E.I. DuPont: An American Industrial Institution

You may have seen the DuPont name at your local Lowe’s or Home Depot. The company manufacturers numerous types of products that are quite popular with home improvement customers. One of DuPont’s most famous products is its line of paints. DuPont is a major player in the plastics and rubber chemical industry.

E.I. du Pont de Nemours and Company has been a staple in the American industrial cog since 1802. The company was originally founded as a gunpowder manufacturer and quickly grew to become the largest gunpowder supplier in the country. Today DuPont has a diverse product lineup including Teflon, Nylon, Mylar, Kevlar, Freon, and Lycra. DuPont is now the second largest chemical company in the world.

The DuPont company is on pace to generate over $30 billion dollars in revenue for the current year. DuPont has been able to grow earnings at a 9.6% clip over the past five years and is expected to maintain its growth rate over the next five years. Earnings grew a remarkable 177% during the most recent quarter. Revenue increased 21.8% over the past quarter. The company has an operating margin of 13% and a profit margin of 10%. DuPont has an impressive return on equity of 38.5%.

DuPont has a solid balance sheet with nearly $4 billion dollars in cash. The company produces $4.2 billion in free cash flow each year. DuPont does have a heavy debt load of $10.2 billion dollars but this is not uncommon in the chemical manufacturing industry. The business is very capital intensive and requires significant investments.

The company’s biggest competitors are Dow Chemical, BASF SE, and Air Products & Chemical. BASF SE is the market leader with a $68 billion dollar market cap and over 100,000 employees. BASF generates 2.5 times the revenue of DuPont. DuPont’s margins are well above the industry average and are better than all of its competitors. This shows that the company does have pricing power and does a great job of managing production costs.

Shares of DuPont are priced at $46. Shares trade at 15.5 times this year’s earnings. That is actually lower than the industry average of 18. The stock trades at a premium to its earnings growth but this should not be a concern. Dividend Investors should expect to pay a premium when purchasing a premium franchise like DuPont/

The stock has a solid dividend yield of 3.5%. The company has a long and consistent history of paying dividends back to shareholders. The current dividend yield shows that the stock is cheap. The stock is trading well below its 5 year average yield of 4.3%. The dividend is safe with the current payout representing just 48% of earnings.

Altria Treats Its Dividend Investors Right – MO

The Altria Group (MO) is one of the largest tobacco companies in the world. The company has been around for 25 years and operated under its former name Phillip Morris USA. The company was founded by Phillip Morris, Kraft, and Nabisco back in 1985. Altria currently owns John Middleton Company, UST Inc, and a 28% interest in SABMiller PLC. The company has recently branched out into the smokeless tobacco market and wine industry.

Altria manufactures and markets several different brands of cigarettes. The company spends marketing and lobbying to create a favorable environment for its products. Altria has long been a favorite of CNBC Mad Money host Jim Cramer. He considers the stock best of breed and has owned the stock for its impressive dividend.

The tobacco industry is an extremely competitive marketplace. The biggest competitors to Altria are Lorillard and Reynolds American. Altria is the industry king as the company is much lower than its two biggest competitors combined. Tobacco companies are always the subject of civil lawsuits and in the crosshairs of federal regulators. Tobacco companies also face rising taxes from city and state governments to meet revenue shortfalls. These tax increases do affect sales volume.

The last few years have been rough for the Altria Group. The company has seen its revenue decline 26% over the past five years. Sales are on pace to grow 8% this year and 6% the next. Altria’s revenue will be just over $17 billion dollars for this year. Altria has a terrible balance sheet with under $1 billion dollars in cash and over $12 billion dollars in debt. Fortunately, the company has $3.6 billion dollars in cash flow to service its debts and return cash to shareholders.

Shares of Altria are not cheap on a fundamental basis. The company’s stock trades at 13 times earnings which is right in line with the industry average. The company’s 6.7% growth rate is nearly half the industry average of 11%. This means that Altria’s shares trade at nearly 2 times the company’s earning growth. Shares trade at 11 times book value. That’s a high valuation even for a company of Altria’s size.

The primary reason to invest in Altria is its big fat dividend. Altria’s stock is currently yielding over 6%. This is actually lower than the 5 year dividend yield of 12%. My concern would be Altria’s dividend rate. The dividend payout rate is alarmingly high at 83% of earnings. The company’s management team is committed to maintaining the dividend despite its high payout. Altria has increased its dividend 43 consecutive times.

Dividend investors looking for a stock with a great dividend yield can do much worse than Altria.

Dividend List Update – Oct 11

The dividend lists have been updated for October. All stock data is current as of October 11th. The premium content is available to members only.

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Clorox Dividend Investors Are Cleaning Up – CLX

Everyone has heard of Clorox (CLX) products. You can find the company’s products at Walmart, Target, or your local grocery store. The company has been manufacturing chemical and cleaning products since 1913. Clorox is famous for its best selling bleach that can whiten everything from clothes to floors.

Clorox also makes cleaning wipes, spray cleaners, stain removers, mopping pads, and cleaning tools. Clorox owns numerous brands including Brita’s, Burt’s Bees, Glad, Formula 409, Hidden Valley Ranch, Kingsford, and Liquid Plumr. The company recently divested itself of it STP and Armor All brands.

All of these brands help to add value to the common stock. The company is on pace to earn nearly $5.7 billion dollars which gives the company four straight years of revenue increases. The top line growth numbers are very impressive especially considering the difficult macro environment of the past few years. Net income has increased each year as well. Clorox now has a market cap of $9.5 billion dollars.

Clorox competes in the competitive consumer goods sector against Proctor & Gamble, Colgate Palmolive, and Kimberly Clark. Proctor & Gamble is the industry giant with a $175 billion dollar market cap and nearly $80 billion dollars in revenue. Proctor & Gamble has the best revenue growth, profit margin, and operating margin. Clorox has been able to compete in the sector because the company has successfully carved out a nice niche for itself due to name recognition.

Clorox’s common stock has a market price of $68.15. The stock trades at 14.6 times this year’s earnings and 13.5 times next year’s earnings. Earnings have grown at an 8% clip which is excellent for a company of Clorox’s size. Margins are respectable and revenue increased 1.1% last quarter. Shares are selling for 1.5 times projected earnings growth and 1.7 times sales. Book value is not a useful metric for measuring Clorox’s value since the firm’s book value is 60 cents per share.

Clorox has a high debt load on its balance sheet at $2.8 billion dollars. The company only has $87 million dollars in cash on hand. Clorox earns $819 million in free cash flow which helps service the massive debt load. The STP and Armor All sales should help the company raise needed cash. The deal will net Clorox $780 million dollars in cash.

Clorox currently sports a 3.2% yield. The current yield is slightly higher than the historical yield of 2.7%. Clorox has a long history of paying dividends to investors. The company has increased its dividend for 35 consecutive years. The current dividend payout is just 47% of earnings which means that the company will be able to keep dividend increases coming for years to come. Clorox should be able to continually grow earnings since the company’s products are necessities for everyday life.

The stock is selling at a bit of a premium currently. Investors should feel comfortable buying shares at $62.

WD-40 Bumps Up It’s Dividend Yield

Everyone is probably familiar with WD-40. The product comes in a variety of forms including Smart Straw, Big Blast Can, Trigger Pro, No Mess Pen, Handy Can, and Gallon size. WD-40 is very helpful for loosening rusted parts. The product is useful for everything from cleaning tools to silencing squeaky hinges. WD-40 has over 2,000 different uses.

The company behind WD-40 started out as Rocket Chemical Corporation. The company changed its name in 1969 to WD-40 Company (WDFC). That’s pretty easy to remember. The name comes from Water Displacement – 40th try. The company has been around for over 50 years and is still a small cap stock. The company has a market value of $630 million dollars.

WD-40 is more than just its namesake product. The WD-40 Company is responsible for Carpet Fresh, Blue Works, 3 In One, Lava, X14, 2000 Flushes, and Spot Shot. All of these brands have turned WD-40 into a company that generates over $300 million dollars a year. Sales are up 8% for the current year and are expected to grow in the double figures over the next few years. Revenue was up 20% last quarter and earnings were up 32%.

The balance sheet is great at WD-40. The company has just $21 million dollars in long term debt and $59 million dollars in cash. That’s nearly three times the amount of cash to debt. WD-40 has $51.2 million dollars in free cash flow. Shares currently trade just under $38 per share. The company is on pace to earn $2.13 for the current year. That means that shares are trading at 17.7 times earnings. That’s higher than the industry average of 12. The company’s earnings are growing at a faster rate than competitors.

WD-40’s chief competitors are Clorox, Church & Dwight, and Dupont. These companies are some of the largest heavyweights in the industry. Despite their size, WD-40 has higher margins and revenue growth than its larger competitors. WD-40 is an attractive company. There have been rumors that Clorox and other competitors should acquire WD-40.

Should you buy the stock now? The stock is a bit more expensive than its peers. WD-40 is trading at 1.4 times earnings growth and 3 times book value. Dividend Investors should feel comfortable buying shares around $30. The P/E ratio would be more in line with the growth rate.

Dividend stocks will like WD-40 for its nice dividend. The company’s dividend payout is 47% of earnings. This is clearly sustainable considering that WD-40 just increased its dividend this past week. The company’s dividend is increasing 8% to $1.08 per year. That bumps the stock up to a 2.85% yield.

September Stock Market And Dividend Report

Although September is traditionally a slow month in the stock market, this past month was an exception to the rule. This was the best September since 1939, an impressive 71 years ago. The historically dismal month of October is looming, and only time will tell if this improvement will continue. Hopefully, the fact that September ended on a slight downturn after four weeks of consistent gains won’t be a continuing trend.

The Big Three are Up For September

Although there was a slight drop at the end of September, all three major indexes are up for the month. The Dow Jones Industrials finished at 10,830 for a 9.2% gain over August’s poor performance that ended with a 10,015 figure. The Standard and Poor’s 500 Index finished at 1,146 up by a lower 1.1% rate when compared to the 1,049 number shown in August. The Nasdaq Composite Index showed the same overall result as the S&P. It was up 1.1% with a 2,371 closing number compared to August’s 2,114 ending figure. For the year, the Dow is up by 3.9%, the S&P 500 is up by 2.8%, and the Nasdaq is up by 4.5%.

Corporate Confidence

While small companies continue to worry, it appears that the corporate boardroom may be feeling a little better about the economy. The investor can expect this confidence to grow slowly and provide some hope of increased job offerings. Many balance sheets are reflecting higher-than-normal amounts of cash reserves that major corporations have been stubbornly holding onto as protection against an uncertain future. As confidence increases, spending may also increase and further stimulate the economy. It’s important to note that while thoughts of a double-dip recession are fading a bit, there’s still a level of uncertainty about upcoming tax changes and increased health care costs as new laws are hammered out at the Federal level. To further illustrate an increase in corporate confidence, mergers and acquisitions are increasing along with increased dividends and share buybacks. Defaults on corporate debt have also dropped back down to pre-crisis levels. The investor community should carefully review the third-quarter results and fourth-quarter forecasts.

Consumer Confidence

While consumer confidence has been stubbornly upbeat in the face of challenges over the past few months, it has taken a dip for September. While boardrooms are considering increased spending, the average American is still disappointed by the lack of new jobs. The Consumer Confidence Index dropped by 4.7 points to 48.5 down from the higher August level of 53.2 points. Over 16% of typical consumers feel that business conditions will get worse over the next six months, and 22% expect available jobs to decrease over the same period of time. The most telling indicator reports that only 10% of American consumers expect their income to increase in the near future. Without consumer spending, the economy may recover even slower than previously anticipated.

Dividend Paying Stocks

As history has consistently shown, dividend paying stocks perform well in good months and bad. With the increase in corporate confidence and the trend towards increased dividends, the investor can expect the future to be bright. The total returns of the S&P 500 Dividend Aristocrats showed an improvement of 8.91% for the month, while the price returns were reported at 8.6%. For the year, the same numbers are at 11.57% and 9.01% respectively. The current top performers are:

• Walgreens from the Consumer Staples sector trading at $33.50
• McGraw-Hill Cos Inc from the Consumer Discretionary sector trading at $33.06
• Lowe’s Co Inc from the Consumer Discretionary sector trading at $22.29
• Leggett and Platt from the Consumer Discretionary sector trading at $22.76
• VF Corp from the Consumer Discretionary sector trading at $81.02
• Integrys Energy Group Inc from the Utility sector trading at $52.06
• Sherwin-Williams Co from the Materials sector trading at $75.14
• Dover Corp from the Industrials sector trading at $52.21
• Stanley Black & Decker from the Consumer Discretionary sector trading at $61.28
• Emerson Electric Co from the Industrials sector trading at $52.66

All Sectors Are Up For September

As a welcome change from August, all industry sectors are up for September. This welcome change couldn’t come at a better time as investors have seen major disappointments during the poor economic conditions of the past few years. The S&P 500 Index itself was up by 8.76% overall. Long-term investors will be encouraged by numbers that show only one segment, Financials, down for the past 12 months. The following list details September, 2010 price return increases compared to August,

2010 by industry along with the 1-year figures:

• Energy sector, up by 9.14% for September, up 2.43% for the past 12 months
• Materials sector, up by 7.53% for September, up by 8.18% for the past 12 months
• Industrial sector, up by 11.20% for September, up by 16.77% for the past 12 months
• Consumer Discretionary Spending sector up by 21.73% for September, up by 15.33% for the past 12 months
• Consumer Staples sector, up by 5.38% for September, up by 9.53% for the past 12 months
• Health Care sector, up by 8.82% for September, up by 5.99% for the past 12 months
• Financials sector, up by 5.98% for September, down by 3.98% for the past 12 months
• Information Technology sector, up by 12.11% for September, up by 9.60% for the past 12 months
• Telecommunication sector, up by 7.93% for September, up by 12.24% for the past 12 months
• Utilities sector, up by 2.59% for September, up by 7.00% for the past 12 months