A Suggested Basis of Maximum Appraisal for Investment.

Stay away from purchases of all these high dividend stocks yielding over 6% and a P/E ratio above 20 listed in the table below.  The following excerpt is straight out of Security Analysis 2nd Ed. Pg 537-538.  Please read this 71 year old wisdom and then examine the table of high dividend stocks that you should avoid for investment right now.

* * * * * * *

The investor in common stocks, equally with the speculator, is dependent on future rather than past earnings.  His fundamental basis of appraisal must be an intelligent and conservative estimate of the future earning power.  But his measure of future earnings can be conservative only if it is limited by actual performance oer a period of time.  We have suggested, however, that the profits of the most recent year, taken singly, might be accepted as the gage of future earnings, if (1) general business conditions in that year were not exceptionally good, (2) the company has shown an upward trend of earnings for some years past and (3) the investor’s study of the industry gives him confidence in its continued growth.  In a very exceptional case, the investor may be justified in counting on higher earnings in the future than at any time in the past.  This might follow from developments involving a patent or the discovery of new ore in a mine or some similar specific and significant occurrence.  But in most instances he will derive the investment value of a common stock from the average earnings of a period between five and ten years.  This does not mean that all common stocks with the same average earnings should have the same value.  The common stock investor (i.e., the conservative buyer) will properly accord a more liberal valuation to those issues which have current earnings above the average or which may reasonably be considered to possess better than average prospects or an inherently stable earning power.  But it is the essence of our viewpoint that some moderate upper limit must in every case be placed on the multiplier in order to stay within the bounds of conservative valuation.  We would suggest that about 20 times average earnings is as high a price as can be paid in an investment purchase of common stock.

Although this rule is of necessity arbitrary in its nature, it is not entirely so.  Investment presupposes demonstrable value, and the typical common stock’s value can be demonstrated only by means of an established, i.e., an average, earning power.  But it is difficult to see how average earnings of less than 5% upon the market price could ever be considered as vindicating that price.  Clearly such a price-earnings ratio could not provide that margin of safety which we have associated with the investor’s position.  It might be accepted by a purchaser in the expectation that future earnings will be larger than in the past.  But in the original and most useful sense of the term such a basis of valuation is speculative.  It falls outside the purview of common-stock investment.

* * * * * * *

The list below only considers stocks with a current P/E of 20 and above.  Determining average earnings over a five year period require a lot of work.  But stay away from purchases of all these high dividend stocks yielding over 6% and a P/E ratio above 20:

Company name

Symbol

 Market cap

 P/E ratio

Image001

 Div yield (%)

 52w price change (%)

 

Alon Holdings Blue Square Israel Ltd  

BSI

446.92M

25.49

37.14

-20.40

Teekay Tankers Ltd.  

TNK

504.27M

26.27

12.81

-14.49

ING Global Equity Divid.&Premium Opp-ETF  

IGD

1.02B

24.71

11.19

-14.17

Cheniere Energy Partners, LP  

CQP

2.86B

27.11

9.88

14.21

Fifth Street Finance Corp.  

FSC

710.26M

21.60

9.79

8.65

Frontier Communications Corp  

FTR

7.90B

24.87

9.53

4.93

Vector Group Ltd.  

VGR

1.22B

23.86

9.36

15.32

Apollo Investment Corp.  

AINV

2.18B

40.07

9.29

-3.68

Calumet Specialty Products Partners, LP  

CLMT

714.42M

43.75

9.09

-2.04

Encore Energy Partners LP  

ENP

1.02B

31.91

9.02

8.73

DHT Holdings Inc  

DHT

223.08M

35.04

8.93

7.95

Otelco, Inc. (USA)  

OTT

244.07M

362.03

8.83

18.24

StoneMor Partners LP  

STON

466.96M

22.41

8.73

23.72

H&Q Life Sciences Investors  

HQL

246.16M

23.07

8.73

12.35

America First Tax Exempt Investors, LP  

ATAX

171.40M

67.39

8.68

-1.87

Gladstone Commercial Corporation  

GOOD

172.48M

188.29

8.27

25.55

Hercules Technology Growth Capital Inc  

HTGC

454.86M

97.56

8.18

4.98

BreitBurn Energy Partners LP  

BBEP

1.21B

33.89

8.01

35.73

Martin Midstream Partners LP  

MMLP

792.46M

60.84

7.77

24.03

CommonWealth REIT  

CWH

1.76B

56.21

7.74

-14.81

Baltic Trading Ltd  

BALT

197.35M

23.34

7.58

-36.74

Penn Virginia Resource Partners LP  

PVR

1.33B

30.80

7.51

4.55

Monmouth RE Inv. Corp.  

MNR

276.32M

23.55

7.43

2.15

Enerplus Corp (USA)  

ERF

5.35B

41.16

7.24

30.42

Vanguard Natural Resources, LLC  

VNR

934.10M

25.01

7.24

27.48

Medical Properties Trust, Inc.  

MPW

1.21B

97.43

6.97

3.80

Legacy Reserves LP  

LGCY

1.31B

42.30

6.91

33.96

Agree Realty Corporation  

ADC

224.46M

23.55

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Published in: on March 16, 2011 at 4:44 pm  Leave a Comment  

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