The Truth about Stock Dividends

I'm sure you all heard this quote, "there is no such thing as a free lunch”. This quote definitely holds true when it comes to dividend investing.

Every investor should love getting the proverbial dividends cheques in the mail. It's a free money, right? Why we getting it Wrong.

A company’s dividend equates depend on earnings which usually leads to stock dividends price appreciation. Don't getting me wrong, dividends are great and I love nothing more than a juicy yields. I actually like stocks that pay a dividend because it means the company makes money and investing in that company its obvious they also making money too.  However, there are a few things you need to know about stock dividends.

The truth about dividends is they come with a price. I'm sure you've heard many pundits on television say they love a company because they pay a dividend so you get paid to wait. Well, where do you think that money comes from? Did it grow on a tree? No, that money came out of the company. Why? Because a dividend is the distribution of company profits paid out to its shareholders.

When a company pays out a dividend, that money comes from the company. This money gets taken out of the company's earnings, or cash. So if XYZ Corporation trades at $10 per share and pays a quarterly dividend of $0.10 per share, this money will come out of the shares price on the ex-dividend date. Therefore, using the example above, the stock will lose $0.10 in value on the ex-dividend date. This is because money is coming from XYZ Corporation's stock market capitalization, or value, and given to shareholders.

An ex-dividend date is when a company records who owns shares of the company and at what quantity. This is often months before the company actually pays their dividend. If you own shares by that ex-dividend date, you will go on record owning shares of the company and will be paid your dividend on the scheduled dividend date.

There is also the fallacy that dividends protect investors during stock market corrections or pull backs. Stock dividends do not protect investors when a stock starts crashing. An average dividend paying company might yield about between 1% and 4 %. If you have ever spent any time with Mr. Market, you know that a 1% to 4% move is quite common for most stocks. Therefore, riding a stock down because it yields a percentage no more than a daily move is foolish. Your paltry dividend payment is not going to be any good if you ride a stock down 20%, is it?

It is also worth noting that dividend paying stocks are synonymous with established companies. Typically these stalwart companies have been around for a while and instead of reinvesting cash back into the business these corporations decide to share wealth with its investors. You could, but typically won't, achieve large stock price appreciation with dividend paying companies as you would with smaller growth stocks. These dividend paying stocks will most likely be less volatile but are in the later stages of their business cycle.

The truth is there is no such thing as a free lunch. Whether it pertain to dividend payments or simply lunch itself, always 

read into what that free lunch is costing you.

American Airlines and US Airways are ready for take off

Its seems as though the merger between US airways and American Airlines will result in the largest operator of airlines in the world after the US supreme court ruled that the merger is legal and rejected the appeal by a consumer group which had the case the merger will grant more power to the new company in an industry where the only other competitors are United Continental and Delta Air lines (DAL). After the merger, the new company will be keep name American Airlines and will be traded on NASDAQ under the ticker AAL and will begin trading on December 9. The company will be part of the American Airlines Group and the head quarter will be in Dallas-Fort Worth, Texas.

According to Barron’s which recently released a list of stocks to own in 2014, US Airways was one of the top 10 stocks to own based on 2014 earnings and profits expectations. The list also includes other companies, the list is considered highly reliable as last year the companies on the list grew at 35% combined rate which is 9% higher than the returns by S&P 500. The stock of the American Airline holding company AMR Corp has increased since the news of the merger surfaced. Both AMR and US Airways stock prices have increased as a result of the merger news, AMR Corp stock grew 1300% Year to date while US Airways stock climbed 67% year to date. These stocks have also beaten the industry averages over the same period. The average P/E of the industry was 10.2x while these stocks have a current P/E of 6.8x and the 52 week price range is $12.6 to $25.49 and a 2014 forward multiple of 6.36x. The major competitors for the newly merged company will be Delta Air lines (DAL). Dal stock market prices has grown 8.1% over the past year.

The current month has been tough for US Airways which is currently trading at 37.3% discount. The company only grew 3% over the previous month while its competitors like Delta Air lines (DAL), Southwest Airlines (LUV), and United Continental (UAL) stock prices went up by an average of 4%. Delta Airline which is one of the weaker competitors in the industry has also fared better as dal stock market prices has also grown 4% over the previous month. Currently dal stock market prices is $31.25. As far as distribution of shares is concerned, 72% of the fully diluted common shares will be received by AMR shareholders, while the rest of the 28% shares will be retained by US Airways shareholders. The value of AMR shares will be determined by a 20 day trading closing price average of $23.48 per share. The merger is definitely good news for both companies and the shareholders as American Airlines and US Airways expect the equity of the new company to be around $11 billion. The operational efficiency of both companies combined will generate $1 billion cost efficiencies because of combined synergies. As far as revenues are concerned, the group expectation for revenue is $40 billion in 2014 which is based on 2013 revenue projections combined for both companies.

US Airways is expected to close the year on sales of $14.6 billion. The company revenue grew 6% in 2012 YoY when revenues were $13.8 billion. As far as customers are concerned, the passengers will still have to make bookings and reservations with US Airways and American Airlines names as there has been no confirmation on when the two airlines will combine their ticketing and reservation systems.

PepsiCo-Stock return on Snacks

Pepsi has a strong dividend stock and it recommends Pepsi investors will earn good return.

PepsiCo Inc and the Coca-Cola are the backbone of beverages both of them payback same amount of dividends on similar investments and both are the member of S&P 500 Index. PepsiCo revenues (CAGR) is 8.7% over the last three decades alike of Coca-Cola (CAGR) of 8.6%. PepsiCo snack products has excelled well in the market in respect of its beverage business. Latin America Foods revenue generation stated 9% upbringing in Sales in the duration of nine months. Likewise PepsiCo North America revenue was more than 4% for the same duration. PepsiCo earnings are forecasted to increase 8% in 2014.Coca-Cola projection of earnings is 6% for the same year. Here is the reason why PepsiCo is performing well in the market and why we feel bullish about PepsiCo.

Dividend Return

PepsiCo Return of stock dividends for a year is 2.73% down from the previous 3%.While CocaCola dividend return is 2.82%.

Dividend Upbringing

PepsiCo is continuously delivering increased dividend payouts in the 25 back to back years and increased annual returns at the rate of 9.8% in previous seven years.

Competitors Analysis

PepsiCo increased dividend returns make the company going ahead showing strong upbringing in bottom line as compared to Coca-Cola and Dr Pepper Snapple their P/E multiple  is higher than of PepsiCo.

PepsiCo P/E is 17.5x, Coca-Cola is 17.7x and Dr Pepper Snapple is 14.7x.PepsiCo EPS Growth is forecasted to be 8% while the Coca-Cola and Dr Pepper Snapple have 6%. Dr Pepper Snapple current dividend return is high 3.13%, Coca-Cola is 2.85% and PepsiCo is 2.73%.

Debt Ratio

PepsiCo debt ratio has increased over the past five years as it has started snack businesses and unify its bottling activities.

PepsiCo debt ratio is $29 billion  which is low from other competitors.

Cash Flow

Current Cash Flow of PepsiCo $6.4 billion which is 12% higher than the previous year. PepsiCo Capital expenditure amounted to $3 billion almost for 4 years.

Repurchasing of Shares

PepsiCo is planning to repurchase worth $10 billion which is anticipated to be accomplished in three years.  PepsiCo announced that it will return $6 billion to its share holders . $3 billion are to be returned as dividends and the outstanding by share repurchases.

PepsiCo has returned over $65 billion to its investors in the means of dividends and share repurchases by 2012.

Dividend Refund Ratio

Stock Dividends refund ratio for last five year was almost 50% as an average, PepsiCo earnings were improved and increase dividends led to upbringing of the bottomline this happened due to incorporating the non-beverage segments.

Conclusion

PepsiCo has become the most prominent investment stock for the investors as increasing growth in the earnings and revenues gets the attention of investors in it while Coca-Cola is also a platform where investors can refund their investment and earn higher returns. Dr Pepper Snapple  is also an good avenue for investment in stocks to yield high return on your investment.

CHINA’S STRONG POSITION BY IRON ORE IMPORTS

Cliffs natural resources (CLF) is Among the four big High yield investments companies has the highest exposure to iron ore i.e. 85% of the revenue, and Cliffs natural resources (CLF) were up at 1,7%. Valve has the second highest revenue exposure to iron ore with 54% of revenue followed by Rio and BHP with 42% revenue and 31% of the revenue respectively. The country that produces and consumes iron ore the most in the world is China. When data for Chinese iron ore consumption came out, prices increased by 20 cents to $130.4 per ton. The prices of iron ore have not been higher in the past 4 months so the profits will be made for iron ore miners like Vale, Rio, BHP and Cliffs natural resources (CLF).

Chinese market is growing at a fast pace, reason behind this high yield investments by china, is the demand of products is also increasing. China is a global leader in manufacturing similarly it is the major producer of the steel worldwide. It was recorded that china produced more than 65 million tons which tops the production of steel ever. The main reason for the increase in demand for iron ore is the increase in demand of steel in the construction and automobile industry. Chinas consumption of iron ore is increasing due to increase in construction activity with the hike of 15% in one year. Also the automobile industry’s exhibiting increase in manufacturing of 1.9 million units.

In the last quarter of the year 2013, Morgan Stanley estimates the high yield investments of four big companies & iron ore prices to 125$ average per ton and when the supply will increase in 2014, the prices are expected to fall below 120$ per ton. It is expected by many analysts that the prices of iron ore, due to supply gut will stay below current levels.

Goldman Sachs is expecting increase in supply leading to price expectation of around $80 per ton by 2015 similarly Citi group expects that iron ore will be traded at $115 per ton in 4QFY13. China iron ore stocks have been declining for some time but the weekly iron ore inventory has started to pick up in the recent time. Weekly iron ore inventory has increase 7% YOY and the inventory levels are at 80.9 million tons. Because of the record levels of steel production, restocking activity is soon to be expected. The Baltics dry index, which is an indicator of iron ore prices, indicated the change in raw material transportation cost. The Baltic dry index also predicted that increasing freight rates can show the growth in the demand for iron ore due to the rise in the global economy. The index shows the growth in YoY by 133% and Capezise vessels growth is more than 117% Yoy.

Home Depot performance Analysis & Stock price

The performance of home depot is directly related to the housing industry as the number of new housing permits and customer affordability has impacted positively to the housing industry. To gauge the housing activity the key matrices that are used are mortgage rates, housing market index, housing starts as well as new and existing home sales as the stats shows existing home sales rose by 9% during first eight month of CY13 while new home sales fell by 8% over the same period and this indicates that the growth of the Home Depot is also dependent upon sales of existing home compared with the new ones. The other driver of stock prices is the seasonal impact as the stats shows that it recorded highest sales in the second quarter of its fiscal year due to higher construction activity in the summer season. Also as the number of transaction increases it impacted the store sales and ultimately reflects into the stock prices of Home Depot.

Home Depot was successed to beat estimates for the third quarter of FY13. The company also raise guidance on the basis of better operating performance and share buyback activity. Good news HD is up nearly 2% today after beating analysts’ estimates and raising guidance. However, the company facing the risk of a housing slowdown and will not be able to sustain high single digit growth in same store sales as mortgage rates rise.

Home Depot’s 6 month results for 3QFY13 beat analysts’ estimates for revenues and adjusted EPS by 1.5% and 5.8% respectively. The company announced an EPS of $0.95 for the quarter vs. estimates of $0.89. Growth in company’s comparable store sales (comps) and share repurchases both contributed towards driving up the company’s EPS. Its comps were up 7.4% with a major contribution from 8.2% growth in comps from US stores. The company repurchased $1.69bn worth of stock (1.5% of the company’s total market cap) during the quarter. The company’s management cited improvement in the housing market along with better operational performance to be the core growth drivers. If analysts are right about The Home Depot (HD), the world’s largest home improvement retailer should post a profit of 89 cents per share on Monday, up from the year-ago figure of 74 cents. That Home Depot earnings result is expected to come on the heels of revenue of $19.17 billion, up from the year-ago figure of $18.13 billion. Then again, fans and investors of Home Depot stock can afford to be a little more confident with this particular hardware store than they likely can with other stocks. Home Depot earnings have topped estimates in 13 of the past 14 quarters. All of those quarters have showed revenue growth, and all of them showed income growth. For perspective on just how reliable and impressive HD stock is for its owners, per share income for the company has grown every year, from 2009’s $1.57 to what will likely be a total of $3.70 this fiscal year. Revenue for Home Depot has grown from $66.17 billion in 2009 to what likely will be $77.68 billion for this year. Yes, the Home Depot earnings growth trend is as ridiculously strong as the sales growth trend is, and yes, the company maintaining that strong trend into 2014. For next year, the Home Depot earnings figure should roll in at $4.37 per share, on the heels of $82.43 billion in revenue.