Insiders sell shares in their own companies for several reasons. One of the reasons corporate insiders sell their stock is the expectation that stock prices will decline in the near future. Given that insiders have access to privileged information about their businesses and respective industries, they have the capacity to make better judgments than the general investment public about when it is best to sell the stock in their own companies. Investors who follow the insiders' suit are likely to make decisions that will maximize their returns and will safeguard their wealth.
Over the past couple of weeks, there have been several notable insider sales of stocks paying attractive dividends. Here we take a closer look at four such insider sale transactions.
Honeywell International (NYSE:HON) is a $48-billion producer of aerospace, specialty materials, automation and control, building controls, and transportation systems products. It pays a dividend yield of 2.4% on a payout ratio of 51%. Its peers United Technologies Corp. (NYSE:UTX) and Johnson Controls (NYSE:JCI) pay dividend yields of 2.6% and 2.5%, while rival BorgWarner Inc. (NYSE:BWA) does not pay any dividends. Over the past five years, the company's EPS contracted at an average rate of close to 5% per year, while its dividends grew at an average annual rate of 8.8%. Analysts expect that the firm's EPS will grow at a robust 12.8% per year for the next five years. Given the expected high rate of growth in EPS, dividend increases can be expected in the future. The stock has a free cash flow yield of 2.7%, ROE of 19%, and return on invested capital [ROIC] of 12.5%. The company's shares are currently trading at $61.3 a share, up 30% over the past 12 months and close to their 52-week high.
On September 13, Honeywell's Senior VP and General Counsel, Katherine Adams, exercised options on 25,000 shares of stock worth $35.65 a share and sold 19,142 shares at an average price of $60.40 a share. Among fund managers, the stock is popular with Phill Gross and Robert Atchinson (Adage Capital), who own more than $343 million worth of this stock.
Johnson & Johnson (NYSE:JNJ) is a $189-billion pharmaceutical company. It pays a dividend yield of 3.6% on a payout ratio of 77%. The company's key competitors Pfizer (NYSE:PFE), Covidien PLC (COV), and Novartis AG (NYSE:NVS) yield 3.7%, 1.5%, and 4.1%, respectively. Over the past five years, J&J's EPS contracted slightly, while its dividends per share grew at an average rate of 8.4% per year. The company's EPS is forecast to expand at an average rate of 6.7% per year for the next five years. J&J has a free cash flow yield of 3.4%, ROE of 14.5, and return on invested capital [ROIC] of 12.1%. As regards valuation, the stock is currently trading at a premium to the pharmaceutical industry and the stock's own five-year average ratio. J&J's stock is changing hands at $68.60 a share, up 6.2% over the past 12 months.
On September 7, two company insiders exercised their options and sold, collectively, some 343,235 shares for a total value of more than $23.2 million. The noted insiders were the company's Chairman and CEO, William Weldon, and Corporate Controller, Stephen Cosgrove. It is worth noting that the stock is still one of the major holdings in the hedge fund portfolios of Ken Fisher and Warren Buffett.
Airgas Inc. (NYSE:ARG) is a $6.4-billion industrial gases company. It pays a dividend yield of 2.0% on a payout ratio of 38%. Airgas Inc.'s rivals Praxair (NYSE:PX) and Air Products & Chemicals Inc. (NYSE:APD) pay yields of 2.0% and 3.0%, respectively. The company's EPS grew at a robust 15.8% per year over the past five years, while dividends increased at a spectacular rate of 35% per year. Analysts forecast that the rebound in the global economy will sustain Airgas Inc.'s EPS growth at close to 13% per year for the next five years. The stock is a good dividend growth play. It has a free cash flow yield of 1.25%, ROE of 17.9%, and ROIC of 9.2%. As regards its valuation, the stock is trading at a premium to its respective industry and on par with its five-year average P/E. The stock is changing hands at $82.42 a share, up 25% over the past year.
Between September 6, and September 12, there were three insider sales transactions, following options exercises. Collectively, three company insiders exercised options and sold 28,525 shares at an average price of $85.24 per share. The three insiders included a Senior VP and CIO, VP and Controller, and one of the corporate division presidents. The stock is popular with Richard Chilton (Chilton Investment Company) and Phill Gross (Adage Capital).
The Men's Warehouse Inc. (MW) is a $1.8-billion specialty apparel retailer selling suits, sport coats, slacks, sportswear, outerwear, dress shirts, shoes and accessories. The company pays a dividend yield of 2.0% on a payout ratio of 31%. Its competitors Brooks Brothers and Burlington Coat Factory are closely held, while the publicly listed Jos. A Bank Clothiers Inc. (NASDAQ:JOSB) does not pay any dividends. The company saw its EPS shrink at an average rate of 3.2% per year over the past five years, while its dividends grew at a remarkable average rate of 24.6% per year. Analysts forecast that the company's EPS will expand at an average rate of 8.3% per year for the next half decade. The stock has a ROE and ROIC of 11.6%. In terms of valuation, the stock is priced below its industry but slightly above its five-year average P/E. Over the past year, the stock is up 25.5% to the current $35.45 a share.
So far in the month of September, there have been two stock option exercises and six sale transactions. Collectively, five insiders sold 154,080 shares for a total cost of $5.75 million or $37.3 per share. Among the insiders are the company's President and CEO, Executive VP and CAO, and Senior VP for Merchandize. The stock is still popular with fund managers Chuck Royce (Royce & Associates-check its top holdings) and Ken Fisher.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.