The term dividend usually refers to a cash distribution of earnings. If a distribution is made from sources another than current or accumulated retained earnings, the term distribution rather than dividend is used. However, it is acceptable to refer to a distribution from earnings as dividend and a distribution from capital as a liquidating dividend.
In recent years US corporations have paid out about 40% of their net income as cash dividends. However, a significant number of firms pay no cash dividends while many pay dividends in excess of their net income. Corporations view the dividend decision as quite important because it determines what funds flow to investors and what funds are retained by the firm for reinvestment. Dividend policy can also provide information to the stock holder concerning firm performance.
Proctor & Gamble (NYSE:PG)
Focused on providing consumer packaged goods, PG has not yet announced its next dividend payout. The company’s stock is currently trading at $62.53. The last date of declaration according to the board of directors for a dividend payout was 7/22/2011. The dividend announced for the third quarter of 2011 was $0.525. Hence, for the entire year, the annualized dividend is currently standing at ($ 0.525 X 4 Q = $ 2.10).
The PG stock has currently fallen from a $ 63.31 high to a $62.53 low by the end of last week experiencing a -1.23 % growth rate. As a result PG might speculate a further decrease in its stock price and hence is less likely to increase its dividend for the current quarter. PG might also consider an option to buy back stock under such circumstances, since it might consider stock repurchase as its current best option.
Under such a scenario PG might also consider an option to retain the cash for this current quarter and invest it in treasury bills yielding 10%. The market capitalization for PG is $171.82 billion based on its shares outstanding and its current share price.
The earnings per share for PG currently is $3.93 indicating a positive sign regarding the profitability of its operations. Hence I would prefer to buy the stock currently at a lower price and sell it short as soon as the price rise comes into action.
A globally renowned provider of medicines, vaccines, biological therapies, consumer health and animal products, Merck has also experienced a slump in its stock price at the end of the last trading day. The stock price fell from a $32.23 high to a $31.86 low indicating a negative 1.15 % growth rate for the company. One prime reason for such a decline in the case of stocks regarding a pharmaceutical giant could be that it’s gross margins have fallen dramatically compared to the last quarter or maybe its cash position has dwindled dramatically.
The company may also be spending too much money on general R&D expense since the fiscal year is coming to an end and it may have plans to introduce a new product launch for its customers. The last dividend declaration date for the third quarter was 7/26/2011. For the fourth quarter the company might be considering an option to retain its cash for the new fiscal year 2012 in order to finance its operations regarding marketing, execution of the product launch and keeping in mind its structured debt policies for the coming year.
Hence for investors who prefer dividends, MRK is an ideal purchase at the moment since I forecast a high dividend policy in the upcoming future along with a rise in the share price due to a speculative approach adopted by investors in the case of MRK's stock.
Consisting of portfolios with worlds famous drinks brands has experienced a considerable increase in its stock price from $73.72 to $75.93 indicating a favorable growth rate of 3%. While its counterpart PG has been experiencing a downward growth, DEO on the other hand has shown an upward trend in the stock market today.
The prime reason for such an appreciation in the stock price is consistent sales growth of 7% for the company over the last five years. The earnings growth over the last five years has been dependable for investment purposes at 5%. The current dividend yield of 3.26%, annualized dividend of $2.47 and a dividend growth over the last five year period of 5% indicates strong financial results. The company has however not yet announced a dividend so far for its shareholders.
The prime reason could be Diageo’s balance sheet, which is currently weak due to its excessive debt concentrated policies in order to finance its operations. The company’s board of directors might consider the option of reinvesting its yield as retained earnings in order to finance its operations rather than heavily relying on debt.
However, an increase in debt financing may force Diageo to increase its dividend for the next fiscal year to signal positive news in the market concerning its stock, in order to attract more investors to invest in the company’s stock. In short Diageo’s diverse portfolio of offerings is a perfect blend of global diversity and concentration indicating it to be a safe haven for investors.
PepsiCo, Inc (NYSE:PEP)
The Company's stock fell from $63.70 to $63.02 at the end of the trading day. The most perceptible risks for PepsiCo, Inc are the short term risks. Like many other consumer goods companies, PepsiCo has been struggling with commodity-cost inflation. As the price for goods like aluminum and corn increase, the profit that PepsiCo, Inc makes on its product falls.
Like most other companies in the industry, PepsiCo, Inc is raising prices to offset some of the impact. However if input costs continue to rise at a rapid pace, investors may see some profit chipped off the bottom line indicating a lower dividend payout. According to what I perceive, I guess such panic times are the ideal time to buy stock. Since investors prefer to buy at a lower rate and sell at a higher, PepsiCo Inc’s stock is worth buying.
The Coca-Cola Company (NYSE:KO)
Primarily engaged in the manufacturing, distribution and marketing of nonalcoholic beverage concentrates and syrups in markets across the world. KO has been experiencing a decrease in its stock price similar to its competitor PepsiCo, Inc. Its share price fell from $69.68 to $67.97 at the end of the trading day on Thursday indicating a negative growth rate of 2.45%.
However, the earnings per share have been consistent at $5.35 throughout the week with a dividend yield of $0.47. One major reason is the complicated rising cost situation as in the case of PepsiCo, Inc. The rising cost situation is the bitter fact that the broader economy has been trying to digest. This not only implies that The Coca-Cola Company would be facing more difficulty selling products but it also makes it much harder to get consumers to swallow price increases.
However, Coca-Cola Company is larger than PepsiCo, Inc, with a market cap of $156 billion. A key difference is that Coca-Cola does not have a substantial snack food business. This is actually a benefit to the company as rising commodity costs affect the food business more than the drink business.
Coca-Cola trades at a P/E ratio of 12.70. The stock yields 2.77% annually. The Coca-Cola Company has done a good job of growing revenues over the past five years at 8.7% annualized growth. Earnings have grown 20% annualized over five years. The company has a relatively small amount of debt for its size, at only $4.46 billion.
Coca-Cola continues to meet or exceed its long-term growth forecasts. Hence I would recommend investing in The Coca-Cola Company’s stock at the moment keeping in mind a speculative approach that the company’s stock is likely to incur a rise in the nearby future.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.