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Buybacks, Dividends, Stock Splits: Business Is Getting Better for This Must-Watch Stock

How Investors Could Use This Stock as Their Economic Crystal BallThere are a lot of stocks bouncing off their all-time record-highs and Union Pacific Corporation (UNP) is one of them.

Not surprisingly, the company just announced a two-for-one stock split with the stock dividend, effective June 6, 2014 to shareholders of record on May 27, 2014. The last time Union Pacific split its shares was in May of 2008, also effecting a two-for-one stock split.

Management also announced the second installment of its new $0.91-per-share quarterly dividend. The previous dividend amount was $0.79 a share.

Only four years ago, the company’s dividend was $0.33 a share, illustrating just how good an investment this railroad has been.

And business is getting better. Union Pacific plans to spend $4.1 billion in total capital expenditures this year. The company recently boosted this figure by $150 million, saying that it needs to purchase 29 more locomotives than it previously estimated.

In October of last year, this stock was trading for $150.00 a share. It just bounced off an all-time record-high of $196.16. Despite being cut in half during the 2008/2009 financial crisis, this stock’s been going up since the beginning of 2005, which is an excellent track record.

The company’s stock chart is featured … Read More

Reckless New Fad: Companies Raise Money to Buy Back Stock, Pay Dividends

The Tale of Share Buybacks Few TellLast Thursday, the CEO of DIRECTV (NASDAQ/DTV) said “…we are pleased to announce a share repurchase program of $3.5 billion. This repurchase program reflects our strong balance sheet and confidence in continued strong DIRECTV revenue, earnings and free cash flow growth, as well as our belief that our stock is far below our intrinsic value.” (Source: “DIRECTV Announces Fourth Quarter and Full Year 2013 Results,” DIRECTV, February 20, 2014.)

DIRECTV is buying back its shares because it believes they are undervalued? Since when did CEOs of companies on key stock indices become stock pickers?

In 2013, DIRECTV’s total corporate earnings came in at $2.85 billion. That means the company is spending 122% of what it made in 2013 to buy back its stock. Talk about pumping up per-share earnings!

Cisco Systems, Inc. (NASDAQ/CSCO), another major component of key stock indices, reports it is “raising” $8.0 billion to repay some of its debt. It will use the remainder of the money to buy back its shares and pay dividends. (Source: Cisco Systems, Inc., February 24, 2014.) Yes, instead of raising money to invest in equipment, technology, or research and development (R&D), the new fad is for companies to raise money to … Read More

Big Banks Only Good for Dividends?

Big Banks Only Good for DividendsBack in early August, I turned negative on the big banks and suggested that a bearish double-top was forming on the Bank Index chart. At that time, the Bank Index was trading at just over 65, as you can see on the chart below. (Read “Four Important Stock Charts Showing Warning Signs.”)

In early October, the Bank Index fell to around 61 (as indicated by the lowest shaded oval in the chart below). The index held and has since rallied back above the upper resistance, suggesting that it could be set for a breakout back up to its July highs. However, my feeling is that the easy money in the big banks has been made and going forward, the big banks are now dividend plays.

Bank Index Chart

Chart courtesy of www.StockCharts.com

Investment guru Warren Buffett continues to like the big banks. I don’t blame him, as Buffett has made more than $5.0 billion in paper profits on his initial $5.7 billion investment in the ailing Bank of America Corporation (NYSE/BAC; dividend yield 0.30%), when the sector was in disarray following the Lehman Brothers collapse.

 So far in the third-quarter earnings season, the big banks have largely delivered decent results.

Bank of America … Read More

Consistency, Rising Dividends Make This Benchmark a Possible Winner for Savers

Consistency, Rising Dividends Make This BenchmarkFinding consistently growing companies has been and continues to be a tough thing with the world’s developed economies barely growing.

From the investor’s perspective, I think consistency, both in terms of corporate financial growth and stock market performance, is absolutely golden. This is especially the case for investors who aren’t actively trading and are perhaps saving for retirement or are in retirement and want some security with their equity holdings.

One company that I regularly view as an excellent long-term enterprise for savers is PepsiCo, Inc. (PEP). PepsiCo is a drink and snack business that has consistently delivered on management forecasts. The company has a solid track record of increasing dividends over time, and its long-term performance on the stock market has, to date, offered a stable uptrend. The company’s 35-year stock chart is featured below:

Pepsico Inc Chart

Chart courtesy of www.StockCharts.com

PepsiCo has been a stellar performer on the stock market since the beginning of the year. Like a number of other blue chips that delivered on their promises (Johnson & Johnson [JNJ], for example), the company provided the Street with exactly what it was looking for. (See “This Star Pharma Company Delivers the Goods Once Again.”)

With a current dividend … Read More

Why Investors Should Look to Small-Caps for Dividends

dividend yieldIf you like taking some risk but also love the idea of making some good price appreciation, then read on, as there are alternative ways of earning dividend income without having to buy General Electric Company (NYSE/GE) or The Procter & Gamble Company (NYSE/PG).

Recently, I talked about some smaller dividend paying stocks, such as Och-Ziff Capital Management Group LLC (NYSE/OZM), with a dividend yield of 5.3%, and Fortress Investment Group LLC (NYSE/FIG), with a dividend yield of 3.3%, which you can read more about in “The Benefits of Lesser-Known Small-Cap Dividend Stocks.” Yet these dividend paying stocks are more conservative and offer less upside price appreciation potential.

If you want a bit more risk along with the dividends, there are other small-cap dividend paying stocks available.

Many of these dividend paying stocks are found on the small-cap Russell 2000 index, which has an average dividend yield of 1.29%.

World Wrestling Entertainment, Inc. (NYSE/WWE) has been a big dividend payer with a dividend yield of 4.9%. It’s likely not on your radar unless you happen to watch WWE wrestling. (You know the fake wrestling. No, it’s not real.) The fact is the WWE has a significant global following and reported … Read More

Strong Cash Flow, Increasing Dividends Make This Old Economy Stock Attractive

Increasing Dividends Make This Old Economy Stock AttractiveBlue chips across the board have been taking a break, along with the rest of the stock market. But in my mind, their leadership remains intact, and so does the performance of the Dow Jones Transportation Average.

This index recently broke below its 50-day simple moving average (MA), but this is very normal and not a trendsetting event. Many component stocks have been on fire all year and are due for a sustained period of retrenchment.

One component company that I continue to like is Union Pacific Corporation (UNP). The railroad sector is old economy, but it’s still a solid gauge on domestic economic activity. Plus, Union Pacific is a solidly profitable company that provides growing dividends to shareholders. The stock is currently yielding 2.1%.

Perusing the company’s regulatory filings, what stands out is Union Pacific’s strong financial recovery from 2009, when business operations experienced a pronounced downturn. Of course, we’re dealing with a very mature blue chip company, so financial growth isn’t like a small-cap technology stock. But the company really did turn its financial metrics around in a diligent manner, and the results are evidenced in its share price performance.

Union Pacific Corporation Chart

Chart courtesy of www.StockCharts.com

Union Pacific’s operating revenues … Read More

Rampant Cash Hoarding Yields Strong Dividends, but Hampers Growth

Rampant Cash Hoarding Yields Strong Dividends, but Hampers GrowthThe seesaw action in both the bond and stock markets is emblematic of this overly monetized world.

With all the cash sloshing around, and the huge cash balances swelling at big U.S. corporations, the solution to economic mediocrity is clear: get corporations to spend on new business operations.

But so far, this has proven to be very difficult. It’s just so much easier for corporations to buy back more shares and increase dividends. Investors win near-term, but longer-term, the economy loses.

And this is already noticeable in this quarter’s flat earnings reports. The numbers have been trickling in, but cash and cash equivalents are still going up. Dividends are also going up on flat numbers to keep shareholders happy.

Arguably, many large U.S. corporations are in excellent financial shape. Balance sheets have never been better for all kinds of companies.

Even General Mills, Inc. (GIS), which just reported earnings results that basically met expectations, has seen huge cash gains. The company’s cash and cash equivalents position jumped to $741.4 million, way up from $471.2 million comparatively. That’s a surprising jump for such a mature, predictable business.

And the company said that it plans to reduce its average net diluted shares … Read More

Dividends, Buybacks, and Spin-Offs—That’s All There Really Is

Dividends, Buybacks, and Spin-OffsEvery once in a while, the stock market gives you a gift—rather, a company trading on the stock market decides to make a division a spin-off, unleashing value for shareholders. It doesn’t happen very often, but when it does, it usually turns out to be a big gift for the owners.

There were two big spin-offs this year, and one in particular was exceedingly profitable. ConocoPhillips (NYSE/COP) divested its oil and gas refining business called Phillips 66 (NYSE/PSX). For every two shares held in ConocoPhillips, shareholders received one free share in Phillips 66 (NYSE/PSX). On the stock market, ConocoPhillips’ share price declined because of the huge spin-off, but Phillips 66 has been doing well. The result was a huge bonus to shareholders, and both these stocks pay solid dividends. Phillips 66’s stock chart appears below:


Phillips 66 Chart


Chart courtesy of www.StockCharts.com

The other big spin-off this year was with Kraft Foods Inc. In a previously announced move, Kraft Foods split its operations into Kraft Foods Group, Inc. (NASDAQ/KRFT) and Mondelez International, Inc. (NASDAQ/MDLZ), which are both large-cap, dividend-paying stocks. This deal was made on a one-for-three basis, with Kraft Foods Group being the food and beverage company and Mondelez focusing … Read More

Dividends from Blue Chips the Only Game in Town This Year

Dividends from Blue ChipsOn the subject of blue chips, I think dividends are going to account for a very large portion of investment returns from the stock market this year. I’m hopeful for the U.S. economy in its recovery, but whatever transpires this year, I just don’t see real gross domestic product (GDP) hitting over three percent, with the eurozone in recession and all the headwinds with taxes, sovereign debt, and government spending. If we see real GDP over two percent, we will be lucky.

Blue chips are, for the most part, in very good financial shape these days. Borrowing costs are low and cash balances are high. So from my perspective, one of the most reliable types of investment returns (the only real certainty is death and taxes, as the saying goes) is going to be the dividends received from corporations. I think we’re going to get another round of increased dividends this fourth-quarter earnings season and, with cash balances being so strong, more share buybacks to keep stock prices afloat.

The reason why cash balances among many blue chips are so high is that corporations are afraid to invest in this marketplace. They feel the same uncertainty we all do, so … Read More

Dividends Going Up Because Companies Don’t Want to Invest

Dividends Going UpThere is now more evidence that companies with huge cash hoards are returning the money to shareholders, rather than making any bold new investments themselves. Last Friday, General Electric Company (NYSE/GE) announced that it would increase its quarterly dividend to $0.19 a share, up from $0.17, and it authorized an increase in the amount of shares it can repurchase to $10.0 billion by the end of 2015.

On the stock market, General Electric (GE) has been recovering pretty well, but since the financial crisis, the stock has underperformed the main stock market indices. Investors all love dividend increases, and I’m the first to applaud the company for doing so. But the return of excess cash in the form of dividends and share buybacks also represents the unwillingness of companies to make any bold new investments in its operations. It’s a very uncertain world out there, and companies aren’t willing to bet like they used too. GE’s stock market chart is below:

GE General Electric Co. stock market chart

Chart courtesy of www.StockCharts.com

GE has been a solid dividend payer but a terrible stock market investment over the last 12 years. The company’s heyday on the stock market, it would seem, was the 20 years leading up to … Read More

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