Lombardi: Stock Market Commentary & Forecasts, Financial & Economic Analysis Since 1986

Dividend Payments

When a company makes a profit, it can distribute some of these funds as dividend payments. Dividend payments are one of three action steps a company can take with its profits to benefit a shareholder; the other two include buying back stock and re-investing the funds in the company. When interest rates are low, many investors look to dividend payments for a source of income. One has to be careful that the dividend payments are sustainable over a long period of time.

“Need to Know” Info About the Coming Retrenchment

By for Profit Confidential

equity marketThere are lots of companies but very few stocks I like in this stock market, because stocks have already gone up in value so tremendously.

Countless large-caps provided excellent returns this year, and many of them are old brands that still offer meaningful dividend yields. What’s transpired with the equity market this year has been truly amazing and practically, I don’t think the run is over just yet.

Cracker Barrel Old Country Store, Inc. (CBRL) has a 52-week trading range of $60.07 to $118.44 and a forward price-to-earnings (P/E) ratio of 18.46, according to Thomson Reuters. And guess where the stock is now—right at its all-time record high, up approximately 84% (not including dividends) since this time last year. All this from a mature restaurant brand.

Johnson & Johnson (JNJ), one of my key benchmark stocks and the kind of company that’s welcome in any long-term equity market portfolio, has had a really good year. Its capital appreciation is reminiscent of its performance in the late 90s.

Many blue chips trade similarly to Cracker Barrel and Johnson & Johnson: they go through long periods of consolidation providing minimal capital gains, and then they explode in trading action, typically associated with technology stocks. (See “Why I Like This Blue Chip So Much [55th Dividend Increase Just Announced].”)

So with the huge price moves, the case for a major retrenchment/correction/consolidation in the equity market is very solid. But there needs to be a catalyst for this to happen. The equity market is overbought and looking tired, but there is still a strong willingness on the part of institutional investors to … Read More

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

By for Profit Confidential

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 dropped significantly from $18.0 billion in 2008 to $14.1 billion in 2009. But the recovery was swift, as 2010’s operating revenues came back up to $17.0 billion, followed by $19.6 billion in 2011 and $20.9 billion last year.

Notable in the company’s economic recovery was its earnings and dividend payments to shareholders.

Earnings in 2009 fell to $1.89 billion from $2.3 billion in 2008. They recovered commensurately with revenues to … Read More

Equity Market Super Stock Adding Up to Solid Returns

By for Profit Confidential

Equity Market Super Stock Adding Up to Solid ReturnsOne company I consistently like for long-term investors looking for dividend payments is PepsiCo, Inc. (NYSE/PEP).

This is the kind of company that can be put into retirement accounts and held for long periods of time with dividend reinvestment.

The equity market has been very kind to PepsiCo since the beginning of this year. Like many blue chips, it has ridden a wave of enthusiasm by institutional investors looking to bid the equity market with the safest names.

PepsiCo offers safety as a corporation with an array of beverage products that are sold worldwide. The many brands that the company maintains are complemented by its snack business. The two businesses go hand-in-hand.

As a multinational company, currency translation plays a big role in its numbers. In the first quarter of 2013, organic revenue growth was a solid 4.4%, but after currency translation, this fell to a mere one percent.

The company’s Americas Foods division was the highlight, producing organic revenue growth of six percent (five percent after currency translation). PepsiCo experienced business growth in all its Americas Foods segments, which include Frito-Lay North America, Quaker Foods North America, and Latin America Foods.

PepsiCo’s first-quarter financial results beat consensus, and big investors celebrated the modest stability.

The equity market has generally been a consistent accumulator of shares in this company. Featured below is PepsiCo’s 25-year stock chart, adjusted for splits:

Pepsico Inc Chart

Chart courtesy of www.StockCharts.com

Consistent with its previous guidance for 2013, the company expects seven-percent growth in its core constant currency earnings per share this year. Combined with its dividend yield of nearly three percent, that’s a decent equity market … Read More

Earnings Season Is Here; Will the Numbers Be Kind?

By for Profit Confidential

Earnings SeasonThere is positive momentum going into fourth-quarter earnings season. The earnings results we’ve had so far from brand-name large-caps are encouraging. We can’t forget, however, that expectations and consensus estimates have come down a lot, especially because of third-quarter earnings results. I think the stock market will be pleasantly surprised when it gets results from the key financial and technology stocks. Outperformance should be plentiful, but only because of the reduced outlooks.

Oracle Corporation (NASDAQ/ORCL) reported great numbers in its latest earnings report. The stock is trading right at its 52-week high, and if you eliminate the huge upward spike in the company’s share price in 2000, its long-term stock market chart is excellent.

Oracle Corporation Chart

Chart courtesy of www.StockCharts.com

Oracle is a good barometer for enterprise technology spending. After its recent earnings report, across the board, Wall Street analysts increased their expectations for the coming quarters. The fact that Oracle recently reported such a good quarter bodes well for the rest of the technology sector.

Another big-name company, which experienced tough business conditions last quarter, is NIKE, Inc. (NYSE/NKE). The company’s most recent earnings report showed a marked improvement in its financial metrics, with particular strength coming from the U.S. market. NIKE is a good barometer on consumer spending, and the company’s long-term track record on the stock market is excellent. NIKE’s stock market chart is featured below:

NIKE Inc Chart

Chart courtesy of www.StockCharts.com

Still, no one is expecting runaway growth, in terms of earnings or revenues. And there is no bankable trend in the economy as of yet. Strength in fourth-quarter earnings could easily turn out to be a one-shot deal.

I’m … Read More

My Near-Term Outlook for the Market as We Start 2013

By for Profit Confidential

Outlook for the Market as We Start 2013The S&P 500 had a pretty good year in 2012, up approximately 11.5% not including dividends. But, as is the norm in the current stock market, trading action remained choppy without any real trend.

The S&P 500 began 2012 strongly, rising consistently until May, when the index gave up all its gains. Then, with equal fervor, the S&P 500 moved solidly higher until September, before consolidating and pulling back on worries over the fiscal cliff. A lot of Wall Street analysts are saying to sell the current mini rally; but I’d wait until we get a look at fourth-quarter earnings to determine whether this turns out to be worthwhile.

There’s been quite a bit of consistency in the performance of the S&P 500 index since the stock market broke out of its low, set in March 2009. Solid rallies are met with solid retreats. The stock market advances, and then consolidates for a gain for the year. The year 2013 is likely to yield the same kind of trading action for the simple reason that investment risk is so high. The eurozone is in recession, and U.S. economic growth is really low. China and other Asian countries are export-driven, so their economic news shouldn’t surprise to the upside. Featured below is a three-year chart of the S&P 500 index:

 

$SPX S&P 500 large cap index stock market chart

 

Chart courtesy of www.StockCharts.com

The next major hurdle for the stock market in terms of policy action (or a lack thereof) is related to the debt ceiling. Previously, the stock market experienced a mini correction after policymakers were unable to extend a government shutdown due to the rising deficit. … Read More

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