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

Posts Tagged ‘dividends’

Why This Company’s a Solid Pick for Any Long-Term Portfolio

By for Profit Confidential

PepsiCo Still a Solid Stock for Any Quality PortfolioThe numbers are piling in, and there have been some disappointments as usual. This is why individual stock selection always matters in a portfolio, and equity investors should be willing to make changes depending on what stage of the business cycle a company is experiencing.

One company that’s proven itself to be a good business to own is PepsiCo, Inc. (PEP). It’s a brand-name mature enterprise with an excellent track record of long-term, reliable wealth creation for stockholders. It’s not the fastest growing large-cap in the marketplace, but the snacks and beverage business is consistent and so are the dividends.

Wall Street and institutional investors would love to see PepsiCo spin off its food and snacks business from beverages, similar to what recently transpired with Kraft Foods Incorporated.

A spin-off would, no doubt, be a boon to shareholders, but I don’t see it happening, because the company’s management needs the profits from Quaker foods (oatmeal) and especially “Frito-Lay” (potato chips) to help with the slow-growth world of soda and juice.

PepsiCo’s organic global snacks sales grew five percent comparatively in the second quarter of 2014 and two percent for global beverages.

Currency translation was unfavorable during the most recent quarter, bringing the growth rates down to two percent for global snacks and a decline of one percent for global beverages.

But despite the slow growth, the company’s operating margin improved a solid 10% during the second quarter, and that’s the big story that got the shares moving on the earnings report.

PepsiCo’s two-year stock chart is featured below:

Pepsico Inc Chart

Chart courtesy of www.StockCharts.com

The company also boosted its full-year 2014 earnings-per-share … Read More

Simple Wealth-Creating Strategy for Long-Term Investors

By for Profit Confidential

Compounding Strategy Every Investor Should ConsiderAs a strong believer in the wealth-creating effects of large-cap, dividend paying stocks, I’m also an advocate of dividend reinvestment, which is the purchasing of a company’s shares using the cash dividends paid.

This can be done commission-free from your broker and/or through the company itself if it offers such a program.

Dividend reinvestment is a powerful wealth creator if you do not require the income paid out by a corporation. It is a great way to invest and to grow your money over the long-term.

As the timespan increases, the percentage return produced by the S&P 500 becomes weighted to dividends. It’s kind of old school, but the numbers add up. Even over a few short years of good broader market performance, total investment returns can increase substantially over simple capital gains.

For example, if you bought shares in Intel Corporation (INTC) at the beginning of 2010, that stock would have produced a capital gain to date of approximately 50%.

But if you reinvested the dividends paid by Intel into new shares each quarter, your total investment return, including dividends and new shares, jumps to approximately 75%, which is a very big difference!

In the utility sector, Duke Energy Corporation (DUK) increased on the stock market about 30% over the last three years. But by reinvesting the company’s dividends into new shares during that same time period, your total return could have climbed to around 49%. Again, this is a material improvement.

Of course, dividend reinvestment excludes the potential returns to be had with the income being applied to other potential assets.

But the process is so easy, and … Read More

Your Top Priority When Investing in a Record-High Market

By for Profit Confidential

What to Prioritize with Stocks at an All-time HighStocks are going to gyrate around second-quarter earnings, but that’s exactly what this market needs—the corporate bottom line and expectations for the rest of the year.

With so many stocks trading at their all-time record-highs, I view investment risk in equities as being high at this time.

This is actually a tough environment in which to be an investor looking for new positions. There’s not a lot of value around and good businesses have already been bid.

It’s been years now since the stock market was first in need of a material price correction, and the next one will probably come out of nowhere.

It could be a shock from the Federal Reserve, but the central bank has been extremely delicate in how it effects and communicates monetary policy. More likely, stocks will be vulnerable to an unforeseen shock like a geopolitical event or a big derivative trade gone bad.

The risks are out there and stocks are long overdue for a reckoning.

With this in mind, I’m still a fan of the market’s existing winners, especially dividend-paying blue chips. In the absence of a shock, I think they’ll just keep pushing new highs going right into 2015.

3M Company (MMM) is an enterprise worth following and owning as a long-term, income-seeking investor.

The company’s earnings are material and offer good market intelligence, even if you aren’t interested in owning the stock.

The position has tripled in value on the stock market since the beginning of 2009, while also paying some great dividends.

The stock is still strong in the current environment, and the company represents exactly the kind of … Read More

This Company a Benchmark for the Entire Stock Market?

By for Profit Confidential

One Company, One Benchmark Stock for EverythingUnion Pacific Corporation (UNP) is a company that’s getting upgraded by the Street and earnings estimates are ticking higher. It’s great news for this benchmark stock and top wealth creator.

The business cycle in old economy industrial businesses still has legs, and while Union Pacific’s share price is up some 25 points over the last 12 months, I think this stock can keep ticking higher into 2015.

The railroad business has proven to be a good one over the last several years. Most railroad companies have been able to increase their prices for freight without affecting demand, and that’s a very important metric and telling indicator.

Union Pacific’s share price was around $26.00 a share this time in 2009. Now it’s just over $100.00 (the company recently effected a two-for-one stock split) and the company has increased its dividends paid seven times since 2009. This is a good business, and it continues to pay as a stock market investment.

The company’s volume growth is coming from both agricultural and industrial products. And even its coal transportation business is showing improvement.

Union Pacific is moving a lot of freight cars related to the domestic oil business. While many might see this as carloads of crude, the company actually ships more carloads of fracturing sand than oil. It’s a growth area for the business, and it has been for several years.

The company’s one-year stock chart is featured below:

Union Pacific Corporation Chart

Chart courtesy of www.StockCharts.com

This is a stock that has proven to be a worthy buy when it’s down. It hasn’t been down for long, and it remains a favorite among institutional investors, … Read More

What Do This Quarter’s Mixed Earnings Results Mean?

By for Profit Confidential

Market May Be Entering a New Cycle—But Don't Buy Just Yet!Oracle Corporation (ORCL) announced a quarterly revenue gain of three percent, but Wall Street was looking for more and the company’s share price retreated on its earnings results.

If it weren’t for the Federal Reserve, we probably would be in a correction, if not a consolidation, which has been the broader market’s go-to trend when it should have retreated further.

It’s such a mixed bag out there both in terms of economic news and corporate reporting.

While I think dividend-paying blue chips have the advantage going into the second-quarter earnings season, if the Federal Reserve wasn’t so extremely sensitive to Wall Street, this market would probably be a lot lower.

Even the Fed’s recent language is assuaging. If this market had to operate on its own (with free market interest rates and liquidity), things would be a lot different.

But this isn’t the environment we live in. Economic history clearly supports the scenario that it doesn’t pay to fight the Fed and that Wall Street will move mountains when it has Fed certainty.

Lots of investors bemoan the quarterly earnings cycle or game, but I don’t. I want to know a public company’s up-to-date financial results as frequently as possible.

While earnings are managed, over time, a business can’t manufacture success unless it’s a fraud (which, sadly, does happen).

Big companies have the operational leverage and the cash to keep boosting their earnings per share. Oracle’s latest financial results were uninspiring, and while recognizing that this is a very mature business with growing competition in the cloud, the position advanced a material 10 points since last June—this seems so overdone…. Read More

A Stock Market Break? These Indices Say No

By for Profit Confidential

These Turning Indices Show How Stocks Can Go HigherThe great monetary expansion is still alive and well and the effect on equity securities continues to be profound.

But what I find striking about the stock market’s continued advancement is that it’s blue chips that are pushing through to new record highs.

Speculative fervor in several sectors has diminished, but hasn’t completely disappeared. But it’s the big brand-name companies—a lot of which pay dividends—that just keep on trucking as institutional investors buy earnings safety and outlook reliability, and are betting on revenue and earnings acceleration going into 2015.

Union Pacific Corporation (UNP), a benchmark railroad stock, just hit another new record high on the stock market, breaking through the $100.00-per-share level. It was $35.00 a share this time in 2010.

And this from an old-economy, industrial enterprise that is probably not on many investors’ wish lists.

Amazon.com, Inc. (AMZN) broke down considerably at the beginning of the year when it was trading around $400.00 a share. It recently broke $300.00 a share, but has bounced back significantly and the position looks to be fighting hard.

And this is one of the speculative stocks on which investors booked their profits. This stock is on the comeback trail and so are Cisco Systems, Inc. (CSCO), The Priceline Group Inc. (PCLN), Oracle Corporation (ORCL), Apple Inc. (AAPL), and Google Inc. (GOOG).

The stock market has been digesting continued mediocrity in domestic economic data and slightly more positive numbers from China. Institutional investors are buying. I think that, in the absence of some kind of shock or new catalyst, the stock market can slowly keep grinding higher. It could very well turn … Read More

How to Invest in a Market Constructed by Central Banks

By for Profit Confidential

How to Profit in a Fed-Built MarketThe resilience the stock market continues to have is a reflection of what continues to be extreme monetary stimulus. And while the stock market is a leading indicator and a bet on a future stream of earnings and economic activity, throughout history, the underlying goal of central banks has been price inflation.

Seemingly, the capitalist economic system is based on two basic underlying factors: property rights and price inflation. And in modern history, the latter, through central bank intervention, is the most important catalyst for the stock market.

In capital markets, long-run history is a very good guide and an important tool in helping to shape your market view. And most importantly, it’s very helpful in laying the groundwork for separating present-day conjecture from what has actually transpired before.

I’m reminded of J. Anthony Boeckh’s book titled The Great Reflation, which provides a non-political long-run analysis on the U.S. economy and its cycles.

It’s a historical breakdown of interest rates, inflation, and monetary and fiscal policies, and how they have affected the stock market. It is required reading for any serious long-term investor.

Written in 2010, the book breaks down financial crises and looks at the long-run effects of price inflation and the effects on capital markets. Boeckh offers some poignant analysis on all kinds of financial topics, and many of his observations have not only come to fruition, but they are also worth consideration.

Boeckh plainly states that the global financial system is flawed because of fiat paper money. And because we use paper money, price inflation exists and capital markets are subject to bubbles.

Add in … Read More

Eight “Super Stocks” for a Slow-Growth Market

By for Profit Confidential

How to Build a Portfolio for a Slow-Growth MarketWith stocks still ticking higher, portfolio safety and a strong adherence to risk management is key with the major indices pushing their highs.

Speculative fervor has come out of this market, but really only in the form of profit-taking. In order for stocks to experience a major price correction (which I view as a healthy development for the longer-run trend), the market requires a catalyst, and there isn’t an obvious one right now.

While individual stock selection is always important in portfolio management, generally, share prices move commensurately with each other based on sentiment. Accordingly, investors who own dividend-paying blue chips are just as well positioned if the broader market delivers more capital gains. And at a lot less investment risk to boot.

At the beginning of last year, in these pages, I put together a list of “Super Stocks”—the names of companies that I thought could be welcome in all but the most conservative of portfolios.

A lot of these positions are pushing their highs again. These stocks are back in favor with institutional investors and most have increased their dividends. (See “Super Stocks—Great Companies for Any Stock Market Portfolio.”)

The three positions that have been disappointments are Bunge Limited (BG), The Procter & Gamble Company (PG), and International Business Machines Corporation (IBM).

Bunge is heavily weighted to the agriculture sector, and as every commodity continues to prove over time, pricing, supply, and the business in general are volatile.

Procter & Gamble has a great dividend and that’s what is keeping investors interested. It’s just a very slow-growth story, being so global and mature.

I always follow … Read More

Why It’s Not Too Late to Enter the Hot Oil Sector

By for Profit Confidential

Oil Sector Hot Here's How to Get in on the ProfitsThe spot price of oil is holding up and there are countless oil stocks pushing their highs.

If the 1990s were the decade for technology stocks, then the 2010s are the decade for independent oil producers.

While the largest integrated oil and gas companies are struggling to grow production, mid-tier, independent producers are filling the gap, and there are countless growth stories in the marketplace.

EOG Resources, Inc. (EOG) has been a top stock market performer and is likely to continue ticking higher. The company has net proven reserves of some 2,119 million barrels of oil equivalent, of which 94% is located in the United States.

Of the company’s total 2013 production, 88% came from the U.S. and Canada, representing a nine-percent gain over 2012.

First-quarter 2014 earnings were $661 million, compared to $495 million in the first quarter of 2013.

The company’s total crude oil and condensate production rose 42% over the comparable quarter last year, and management has significant hedges, locking in oil prices just under $100.00 a barrel. Approximately 30% of North American natural gas production is hedged for the remainder of 2014 at a weighted average price of $4.55 per million British thermal units (MMBtu).

The Street expects EOG Resources to grow its revenues by about 17% this year and about seven percent in 2015.

Previously in these pages, we looked at Cimarex Energy Co. (XEC), which has been very strong on the stock market since the beginning of February. (See “Where to Find the Best Price Momentum Right Now.”)

This oil and gas growth story is slowing, but the company is still expected … Read More

Three Blue Chips Set to Drive Higher

By for Profit Confidential

The Real Driving Force Behind Existing Winning StocksDespite a difficult start to the year, countless positions recently turned higher, even among slow-growth names.

E. I. du Pont de Nemours and Company (DD) is a company currently trading around 14 times its forward earnings, offering a 2.6% dividend yield. The stock just broke out of a three-month price consolidation.

This is the way the equity market has been trading since the March 2009 low. No big corrections, just consolidations of various durations. It’s a good reminder of just how powerful monetary policy can be (right or wrong) and that a company’s shares price is a relative valuation or bet on the future.

Du Pont has appreciated approximately 23% over the last 12 months, and this doesn’t include dividends paid. Year-to-date, the return is just less than seven percent.

The company’s sales in the first quarter of 2014 were down slightly compared to the same quarter of 2013 and earnings were cut in half.

The company experienced one percent lower volume, one percent lower selling prices, and a one percent adverse currency impact, comparatively. Yet the stock just keeps ticking higher. This time last year, the position was trading around $55.00 a share; now it’s $70.00.

One research firm recently increased its earnings estimate on the company for all of 2014, but like so many other blue chips, it’s the expectation that sales growth will accelerate in 2015, and this is seemingly the bet by investors.

Du Pont didn’t have a good first quarter, and its top operating division—agriculture—actually produced a six-percent drop in segment sales compared to the first quarter of 2013.

Two key themes seem to be … Read More

Rise in Financials a Good Sign for the Broader Market?

By for Profit Confidential

Financials Supporting Bullish Stock Market SustainableThis stock market continues to show material resilience as financials have turned a bit and are helping the S&P 500 index.

Wells Fargo & Company (WFC) just hit a new record-high on the stock market with a forward price-to-earnings ratio of just under 12, offering a 2.8% current dividend yield.

Most of the big banks have actually been in a downtrend in recent months, including Bank of America Corporation (BAC), Citigroup Inc. (C), and JPMorgan Chase & Co. (JPM). Wells Fargo is the exception; the position has doubled in value since November of 2011.

Also coming back from a recent share price downtrend are the credit card companies. Visa Inc. (V), MasterCard Incorporated (MA), Discover Financial Services (DFS), and American Express Company (AXP) have done a good job bouncing off their stock market retrenchment in March and April.

Having the financials moving again is bullish and good for the broader stock market. Institutional investors are definitely willing to buy stocks if the news isn’t too bad.

In a very low interest rate environment, investors are still rewarding share buybacks, increases to dividends, and quarterly “outperformance.” It is, of course, continued short-term thinking. A sustainable new business cycle in the U.S. economy is only possible if corporations unleash some of their cash hoard and make real investments in their businesses.

I suspect this will happen in 2015, especially if the slight momentum in the U.S. economy can continue with relative stability from policymakers and geopolitical events (to the extent that this is possible).

Ever since the financial crisis, the stock market crash, and the Great Recession, corporations have been extremely unwilling … Read More

Top Stocks Poised for More Gains in Slow-Growth Market?

By for Profit Confidential

Best Stocks World Slow GrowthThe thing about large-cap investing—and most stock market investing, in general—is that periods of capital gains are often met with long periods of non-performance.

A great investment with a long history of making money for stockholders is Johnson & Johnson (JNJ). But even this blue chip pharmaceutical/consumer products company has experienced long periods with nearly no capital gains (1975 to 1985 and 2002 to 2012, in recent history).

Action in the broader market is a big reason for non-performance of individual companies. The Procter & Gamble Company (PG) acted similarly on the stock market during the same period.

Back in 2000, the company had a quarterly earnings miss during the height of the technology bubble. The position was cut in half and took five full years just to recover.

That stock market experience is a good reminder that even so-called “widow” and “orphan” blue chip stocks are susceptible to major share price volatility and non-performance. (See “Blue Chip Stocks Expensive at This Point.”)

And depending on your time horizon for investment, the market cycle has a tremendous influence on total equity returns.

It also illustrates that investment risk with stocks, even the most stable of businesses, will always be inherently high due to the fact that prices are determined by a secondary market system (i.e. non-private ownership).

Therefore, given the perpetual cycle of volatility and only relative pricing of stocks at any given time, one of the single most important factors influencing total equity market returns is dividends. And their importance and percentage weight comprising total market returns grows significantly with duration.

Also illustrative in the stock market’s … Read More

What Makes This Confectionary So Attractive for Long-Term Investors

By for Profit Confidential

Chocolate Better Investment Might ThinkIn my mind, portfolio safety and consistency of equity market returns are paramount. This is a basic portfolio management principle, and I like to see consistent earners as core positions in any equity market portfolio.

This doesn’t mean there isn’t room for more speculative stocks, but investing is different than risk-capital speculating.

Consistent earnings growers and dividend paying stocks should be the foundation of an equity market portfolio geared for long-run returns. Dividends can be spent, reinvested, or, better yet, placed in an automatic dividend reinvestment program. The numbers really do add up over time, especially among those companies with a history of increasing their annual dividends throughout the years.

One mature enterprise with a very good long-term track record of delivering positive returns to shareholders is The Hershey Company (HSY); it’s the kind of position that long-term investors may wish to consider when it’s down.

The business of chocolate and confections is a good one, and this company has a long history of increasing earnings and dividends. What Hershey is not is a fast-growing company where you want to see double-digit sales growth.

But while this well-known brand may be a slow grower, it offers consistency, which in today’s world, is a very valuable trait. (See “Three Steady Stocks to Balance High-Flyers & Boost Your Returns.”)

That doesn’t mean Hershey’s stock won’t go down commensurate with the broader equity market, but the business is solid and it’s highly likely to still be growing when other industries, companies, and capital markets fail. The company’s 25-year long-term stock chart is featured below:

Hershey Food Corp ChartChart courtesy of www.StockCharts.com

By slow growth, … Read More

The Only Place to Put New Money in Today’s Economy

By for Profit Confidential

Invest New Money During a Stock Market's HighA lot of stocks are rolling over, breaking their 50- and 200-day simple moving averages (MAs). This is a tired market that could very well consolidate or correct right into the fourth quarter.

And the economic data has been softer, as well. Throw in geopolitical tensions with Russia and we have the makings of a material price retrenchment.

There’s still resilience, however, in some of the most important stock market indices. Stocks composing the Dow Jones Transportation Average are holding up extremely well, especially compared to the Russell 2000, the NASDAQ Biotechnology index, and the NASDAQ Composite index itself.

While the main market indices are mostly flat on the year, I don’t think investors can expect any capital gains until perhaps the fourth quarter.

From my perspective, relative price strength in the Dow Jones industrials, transportation stocks, and most of the S&P 500 index means that the longer-run uptrend remains intact.

With speculative fervor still coming out of initial public offerings (IPOs) and select biotechnology stocks, this action is an indicator of a tired market that’s long in the tooth, as investors are clearly less willing to speculate on those stocks that don’t offer income or relative safety in their earnings.

Risk aversion won’t kill a secular bull market. But it does mean that risk-capital opportunities are a lot less plentiful. Currently, among speculative stocks, one of the only sectors still experiencing decent price action is oil and gas drilling and exploration.

This is still a market that I think favors existing winners—blue chips, in particular. (See “Top Stocks for the Coming Correction.”)

These are the stocks to … Read More

Getting the Most for Your Risk-Adjusted Buck

By for Profit Confidential

Get the Most of Your Investment Capital in a Crumbling MarketTwo years ago, when the former Kraft Foods Inc. broke itself up, spinning off its global food and beverage business (now Kraft Foods Group, Inc. [KRFT]), the company renamed itself Mondelez International, Inc. (MDLZ). Now, the company is mostly a global snacks business. The new Kraft Foods Group has done pretty well on the stock market since listing in September 2012; the position currently has an attractive dividend yield of 3.7%.

Large-cap corporate spin-offs are typically highly profitable for shareholders. (See “Top Market Sectors for 2014.”) Despite a slow start, Mondelez has finally broken out of its recent consolidation trend on new operational momentum.

Mondelez sells cookies, snacks, confections, and cheese. Some of the company’s iconic brands include “Cadbury,” “Oreo,” “Nabisco,” “Christie,” and “Trident,” among others.

The Street’s been bidding “safer” stocks recently, and investors liked Mondelez’s news of a restructuring plan and the spin-off of its coffee business, which will net the company $5.0 billion in after-tax proceeds.

Like many large-cap public companies, Mondelez has been buying back its own shares. In the first quarter, it spent $500 million on its own stock at an average price of $34.20 per share. Its two-year stock chart is featured below:

Mondelez International Inc Chart

Chart courtesy of www.StockCharts.com

If you happened to be a shareholder of the former Kraft Foods Inc. then you’ve done well with both spin-off businesses and both stocks remain attractive holds.

Mondelez isn’t offering as much income as the new Kraft Foods Group; its dividend yield is currently around 1.6%. And while top-line growth is always an issue for established large-cap consumer brands, Mondelez is an improving earnings story—that’s … Read More

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