Call - Part 2." The America's Intelligence Wire (Nov 2, 2006): NA. InfoTrac OneFile. Thomson Gale. San Francisco Public Library. 9 Mar. 2007

Gaming the Pre/After Hour Markets

The following are transactions that took place before and after the regular hours of trading which canceled out gains or losses of the regular hours of trading from the same day. The purpose of tracking this activity is to see if the trends or patterns can be established in the behavior of the related stocks or the general market. One conclusion that I've come to so far can be found in the following related articles:

Articles

Pre-Market Data

The following information demonstrates that low volume pre-market trading determines the closing price of high volume regular hour trading. In most instances, you can find traders are able to buy or sell large allotments of stock without affecting the pre-market price while small allotments can be seen to crush or inflate the price. This defies the basic economic principle of supply and demand affecting price.

After Hour Market Data

The following information demonstrates that low volume, after hour trading can undo or off-set all of the previous high volume regular hour trading. As mentioned before, you can find traders are able to buy or sell large allotments of stock without affecting the after hour price while small alloments can be seen to crush or inflate the price.

Entropy notes

Source:
Gold-Eagle
http://www.gold-eagle.com/editorials_98/marantette121698.html

The Entropy Danger
We continue to review Entropy Tops and Bottoms in our newsletters. Over the past 27 years, we have found the analysis of Entropy Tops and Bottoms a terrific addition to the buy and sell points of cyclic analysis. No more valuable or accurate technical analysis tool exists.

Our Entropy work comes from a tangential application of The Second Law of Thermodynamics. This law basically says that, in the end, all things come to rest. When applied to humans, Entropy equals death.

When applied to the stock or commodities markets, it means the end of one move and the reversal to the other direction. If the current direction is up, it shows the end of the upmove and the reversal to the downside. If the current move is down, it shows the end of the downmove and the reversal to the upside.

As we read our charts and discover Entropy Tops and Bottoms, we find the rules apply equally to charts of stocks or commodities. The rules apply equally to charts of any time period — daily, weekly or monthly. The rules apply equally to Dow Jones Industrial stocks and gold mining company stocks. The rules apply equally to Standard & Poor Futures and to Gold or Silver Futures.

Entropy rules as we now apply them are correct over 90% of the time. No other Technical Analysis tool comes close.

This week we are fortunate to have a weekly chart that exemplifies the basic rules and also shows a couple of the finer Entropy points as well. Over the years our work has shown us two basic time elements. They are: 1.) Moves up or down at the rate of 80 to 85 degrees, normally last 6 to 9 units of time. 2.) Moves up or down at the rate of 85 to 90 degrees, normally last 3 to 6 time units.

On a daily chart, time units are calendar days, not trading days. Entropy moves are a minimum of three days. The first unit of any Entropy move counts as day one.

Entropy moves are basically moves up or down at a rate of change of 80 plus degrees. Entropy moves are exhaustion moves and signal the end of the effort required to make the move to begin with.

Entropy moves end when the price move of a certain day goes above or below the extreme of the prior day. If a current move is up, the Entropy Top is in place when price action goes below the low of the prior day. If a current move is down, the Entropy Bottom is in place when price action goes above the high of the prior day.

The chart we use today to show examples of Entropy is the S&P Futures chart – weekly time period.

The first Entropy move to the upside begins the week of 6-19. It is a rise of 87 degrees and lasts 5 weeks. It ends the week of 7-24 when price action that week goes below the low of the prior week.

The week of 7-24 begins an Entropy move to the downside. This move lasts 4 weeks at a rate of decline of 88 degrees. It ends when price action the week of 9-18 goes above the high of the prior week. In this instance the downmove doesn't end, as there is a two week extension. However both the Entropy upmove and Entropy downmove result in profitable trades.

The next upmove begins the week of 10-09. This rise lasts an abnormal 8 weeks long. This rise is truly stupendous at the rate of 87.39 degrees. Remember this is an index of 500 stocks. Some stocks in the index are rising at even higher rates of climb.

The Entropy Top is now in place as price action last week went below the low of the prior week.

BUNGEE JUMPERS — READ ON

So far we've covered the basic points that we make in our two weekly newsletters. Here are the additional finer points we want to point out now.

There are times when, especially in rises, we say, "Watch Out – after rises like this, the decline on the other side can be as fast if not faster than the rise that brought us to this Entropy Top."

Now you look at this S & P Futures chart and your reaction may be, "Marantette – No Way!" Well, stay with us. Look back at the 06-19 rise. It took 5 weeks to go from 1074.67 to 1188.04. It took 4 weeks to fall from 1188.04 to 1054.00.

5 weeks up +113.37 points
4 weeks down –134.04 points

Markets go down faster than they go up.

Now look at last week's price action on the chart again. Is this market now starting down faster than it went up? Looks like it! Time and time again our Entropy analysis shows that after an Entropy rise, the stock or commodity can decline at a rate faster than the previous rise.

This is why our long-term stock market investors are now 100% in cash. This is why our DowStock mid-term portfolio is 90% short.

Other work of ours also shows that over the past 30 years, when the stock market declines, gold stocks decline faster and longer then the general market. In our Goldstock Trading Portfolio, which by the way is +62.48% year to date, we are now 100% in cash.

Unless you are truly a gunslinger, this is no time to be in the stock market.

David T. Marantette III
Goldstock Newsletter
http://www.goldstock.com

16 December 1998

What kind of game is this?

Today, Standard and Poor upgraded Countrywide Financial (CFC) from Strong sell to Sell. What kind of game are these analysts trying to play with us? Does it make sense that something which is so unattractive be worth deeming it less dead that previously noted.

This kind of manipulation by analysts raises my suspicions. Are the analysts fearful that, by painting a negative, but accurate picture, it is going to become a self-fulfilling prophsey? Does Standard and Poor have a vested interested in CFC? The justification given by Standard and Poor analyst Stuart Plesser for raising Countrywide from the dead to near dead is that it has been hammered so much that it couldn't possibly go any lower. Come on!!!!

This leads to unjustified optimism without the necessary proof that things have turned around. We need evidence not an analyst's assurance that it can't possibly get worse. This seems all the more outrages when you consider that some 21 companies in the subprime lending industry have filed bankruptcy at or near a perceived top in the real estate financing market (as opposed to the valuation of real estate itself.)

Continue to wait for the proof before considering this company as worth investing in. Countrywide is still a STRONG SELL.

Standard and Poor rating

Countrywide Financial (CFC)

Ups from 1 STAR (strong sell) to 2 STARS (sell)

Analyst: Stuart Plesser

Countrywide's shares have fallen over 10% year-to-date, in our view leaving only modest downside potential. We are concerned about Countrywide's exposure to the subprime market and the possibility of loans being put back to Countrywide due to higher default rates. We also believe that Countrywide's gain-on-sale margin will fall due to a widening of credit spreads in the securitization market. Finally, we remain cautious about Countrywide's option ARM loans, which comprise over 40% of loans held. We are lowering our target price by $2 to $36, 8.2 times our 2007 EPS estimate of $4.37, a discount to Countrywide's historical average.

http://www.businessweek.com/investor/content/feb2007/pi20070227_897788.htm?campaign_id=yhoo

Overall Market Direction...

When considering the best stocks to purchase you must also consider the risks to the overall market. What this means is that you need to consider where we are and where we might be going. The ideal reference points to start you analysis from are the previous peaks and troughs in any market you chose to invest in. The farther back you can observe the better.

I have decided to review the previous market cycle top that occurred from Jan. 1966 and ended around Jan. 1982 to demonstrate the power of the market cycles. The chart below from "The Wall Street Waltz" by Forbes Columnist Kenneth Fisher shows the Dow on an inflation-adjusted basis. This chart shows how, after inflation, the market moved sideways or down from Jan. 1966 to Jan. 1982.

As any cycle goes there is a point that there is an ultimate high or low. The best we can do as market observers and investors is to guesstimate where the bottom might be. Since the stock market has run on a 16-year cycle for the last 100 years it is safe to say that the stock market will hit it's ultimate bottom between 2008 to 2016.

This forecast doesn't seem very upbeat, I know. However, it is important to keep in mind that this will help you to choose your investments wisely in the coming years. Companies that have a consistent history of paying dividends are definitely going to make the difference in your investment performance.

Imagine if you bought stocks at the peak of the market in 1966 or 1972. If you had, the biggest stocks for that time would have broke even on your investment in a short period of time (3 to 5 years.) That is why I recommend that you read the article titled "The Nifty Fifty Revisited" by Jeremy Siegel. Siegel studied the top companies performance assuming that you bought at the market peak. It is no coincident that a majority of the companies studied by Siegel were dividend-paying stocks that can still be found in the current Mergent Dividend Achiever list.

If you chose to invest in stocks then knowing the market's history should serve you well. For those who bought the largest income paying stocks, from '66 to '72 and held on, they were richly rewarded.

Informative Financial Resources

Investment Myth Number 2...

Myth #2: Because a person is young, they have time on their hands and therefore, can afford to take outsized risks to achieve greater potential returns.

This thesis is based on the assumption that, if you’re wrong about your investment choices (lose all/majority of invested capital) then you’ll be able to make up money lost at a later time.

Yes, you’ll definitely have a chance to make up for the loss later on down the road. However, by the time you get to the point of “down the road” you’ll have lost the one thing that you could never get back and that is time.

During the time that you’ve erroronously invested your funds (you believe otherwise at the time) you’ve lost the opportunity to compound your investment with dividend paying stocks, CDs, bonds, real estate or any other income producing investment. You end up carrying all the risk with little to show in the way of reward as you finally and ultimately give in to the reality of your current investment choices.

Investment Reading List

The Nifty Fifty Revisited by Jeremy Siegel
Relative Dividend Yield- Anthony Spare
Dividend Connection- Geraldine Weiss
Single Best Investment- Lowell Miller
Dividends Don't Lie by Geraldine Weiss
100 Minds that Made the Market by Kenneth Fisher
A Treasury of Wall Street Wisdom- Harry Schultz
ABC of Stock Speculation- S.A. Nelson
Against the Gods- Peter Bernstein
Bear Markets- Harry Schultz
Beating the Dow by Michael O’Higgins
Dow 3000- Richard Shulman & Thomas Blamer
Dow Theory Today- Richard Russell
Dow Theory- Robert Rhea
General Semantics of Wall Street- John Magee
Investment Madness- John Nofsinger
The Great Crash- John Kenneth Galbraith
The Intelligent Investor- Benjamin Graham
The Stock Market Barometer- William Peter Hamilton
The Ultimate Dividend Playbook-Josh Peters

Labels

Dividend Links

Research: Helmerich and Payne at $23.03

Today’s dividend stock research is on Helmerich and Payne (symbol: HP). HP is among the oldest oil drillers that has had the ability to survive due to its prudent management.

HP is now selling 6.72% above it’s 52-week low. According to Standard & Poor’s stock report, HP sports a Price-to-Earnings ratio (P/E) of 10, which is well below its 10-year average of 17. This presents an opportunity to buy at or near the lowest price relative to historical earnings.

Imagine keeping a company profitable while at the same time rewarding investors for their patience. The executive team at HP has managed to increase its dividend every year for the last 28 years. This implies that the management team knows exactly how to run a company in a volatile industry.

If we were to look back 28 years ago, we would find that the Oil & Gas drilling sector experienced tremendous growth due to the OPEC oil cartel in the late 1970’s. The cartel forced major oil companies to seek oil supplies from non-traditional regions of the world. This meant significant growth in oil services drillers who built oil platforms and oil rigs that could be easily be built anywhere around the world.

However, as the oil cartel lost its grip on the price of oil, drilling companies had already over-committed themselves by borrowing excessively to meet anticipated demand that never materialize and flooded the market with too many rigs. The drilling industry went into a nose-dive which left only a few companies standing, HP being among them.

HP has fallen 42% from the 52-week high of $40.24, which implies that significant opportunity exists for upside potential. HP moved to the $40 range mainly due to the fact that the price of oil rose so much. Now that the price of oil has fallen from a high of $79 to the around $60 there exists the feeling that oil will continue to fall.

A decline in the price of oil is the most likely risk facing this stock. Many commodity analysts, such as the famed Jim Roger, believe that we are in the early stages of a commodity bull market. And while we might not be at the peak of this bull run there will be many brutal dips to the downside between now the next market top. Since oil often moves in unison with political and economic turmoil I expect that a decline of at least 33%-66% is waiting in the wings before rebounding to its ultimate top.

What happened to the dividends?

Q. In 1896 the Dow Jones Industrial Index Average (DJIA) was at 40. At the end of 1998, the DJIA was 9181. the DJIA is a price-weighted average. Dividends are omitted from the index. What would the DJIA average be at the end of 1998 if the dividends were reinvested each year?

The answer will follow the latest on Dividend Achievers at or near their 52-week lows.

Stocks within 5% of their 52 week low:

Atmos Energy (ATO)
Bandag Inc. (BDG)
Popular Inc. (BPOP)
Anhueser Busch (BUD)
Conagra (CAG)
Community Bank System (CBU)
Commerce Group (CGI)
Forest City Ent. (FCY)
FNB Corp. (FNB)
First Oak Brook (FOBB)
Frischs Restaurants (FRS)
General Electric (GE)
Hersey (HSY)
Johnson and Johnson (JNJ)
Sara Lee (SRE)
Sysco Corp. (SYY)
Tootsie Roll (TR)
Wrigley, WM (WWY)

If dividends were reinvested in the DJIA, the average would have been 652,230 at the end of 1998.

(source: Roger Clarke and Meir Statman. 2000. "The DJIA Crossed 652,230." Journal of Portfolio Management. Winter 89-93.)

The Power of Dividends

This is an excerpt from the great Dow Theorist Richard Russell. I hope you find this instructive on the power of dividends. Enjoy.

Steve Leuthhold and his group turn out some of the best research obtainable (612-332-1567). In his latest report, Steve notes that the annual compound growth of stocks, with dividends reinvested, is 10.8%. But excluding dividends, the long-term total return drops to 5.9%. Thus, 45% of the annual total return over the last 100 years has come from dividends and the reinvestment of those dividends.

Then Steve notes that the “difference between 5.9% compounded over 100 years and 10.8% compounded is GIGANTIC.” This sounds incredible, but here’s the difference: $1,000 invested at 5.9% in 1900 grew to $319,694. But $1,000 invested at 10.8% grew to $29,471,614.

Dividends don’t matter? Don’t tell that to someone who understands compounding. Market action plays a large part in how and when companies pay dividends. When stocks are going up and producing capital gains, it is said that companies don’t have to pay dividends because corporations, in their wisdom, can make better use of the money than simply paying it out in taxable dividends. But when times are hard and stocks are down, it is said that dividends are valuable because even if your stock is declining or going nowhere, the dividend is something tangible, the dividend is income, and in hard times income is extremely important and in many cases “a life saver.”

Leuthhold notes that in 1978 the S&P [500] was priced at less than 10 times earnings while providing a yield of better than 6%. Investors in 1978 were still traumatized by the 1973-74 bear market collapse, and they wanted value and the wanted a return on their investments. In 1978 66.5% of the stocks on the NYSE (New York Stock Exchange), the Amex and the Nasdaq paid dividends. In 1998, however, only 20.7% of stocks on those exchanges paid dividends.

Today the percentage has dropped below 20%, largely because the great majority of IPOs and new issues pay no dividends. And as Steve Leuthhold says, “How can they pay dividends? Then don’t have any earnings.”

Russell, Richard. Dow Theory Letters. "Dividends and Total Return." September 27, 2000. p.5. http://www.dowtheoryletters.com

Feb. 9th: HNI Corp. and Carlisle Co. Inc.

Biggest percentage decliner of the day: HNI Corp. (HNI)

HNI manufactures office furniture and hearth products. This company has increased its dividend every year for 16 years. There is little explanation for sell off in the stock other than “selling on the news.”

HNI has seen a 40.51% appreciation in the stock price in the last 52 weeks. It is possible that this stock is at a point of exhaustion.

Biggest percentage gainer of the day: Carlisle Co. Inc.

Carlisle Co. was up 8.89% today. This tops off a 27% increase in the last year. Carlisle Co. manufactures rubber products for roofing, construction, trucking and aircraft industries. Carlisle has increased its dividend every year for 28 years.

Feb. 8th: Pier One and Protective Life

Biggest percentage decliner of the day: Pier One (PIR)

Pier One looks like it is up against the ropes. Today it fell 6.95% and was the largest decliner among the Dividend Achievers. Due to decreased cashflow, earnings and the issuance of new debt the rating agency Standard and Poor’s lowered PIR credit rating.

PIR has a technical support level of $8.50; if the stock falls below this level we could expect PIR to go to $5.25. $5.25 is a major support/resistance level which would hold major significance. PIR has increased its dividend every year for 13 years and has a tangible book value of $7 per share.

Biggest percentage gainer of the day: Protective Life (PL)

Protective Life was up 7.60% on an increase of net income. PL has also announced that it will purchase the stock of five insurance companies from JP Morgan Chase. PL has reached a new multi-year high with the most recent increase. In 1990, PL was at $2.40, today it trades at $49.01 an increase of 2000%.

PL has increased its dividend every year for 15 years. Any Dividend Achiever that sells insurance should be considered for every portfolio. $35 billion investor Warren Buffett made his start by investing in insurance companies.

Feb. 7th: Hillenbrand and Nucor

Biggest percentage decliner of the day: Nucor (NUE)

Today Nucor fell 6.5% due to the recent speculation of consolidation of the steel industry. Keep in mind that today's decline is against the previous day's outsized gains. The recent speculation is primarily due to Mittal Steel's (MT) recent bid to acquire Arcelor. Mittal is the world's largest steel producer and getting larger by the minute. Naturally, when the world's largest steel producer attempts to acquire the world's second largest steel producer the impression is that there is room for more consolidation.

In the U.S., monolithic steel producers have fallen to the wayside as smaller, better managed "boutique" producers have moved forward. My feeling is that US regulators will step in to block any acquisition from a "foreign" company. If this is the case, I feel that domestic producers will possibly jump the gun and initiate a wave of domestic acquisition that could lead to larger and potentially poorly managed companies. LTV and Bethlehem Steel are steel companies that had faced bankruptcy due to inefficient operations.

I don't think that immediately after Mittal's most recent target (provided that it is successful) will mean more acquisitions in the near term. This will put the speculator, hopeful of another big move upward, at the bad end of the deal...in the short term. Nucor is one of those better managed steel companies. NUE has increased its dividend for 32 consecutive years in a row. NUE has a tangible book value of $21.67 per share.

Biggest percentage gainer of the day: Hillenbrand Industries (HB)

Hillenbrand’s price increased 6.65% due to higher earnings. This company’s stock price has fallen from it’s high of $70 in 2004. Hillenbrand has increased its dividend every year for 34 consecutive years.

Myth Bustin' #1

Myth #1: Companies that pay a dividend misallocate funds that could be used to generate new revenue. The lack of new revenue will keep the stocks price low over the short and long term.

This is the most fascinating myth that exists about dividend paying companies. The theory seemingly makes sense yet after cursory examination, the truth will out. Look at the 1-year performance of these select Mergent Dividend Achievers:

Badger Meter (BMI) 96%
Caterpillar (CAT) 66%
Berkley (BER) 53%
Aqua America (WTR) 59%
Archer-Daniel-Midlands (ADM) 70%
Franklin Resources (BEN) 52%
Fuller (FUL) 55%
Granite Construction (GVA) 92%
Harleysville Group (HGIC) 50%
Helemerich & Payne (HP) 114%
La-Z-Boy (LZB) 67%
Legg Mason (LG) 90%
Martin Marietta (MLM) 70%
McGrath (MGRC) 54%
Meridian Biosciences (VIVO) 172%
Nordson (NDSN) 52%
Nucor (NUE) 92%
Raven Industries (RAVN) 93%
Questar (STR) 63%
AO Smith (AOS) 80%
State Auto Financial (STFC) 56%
Schulman (SHLM) 60%
SWS Group (SWS) 65%
Tennant Co. (TNC) 58%
Vulcan Materials (VLM) 53%
West Pharma Services (WST) 60%

This list is for 1-year performance from Feb. 7, 2005 to Feb. 6, 2006. This does not include the dividend that was paid by these companies over this 1 year period.

As you’ll notice companies with 10%, 20%, 30% and 40% returns were not included. However, if they were included during this time frame I would have had to add 219 companies to this list. If anyone were to complain about receiving only 10% percent in one year with significantly reduced risk then investing in stocks may not be the place to be.

Feb. 6th: Talbots and Vulcan Materials

Biggest percentage decliner of the day: Talbots (TLB)

Talbots fell 3.41% on the confirmation that they would acquire apparel retailer J. Jill Group. TLB will pay over $24 per share for J. Jill Group. Sometimes the best way to gauge the quality of a buyout offer is how the purchase is conducted. In this case the purchase of J. Jill was an all cash offer. Cash offers are far superior to stock & cash and debt offers. All cash offers represents the acquiring company's confidence after having done the necessary due diligence.

TLB has increased it's dividend 10 consecutive years in a row at an annualized compounded rate of 16.83%. TLB also has a tangible book value of $8.82 per share. Although TLB is within striking distance of it's 52 week low there is the likelihood that the stock could fall to the support level of $20 per share as the integration of J. Jill takes place.

Biggest percentage gainer of the day: Vulcan Materials (VMC)

Vulcan traded up 7.95% on a stronger earnings report Feb 1st and a proposed takeover today of Lafarge North America Inc. by France's Lafarge Group. All companies are in the concrete business.
VMC has increased it’s dividend every year for 12 consecutive years in a row. VMC also has a tangible book value of $13.65 per share. Morningstar indicates that this company is fairly priced at $72 per share; well below the current trading price of $80.42.

Feb. 3rd: Rohm & Haas and Commerce Group

Biggest percentage decliner of the day: Rohm & Haas

Speciality materials producer Rohm & Haas (ROH) fell 5.4% on Friday. Much of the decline was due to downgrades in the stock by JPMorgan and UBS. This was an instance of “buy the rumor and sell the fact.” Even though this company had an increase in earnings, sales and revenue it was not enough to satiate the appetite of investors and brokers. Concerns related to higher commodity prices are affecting the outlook for future profitability.

ROH has had a 27-year track record for consecutive dividend increases at 7.29% compounded annual rate. Morningstar estimates fair value for ROH at $44.00 per share with a buy price of $33 per share. Valueline indicates that ROH is undervalued when the price is 11x cashflow or below. Full year 2004 cashflow was $4.30 and estimated 2005 cashflow was $5.05. This implies a $47.30-$55.55 range for undervaluation. Unfortunately, ROH hasn't traded above 11x cashflow since 2002 and has typically fallen in price once achieving the 11x cashflow mark. 1999 and 1993 were the other times that ROH has hit 11x cashflow. This might be used to as an indication of when to sell.

Biggest percentage gainer of the day: Commerce Group

Insurer Commerce Group (CGI) was up 11% on better than expected earnings. The company beat expectations by $0.32 per share. Prior to this most recent rise the stock was registering new 52-week lows on a daily basis. According to Morningstar, the company's price-to-book value range in the last 10 years has been as high as 1.8x and as low as 1.2x. If this company has reversed it's fortunes then the potential upside could take the stock price up to $67.38 based on book value of $37.43.

Commerce Group has increased its dividend every year for the last ten years in a row. What is exceptional about the dividend increase, but not expected to last, is the compounded rate of increase. CGI has had a 24.20% compounded growth rate of their dividend. Amazing!

At a Glance

Today's big movers have interesting stories to tell. Harleysville National (HNBC) and National Penn (NPBC) both had large declines after their Jan. 31st breakouts. There has been no news posted about these companies and the speculation is that a merger or buyout is in the works.

Helmerich and Payne (HP) is being whip-sawed by the gyrations of the oil and gas sector. HP has been a favorite of mine simply because of it's ability to increase it's dividend for the last 28 years. This is no small feat for an oil services driller that survived the collapse in the sector in the 1980's. Check out HP's spin-off unit Cimarex (XEC) for more quality management in the oil sector.

Legg Mason increased it's earnings over 500% in the last quarter however, much of the gain was from the sale of a unit to Citigroup. Operating earnings were only $0.10 above last year's quarterly earnings...nothing to sneeze at but definitely a stark contrast to the newspaper headlines of HUGE EARNINGS POSTED.

Big Movers of the day:

Harleysville National fell 12% after rising 24% on Jan. 31st.
National Penn Bancshares down 4% after rising 12% on Jan. 31st.
Helmerich and Payne fell 4% due to a drop in natural gas and oil prices.
Legg Mason up 4.55% on earnings increased 5x.
Martin Marietta Materials rose 7.4% in sympathy with Vulcan Materials.
Vulcan Materials up 7.48% on increased earnings.
Sonoco Products up 7.75% rise in 4 quarter earnings.

As the old adage goes "buy low and sell high," but how many of us actually do it? Somebody has to do it so why can't it be you. The following list shows companies that have fallen within 5% of their respective 52 week low. 52 week lows aren't necessarily the times to buy however, it is a great time to start doing your research on these companies. One of these must be at or below fair market valuation.

Stocks within 5% of their 52 week low:

Telephone Data
Tootsie Roll
3M
Allstate Insurance
Anhueser-Busch
Atmos Energy
Bard Inc.
Comerica Inc.
Commerce Group
Conagra
FNB Corp
Frisch Restaurants
General Electric
Heinz Co.
Hershey
Johnson & Johnson
Kimberly Clark
Popular Inc.
Sky Financial Group
Unitil Corp
W.M. Wrigley