Bemis Company, Inc. manufactures and sells flexible packaging products and pressure sensitive materials primarily in the United States, Canada, Mexico, South America, Europe, and the Asia Pacific. The company operates in two segments, Flexible Packaging and Pressure Sensitive Materials. The company is member of the S&P 500 and was a recent addition to the S&P Dividend Aristocrats index.
Bemis Company has paid dividends annually since 1922 and quarterly since 1931 and consistently increased payments to common shareholders every year for 26 years.
From the end of 1998 up until December 2008 this dividend growth stock has delivered a negative annual average total return of 5.30% to its shareholders. The stock has lost over one third from its all-time high in 2007.
The company has managed to deliver a 4.70% average annual increase in its EPS between 1999 and 2008. Analysts are expecting flat EPS of $1.60 for 2009 and a slight increase to $1.75 by 2010. Bemis has not been able to increase profitability since 2004, as its earnings per share have remained flat. One bright statistic is that cash flow per share has increase from $2.88 in 2004 to $3.26 in 2008.
The Return on Equity has decreased over the past decade from 16% in 1999 to 11.50% in 2008. Rather than focus on absolute values for this indicator, I generally want to see at least a stable return on equity over time. 
Annual dividends have increased by an average of 7.5 % annually since 1999, which is higher than the growth in EPS. If earnings per share remain flat, future dividend growth would be far from spectacular.
A 7 % growth in dividends translates into the dividend payment doubling every ten years. If we look at historical data, going as far back as 1988, Bemis Co has actually managed to double its dividend payment every seven years on average.
The dividend payout ratio is currently above 50%. A lower payout is always a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings. If earnings remain flat and the company doesn’t start any cost cutting initiatives, future dividend growth could be jeopardized.
Currently Bemis Co is trading at 15.50 times earnings and yields 3.70%. It does seem that Bemis Co is attractively valued at the moment based on yield and price/earnings mutliple. The flat earnings, decreasing returns on equity and rising dividend payout ratio make this stock a hold, not a buy. I would only add to existing position there if I owned it or initiate a small position in Bemis if the stock drops below $18.
Full Disclosure: None
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Friday, July 10, 2009
Bemis Co (BMS) Dividend Stock Analysis
Wednesday, July 8, 2009
Myths about Warren Buffett
Warren Buffett is the richest investor in the world. The student of the father of value investing Ben Graham, learned how to invest money in the Graham-Newman Corp. partnership in the early 1950s. After it was closed, Buffett formed his own investment management partnership. In it, he utilized several value investment strategies, which allowed him to significantly outperform the S&P 500 for over a decade. In the early days of his partnership it was pretty easy to uncover value investment opportunities, since the partnership was small enough to deal where few investment advisers and mutual funds had the insight to operate.
In 1969, Warren Buffett closed his partnership, citing the fact that the market was overpriced and that bargains fitting the strict value investing principles that Graham taught him were tough to uncover.
At the same time he concentrated his actions on a small textile operation called Berkshire Hathaway, which is his flagship holding company. His success at Berkshire is astounding, but it is not merely due to value investing strategy, as is commonly known. Had Buffett not branched out of strict value investing principles that Graham taught him; Berkshire Hathaway would have remained a relatively small conglomerate. Buffett did branch out into other strategies however. His insurance operations are similar to selling naked puts or calls – he generates enough premium which in most cases doesn’t have to be paid out for many years to come, giving him a low cost source of financing. His recent deal to sell long term puts (LEAPs) on four major stock indices is another example of branching out.
Buffett also essentially shorted the US dollar. In 2002, Buffett entered in $11 billion worth of forward contracts to deliver U.S. dollars against other currencies. By April 2006, his total gain on these contracts was over $2 billion. In 2005 he reduced his exposure to the currency futures he was holding. His play on the weakening dollar is by purchasing solid businesses which derive a portion of their earnings from outside the US.
Most people I talk to also seem to believe that Buffett owns a concentrated portfolio of 10-15 positions, which allows him to allocate the most funds in his best ideas. A recent look at Berkshire Hathaway’s stock portfolio revealed 40 stock positions from a variety of industries such as consumer staples, utilities, financials, retailers, energy and many other sectors. In addition to that Berkshire Hathaway owns a variety of businesses ranging from insurance ( Geico and General RE) , Utilities ( Mid american), Apparel, Building Products, Flight Services, Retail, Financial, and Conglomerates such as the recently acquired Marmon Holdings.
Another example is his investments in Gillette, acquired by Procter and Gamble(PG) ; Coca Cola (KO) and Johnson & Johnson (JNJ). Buffett purchases businesses with wide moats, which he believes have strong growth potential, that would lift earnings and distributable cash flows. His yield on cost on his 1988-1994 $1.298 billion investment in Coca Cola (KO) is a staggering 25.20%. His average purchase price comes out to $6.49/share, whereas the annual dividend is $1.76/share after the most recent dividend increase.
Another interesting investment is in See’s Candies, which he purchased for $25 million in 1972, at a time when its pre-tax earnings were $5 million on $30 million of sales. The confectionary maker in a slow growth industry currently generates enough cash flow, which is then redirected to other business opportunities. In fact over the past 35 years, the capital needs for the company have risen from $8 million to $40 million annually, while it has returned $1.35 billion worth of pre-tax earnings to be allocated somewhere else.
Yet another myth about Buffett is that he doesn’t like dividends. The contrary is true – from his early days of buying farmland and operating a newspaper route to buying pinball machines Buffett has been particularly interested in the distributions from his business. His investments in See’s Candies and other businesses like Coca Cola (KO) and Johnson & Johnson (JNJ) throw off enough cash in the form of dividends to Berkshire Hathaway that he then allocates appropriately. The same is true for many dividend investors, which are primarily interested in purchasing stable wide moat businesses, that have the ability to grow earnings. That way these companies can afford to consistently raise distributions to shareholders. Dividend investors then allocate their dividends received in the best manner suitable – either by purchasing more stock or spending it on their own needs.
Another myth about Warren Buffett is that he never sells. In 1998 he sold his position in McDonald’s (MCD) for a tidy profit. In his 1998 Letter to Shareholders, Buffett called this move “a very big mistake”. While McDonald’s stock closed 1998 at $38 it did fall to as lot as $12 at the bottom of the 2000-2003 bear market, before staging a massive rally during the 2003-2007-bull market. The stock is one of the few, which have not seen their shares fall of a cliff in the recent bear market.
The future of Berkshire Hathaway is really what gives nightmares to its investors. Due to its sheer size, it has to concentrate only on opportunities in the billions of dollars. In “THE SUPERINVESTORS OF GRAHAM-AND-DODDSVILLE” he explained that “if you ever get so you're managing two trillion dollars, and that happens to be the amount of the total equity valuation in the economy, don't think that you'll do better than average”
It would be impracticable to concentrate on hundreds of smaller deals, which could potentially generate higher returns. One idea that Berkshire could implement is to franchise Buffett Partnership’s business model to hundreds of small value investors with $1 million in seed capital, and watch them become the next Buffett. This could bring in new life to Berkshire.
Buffett seems to like companies, which generate enough in royalties due to their high moats for many years to come. Such competitive advantages that allow them to spend a considerable amount of funds upfront on research and development to create a unique product and then sell it for many years in the future is closely resembling the idea of passive income that many investors are constantly seeking out. Such companies which generate “royalty” type of revenues includes See’s Candies, Microsoft (MSFT), Coca Cola (KO), and pharmaceuticals companies such as Pfizer (PFE) or Eli Lilly (LLY).
Below I have summarized some interesting materials I found about Buffett:
Buffett Partnership Letters
http://www.ticonline.com/buffett.partner.letters.html
Berkshire Hathaway Shareholder Letters
http://www.berkshirehathaway.com/letters/letters.html
Buffett’s E-mail correspondence about Microsoft
http://thomashawk.com/2005/12/1997-email-from-microsofts-jeff-raikes.html
THE SUPERINVESTORS OF GRAHAM-AND-DODDSVILLE
http://www.tilsonfunds.com/superinvestors.pdf
Relevant Articles:
- Dividend Aristocrats Strike Back
- Warren Buffett – The Ultimate Dividend Investor
- Coca Cola (KO) Dividend Stock Analysis
- Warren Buffett’s Berkshire Hathaway Portfolio Changes for Q1 2009.
Tuesday, July 7, 2009
12 Dividend Stocks to own in this market
I believe that whether the bottom has been hit or not astute dividend investors should seize the opportunity that the current bear market offers. I ran a screen on the S&P Dividend Aristocrats index to identify attractively valued stocks using the following criteria: (source Yahoo Finance)
1. Dividend Payout Ratio is less than 50%
2. Price/Earnings Ratio is less than 20
3. Current Dividend Yield is at least 3%
There were 12 companies that made the cut. Check the list below:
Consumer Discretionary
(VFC) VF Corp (analysis)
(MHP) McGraw-Hill Companies (analysis)
Consumer Staples
(PG) Procter & Gamble (analysis)
Financials
(AFL) AFLAC Inc (analysis)
(CB) Chubb Corp. (analysis)
Health Care
(ABT) Abott Laboratories (analysis)
(JNJ) Johnson & Johnson (analysis)
Industrials
(MMM) 3M Co (analysis)
(DOV) Dover Corp. (analysis)
(EMR) Emerson Electric (analysis)
(SWK) Stanley Works (analysis)
Materials
(NUE) Nucor Corp. (analysis)
The thing that separates these companies from other dividend stock lists is that they have a tendency to increase their dividends consistently every year. With an average yield of 3.60% this list has generated an average dividend growth of 11% over the past decade. If history were to repeat itself over the next 6 –7 years, the average yield on cost should be double what you can get today. In the worst case I expect that the income stream growth from this list of stocks would at least match the rate of inflation over time.
Full Disclosure: I have positions in all stocks above except for VFC and SWK, which I plan on buy on dips. Trade stocks for free through Zecco.com, the Free Trading Community.
Related Posts:
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- Replacing dividend stocks sold
Monday, July 6, 2009
Dividend News: A Few Increases, More Expected in July
Dividends are getting a bad reputation from everywhere. First it was the dividend guts at big banks like Citigroup, Bank of America, and Lehman Brothers, which once were reliable dividend growth stocks that triggered a wave of cuts and suspensions across the board. The Standard & Poors recently announced that a record low companies increased dividends in 2Q. According to their report, the number of dividend cuts has increased to the highest since 1957. While it is easy to feel pessimistic after those not so positive headlines, one has to remember that there still are many companies, which keep raising their distributions. Companies, that raise distributions when others are slashing or eliminating theirs, citing “unfavorable conditions”, are the true champions where investors should look into concentrating their efforts. Several companies raised their distributions over the past week:
General Mills (GIS), which manufactures and markets branded and packaged consumer foods worldwide, approved a 9% increase to its quarterly dividend to 47 cents per share. General Mills is a former dividend aristocrat, which has fought back to regain its status in the elite dividend index since 2004. The stock currently yields 3.20%.
Senior Housing Properties Trust (SNH), which owns independent and assisted living communities, nursing homes, rehabilitation hospitals, wellness centers and medical office buildings throughout the United States, increased its quarterly distributions by 1 cent to 36 cents per share. Senior Housing Properties has increased its annual dividend in each of the past eight years. The stock currently yields 8.80%.
MFA Financial, Inc. (MFA) announced that its board has approved a 13.6% increase in its quarterly dividend from $0.22 to $0.25 per share. The company primarily invests in mortgage-backed securities (MBS) that include hybrid and adjustable-rate MBS (ARM-MBS). The dividend is pretty volatile, ranging from a low of 5 cents a share in 2005 and 2006 to a high of 32 cents in 2002. The current yield is 14.70%.
Despite the slow week for dividend increases, I am looking forward to a relatively busy July, since historically some well-known dividend aristocrats like Walgreen (WAG) and Stanley Works (SWK) tend to raise their dividends during the current month.
Walgreen (WAG) has raised its dividend every July over the past five years. This dividend growth stock has been raising dividends for 34 consecutive years and has a 5-year dividend growth rate of 21.30%.
Stanley Works (SWK) has raised its dividend every July over the past five years. This dividend growth stock has been raising dividends for 41 consecutive years and has a 5-year dividend growth rate of 4.20%.
Disclosure: None
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Thursday, July 2, 2009
Emerson Electric (EMR) Dividend Stock Analysis
Emerson Electric Co., a diversified global technology company, engages in designing and supplying product technology and delivering engineering services to various industrial and commercial, and consumer markets worldwide. The company operates through five segments: Process Management, Industrial Automation, Network Power, Climate Technologies, and Appliance and Tools. The company is member of the S&P 500 and the S&P Dividend Aristocrats indexes.
Emerson Electric Co.has paid uninterrupted dividends on its common stock since 1947 and increased payments to common shareholders every year for 52 years.
From the end of 1998 up until December 2008 this dividend growth stock has delivered an annual average total return of 4.90% to its shareholders. The stock is down over 50% from its 2007 and 2008 all-time highs.
The company has managed to deliver an 8.40% average annual increase in its EPS between 1999 and 2008. Analysts are expecting an increase in EPS to $2.35 for 2009 and $2.20 by 2010. This would be a decrease from the 2008 earnings per share of $3.11. The economic crisis is currently affecting the St. Louis based company, which recently announced a 25% decline in orders for the past three months. Emerson Electric does expect to restructure its operations in order to make them more cost effective. In addition to that the relative diversification of its revenue sources by continents and five major business segments should soften the fall in earnings. Another positive for the company is the fact that it focuses on new product introductions, which could add greatly to profitability. Strategic acquisitions could also add to the bottom line as well.
The Return on Equity has increased over the past decade from 22% in 1999 to 27% in 2008. The reason for the increase is managements implementing capital efficiency initiatives after a string of acquisitions. Rather than focus on absolute values for this indicator, I generally want to see at least a stable return on equity over time.
Annual dividends have increased by an average of 7% annually since 1999, which is slightly lower than the growth in EPS.
A 7 % growth in dividends translates into the dividend payment doubling every ten years. If we look at historical data, going as far back as 1982, Emerson Electric Co. has actually managed to double its dividend payment every nine years on average.
Despite the expectations for lower earnings and revenues for 2009 and 2010, I believe that the dividend payment would not be affected. The worst that could happen is that dividend growth slows down for the next two years, before resuming its 7% annual rate of increase. Despite being regarded as a cyclical company Emerson has raised distributions for over half a century, so a recession should not create a steep shift in the company’s dividend policy.
The dividend payout ratio remained below 50% for the majority of the past decade. The only exception was the 2001-2003 period, when profitability suffered from the economic downturn at the time A lower payout is always a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings.
Currently Emerson Electric Co. is trading at 13 times earnings and yields 4.00%. I believe that Emerson Electric Co.is attractively valued at the moment. I would be looking forward to adding to my position there.
Full Disclosure: Long EMR
