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eChristian Investing
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  • BP Questions, Rumors and Predictions
    For weeks now, questions, rumors, speculation and predictions have been swirling about BP. The world’s 4th largest company has seemingly made misstep after misstep since the April 20th explosion on the Deepwater Horizon rig in the Gulf of Mexico.
    It has now been 52 days since the explosion and there still remains two key unanswered questions.
    1. When will BP be able to stop the oil well from spewing thousands of barrels of oil into the Gulf of Mexico each day?
    2. How much will BP have to pay as a result of this disaster?
    The longer these two key questions have remained unanswered, it has led to additional questions and speculation over the future of BP.
    1. Will BP be forced to cut or suspend their dividend?
    2. Will the mounting cost of oil spill force to file for bankruptcy?
    3. Will the U.S. restrict BP from operating in the U.S.?
    4. Will another company (possibly Exxon Mobil, Total or Royal Dutch Shell) acquire BP?
    Tensions between the U.S. government and BP have been deteriorating rapidly. Recently, President Obama stated that if BP CEO Tony Hayward worked for him, he would be fired over the handling of this disaster.
    The clamoring for BP to cut its dividend payment has also been increasing. This week over 40 lawmakers asked BP to suspend their dividend payment and to cease advertising campaigns until the cost of this massive oil spill is known.
    These questions along with speculation over whether BP will even survive as a company have resulted in BP’s stock price falling nearly 50% since April 20.
    We at have our own BP predictions:
    Dividend Cut
    BP will be forced to cave to political pressure and temporarily suspend their dividend payments. The company certainly has a strong enough balance sheet to continue to fund their dividend program, but the political risk of continuing the dividend program doesn’t make it worthwhile. BP’s chief concern has to be maintaining their U.S. presence and possibly even maintaining their government contracts.
    BP will not be forced to file for bankruptcy. BP has nearly $7 billion in cash currently sitting on their balance sheet and the ability to take on significantly more debt if needed. The company is also a cash flow machine – generating $30 billion last year in operating cash flow. This solid financial position will enable BP to handle even the high-end of cleanup cost estimates.
    While BP’s falling stock price may remind investors of Lehman Brothers or Bear Stearns, BP is unlikely to be acquired for pennies on the dollar like those former Wall Street firms. BP continues to generate tremendous cash flow and there are only a handful of companies that could even consider making such an acquisition.
    U.S. Operations
    In 2009, 36% of BP’s revenues came from the United States. President Obama and U.S. lawmakers could take steps to serious restrict BP from conducting business in this country. However, the detrimental impact to the domestic economy makes this an unlikely option. However, the federal government will use this as a threat to coerce BP into cutting its dividend payments and to pay all the cleanup bills.

    Disclosure: No Positions
    Tags: BP, XOM, TOT, RDS.A, dividend, energy
    Jun 11 2:46 PM | Link | Comment!
  • When to Sell Dividend Stocks
    Investors that buy dividend stocks are typically long-term investors. These buy-and-hold investors are much less interested in capitalizing on short-term price swings and more focused on producing solid, long-term returns.
    At, we tend to focus primarily on identifying good dividend stocks to buy and probably don’t give enough attention on when to sell dividend stocks. In today’s markets, there are quite a few attractive dividend stocks with high yields to help bolster investor returns. However, it is often easier to know when to buy a stock than when to sell it.
    While it’s true that many investors will simply hold onto their dividend stocks forever, is that investing strategy right in every situation? Are there any indicators that will tell you when to sell dividend stocks?
    Unfortunately, there is no magic red light that goes off on your investor dashboard that will tell you when to sell your dividend stocks. However, that doesn’t necessarily mean you should continue to hold them forever either.
    There are really two major sell signals that investors should watch when investing in dividend stocks.
    The first indicator is stock valuation. Investors should be wary of inflated valuation multiples for any stock. A stock, even with a decent dividend yield, that is valued at a much higher level than the market itself and/or its peers, is at risk of seeing its stock price fall to more reasonable levels. When this happens, your returns could be significantly impacted.
    In a normal market environment, stock valuation levels will never get so out-of-whack that you will need to consider selling, but we have all experienced periods when market valuations become completely unrealistic (anyone remember the late 1990’s?).
    The second indicator for when to sell dividend stocks is cash flow. Free cash flow is often a better indicator of company’s financial health than their net earnings. There are multiple accounting methods/tricks available to manipulate earnings, but it’s is much harder to manipulate cash flow (at least legally).  
    Obviously, firms with declining or negative cash flows generally can’t continue to pay out dividends. The time to sell a dividend stock is not when they announce that they are reducing or eliminating their dividend. By then, you have generally waited too long. However, savvy investors know when to sell dividend stocks. If there is a strong likelihood that a company will cut their dividend, it is probably a good time to get out of that stock.

    Disclosure: No Positions
    Tags: dividends
    Mar 29 12:02 PM | Link | Comment!
  • 6 Fake Dividend Stocks
    A recent stock screening exercise showed over 1,500 stocks currently pay dividends. The yields on these dividend stocks varied widely from New York Mortgage Trust with their 26.3% yield to lowly State Street Corp and their paltry 0.07% dividend yield.
    While there are many quality dividend paying stocks that offer investors respectable yields, it can be frustrating trying to sort through the myriad of stocks that pay only a token dividend yield. I fondly refer to these companies as fake dividend stocks.
    Many of these fake dividend stocks are really quality companies with great earnings and growth prospects. However, they offer ridiculously low dividend yields and return only a tiny fraction of their cash back to their shareholders. These companies pay investors as little as they feel they can get away with, while still being classified as a dividend stock.
 has put together a list of 6 fake dividend stocks. These are all companies that are very profitable, are forecasted to grow their earnings and yet they only pay out a tiny fraction of their earnings in dividends.
    The pharmaceutical stock currently offers a dividend yield of only 0.3% and has not increased their dividend since 2005.
    Since initiating their dividend in 2005, the company has continued to pay investors a whopping $.06 per share each year and offers a paltry 0.1% dividend yield.
    After increasing their dividend by $.01 in 2006, Equifax has kept their annual dividend constant at $.16 per share and yields only 0.4%.
    The energy company has held their quarterly dividend at $.10 per share since 2006 and currently yields only 0.6%.
    Hewlett-Packard is currently the second-lowest yielding dividend stock in the Dow Jones index (behind only Bank of America’s nominal dividend). The stock currently pays dividend investors only $.32 per share each year – the same amount it paid in 1998 (the last time they increased their dividend).
    Precision Castparts
    Last year, Precision Castparts earned $7.38 per share and yet only paid out $.12 per share in dividends.  
    Of course, these six companies are not the only fake dividend stocks. There are dozens more who want to be classified as a dividend stock and yet they want to pay as small of a dividend as possible. There are times when economic or business conditions will force a company to cut their dividend – Bank of America, Citigroup, General Electric, etc. all dramatically reduced their dividend during the Great Recession. While dividend cuts are painful at least investors generally understand why a company is compelled to do so. On the other hand, fake dividend stocks are in a great position to pay out higher dividend yields, but willfully choose to pay tiny yields instead.

    Disclosure: No Positions
    Tags: AGN, APH, EFX, HES, HPQ, PCP, BAC, C, GE, STT, NYMT, dividends
    Mar 22 9:31 AM | Link | Comment!
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