We recently highlighted seven companies paying large dividends that are fully covered by earnings. Due to the unusually large interest in the article, we decided to revisit the same screen and dig up five more companies that meet the previously established criteria for inclusion. Above all, we looked for companies offering a dividend yield of at least 5%, with consensus analyst EPS estimates for this year and next year each exceeding the per-share amount of the indicated annual dividend. Here is what we found:
Eli Lilly (LLY) [$38 per share; MV $44 billion; EV $44 billion] is a major pharma company, with franchises in neuroscience (e.g., Zyprexa, Cymbalta), endocrinology (e.g., Humalog), oncology (e.g., Alimta), and cardiovascular products (e.g., Cialis). Worldwide sales of key drug Zyprexa increased 2% from $4.9 billion in 2009 to $5.0 billion in 2010, while total revenue increased 6% to $23.1 billion in the period. Analysts expect Lilly to earn $4.27 per share in 2011 (9x P/E), with $3.71 (10x) and $3.92 (10x) in the following years.
The dividend of $1.96 per share implies a yield of 5.2%. The company has boosted the dividend five times in the past seven years, with average annual dividend growth of 5% for the period. Lilly has a high-return business, with an average return on equity of 23% over the past seven years.
Pitney Bowes (PBI) [$23 per share; MV $4.7 billion; EV $8.3 billion], based in Stamford, CT, provides mail processing equipment and integrated mail solutions. Small and medium-size business solutions revenue decreased 5% from $2.9 billion in 2009, to $2.8 billion in 2010, while total revenue decreased 3% to $5.4 billion in the same period. The Street expects Pitney Bowes to earn $2.28 per share in 2011 (10x P/E), with $2.30 (10x) and $2.42 (9x) in subsequent years. The annualized dividend of $1.48 per share, an increase of 1% from a year ago, implies a yield of 6.5%.
Seadrill (SDRL) [$35 per share; MV $17 billion; EV $25 billion] provides offshore oil and gas drilling services. It recently owned a fleet of 39 offshore drilling units, consisting of 15 jack-up rigs, nine semi-submersible rigs, four drillships and 11 tender rigs. The company also has three semi-submersible rigs, three drillships, four tender rigs and six jack-up rigs under construction or in mobilization to first contract. Seadrill also holds a number of investments, including 49% of rig operator Varia Perdana, 36% of well services company Archer (merger of Seawell and Allis-Chalmers), 24% of oil services company SapuraCrest, and 9% of Pride (prior to Pride's merger with Ensco).
Norwegian mogul and Frontline (FRO) chairman and CEO John Fredriksen controls Hemen, Seadrill's largest shareholder, and also serves as Seadrill's chairman. Alf Thorkildsen has been CEO since 2008, with past experience including the CFO position at Smedvig, an offshore drilling contract Seadrill acquired in 2006. The number of drilling units rose 44% from 7,515 at the end of 2009, to 11K at year-end 2010. The Street expects Seadrill to earn $2.96 per share in 2011 (12x P/E), followed by $3.31 (11x) and $3.40 (10x) in each of the next two years, respectively. The annualized dividend of $3.00 per share, an increase of 18% from a year ago, implies a yield of 8.5%. Seadrill operates a high-return business, with a seven-year average return on equity of 31%.
W. P. Carey (WPC) [$40 per share; MV $1.6 billion; EV $1.9 billion], based in New York City, provides long-term sale-leaseback and build-to-suit transactions. The company invests primarily in commercial properties globally that are triple-net leased to single corporate tenants, which requires each tenant to pay the costs of operating and maintaining a property. Carey also earns revenue as an advisor to publicly owned, non-actively traded REITs.
Founder and chairman Polk Carey has specialized in net leasing of corporate real estate since 1964, delivering strong long-term investment returns. He owns 30% of the company, suggesting strong alignment of interests with shareholders. As Carey is 80+ years old, succession is an issue, with CEO Trevor Bond owning few shares of the company. According to the proxy statement, Bond is the son of the second husband of the daughter of the half sister of Polk Carey (no joke!).
Net investments in real estate increased 7% from $884 million at the end of 2009, to $947 million at year-end 2010. Analysts expect Carey to earn $2.73 per share in 2011, (15x P/E), with $2.21 (18x) and $2.37 (17x) in subsequent years. The indicated dividend of $2.20 per share, an increase of 8% from a year ago, implies a yield of 5.5%.
Walter Investment (WAC) [$24 per share; MV $630 million], based in Tampa, FL, serves as an asset manager, mortgage portfolio owner and mortgage servicer specializing in non-prime, non-conforming and other bad-credit mortgage assets in the southeastern U.S. The company was established in 1958 as the financing business of Walter Energy, a company that operated in the natural resources, financing and homebuilding businesses. Walter Investment services roughly 34,000 individual residential loans for its owned portfolio. Residential loans decreased 1% from $1.6 billion at the end of 2009, to $1.6 billion at year-end 2010.
The Street expects Walter to earn $1.61 per share in 2011 (15x P/E), with $2.65 (9x) and $2.75 (9x) in subsequent years. The company trades at 1.1x tangible book value of $560 million. The dividend of $2.00 per share implies a yield of 8.2%. The company operates a high-return business, with a seven-year average return on equity of 27%.
Earlier this month, Walter closed on a $1.1 billion transformational acquisition of Green Tree, a leading fee-based services company that provides third-party servicing of credit-sensitive consumer loans. Prior to the deal, Green Tree serviced a $37 billion loan portfolio consisting of 745K loans.
Steve Cohen's hedge fund SAC Capital filed a 13G in June, reporting an ownership stake of 6% in Walter. It would be difficult to understand why SAC would invest in Walter unless the fund liked the just-completed Green Tree acquisition. Walter has released an information memorandum containing details on Green Tree's historical performance as well as the pro forma results of the combined company. This is a worthwhile read for anyone considering an investment in Walter.