Corporate insiders' sales of stock in their own companies may be indicative of an expected drop in share prices in the near future. With access to privileged information regarding their own businesses, insiders are in a better position than general investors to judge when it is best to sell shares in their companies. It may be advisable for non-insiders to mimic insider actions in order to preserve capital or maximize returns.
Last week, several noteworthy insiders in reputed large-cap firms dumped shares of their companies. Here is a quick glance at three such sales transactions involving dividend-paying stocks.
Colgate-Palmolive (CL) is a $50 billion personal goods company producing a range of household, healthcare, and personal products. The stock pays a dividend yielding 2.3% on a payout ratio of 50%. Its peers Procter & Gamble (PG) and Kimberly-Clark (KMB) pay dividend yields of 3.5% and 3.4%, respectively. Over the past five years, Colgate-Palmolive has seen robust growth in its EPS and dividends, which grew 15% and 12% per year, respectively. Analysts now expect that the firm's EPS will grow at 9.1% per year for the next five years. The company has several strengths, including solid revenue growth -- especially in emerging markets -- a strong return on equity, and growth in net income and EPS. Rising nearly 17% over the past 12 months, the company's stock has outperformed most of its peers. The company's shares were recently trading at $103.90 a share, close to their 52-week high.
Between July 3 and July 17, five different corporate insiders exercised their options and sold their shares in the open market. The five insiders sold a total of 29,365 shares for a total value of $3.08 million. The notable insiders included the company's presidents of North America and Latin America operations, chief legal officer and secretary, and senior VP of global human resources. Among fund managers, the stock is popular with billionaires Jim Simons and Ken Griffin.
U.S. Bancorp (USB) is the eight-largest U.S. bank by asset size. It has market capitalization of $64 billion. The bank pays a dividend yield of 2.3% on a payout ratio of 29%. The bank's key competitors are Bank of America (BAC), JPMorgan Chase (JPM), and Wells Fargo (WFC), which yield 0.6%, 3.5%, and 2.6%, respectively. The bank has a price-to-book ratio of 2, more than double the average for the industry. Its return on equity of 16.5% is much higher than that for the regional banks industry on average. The bank is forecast to grow its EPS on average by nearly 8.4% per year for the next half decade. The bank's shares were recently changing hands at $33.60 a share, up 24% over the past year, and close to their new 52-week high. At that price level, based on the price/earnings ratios, the bank's stock has become pricier than those of its rivals.
On July 17, three insiders exercised their options and sold, collectively, some 296,677 shares for a total value of more than $10 million. Among the notable insiders were the company's vice chairman, executive VP of human resources, and executive VP and general counsel. Legendary investor Warren Buffett and fund manager Andreas Halvorsen hold large stakes in the company.
Snap-On (SNA) is a $4 billion company that sells hand and power tools, shop equipment, diagnostic products and software, repair information and systems solutions. Its primary customers include the automotive industry, but the company has also established a presence in the aviation, natural resource, and power generation industries. Snap-On pays a dividend yield of 2.0% on a payout ratio of 28%. Its rivals Stanley Black & Decker (SWK) and Danaher (DHR) pay yields of 2.5% and 0.2%, respectively. The company's EPS grew at spectacular 23.3% per year over the past five years. Growth is driven by the rising supply of an aging motor vehicle fleet, which is setting record in terms of age and the market expansion in the new industries. Snap-On is expanding in the international markets as well. The company has just beaten analysts' expectations for the previous quarter. Analysts forecast that EPS will rise at a rate of 13% per year for the next five years. On a forward P/E basis, the stock is trading below its respective industry, despite recently reaching a new 52-week high at $67.86 a share.
On July 19 there were two insider sales following options exercises. Nicholas T. Pinchuk, the board chairman and company's president and CEO, sold 24,825 shares at an average price of $66 per share. On the same day, the company's VP/Chief Information Officer Jeanne Moreno sold 20,000 shares at an average selling price of $66 per share. Notwithstanding these sales transactions, the company's president/CEO presented a bright outlook for the company in an interview with "Mad Money's" Jim Cramer (see the video here). Among fund managers, Jeffrey Gates of Gates Capital Management (check out its portfolio here) and billionaire Ken Fisher are big investors in the stock.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.