Should you buy these “High Yielders to Own for Decades” at today’s prices? ((Philip Morris Intl., PM, McDonald’s, MCD, Vodafone, VOD, Exelon, EXC, Plum Creek Timber, PCL, National Grid, NGG, high dividend stocks, stock that pay small dividends))

I read a Motley Fool article by Jim Royal yesterday titled “The High-Yield Dividends to Own for Decades”.  I wondered which of these might meet my criteria for investment.  The author listed several stocks that yield between 3.3% and 6.6%:  Philip Morris Intl. (PM), McDonald’s (MCD), Vodafone (VOD), Exelon (EXC), Plum Creek Timber (PCL), National Grid (NGG).  National Grid is the only stock with a high dividend yield over 6%.

http://www.fool.com/investing/general/2011/03/24/the-high-yield-dividends-to-own-for-decades.aspx

A purchase of common stock above 20 times average earnings is speculative.  You are relying heavily on future earnings growth to make the stock attractive to other investors who haven’t purchased it yet.  It is best to purchase a common stock with a high dividend at under 12 times average earnings.  I will label stocks with market prices below 12 times earnings as possible value stocks.  I will label common stocks with a market price between 12 and 20 times average earnings as a possible investment.

Philip Morris Intl. (PM)          POSSIBLE INVESTMENT

Shares today: 1,800 M

Market price: $64.88

Dividend yield: ~4.0%

Year    EPS reported   Net inc. available        Adjusted EPS

2006    $2.91               $6,130 M                     $3.41

2007    $2.86               $6,038 M                     $3.38

2008    $3.31               $6,890 M                     $3.83

2009    $3.24               $6,342 M                     $3.52

2010    $3.92               $7,259 M                     $4.03

5 yr. average earnings $3.63.  12 times average earnings equals $43.56.  20 times average earnings equals $72.60.  Philip Morris Intl. (PM) is currently trading at 17.8 times its 5 yr. average earnings.  It is getting close to 20 times average earnings which would be speculative.

McDonald’s (MCD)   SPECULATIVE NOW

Shares today: 1,040 M

Market price: $76.35

Dividend yield: ~3.3%

Year    EPS reported   Net inc. available        Adjusted EPS

2006    $2.83               $3,544 M                     $3.41

2007    $1.98               $2,395 M                     $2.30

2008    $3.76               $4,313 M                     $4.15

2009    $4.11               $4,551 M                     $4.38

2010    $4.58               $4,946 M                     $4.76

5 yr. average earnings $3.80.  12 times average earnings equals $45.60.  20 times average earnings equals $76.00.  McDonald’s is currently trading at 20.1 times its 5 yr. average earnings.  That is speculative.

Vodafone (VOD)       SPECULATIVE NOW

Shares today: 5,160 M

Market price: $28.95

Dividend yield: ~4.8%

Year    EPS reported   Net inc. available        Adjusted EPS

2006    ($3.50)             ($21,976) M                ($4.26)

2007    ($0.98)             ($5,446) M                  ($1.06)

2008    $1.25               $6,756 M                     $1.31

2009    $0.58               $3,078 M                     $0.60

2010    $1.64               $8,645 M                     $1.68

5 yr. average earnings ($0.35).  Vodafone has an average negative earnings due to losses in 2006 and 2007.  I know that the company took an impairment charge of 23.5 B pounds in 2006 to their goodwill, but I don’t know what lead to the large loss in 2007. 

Let’s assume for a moment that Vodafone earns an estimated $1.68 in 2011.  In that case, its new 5 year average earnings would increase to $0.84.  12 times average earnings (2007-2011E) equals $10.08.  20 times average earnings (2007-2011E) equals $16.80.  Vodafone is currently trading at 34.5 times its 5 yr. average earnings (assuming that 2011 repeats the same earnings as 2010).  This is very speculative.

Exelon (EXC) POSSIBLE VALUE

Shares today: 662.21 M

Market price: $41.06

Dividend yield: ~5.1%

Year    EPS reported   Net inc. available        Adjusted EPS

2006    $2.35               $1,592 M                     $2.40

2007    $4.05               $2,736 M                     $4.13

2008    $4.13               $2,737 M                     $4.40

2009    $4.09               $2,707 M                     $4.35

2010    $3.87               $2,563 M                     $4.12

5 yr. average earnings $3.88.  12 times average earnings equals $46.56.  20 times average earnings equals $77.60.  I don’t know why Exelon’s 2006 earnings were nearly half of the amounts of the next four years (2007-2010).  Exelon is currently trading at 10.6 times its 5 yr. average earnings.  This look like a value to me.  Detailed analysis is still necessary to examine the dividend record, an in depth look at earning power, and a thorough review of its balance sheet.

Plum Creek Timber (PCL)      SPECULATIVE NOW

Shares today: 662.21 M

Market price: $44.00

Dividend yield: ~4.0%

Year    EPS reported   Net inc. available        Adjusted EPS

2006    $1.75               $317 M                        $1.96

2007    $1.61               $282 M                        $1.74

2008    $1.37               $233 M                        $1.44

2009    $1.44               $236 M                        $1.46

2010    $1.31               $213 M                        $1.32

5 yr. average earnings $1.58.  12 times average earnings equals $18.96.  20 times average earnings equals $31.60.  Plum Creek Timber is currently selling at 27.8 times the 5yr. average earnings.  This is speculative.

National Grid (NGG) POSSIBLE INVESTMENT

Shares today: 701.62 M

Market price: $48.56

Dividend yield: ~6.6%

Year    EPS reported   Net inc. available        Adjusted EPS

2006    $6.75               $3,848 M                     $5.48

2007    $2.54               $1,394 M                     $1.99

2008    $6.08               $3,190 M                     $4.55

2009    $1.88               $944 M                        $1.35

2010    $2.79               $1,386 M                     $1.98

5 yr. average earnings $3.07.  12 times average earnings equals $36.84.  20 times average earnings equals $61.40.  National Grid is currently selling at 15.8 times the 5yr. average earnings.  This stock warrants further investigation as an investment.  However, these earnings are very volatile.  The reason for the volatility must be understood before investment.

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Published in: on April 5, 2011 at 3:14 pm  Leave a Comment  

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