Thursday, March 10, 2011

CenturyLink a Dividend Aristocrat Analysis

CenturyLink (CTL) is another one of the Dividend Aristocrats that we have in our business world.  They have consistently paid dividends for over 35 years straight and they are in the Telecommunications industry.  I am a huge follower of dividend aristocrats and I am excited to see some financials this company has to offer.

Price to Earnings Ratio or P/E: CTL closed today at $40.35.  They have earnings per share in the amount of $3.13.  Therefore, 40.35/3.13 = 12.89 P/E Ratio.  Relatively lower than the overall S&P 500, showing a possible undervaluation.  I then went to my usual Morning Star source to see how they compare with their industry as a whole, as they go up against other phone and internet providers such as AT&T.  It turns out the industry average is roughly 15.9; thus Century Link is undervalued compared to it's competitors.  Let check out some appreciation.

CenturyLink's 52 week high, as of today, is $46.87.  From solely this figure, they could have $6.52 of room to grow or a little over 16%.  Therefore, there is some room to grow, but that isn't what we are really here for.  I mean of course we want a company that has growth, but we need some cash flow.  Lets go see their yield.

Dividend Yield & Payout: They pay a quarterly dividend of $0.725 per common share.  Over four quarters this amounts to $2.90 annually per common share of stock.  Therefore, CenturyLink's dividend yield is an enormous ($2.90/$40.35) 7.18%.  Wow!  An over 7 percent dividend yield to their investors, this is double the amount of 10 year treasury interest yields and of course much higher than the stock market as an average.  Well, I have done some history on them, and a few years ago (2007) that $2.90 used to only be $0.26.  That's right, only 26 cents per share PER YEAR.  They would only raise it a smidge every year.  However, after 2007 they skyrocketed their dividend.
Century Link's payout ratio is 2.90/3.13 = 92.6%.  This is pretty high.  It isn't uncommon to have a high payout ratio for telecommunication companies, but I don't really enjoy the looks of an over 90% payout ratio.

Conclusion:  Though CenturyLink is an aristocrat, there are a few flags that stand out.  That dividend payout is extremely high.  How long can they sustain such a high rate?  Do they have the earnings to grow the company further?  With only a 12B market cap and with competitors that are humungous, where do they go?  Their dividend yield is extremely attractive and you do also have to give a nod to the fact they have raised dividends for over 35 years straight, and not many can fall into this category.   Also to note - their current ratio (current assets dividend by current liabilities) is barely 1.  I like to see at least 2, to show their solvency.  One would have to consult, without a doubt, a further analysis on CenturyLink before deciding to take any action.

-Lanny B.

Disclosure: I do not recommend anything, please consult your own research. This is actual data, analysis, however I base no investor recommendation.  Thank you for your understanding.

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Sunday, March 6, 2011

McDonald's Corporation Stock Analysis (Member of Dividend Aristocrat List)


McDonald's Corporation (MCD) is a proud and long-term member of the Dividend Aristocrat list.  As we all know, they are a giant in the food industry and do an extremely large amount of business inside and outside our United borders.  During economic turmoil, people that want a cheap/quick meal head to the good old golden arches and munch on Dollar Menu items.  Their growth is still there as they explore further emerging market strategies.  Let's get to the analysis..

P/E Ratio: McDonald's current share price is $76.03 with an earnings per share of $4.58.  P/E breaks down to (76.03/4.58) 16.6.  Not incredible higher than the "15" that I like, it does fit in my range.  MorningStar places it against other in their industry with an average of 22.1.  Extremely undervalued when you compare it to it's top competitors.  Very attractive to an investor.

Potential Appreciation: McD's 52 week high stands at $80.94.  This currently gives it a ((80.94-76.03)/76.03) 6.5% appreciation upside based on the past history.  However, I wouldn't add MCD for appreciation to my portfolio.  I would add it based on the brand-sake and their beautiful dividend yield and consistency in that growth, to which I break into next..

Dividend Yield & Payout: Now McDonalds has consecutively paid and increased Dividends for over 34 years now and continues to do so at a nice increasing rate.  Their current yield of ($0.61*4) 3.21% is extremely attractive as it is over the 3% mark that I enjoy.  The payout ratio of $2.44/$4.58 = 53.27%; almost smack down in the middle of my 40-60% range = another thumb's up in my book.  Last increase  from 55 cent to 61 cents per share provided an 11% increase alone.  They paid a 33% increase back at the end of 2008 aka during one of the worst financial time periods we have endured.  Wow.  Really solid if I may say.

Conclusion: McDonald's is a great choice/pick to add to your portfolio.  With a market capitalization of close to $80Billion, no one comes close to them.  They currently are expanding their international business and are consistently increasing that beautiful dividend that us, as investors, love to see.  McDonald's, at any time, is a great way to start your dividend portfolio.  With their above 3% yield and consistent increases of over 10% to their payout, while maintaining a medium pay-out ratio, is extremely attractive.  Our waistlines may not enjoy the "Golden Arches" but our portfolio's sure do : )  Enjoy!

-Lanny B.

Disclosure: I do not recommend anything, please consult your own research. This is actual data, analysis, however I base no investor recommendation.  I am LONG MCD.  Thank you for your understanding.

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Saturday, March 5, 2011

Southern Copper Corporation Stock Analysis

Southern Copper Corporation (SCCO) is a large mining/producer of precious metals such as silver, gold, copper, etc.. and do a lot of business in Peru and Mexico (where large reserves are).  I wanted to keep this in line with the silver/oil/food discussion I spoke about earlier.  Analysis is as follows:

P/E Ratio: SCCO's Price currently is at $42.05 with earnings per share (EPS) at $1.83.  Therefore, the P/E stands at 22.98; higher than the S&P 500 average.  When comparing this to their industry of involvement (Basic Materials) on MorningStar, they are above the average of 17.  Therefore, it isn't as attractive in these terms.  However, there has been a declination in overall ounces of silver and the price of the metal has sky rocketed.  I am mixed on these stats.  Also to note - Morningstar shows the forward P/E is 12...

Potential Appreciation: SCCO's 52week high stands at $50.35, giving it a potential of ((50.35-42.05)/42.05) = 19.7% appreciation.  This has a lot of upside given its recent history.   Pair that with the increase of value of an ounce of silver, I can see this going above those marks.  **Note: past performance is not an indication of future performance

Dividend Yield & Payout: They pay 4 dividend payments per year.  Based on the last four, totaling 1.83, their yield is 4.35%.  This is much higher than the average of the market and provides a good incentive/attractiveness to potential and current investors.  Their current payout ratio: $1.83/1.83 = 100%.  This is how much they pay in dividends over how much they earn per share.  This is obviously extremely high and causes caution to investors.  Their last increase from 43 cents to 58 cents marks a 34% dividend increase.

Conclusion: I do like silver.  I have done a lot of research on the metal and it shows the declination of amount of silver that we have in stock today.  Silver value is increasing at an tremendous rate and I like to see what companies are in the trenches to mine this stuff out.  I like their yield and dividend payments, along with the industry they are in, but I will have to see what their next earnings release shows for the EPS; morningstar shows a forward P/E of 12.  Any thoughts on Silver/Oil/Food?  What companies do you like as we battle through this volatile market?  Please comment or message!

-Lanny B.

Disclosure: I do not recommend anything, please consult your own research. This is actual data, analysis, however I base no investor recommendation. Thank you for your understanding.

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