- Stock price has doubled in under a year.
- Dividend payout exceeds earnings by 27%.
- P/E ratio exceeds 47.
- Bright digital future not enough to make stock a bargain for short term traders.
- Consider taking profits on any pop around earnings reports in late July and deploying in Intel or Ford.
Somehow when no one was looking the price of Pitney Bowes stock (NYSE:PBI) has jumped from $13.91 on July 1st, 2013 to $27.93 at the close on June 30th of this year. May 8th last year marked the first dividend payout at the current rate of 18.8 cents per quarter, down from 37.5 cents previous. With the exception of the November 2007 payout, Pitney Bowes had increased its dividend annually for 40 years. During that period they have split the stock 2 for 1 four times. In the last 12 months the stock of Pitney Bowes has increased roughly 100% while the broader S&P 500 has grown closer to 20%
Pitney Bowes is one of the 500 stocks in the S&P. Yahoo Finance reports that 90% of the shares are held by institutional investors who also hold 90% of the float. This is listed under the Major Shareholders tab. Less than 1% of the stock is held by insiders and 5% owners. Vanguard funds collectively own just over 8% and Black Rock Institutional Trust and Black Rock Fund Advisors together own just over 5%. Vanguard is a leader in index funds and Black Rock manages retirement accounts for large companies. Demand for S&P 500 stocks increase as money flows into 401K funds each week. The average daily volume for Pitney Bowes is 1.7mm shares. Currently there are over 202mm shares outstanding with about a 10% short interest.
Pitney Bowes caught my attention last year in January with their price bouncing around the $10 dollar range and the chance to cash in on a 15% yield based on the 37.5 cent quarterly dividend. At that point the stock had been sliding from a relative high of 20.63 on February 17th 2011. The news reports at that time were focusing on the high probability of a dividend cut in favor of reducing their debt. Ultimately the dividend was cut in the 2nd quarter of the year and the announcement that it would be cut in half rather than dropped to zero sparked a new optimism that for income investors that Pitney Bowes was not going gently into that good night and the market boosted the price to as much as $14. At that point the yield was still an attractive 5%
Currently the Pitney Bowes dividend payout continues to exceed its earnings. With an annual per share payout of 75 cents and earnings of just 59 cents they are using paid in capital to pay the dividends instead of using retained earnings to fund dividend, research and development. They are cutting costs as indicated on their balance sheet which shows a reduction of total liabilities year over year by 20% from $8.2B in 2011 to $6.6B last year, a respectable achievement. Cost cutting can only go so far, at some point the top line has to grow as well to provide the cash needed to reduce debt, develop new products and services, and support that dividend.
The income statement for the same period shows a reduction in gross revenues and profits, however of particular interest is the behavior of the stock price, especially upon the release of earnings. Over the last two quarters the earnings have exceeded the analyst's estimates and in January the stock jumped more than 11% the following day, the second highest post report gainer as reported by CNBC in their article "These 5 stocks pop during earning season"
The company is making progress becoming more than the premier manufacturer of mailing equipment and are following Xerox's lead and expanding into software and hardware areas like payment systems, lock boxes and systems to streamline mail management as pertains to hard copy data. In the long term they may someday again become a solid income generator for investors. In the short term individual owners need to consider locking in some profits with the run up in the price. Before year end expect (non index) mutual fund managers to sell and lock in their gains to make for a better return on their annual reports.
If you consider Pitney Bowes to be more like a tech company and less of an old line manufacturer, consider instead the much cheaper Intel (NASDAQ:INTC) which yields a higher 3% with a lower P/E under 18, even with Wednesday's spike in price. Xerox (NYSE:XRX) has a lower yield of 2% and a P/E under 15 and some may find it attractive in that their dividend payout ratio is just 27%. Even Google (NASDAQ:GOOG) has a lower P/E at 30 but it pays no dividend. Finally, if you are looking for a long term hold for your Pitney Bowes profit that is a large cap manufacturer, take a look at Ford (NYSE:F) with its 3% yield, low P/E of just 11, payout ratio of 31% and the potential of the aging automobile fleet globally.