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Jim Trippon is an Amazon.com bestselling business and finance author, a practicing CPA, and a fee based investment advisor. His portfolio of companies includes J.M. Trippon & Company CPA, Trippon Wealth Management & Trippon Financial Publishing. Jim has dedicated his business career to... More
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  • Abbott Labs' Dividend Split
    Most investors are aware that last week pharmaceutical and healthcare company Abbott Labs (NYSE: ABT) decided to split itself into two companies. One will feature its pharmaceutical products, prescription drugs led by its blockbuster rheumatoid arthritis drug, Humira, while the other company will feature its healthcare products such as medical devices. The new companies will be set up to generate roughly equal revenue, with what is now $40 billion annually. Roughly $18 billion in revenue is expected from the new drug company, with $22 billion from the medical device and healthcare company.

    A Stellar Dividend Stock

    Abbott Labs is famously known by investors as a star dividend stock, one which consistently raises its dividends. It's included in the S & P list of “Dividend Aristocrats,” a widely followed list by dividend investors, and according to the company, paid dividends every year since 1924 and raised them the last 34 years. Abbott pays an annual dividend of $1.92, which gives it a current yield of 3.7%. The company has an $84 billion market cap, earned $3.23 per share in the last year, traded recently at a trailing PE of 16.5, and its shares traded recently near a 52-week high of $54.05.

    Abbott Labs' Record Of Dividends

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    A Dividend Division

    One of the decisions that Abbott made for when the company splits in two next year is to divide the dividend equally between the two companies. Both the pharmaceutical company and the medical device company will pay out half of what the current dividend pays. Abbott has long been a favorite of dividend investors because of its consistent history of solid dividend increases, and investors have come to expect this. So with the revenue and earnings of Abbott which look sound, along with its excellent history of paying dividends, what's the reason for breaking up the company?

    Seeking Growth

    Abbott's share price has essentially been flat and range bound in the last ten years. In the last two years, the stock had barely edged up. While revenue has increased, earnings have been up and down a bit in the past three years. The projected spinoff of the drug and medical device businesses each as separate companies is an attempt to kick start growth and unlock value. Abbott's flagship drug, Humira, which still has five years to run on its patent, accounts for $6.5 billion in sales. While Abbott carries other products, none have the impact that Humira has, which has led to further speculation that Abbott's prescription drug business will be very attractive for a takeover.

    Takeover Candidates

    A number of other drug makers who lack the blockbuster product such as Humira have been mentioned as possible suitors for the Abbott's prospective pharmaceutical spin off. European drug makers Roche Holdings AG (RO.SW) and Bayer (BAYN.DE) were mentioned by analysts in a Bloomberg article as likely candidates. Also, Merck (NYSE: MRK) and Astra Zeneca (NYSE: AZN) are other possible acquirers. The spin off of Abbott's pharma business was valued in the neighborhood of $45 billion to $55 billion by analysts quoted in the piece.

    Abbott Labs Stock Ten Year Price Chart

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    Two Companies, Two Dividends

    Many pharmaceutical companies pay rich dividends. Merck currently yields 4.6%, Pfizer (NYSE: PFE) 4.2%, while Eli Lilly (NYSE: LLY) pays out at a 5.1% rate, Astra Zeneca (NYSE: AZN) pays 3.6%, and Johnson & Johnson (NYSE: JNJ), the combination drug and consumer products company, pays 3.5%. Abbott Labs has been compared to Johnson & Johnson—a smaller, less diversified version—and some observers had expected Abbott instead to pursue more acquisitions, to keep growing through expansion rather than engineer its own break up.

    Yet as pointed out in a Wall St. Journal piece, the trend toward pharmaceutical companies breaking apart their conglomerations is in place. Bristol-Myers Squibb (NYSE: BMY) spun off Mead Johnson (NYSE: MJN), which now carries a much higher valuation than Bristol-Myers. For Abbott and most of the other pharmaceutical companies, its drug business is much more narrow, its main revenue often tied to one or two main products, while the healthcare segment usually features an array of often disparate though diversified products.

    For Dividend Investors

    Many long-time Abbott investors who hold the stock for the dividend will perhaps be disappointed that the entire current dividend isn't going to be paid by the proposed pharmaceutical business. Then dividend investors could have simply continued holding onto that version of Abbott Labs stock, which might have even had a chance to bump up its yield, while investors might sell shares of the spin off healthcare company if they weren't interested in keeping that stock. But dividend investors should wait to see how this spin off materializes and keep their options open. That's the best way to ensure your profits.


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    For more information and archived issues, visit http://www.globalprofitsalert.com

    Global Profits Alert (GPA) is published by Trippon Financial Research, Inc. a financial media organization with offices in the United States, Hong Kong and Mainland China. GPA is written by Jim Trippon in conjunction with George Wolff, Sunny Wang, Todd Shriber, Kelley Damiani and J. Daryl Thompson.

    Would you like to republish this article? Global Profits Alert issues can be republished, as long as the republished issues contain the name of the author(s) and the following short paragraph:

    This information was brought to you by GlobalProfitsAlert.com, a publication of Trippon Financial Research, Inc. GlobalProfitsAlert.com publishes information on Investing in the China stock market and emerging markets, dividend stock and income investing, exchange traded funds (ETFs), green energy stocks, technology stocks, global market trends and other investment information. To view archives or subscribe, visit http://www.globalprofitsalert.com.

    Nov 02 10:03 AM | Link | Comment!
  • How To Profit From Backwardation
    Earlier this year, I wrote about contango, the commodities market situation where longer-dated futures contracts are trading above the current spot price. This can happen with any commodity under the sun, but in most cases, I'd bet that investors know a little something about contango as it pertains to energy commodities, such as crude oil and natural gas.

    As I mentioned in that piece, there is a reverse of contango known as backwardation. Backwardation is when current prices of a commodity trade higher than longer-dated contracts. I bring this up because West Texas Intermediate futures have moved into backwardation for the first time in roughly three years. Personally, I'm not celebrating nor degrading the fact that WTI has moved into backwardation if for no other reason than the spread between WTI and Brent Crude is still wide and the latter is really the global standard. Personal feelings aside...

    If you happened to recently purchase the controversial U.S. Oil Fund (NYSE: USO), congrats. That was a shrewd move because USO has been rocked by contango in recent years, leading to steep losses even while WTI prices have surged. As long as backwardation is around, USO will be in the spotlight, and for positive reasons for once, because the ETF sells the front month contracts to purchase longer-dated contracts. Now that that's a profitable endeavor, USO investors should finally be pleased after several years of suffering.

    Long story short, USO is one option for profiting from backwardation. I still like oil equities and the ETFs that track them. That statement may seem bold, almost brazen assuming that what the commodities market is telling us today proves accurate and that is crude prices will be lower in several months than the roughly $90 per barrel for which oil goes for today.

    My logic is pretty simple economics and we've actually seen it at play this year. When oil prices are in the $110-$120 per barrel area, that's when consumers say “Enough is enough.” In other words, it may seem like a good idea to own shares of Exxon Mobil (NYSE: XOM) or the SPDR S&P Oil & Gas Exploration & Production ETF (NYSE: XOP) when oil is $120 a barrel, but it's not all it's cracked up to be.

    Alright, so I've outlined the theoretical line in the sand where oil consumers halt consumption, but there is price area where producers and consumers are comfortable, sort of. That is the $85-$95 per barrel neighborhood. Faced with the specter of $120 oil, oil consumers are inclined to view $90 a barrel as a decent deal and faced with consumption decreases at $120, producers don't mind selling for $85, $89, whatever because those prices are still quite high by historical standards.

    That's today's economics lessons. Today's profit opportunity for backwardation is equity-based ETFs. There's no shortage of oil sector ETFs out there, but I prefer XOP and I certainly prefer XOP to USO.

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    Not only does XOP have a reasonable expense ratio, it's home to a few potential takeover targets AND the oil names conservative investors usually like. Not to mention, XOP is a great unleveraged ETF for active traders. Oh yeah, XOP has been on a roll lately and that was before the backwardation situation came about. See, you can profit with or without backwardation.


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    For more information and archived issues, visit http://www.globalprofitsalert.com

    Global Profits Alert (GPA) is published by Trippon Financial Research, Inc. a financial media organization with offices in the United States, Hong Kong and Mainland China. GPA is written by Jim Trippon in conjunction with George Wolff, Sunny Wang, Todd Shriber, Kelley Damiani and J. Daryl Thompson.

    Would you like to republish this article? Global Profits Alert issues can be republished, as long as the republished issues contain the name of the author(s) and the following short paragraph:

    This information was brought to you by GlobalProfitsAlert.com, a publication of Trippon Financial Research, Inc. GlobalProfitsAlert.com publishes information on Investing in the China stock market and emerging markets, dividend stock and income investing, exchange traded funds (ETFs), green energy stocks, technology stocks, global market trends and other investment information. To view archives or subscribe, visit http://www.globalprofitsalert.com

    Nov 02 9:59 AM | Link | Comment!
  • Will China Steer A Soft Landing?
    With China's GDP slowing unexpectedly according to recent figures, some observers are wondering if its usually red hot economy may now be headed for a hard landing or not. China's National Bureau of Statistics released data that showed China's GDP grew 9.1 percent year over year for its third quarter, less than the 9.3 percent median figure predicted in a Bloomberg News survey. The GDP had expanded 9.5 percent in the second quarter while GDP growth was 9.7 in percent in the first quarter of this year.

    China GDP Growth

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    While the slower growth was the goal of China's government, according to Lian Ping, chief economist with the Bank of Communications, cited in a China Daily article, now the concern in some quarters is if growth is slowing too much. The government has been trying to hold down inflation mostly by interest rate hikes to slow the rise in surging property prices. China has raised its benchmark rates on one-year borrowing costs to 6.56 percent in an attempt to drive inflation down to 4 percent. The inflation rate has fallen, but prices still climbed 6.1 percent in September, exceeding the target rate of 4 percent.

    Euro Demand Down

    Although China is still battling inflation, it may at least be temporarily done with rate hikes. The falling demand in Europe due to the debt crisis is weakening that major market for Chinese exports. China's internal spending has supported its domestic growth even as the global economy continues to show signs of slowing. Consumer spending has been more robust, with a 17.7 percent gain in September following a similar gain in August. Inflation has had a different effect on China's populace than it would in the west, particularly in the US. With a greater savings rate, inflation has meant more money for both investing and spending, so thus the healthy growth in consumer spending.

    Although China is still an export driven and trade dependent economy, with 27 percent of its GDP accounted for by exports in 2010, many observers see China's growing consumer economy as eventually changing the mix. China's fixed asset investments, those for property, plants and equipment, was up 24.9 percent in the first three-quarters of the year. Investment in real property is still running high, with a 32 percent year over year increase, while investment in residential property was up 35 percent. Industrial value added output, a key mark of industrial production, rose 14.2 percent in the first three quarters of the year.

    Growth Still There

    Despite the slowing of Europe's economy and the global economy as well, China's growth, while slower, is still substantial. Anything near the 9 percent annual figure still dwarfs the growth rates of the mature economies in the west. Still, the world's financial markets have been used to continued rising growth in China, so the markets reacted. The Shanghai composite index dropped 2.3 percent on the news of China's slower growth while other Asian markets followed suit. Near and medium term there are still many factors to consider as to how China's economic growth situation will play out. There is debate about how much growth China will continue to enjoy as well as debate about how China's government will react to those results as well as to changing economic conditions.

    Construction In Wuhan, Hubei Province

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    While we've seen estimates for GDP growth going forward in China ranging from 8.5 percent to around 9 percent, the question is how will the country respond? Yao Wei, economist at Societe General SA (OTC: SCGLY), said in a Bloomberg piece that the next move might be easing, though not in the near term. On the other hand, Shanghai Securities' strategist Tu Jun said that China's central bank was likely to keep to a tight monetary policy, with interest rate hikes resuming by the middle of next year. China central bank advisor Xia Bin said the economy doesn't need any major stimulus, and that the central bank should stick with a policy he calls, "prudent."

    What's Likely To Happen

    China most likely will keep a close rein on things, though it has to watch carefully, as there are both inflationary aspects and areas of its economy that may need a boost. There is still concern with the property situation with its potential for further inflation, though the government has been encouraging behind the scenes increases in loan reserves by the banks. The consumer spending will also help buoy growth in what looks to be the absence of dramatic trade growth for now. Small and medium enterprises are going to need easier credit and the government is trying to move in that direction. Of course if the European situation deteriorates to the point of more severely clouding global growth, China's landing could be harder. But the PRC has plenty of reserves to fight off a downturn, so it's likely to get the stable growth it's after.


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    For more information and archived issues, visit http://www.globalprofitsalert.com

    Global Profits Alert (GPA) is published by Trippon Financial Research, Inc. a financial media organization with offices in the United States, Hong Kong and Mainland China. GPA is written by Jim Trippon in conjunction with George Wolff, Sunny Wang, Todd Shriber, Kelley Damiani and J. Daryl Thompson.

    Would you like to republish this article? Global Profits Alert issues can be republished, as long as the republished issues contain the name of the author(s) and the following short paragraph:

    This information was brought to you by GlobalProfitsAlert.com, a publication of Trippon Financial Research, Inc. GlobalProfitsAlert.com publishes information on Investing in the China stock market and emerging markets, dividend stock and income investing, exchange traded funds (ETFs), green energy stocks, technology stocks, global market trends and other investment information. To view archives or subscribe, visit http://www.globalprofitsalert.com.
    Nov 02 9:54 AM | Link | Comment!
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