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Investment advisor, long only, dividend investing
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As a teenager in the early 1980‘s, just about every dime of any pocket money I had went towards either record albums (yes..the black…round things that hipsters are trying to bring back. Personally…I like where recorded music has gone. Try to put a double LP in the pocket of your cargo shorts) or cassette tapes. Columbia/CBS records (now part of Sony (NYSE:SNE)) had a merchandising strategy called “The Nice Price”. The label priced albums from certain artists at attractive discount.
Lucky for me, all of the stuff I was into was priced nice: Elvis Costello, The Clash, The Boomtown Rats, great stuff at an affordable price. All of the stuff on Columbia that I didn’t want, like Loverboy or Billy Joel, usually wasn’t discounted. Didn’t matter. Didn’t want ‘em. So for a fair price, I built a decent record collection back in the day. It was all about the value. Back then, the P/E on the S&P 500 was about 7.5. I should’ve been buying stocks instead of The Clash’s London Calling or Elvis Costello’s This Year’s Model.
The S&P 500’s P/E now sits at 16.8 and the dividend yield sits at 1.95%. The 52 week high was 23.75 and the yield was 1.77%. That’s a 31% difference. Is it at the “Nice Price”? Hard to say. The 52 week low was 15.67 so, currently, we’re not too far off from that. Consider that in the context of the index’s P/E during the absolute, insane market top of 1999. Back in those frothy days, the P/E for the S&P 500 was a bargainly 33.52 and the dividend yield was 1.3. 16.8 times earnings doesn’t seem all that ridiculous. Of course, 7.5 times is a better deal, but again, hop in Mr. Peabody’s Wayback Machine and dial it back to 1982. The Reagan Revolution was in the blocks and waiting for the starting pistol to be fired.
What to do, what to do? My guess would be to look in the Nice Price bin and find decent stuff trading under 16.8 times trailing earnings. Thumb through some of the big pharma names like Eli Lilly (NYSE:LLY) with a trailing P/E of 7.5 and a dividend yield of 5.68%. A big oiler (love ‘em or hate ‘em) like Conoco Phillips (NYSE:COP) at 10.5 times trailing yielding 3.29% is probably okay as well. Maybe round it out with some crusty old tech/telecom. Chipster Intel (NASDAQ:INTC) sports a late 70’s/early 80’s style P/E of 9.98 and a tech bubble uncool dividend yield of 3.54%. Round it with the soon to be a monopoly again AT&T (NYSE:T) trading at 8.6 times trailing and paying 5.94%, just like it did when your grandmother owned it.
The index might be a good deal on a price basis compared to where it’s been. I think better deals can be found in cheaper, high quality names. Just like the Nice Price albums. I’d be willing to bet that more people still have their vinyl copy of This Year’s Model than Loverboy’s Get Lucky.
Well…maybe we can get lucky with this edition’s three lil’ piggies…
“HEY ABBOTTTTTTT!!!!!!!!”
  • Abbott Laboratories (NYSE:ABT)
  • Recent Price: 48.40
  • P/E: 16.34
  • Current Yield: 3.96%
The Skinny
If ABT was a high school senior, it would probably be valedictorian. Beautiful company. $7.2 billion in cash flow. A dividend payout ratio of 59%. I could go on. Some quick forward numbers: the 2011 forecast calls for 8% revenue growth (huge for a company of that girth), 10% of sales ($3.5 billion) invested in R&D, and consistent, multi decade dividend growth. Most recently, they bumped their generosity up 11%. ABT knows how to execute and are spot on when it comes to delivering shareholder value.
The Danger
Believe it or not, straight “A” students can screw up. ABT has been on a bit of a shopping spree snapping up ophthalmic care company Advanced Medical Optics and, most recently, the pharma division of Belgium based Solvay SA (OTC:SVYSF). These are great and smart acquisitions, but mergers always bring unexpected surprises and integration challenges. Also, scientific research is all about trial and error. Pipeline setbacks are par for the course. Lastly, big pharma will always deal with legal and regulatory risk.
“That’s some profitable healthcare…eh?”
  • Medical Facilities Corporation (OTCPK:MFCSF)
  • Recent Price: 13.01
  • P/E: NA
  • Current Yield: 8.67%
The Skinny
We’ll definitely put this one in our “outlier” file. MFCSF is a British Columbia corporation designed to be similar to a Canadian Income Trust (there are/were a lot of these in the energy sector). Shares trade on the Pink Sheets as Income Participating Securities (although the company is seeking shareholder support to convert to a traditional common share structure). According to their website, the company owns 51%+ interest in four specialty surgical centers in South Dakota and Oklahoma and an ambulatory surgery center in California. Research was tough on this one (we’ll discuss in the “danger” section, below). What we could glean was that for Q4 2010, MFCSF had a 10.9% increase in facility service revenue, a 23.1% increase in operating income, and an 11% increase in operating margin. Not bad. Cash available for distribution increased 10.7%. I guess since Canada’s got one of those comuno-fascist-socialist, single payer, healthcare systems, MFCSF must realize that, for now, there’s money to be made in the U.S. healthcare space.
The Danger
As mentioned earlier, finding insightful info on this name was a challenge. It’s really not covered stateside (plenty of Canadian firms follow it, though). Reading the available info, it was hard to get a bead on their actual earnings. Also, volume isn’t in the millions of shares. Always…always use limit orders (hell…everyone should use limit orders for everything anyway). Chart looks a little toppy, too. Lastly, the company’s rationale of changing to a common share structure was to encourage more physician, equity ownership. There’s an old saying in the investment business: “When the doctors go long…you go short.”
“Wristband of brothers…”
  • Standard Register Co. (NYSE:SR)
  • Recent Price: 3.30
  • P/E: 33
  • Current Yield: 6.06%
The Skinny
We profiled SR last year and, while we try not to repeat ourselves, we thought the fact that they went earnings positive was significant. SR specializes in document management, especially in the healthcare industry. They’re one of the largest manufacturers of “patient identification solutions” which is fancy corpo-talk for “hospital wristbands”. Sadly, no shortage of sick people out there, so, business is good. Anyway, seems that SR’s earnings worm has turned. They earned 0.10 a share for 2010 after losing 0.43 per share in 2009. That’s a pretty good improvement. We’re encouraged. Business is in a good space, too.
The Danger
SR was a $34 stock 9 years ago. Now the market cap is under $100 million. The company has been in the commercial printing business since the Roaring 20’s. The printing business is shrinking rapidly and SR and their peers are scrambling to adapt digitally. On average, revenues have declined by 5.2% annually. The picture for SR is better, but it’s not yet in complete focus.
Disclosure: None
Source: The Nice Price: Some Dividend Stocks Now at Attractive Discounts