In this article, we will review five stocks that are going ex-dividend this week to see how they hold up with long-term investment goals.
Dr. Pepper Snapple Group, Inc. (NYSE:DPS) – The Plano, Texas-based non-alcoholic beverage manufacturer reported a forward annual dividend yield of 3.4 percent, or $1.28. It goes ex-dividend on Thursday, September 15. Founded in 2007, DPS has paid dividends consecutively for the past seven quarters, not including this one. Its earnings per share is $2.35, and its price to earnings ratio is 15.66. Its market capitalization is $$7.99 billion.
DPS’s competitors include Hansen Natural Corporation (HANS), with a market capitalization of $7.66 billion, and PepsiCo Inc. (NYSE:PEP), with market capitalization of $94.94 billion. HANS does not pay a dividend. PEP also offers a dividend yield of 3.4 percent, or $2.06. It has a consistent track record of paying dividends for decades. A Wall Street Journal article notes that PEP offers something that DPS does not – slow steady growth and a decades-long track record of dividends. PEP appears on S&P’s list of “Dividends Aristocrats.”
On September 1, DPS announced that negotiations are underway to increase its equity in Hydrive Energy LLC, an energy drink maker co-founded by one of DPS’s directors, according to this Dallas Business Journal article.
DPS’s quarterly revenue growth is 4.1 percent, and its trailing 12-month gross margin is 59.13 percent. Its return on equity is 21.01 percent, but its debt to equity ratio is excessive at 110.66. DPS lacks the dividend track record of its large-cap peer. It may not be the best fit for long-term dividend investors who are near or in retirement.
Silver Wheaton Corp. (NYSE:SLW) – SLW’s ex-dividend date is Friday, September 16. Its forward annual dividend yield is 0.3 percent, and earnings per share is $1.39. Its price to earnings ratio is 28.63. This will be the third quarter it has paid a dividend. Its competitor Coeur d’Alene Mines Corporation (NYSE:CDE) does not pay a dividend.
SLW’s market capitalization is $14.08 billion, and CDE’s is $2.61 billion. Both companies show very strong quarterly revenue growth, though SLW’s, at 105 percent, is less than CDE’s, at 128.80 percent. SLW’s gross margin is also quite impressive at 86.09 percent, though CDE’s 55.92 percent is slightly less than the industry average of 62.2 percent. SLW’s return on equity is 23.02 percent, and its debt to equity ratio is very low at 3.8.
Recent declines in manufacturing indicate that demand for industrial silver may be waning, according to a recent Yahoo Finance article. Though peaks and valleys are inevitable, we believe SLW remains a sound investment for some, though its dividend history may not fit with near- or at-retirement investors looking for income generating stocks.
ARMOUR Residential REIT, Inc. (NYSE:ARR) – This real estate investment trust with a market capitalization of $562.64 million trades ex-dividend on Tuesday, September 13. Its forward annual dividend yield is 19.4 percent, or $1.44. Earnings per share is $0.34, and its price to earnings ratio is 21.98. ARR paid quarterly dividends in 2010. This year it has been paying monthly dividends. ARR’s 96.67 percent gross margin exceeds the industry average of 59.47 percent. Its return on equity is 2.81 percent.
One of its competitors, Annaly Capital Management Inc. (NYSE:NLY), has a much larger market capitalization of $17.26 billion, forward annual dividend yield of 14.6 percent or $2.60, earnings per share of $2.69, and a price to earnings ratio of 6.62. NLY’s dividend history is much more established, dating back to the last quarter of 1997. NLY’s gross margin is 100 percent, and at 17.11 percent, its return on equity outshines ARR.
ARR invests in adjustable rate, residential mortgage-backed securities issued by U.S. government housing agencies. The housing market and mortgage-backed securities are fraught with turmoil and uncertainty. This Seeking Alpha article recaps some of the trends specific to mortgage real estate investment trusts, including the downward price trend, investor concerns, and risks to performance like refinancing and new government bailout.
Though REITs offer investors a way to participate in the real estate market with a liquid, income-producing vehicle, they can be risky. ARR in particular is an up and coming investment with strong performance indicators, though it may be too risky for retirees. Investors who are comfortable with mortgage REITs but looking for less risk and more track record may consider NLY.
Hewlett-Packard Company (NYSE:HPQ) – This large-cap diversified computer company went ex-dividend on Monday, September 12. Its dividend yield is 2.10 percent or $0.48. Its dividend history dates back to 1965. Last quarter HPQ upped its quarterly payment to $0.12 from $0.08, which it consistently paid for over 10 years. Earnings per share is $4.26, and its price to earnings ratio is 5.32. Other key performance indicators include a gross margin of 24.2 percent, which is lower than the industry average of 36.47 percent. Return on equity is 22.85 percent, and it debt to equity ratio is 65.52.
Its competitor Dell Inc. (NASDAQ:DELL) does not pay dividends though International Business Machines Corp. (NYSE:IBM) does. IBM offers a dividend yield of 1.9 percent or $3.00. It, too, has a long history of dividend payments, dating back to 1962. IBM increased its quarterly dividend to $0.75 for the last two quarters from $0.65 for the four previous quarters. IBM’s earnings per share is $12.32, which is higher than HPQ, and its price to earnings ratio is 13.10, which is also higher. IBM’s gross margin is 46.36 percent. Its return on equity is 69.26 percent, and its debt to equity ratio is excessive at 128.27.
HPQ recently announced that it is spinning off the sales-generating Personal Systems Group and that it is releasing eight new desktop PCs, according to this September 10 Motley Fool article.
HPQ has a nice dividend history and attractive price to earnings ratio. We believe HPQ is a good fit for long-term dividend investors as well as for retirees looking for income.
News Corp. (NASDAQ:NWSA) – This large-cap diversified media company has received more than its fair share of headlines for the shenanigans of its dictator Rupert Murdoch. This September 9 Forbes article offers a summary of the company’s structure and how it creates a “governance” risk for investors.
NWSA went ex-dividend on Monday, September 12. Its dividend yield is 1.2 percent or $0.19. NWSA has paid a semi-annual dividend since 1997. This year and last it has paid $0.075. Its earnings per share is $1.04, and it price to earnings ratio is 15.43. Return on equity is 11.2 percent, and its debt to equity ratio is 51.1.
NWSA’s numbers look attractive, but they don’t erase its governance risk. Serious dividend investors interested in safety may be better off looking at a company like Time Warner Inc. (NYSE:TWX). It offers a dividend yield of 3.3 percent or $0.94, earnings per share of $2.32, and a price to earnings ratio of 12.45. Its gross margin is 43.68 percent, compared to NWSA’s 36.96 percent. TWX’s return on equity is 7.94 percent, and its debt to equity ratio is 58.47. TWX has paid dividends since 2005.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.