Microsoft Is Showing Dividend Investors The Money – MSFT

Today’s dividend stock is a household name that everyone has heard of. The company that I would like to look at is Microsoft Corporation (MSFT). The brainchild of Bill Gates is the king of the software market. Microsoft’s Windows operating system has over 90% of the market for client operating systems. The company has been around since 1975 and is valued at just under $215 billion dollars.

Microsoft makes money on everything related to technology. If you want to use technology for educational purposes, then Microsoft offers Microsoft Word, Excel, Powerpoint, and Tools. If you prefer to use technology for fun and gaming then Microsoft has the Xbox 360 and the Zune. Microsoft has successfully entered into the search market with its Bing search engine and the company is planning to enter the smartphone market with its Windows Live.

Microsoft’s chief competitors are Apple and Google. Apple has developed its own operating system and is trying to steal market share from Microsoft. Apple owns the MP3 market with its wildly popular iPod. Google is the king of search and has lost market share to Microsoft’s Bing. Google’s Android smartphone operating system is one of Windows Live chief competitors.

The tech firm is on pace to earn over $60 billion dollars for the year. The company expects to earn $24 billion dollars in operating profit and $18 billion dollars in net income. Revenue grew 22% over the past quarter. Microsoft has turned many of its early shareholders ad employees into multimillionaires.

Like other technology companies, Microsoft has an incredible balance sheet. The company is flush with cash wit $36.5 billion dollars on the balance sheet and $24 billion dollars in cash. Microsoft has just $6 billion dollars in debt. The company has impressive margins. Microsoft has a 40% operating margin and 30% profit margin. Return on equity is 43.75% and return on assets is 18.8%.

Mr. Softy is finally raising its dividend. Microsoft announced that the company will be increasing its dividend 23% to 64 cents per share. The software giant has finally found something to do with its nearly $37 billion dollar cash hoard. Microsoft is currently yielding 2.60%. This is substantially above the average 5 year historical yield of 1.80%.

The stock looks like a reasonable value. Shares currently trade for 9 times earnings and the company has been able to grow earnings at an 11% clip over the past five years. This is below the industry average P/E ratio of 14. The stock trades at just 1 times price to earnings growth. Microsoft is making the transformation from a company that belongs in the portfolio of a growth investor to an income investor’s core holding

An Energy Stock With A Juicy Dividend

There was a time that the financial industry offered some of the best dividends around. Sine the banking crisis of the past three years, dividend yields have gone kaput in the finance industry. You can still however find some solid dividends in one industry. How would you like to invest in a company that operates in a stable industry and pays great dividend? Utility companies are known for their consistent revenue streams and growing dividends. Let’s take a look at one company in this sector.

Entergy Corp (ETR) is a Fortune 500 company that operates in the electric power production industry. Entergy is a diversified energy company that primarily operates in the Midwest with locations in Arkansas, Louisiana, Mississippi, and Texas. The company has nearly 3 million customers that rely on its 30,000 megawatts of electricity. Entergy is the second largest nuclear power generator in the United States.

Entergy is making a lot of smart moves. The company owns a number of attractive assets including its nuclear power plants. Entergy is considering spinning these assets off into another company. The company is investing $5 billion dollars in share repurchases and dividends over the next few years. All of these moves should provide value for shareholders.

One of the primary advantages that energy companies have is their pricing power. They have the ability to raise rates on customers due to few competitors in most markets. The energy industry is extremely capital intensive and takes years to become a viable presence in a new market. It is also a heavily regulated industry by states and the federal government.

So, what kind of shape is Entergy in? The company has earned $3.3 billion in free cash flow and has $1.3 billion in cash on the balance sheet. The company has a huge debt burden of $11.85 billion. This is not uncommon since most energy companies have large amounts of debt on their balance sheets. Entergy has seen its earnings grow 9.7% over the past five years. The company had over $1.3 billion dollars in net income last year and has brought in over $1 billion dollars in net income over the past three years.

Shares of Entergy currently trade at 11.6 times the current year’s earnings. Utility companies are known for their low P/E ratios. Entergy’s P/E ratio is slightly lower than the sector’s average. Shares trade at 2.2 times projected earnings growth which may be high but is still below the industry average of 2.7. The stock is trading at 1.6 times book value.

The company recently boosted its dividend 11% to $3.32 per share. The current dividend payout is 4.2% which is higher than the 5 year average yield of 3.1%. Entergy currently pays out 46% of earnings via dividends.

I think that Entergy is an attractive buy right now. The stock is not expensive and dividend investors are getting a juicy dividend yield. The company should conservatively be able to generate 5% earnings growth over the next few years. It’s a nice defensive play that will help you ride out a turbulent market.

A Small Cap Stock That Pays Big Dividends

Who knew that there was money in trash? Chances are good that you have never heard of US Ecology (ECOL). US Ecology is a small cap waste management company that disposes of radioactive and hazardous waste materials.  The company has been around providing its waste treatment services since 1952. US Ecology has a market cap of $240 million dollars and an enterprise value of $207 million dollars.

US Ecology has a solid balance sheet for a small cap stock. The company has $32 million dollars in cash and has just $15,000 in long term debt. US Ecology generates nearly $30 million dollars in free cash flow. The company has a profit margin of 10.8% and an operating margin of 17.4%. The company has a return on equity of 11.8% and an 8.6% return on assets.

The company was affected by the economic recession and the expiration of a large Honeywell contract. The Honeywell project contributed nearly 10 cents to the company’s bottom line. The company saw revenues drop from $175 million dollars to $132million dollars from 2008 to 2009. Sales have declined 6.6% over the past years.  Earnings declined 34% over the last quarter. There is however good news for the company. Sales are projected to grow for the first time in awhile. Sales growth is estimated at 33% for the current quarter. The company has seen 7% sequential growth in its base business.

Shares are valued pretty reasonably. The stock currently trades at 22 times the current year’s earnings. This is higher than industry competitors whose stocks trade at a P/E ratio in the mid teens. That’s not a high P/E ratio for a stock with an expected growth rate of 20% over the next five years. AT $13.20 per share, the company trades at a price to earnings growth of 1. The stock trades at 2.3 times sales and 2.6 times book value.

US Ecology has fallen into the range of a high yielder. The stock is barely above its 52 week low of $12.98. The company pays a 72 cent dividend which is a 5.5% dividend yield. The current yield is substantially higher than its 5 year average dividend yield of 3.6%. The only concern would be the dividend payout rate. The current dividend payout rate is 118% of this year’s projected earnings and 100% of next year’s earnings. This is obviously unsustainable. Either the company will have to meet its 20% growth rate forecast or will have to cut its dividend.

While I like the long term growth prospects of US Ecology, a dividend cut does appear more and more likely.

Dividend List Update – Sept 8th

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Is Now The Time to Buy Time Warner? Dividend Stock – TWX

Time Warner Inc.(TWX) is the world’s largest media company. The media conglomerate owns several profitable media properties including HBO, Time Inc, Turner Broadcasting System, The CW, Warner Bros, CNN, Cartoon Network, Castle Rock Entertainment, DC Comics, Warner Bros. Games, New Line Television, New Line Cinema, and Boomerang. Time Warner owns several large commercial properties as well. The company has been around since 1972 when it was known as Warner Communication

The company’s chief competition comes from other media networks. Disney, Viacom, CBS, NBC, and General Electric are all competitors. Media companies have very little price control since the competition for ad dollars is so intense. The Internet, smart phones, and personal computers are all competing for the same ad revenue.

Shares of Time Warner have been held down for years by the company’s failed merger with AOL Inc in 2001. The conglomerate’s revenues, operating margins, and income have all suffered over the past decade. Revenues have declined 4% per annum over the past five years. The Time Warner-AOL merger is widely considered the worst merger in corporate history. Now that the company has finally shed itself of the AOL albatross, things are looking up for Time Warner.

Earnings are up 27% for the current year and revenue is on pace for 3% growth. Operating margins are high at 21% which is nearly two times the industry average. Gross margins are higher than competitors at 45%. The primary negative is that Time Warner has a heavy debt load from its acquisitions. Time Warner assumed all of the debt from AOL when the company spun off the former search giant last year. The company has $4.2 billion dollars in cash and $16.5 billion dollars in debt. Time Warner has generated over $3 billion dollars in free cash flow.

Shares currently trade at 14 times earnings which is lower than both CBS and Disney.

Investors are also getting a decent dividend of $85 cents per share. This is a 2.9% dividend yield. This is slightly higher than the average dividend yield of 2.3%. The current payout is just 39% of earnings which is easily maintainable for Time Warner. The company recently increased its dividend 13% and has instituted a stock repurchase program. This is always a good thing for investors.

Shares look like a decent buy at their current price of $31.72. This is just barely over 1 times book value and 1 times price to earnings growth. Time is worth one tenth of the value of the $350 billion dollar behemoth that it once was. This is a good thing. Now that the company is no longer burdened down by AOL, the company could easily achieve double digit earnings growth over the next few years. Time has a number of valuable media properties that can provide consistent income for years to come.

August 2010 Stock and Dividend Report

The Big Three Are Down

While the August stock market experienced a number of ups and downs, the indexes closed slightly lower than the improved July numbers. The Dow Jones Industrials finished at 10,015 for a 4.3% drop over the July figure of 10,466 for the worst August performance since 2001. The Standard and Poor’s 500 Index finished at 1,049 down 4.7% for August when compared to the 1,102 point July number. The Nasdaq Composite Index was the worst performer. It was down 6.2% with a 2,114 closing number down from July’s 2,255 number. For the year, the Dow is down by 4%, the S&P 500 is down by 5.9%, and the Nasdaq is down by 6.8%.

The Bad News

Many investors continue to skeptical about the economic recovery. With the end in sight for many stimulus packages and the threat of increased taxes, many investors and consumers are being very conservative with their spending. Gold prices tend to go up as people look for a more dependable investment choice. Prices jumped 5.8% in August and 14.1% for the year. Forecasts predicted that the US job market would add 13,000 jobs during the month, but 10,000 positions were lost instead.

The Good News

There was some good news in August that provides hope for a turnaround. The Consumer Confidence Index showed a 2.5% increase, and many retailers showed sales numbers that were higher than expected. Costco reported 6% same store sales increases when analysts were only forecasting a 4.2% increase. Family Dollar is also reporting increases of 6.1%. Home prices are finally showing an upward trend partially due to tax credits. While jobs were cut again in August, the rate continues to slow. The August numbers are 55% lower than the ones for the same time last year. Consumer bankruptcies were down by 8%.

The September Outlook

While September is a historically slow period for the stock market with the Dow showing drops for 21 of the last 32 years, there is always hope that this September will be different. Investors will be watching for the manufacturing and auto maker results to be released. These key industries are often used as leading indicators to gauge the overall strength of the economy. Apple is also releasing new IPod and Apple TV options which are virtually guaranteed to push their stock prices higher. With the surge in prices seen on September 1, the recovery may see the boost investors have been waiting for.

Dividend Paying Stocks

The dividend paying stocks continue to perform well in the face of economic challenges. The total returns of the S&P 500 Dividend Aristocrats showed an improvement of 7% for the month, while the price returns were slightly over 6%. The current top performers are:

• Archer-Daniels-Midland from the Consumer Staples sector trading at $31.35
• AFLAC Inc. from the Financials sector trading at $49.57
• Family Dollar Stores Inc from the Consumer Discretionary sector trading at 43.28
• Coca-Cola Co. from the Consumer Staples sector trading at $57.31
• Consolidated Edison Inc from the Utility sector trading at $48.24
• Integrys Energy Group Inc from the Utility sector trading at $49.97
• McDonald’s Corp from the Consumer Discretionary sector trading at $74.54
• Chubb Corp from the Financial sector trading at $55.85
• CenturyLink Inc from the Telecommunication Services sector trading at $36.73
• Air Products & Chemical Inc from the Materials sector trading at $74.75

Most Sectors Are Down For August

While many individual dividend stocks performed well, all but two of the major industry sectors were down for the month of August. This is a huge change in direction from the better performance shown in July. Telecommunications Services and Utilities were up for the month as reflected in the S&P 500 Index that showed an overall 4.75% decline in August. The Industrials, Financials, and Information Technology sectors were virtually tied for last place in the performance statistics for the month. If the investor reviews the 1-year numbers which indicate trends over longer periods, the numbers look a little better. The following list details August, 2010 price return increases compared to July, 2010 by industry along with the 1-year figures:
• Energy sector, down by 4.71% for August, down 1.83% for the past 12 months
• Materials sector, down by 2.85% for August, up by 5.37% for the past 12 months
• Industrial sector, down by 7.33% for August, up by 11.92% for the past 12 months
• Consumer Discretionary Spending sector down by 4.06% for August, up by 15.33% for the past 12 months
• Consumer Staples sector, down by 1.59% for August, up by 7.32% for the past 12 months
• Health Care sector, down by 1.79% for August, down by 1.72% for the past 12 months
• Financials sector, down by 7.91% for August, down by 7.65% for the past 12 months
• Information Technology sector, down by 7.20% for August, up by 2.12% for the past 12 months
• Telecommunication sector, up by 2.25% for August, up by 6.92% for the past 12 months
• Utilities sector, up by 0.89% for August, up by 5.40% for the past 12 months