Showing posts with label Eaton. Show all posts
Showing posts with label Eaton. Show all posts

Thursday, October 11, 2018

New Dividend Machine Eaton ETN

Let's review my criteria for picking a dividend machine and then I will explain why I am adding to Eaton, symbol ETN.

  • Dividend exceeds 10 year U.S. Treasury
  • EPS (earnings per share) greater than Dividend
  • Dividend Growth equal to or exceeding inflation
  • Recent Revenue Growth
  • D/E (debt to equity ratio) less then 1 or equal to industry standard

Dividend Exceeds 10 year U.S. Treasury

This is a hurdle that is hardest to meet as interest rates are going up.   Why not just buy a 10 year Treasury and go play golf.   In 10 years your principal will be returned by the Government but due to inflation the spending power of the returned principal will be diminished.   Using this logic, I can buy a stock with a yield close to the 10 year Treasury if I feel both my principal and income will grow over that 10 years.  (See 1 year graph of 10 year Treasury courtesy of Market Watch.)

EPS must exceed dividend.   

This metric seems so simple but companies with externalities outside their control may need to take a charge off against earnings during a given quarter.   This is not the case with ETN.   With ETN we have a straight forward EPS measure.  

For ETN, earnings at $7.06 far exceed the dividend pay out which is $2.64.   This ratio is often times referred to as payout ratio.  A high payout ratio is a doubled edged sword.   On one hand you would like a company to pay the stock holders as much as possible.  On the other hand, a stock that has a big cushion between EPS and dividend pay out is less likely to cut or suspend the dividend.  For conservative investors, this is critical.

Dividend Growth

All the time I helped other people manage their money I emphasized that in 20 years, your non discretionary expenses will double. I have been through this 2 times and I can verify that for this average girl, the projection is accurate and must be included in your financial plan.

You can ladder bonds as yield go up or you can put some of your income investments in stocks with solid dividend growth.   This post is not to discuss the vagaries of high current dividend versus low dividend yield but high dividend growth.   You must have dividend growth to meet your long term income goals.

Current Annual Inflation Chart

Eaton meets that goal with a 10% dividend increase recently and an average of over 11% increase annually over the past five years.


Recent Revenue Growth

In a previous post I wrote this week, I looked at 5 stocks with a combined average yield above 5%.  I looked at around 20 stocks but finding stocks with positive revenue growth was very difficult.  ETN describes it's business as "Eaton has approximately 96,000 employees in 59 countries and sells products to customers in more than 175 countries."  

Eaton suffers from exchange and tariff issues but prevails as an energy generator despite these challenges.  Revenues in 2015 were $20,855 (m) and in 2017 $20,040 (m).  That is flat to down a bit.  However, looking at their two most recent quarters and you see distinct revenue growth over the same two quarters one year ago.

2017 Quarter 1 = $4,848   2018 Quarter 1 = $5,251
2017 Quarter 2 = $5,132  2018 Quarter 2 = $5,487

D/E Ratio

Debt to equity ratio is very important to me.  A pristine balance sheet makes life much easier when we face the head winds of increasing interest rates.  For a power generator, ETN has always carried a very respectable amount of debt.  Eaton's debt to equity ratio is .40 (source MSN Money.)

Dividend Machine Fundamentals:

The table below presents ETN's Dividend Machine bona fides.

I believe Eaton deserves to be a Dividend Machine.  I will add it to my 2018 Model Portfolio that I post in this blog and I will be adding to my current position. 

M* MoneyMadam

Disclosure:  Long ETN

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Thursday, January 7, 2016

Stash your Cash in Eaton, symbol ETN

In the past I wrote a post called "stash your cash in Eaton", symbol ETN. Today I screened for stocks that

    (1) Have little or no debt
    (2) A growing dividend
    (3) A PE ratio less than 15.

I found 20 stocks using my Schwab screening tool but when I drilled into the details, Eaton came up on top. Take a look at the 2016 Stock Table below to view ETN's fundamentals.

Eaton is close to its 52 week low.   The range is $73.82 to $49.21.   I am buying today at about $49.60.    This stellar company has all the fundamentals of Dividend Machine and meets the criteria for my 2016 portfolio.  

Price to earnings ratio of 13.54 and a low D/E (debt to equity) ratio of .51 make it a compelling buy for me.   Moreover, a nice April $52.50 call is available for $1.65.  The expiration date is after the next expected ex-dividend of March 5, 2016.

I am going to stash more cash in Eaton, symbol ETN.

M* TheMoneyMadam 

Disclosure:  Long ETN with calls

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Wednesday, August 19, 2015

Stash your Cash in Eaton, ETN

It is an unsettling time to be an investor.   Cash makes nothing.  We are holding onto the few bonds we have left.   We are worried about capital losses in our dividend portfolio.

Maybe we should re think our strategy.

We still need current income and dividend stocks are a bargain while investment grade bonds pay a smidgen more than cash. 

We still need income that will go up.  Dividend growth stocks beat even the best laddered bond portfolio for income growth.

Ordinary investors are nervous; should we sell our winners?  Where should we put the money?  Surely not in our losers?  How about discount high yield bonds?  Oh how I long for the big yield bonds of the 1990’s.

Sell Winners

I am not a market timer or a trader, but I do like to sell my winners.  They are winners for a reason and that means covered calls with fat premiums are available.   Full disclosure suggests I tell you that many times when I sell a stock, usually by having a called exercised, that stock continues to go up.  Yet not all stocks stayed up and it is not uncommon for dividend growth to slow or stop.  I believe in moving my gains to garner more income.  Where should I put my money?

An example of this maneuver is Sysco, symbol SYY.  I wrote about it earlier this week.  I did not sell SYY but I sold a call just $2 above the current trading price.  Strike price of $43 fetched  $1.10 call premium.  The call expires in November which means I will probably get the next quarterly dividend.   The table below illustrates the benefits of this trade.

I think I have a good chance of losing SYY at $43 and I hope so.    If the call expires and I still own SYY, I will hold it if I can sell another call.   Selling a couple of calls a year plus the dividend create a yield closer to 6 or 7 %. 

You have to work the calls and if they are not there, I will sell it straight out, before I hear the dividend is frozen or worse yet cut.   I don’t think SYY will do either and I do not know if those calls will materialize but I do think I can find a better income investment in which to stash my cash.

Buy Dividend Machines

Where will I invest the proceeds of SYY should it be called away or if I sell it?

I will continue to look for stocks that meet all four of my criteria.  

  1. Earnings per share greater than dividends per share
  2. Dividend of at least 3.5%
  3. Dividend growth rate over 5 years of 4%
  4. D/E ratio of 1 or less or equal to industry standard

Even in the face of a loss from a previous buy, if stocks still meets all four criteria, then add any funds you get from selling your winners into these quality stocks.  

To be sure, the ordinary investor cannot help but be concerned about the weakness in dividend stocks.  You may want to sell rather than add.  I will use the four criteria with a little more diligence.

Look farther back in history when evaluating dividend growth.  If you can pick between two stocks, pick the stock that continued dividend growth in the 2009, 2001, 1992 and 1994 or even as far back as 1987 market disruptions. My current idea, ETN has a 5 year dividend growth rate just under 4% but as you will see below the 10 year history is quite different. 

Increase your Diligence

Place a little more weight on D/E ratios as that will reassure you that it is highly unlikely that the company will go bankrupt and you will lose your principle. 

Look into dividend payout ratios.   Stocks that pay out almost all or all of their earnings per share in dividends per share does not have any margin for error. Making twice as much in earnings per share than paid out in dividends is a good measure.

Park your cash in Eaton, ETN

I really wanted this post to say park your cash in PG, but their most recent earnings are less than the dividend paid out and this has not happened before in the 20 years I researched.  The stock that passes my criteria for parking cash is Eaton, symbol ETN.   As an industrial it of course has been hit.  ETN’s 52 week high was about $73 with a low of about $57.  Today it closed at $58.65.  I use stock price only to determine if the yield is good enough.  ETN’s yield of 3.75% is good enough for me to stash some cash.  D/E ratio is a very solid .4862.  See the table below to review ETN’s Dividend Machine bona fides.


Good Income Investing


Disclosure:  SYY long with calls, ETN expect to initiate a position. 

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