Showing posts with label VZ. Show all posts
Showing posts with label VZ. Show all posts

Thursday, March 12, 2020

Shouldn't P/E ratios be really low if this is a buying opportunity for ordinary investors?

  • Stocks were over valued as measured by P/E ratios
  • Markets were heading higher on P/E ratio expansion
  • Looking for low P/E stocks in the Dow 30 reveals eight stocks to consider
  • Dividend Fundamentals remain of utmost importance

If you follow my blog, you know I have been writing about Dividend stock investing since just after I retired as an investment adviser in 2009.    To say I have been through this before more than once is accurate; to suggest I am immune to the pain is wrong.  However, I know that even with my shortened life expectancy, I am 11 years older than I was in 2009, quality stocks will continue to deliver the income I need to live my lifestyle.


I always advised my clients to have a debt free house to live in as one goal and to have money in stocks and bonds that are highly likely to continue to pay the income needed to support their lifestyle and in stocks that will increase that income over time.

I also advised my clients to have their rainy day fund always in safe, liquid assets even if it is painful to receive virtually no income from that stash.  For clients who have more cash than they need and for clients who expected to receive cash in the form of a bonus, or tax refund, or gift from Uncle Henry, you have to be willing to add stocks in downturn.


Today I am looking at the Dow 30 stocks to find something of value.  Here are my criteria:

  • Good balance sheet, I use D/E ratio and interest coverage ratio
  • Dividend yield of more than 3% 
  • Dividend history during previous market disruption in 2009
  • Price correction that mirrors the overall market
  • P/E ratio under 15

Looking at each of these criteria I begin with balance sheet.  Companies have been adding debt because debt is cheap.  The old saying goes that you should borrow when you can not when you need to.   What are they doing with added debt.  Apple for example has a ton of cash around so they borrowed at cheap rates and used that additional liquidity to pay investors dividends.    Home Depot borrowed the money to buy back stock and increase the value of the shares held by investors.

Debt matters if the company cannot pay the interest on the loan and cannot pay out our precious dividends.  Therefore, looking at a combination of D/E ratio and interest coverage is a good guide for the ordinary investor.

It used to be that dividend yield needed to beat the 10 year U.S. Treasury but in today's world those metrics are unreliable as Treasury yields are so low, no one can live on them.  A more reliable yield for me is 3%.  If I get 3% on my portfolio, I will not suffer but I also will not be accumulating cash from the difference between my income and my expenses.  Yield is very personal and each investor needs to do their own math to determine the minimum yield they need.

Dividend growth is more significant for the long term investor who does not work for a living.  In 20 years everything will cost about double what it does now.  If you don't believe me, go back twenty years and look at the cost of ground beef, or your car insurance or your home owner's fees.  Even if a stock did not increase the dividend during the 2007-2009 debacle but resumed dividend increases after the crises abated, you are probably okay with that investment

Why buy a stock that has not corrected as much as the market?  Hard to find one of these but I do have an example.   This is a two handed assumption.  On the one hand, if you are buying during a market crisis, you certainly want a bargain.   On the other hand, if you find a stock that has held up well, maybe you have a winner that can weather any storm.  Again, investing is an individual process and only you can decide if a stock meets your personal criteria.

That lead's us to P/E ratio which the ratio of the price of a stock divided by the earnings.  Zacks reports the average long term P/E ratio of the Dow Industrials is about 16.  Ycharts shows a P/E of 22.29 on 12/27/2019.   Other sources show a range of as low as 7 and as high as 30.  In 2009 the Dow's P/E was about 15.  Hence, I picked 15 as a cut off.  

Note that while the DJI (Dow Industrial Average) is just that, you can find average P/E's for each stock you are considering.

I was quite surprised to find stocks that I have liked in the past but found to too expensive to buy or to hold to still have higher P/E's than I like and some with dividend yields below the 3% goal.  Johnson and Johnson carries a P/E/ of 24.23 and a yield of only 2.88%.  Apple carries a P/E of 21.13 and a yield of 1.21%.   Great businesses but I have to stick with my disciplined approach.

Here are the stocks  in the Dow industrial average that today meet the P/E criteria and the dividend yield criteria.  Some have higher D/E ratios than I like but all have positive interest coverage ratios.  Anything interest coverage ratio that is under 1 is too risky.  

Symbol Price P/E D/E Int.Cov. Yld Other Factors
JPM $88.92 8.72 1.42 2.7    3.00%       Neg Int Rates
CAT $90.97 9.69 2.58 19.63.23%     World Recession
IBM $104.48 11.15 3.27 8.6 4.83%      No Rev Growth       but new CEO
TRV $106.33 11.71 0.25 10.12.62%    Less than Dow        correction
PFE $30.78 11.78 0.83 12.2 4.18%     No Rev Growth
VZ $51.93 12.01 2.17 5.8 4.23%     Leader in 5G
XOM $38.74 12.46 0.24 25.2 6.78%      Oil Glut
CSCO $34.31 14.81 0.45 20.4 3.60%
*Price, Int.Cov. Yld from Market XLS P/E from Schwab 

Note the one stock that has not corrected as much as the market is TRV.

You should always look for more data on the stocks you are considering.  I noted in the table above some of the externalities that might color my decision to buy.


M* MoneyMadam
Disclosure:  Long JPM, IBM, CAT, VZ, XOM, CSCO.   I have covered calls working on a portion of my holdings in each name.

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Wednesday, August 7, 2019

Telecom Ideas for yield in a down market

Listed below are four telecom companies to consider.   In this table you can see

China Mobile, symbol CHL, has no debt.  Verizon has the most debt.  BCE has highest P/E (price earnings ratio) and CHL jas the best revenue growth.   All have positive cash flow that exceeds dividends paid out.

All good considerations during this down market.

M* MoneyMadam

Long T, VZ, BCE adding CHT
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Sunday, March 29, 2015

Why POT and VZ are not Dividend Machines

I am not enamored with the market and I cannot put my finger on it.   Alfred Ferol tells me it is time for a pause.   Lots of things are influencing the market including people’s moods.  You don’t have to invest every day, he points out.

Are we scared of a 25 basis point increase in rates?  Maybe it is the unrest in the Middle East that is to blame for the malaise and the fear.  Or perhaps the strong dollar with its negative impact on earnings has the market feeling gloomy.

In that frame of mind, I looked at ten stocks that I might consider as a 2015 Dividend Machine stock.  Several calls were taken last week and I have money to invest.  I looked at these ten stocks not just as potential Dividend Machines but also as possible investments that might not quite make the Dividend Machine grade but are worthy of investment.  I decided to profile two stocks with the view of “why I don’t want to invest in either one.”

Dividend Machine Fundamentals of VZ and POT

Of these ten stocks, the two stocks that even come close enough to consider my investment are Potash symbol POT and Verizon symbol VZ.

Both of these stocks make more money in EPS than they pay out in dividends and their yields are around 4.5%.   Let’s look at these stocks further.

Verizon has a solid 5 year dividend history.  They have increased the dividend an average of 3.16% per year.   This is not quite enough to make VZ a Dividend Machine as we require at least a 4% average increase per year over the past five years.

Potash has a really robust dividend increase history.   If you look at the past three years, the dividend has increased from $.14 to $.38 per quarter.  That is an average annual increase of 56%.   But, POT has a history of cutting the dividend.   They clearly have tried to maintain a payout during difficult times but they will reduce the dividend if needed to maintain the integrity of their balance sheet.

POT has a D/E ratio of only .37.   VZ has a D/E ratio of 8.99. 

The Tables below show the Dividend Machine fundamentals of these two stocks.

My Take:

I value balance sheet integrity a great deal and feel that I would rather pick a stock with a D/E ratio of less than one rather a stock with a D/E as high as VZ’s.  However, I am worried about these value stocks like POT that deliver a nice dividend now but if things get worse, they may not deliver the same income as I expect.

I will pass on both of these stocks for now.

Disclosure:  Long POT with Calls
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Thursday, January 5, 2012


          Telephone or Verizon?  Telephone carries the distinction of being a 2011 Dividend Machine see original post .   My cell phone service is through Verizon (VZ.)  Years ago I switched from AT&T and all the dropped calls to VZ and I would like to own it.  After all, VZ has a mighty yield.  But it is just a little early.  The last quarter Verizon finally made more money than they paid in dividends and that is progress.  We can see more progress on paying down debt but their D/E ratio is well above 1 at 1.44.    We just have to wait for this exciting company to meet our criteria to be included in our 2012 Dividend Machine list.

Very Truly Yours,
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