United Technologies Corp. (UTX) Has A Strong Balance Sheet And Excellent Free Cash Flow
Linked here is a detailed quantitative analysis of United Technologies Corp. (UTX). Below are some highlights from the above linked analysis:
Company Description: United Technologies Corp. is an aerospace-industrial conglomerate with a portfolio includes Pratt & Whitney jet engines, Sikorsky helicopters, Otis elevators, and Carrier air conditioners, among other products. In July 2012, UTX purchased aerospace competitor Goodrich.
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Tags: UTX, BA, GE, HON
Automatic Data Processing Inc. (ADP) Dividend Stock Analysis
Linked here is a detailed quantitative analysis of Automatic Data Processing Inc. (ADP). Below are some highlights from the above linked analysis:
Company Description: Automatic Data Processing Inc., one of the world's largest independent computing services companies, provides a broad range of data processing services.
Fair Value: In calculating fair value, I consider the NPV MMA Differential Fair Value along with these four calculations of fair value, see page 2 of the linked PDF for a detailed description:
1. Avg. High Yield Price
2. 20-Year DCF Price
3. Avg. P/E Price
4. Graham Number
ADP is trading at a premium to all four valuations above. The stock is trading at a 9.7% discount to its calculated fair value of $80.46. ADP earned a Star in this section since it is trading at a fair value.
Dividend Analytical Data: In this section there are three possible Stars and three key metrics, see page 2 of the linked PDF for a detailed description:
1. Free Cash Flow Payout
2. Debt To Total Capital
3. Key Metrics
4. Dividend Growth Rate
5. Years of Div. Growth
6. Rolling 4-yr Div. > 15%
ADP earned two Stars in this section for 2.) and 3.) above. The stock earned a Star as a result of its most recent Debt to Total Capital being less than 45%. ADP earned a Star for having an acceptable score in at least two of the four Key Metrics measured. The company has paid a cash dividend to shareholders every year since 1974 and has increased its dividend payments for 38 consecutive years.
Dividend Income vs. MMA: Why would you assume the equity risk and invest in a dividend stock if you could earn a better return in a much less risky money market account (MMA) or Treasury bond? This section compares the earning ability of this stock with a high yield MMA. Two items are considered in this section, see page 2 of the linked PDF for a detailed description:
1. NPV MMA Diff.
2. Years to > MMA
ADP earned a Star in this section for its NPV MMA Diff. of the $967. This amount is in excess of the $500 target I look for in a stock that has increased dividends as long as ADP has. If ADP grows its dividend at 8.6% per year, it will take 2 years to equal a MMA yielding an estimated 20-year average rate of 2.98%. ADP earned a check for the Key Metric 'Years to >MMA' since its 2 years is less than the 5 year target.
Memberships and Peers: ADP is a member of the S&P 500, a Dividend Aristocrat, a member of the Broad Dividend Achievers™ Index and a Dividend Champion. The company's peer group includes: Paychex, Inc. (PAYX) with a 3.5% yield, Insperity, Inc. (NSP) with a 2.7% yield and Convergys Corporation (CVG) with a 1.5% yield.
Conclusion: ADP earned one Star in the Fair Value section, earned two Stars in the Dividend Analytical Data section and earned one Star in the Dividend Income vs. MMA section for a total of four Stars. This quantitatively ranks ADP as a 4-Star Strong stock.
Using my D4L-PreScreen.xls model, I determined the share price would need to increase to $91.75 before ADP's NPV MMA Differential decreased to the $500 minimum that I look for in a stock with 38 years of consecutive dividend increases. At that price the stock would yield 2.0%.
Resetting the D4L-PreScreen.xls model and solving for the dividend growth rate needed to generate the target $500 NPV MMA Differential, the calculated rate is 6.3%. This dividend growth rate is lower than the 8.6% used in this analysis, thus providing a margin of safety. ADP has a risk rating of 1.25 which classifies it as a Low risk stock.
As the industry leader ADP enjoys advantages of scale, a respected brand and protected by high customer switching costs. The company should see its market grow since payroll outsourcing is currently under-utilized in the small- and medium-sized businesses and overseas. However, based on the current market size, the market is saturated for large-company employer solutions, with additional competition coming from established and emerging participants serving small and mid-sized firms.
The previously announced plans to spin-off the Dealer Services business were completed on September 30, 2014. The Dealer Services business segment provided marketing solutions to over 26,000 auto retailers, distributors and manufacturers.
As a result of the spin-off ADP updated their guidance for fiscal 2015. The company now projects its EPS from continuing operations to grow 12% to 14% in fiscal 2015, up from 11-13% as per the prior guidance. The company reaffirmed its revenue guidance for fiscal 2015 of a 7% to 8% year-over-year increase.
Primarily as a result of the company’s plan to buy back shares, Standard & Poor’s lowered ADP’s credit rating from AAA to AA. In addition, Moody’s Investor service decreased its rating to Aa1, citing lower scale and variety of ADP’s product portfolio.
Financially, the company has a strong balance sheet, with a low debt to total capital of 25%, and a recurring revenue stream generating steady cash flows. Its free cash flow payout of 62% is slightly above my target maximum of 60%. The stock is trading below by calculated fair value of $80.46. I am reevaluating the stock in light of the Dealer Services spin-off.
Disclaimer: Material presented here is for informational purposes only. The above quantitative stock analysis, including the Star rating, is mechanically calculated and is based on historical information. The analysis assumes the stock will perform in the future as it has in the past. This is generally never true. Before buying or selling any stock you should do your own research and reach your own conclusion. See my Disclaimer for more information.
Full Disclosure: At the time of this writing, I held no position in ADP (0.0% of my Dividend Growth Portfolio). See a list of all my dividend growth holdings here.
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Tags: ADP, PAYX, NSP, CVG,
7 Higher-Yielding Stocks With A Low Price To Book
When looking for value-priced stocks, the Price-To-Book (P/B) ratio is one that I like to consider. P/B is calculated as share price divided by book value per share. Book value is most often calculated as Assets less Liabilities.
Some people conservatively calculate book value as Assets less Intangibles less Liabilities. I prefer this calculation since it excludes goodwill and other intangibles which might be difficult to recover in a liquidation, and that is what I will use in the calculations below.
Similar to yield, when P/B is at an extreme you have to question why it is there. If you determine an abnormally low P/B is the result of an irrational market movement, a purchase could result in both a higher yield and significant future capital appreciation.
A low P/B ratio could indicate a stock is undervalued or distressed. Since GAAP accounting is mostly based on historical cost, a viable growing company will normally be worth more than its book value. However, there are times when good companies will be punished along with the bad. It is our job as investors to separate the good companies from those that have fundamental problems.
This week, I screened my dividend growth stocks database for stocks with a P/B of 1.6 or lower, 10 or more years of dividend increases and with a dividend yield at or above 3%. The results are presented below:
Cincinnati Financial Corp. (CINF)
Yield: 3.8% | Years of Growth: 54 | P/B: 1.22
Cincinnati Financial Corp. is an insurance holding company that primarily markets property and casualty coverage. It also conducts life insurance and asset management operations.
Laclede Gas Compay (LG)
Yield: 3.7% | Years of Growth: 11 | P/B: 1.26
Laclede Gas Compay primarily distributes natural gas on a retail basis in St. Louis and nearby suburban areas.
Chevron Corporation (CVX)
Yield: 3.8% | Years of Growth: 27 | P/B: 1.46
Chevron Corporation is a global integrated oil company (formerly ChevronTexaco) with interests in exploration, production, refining and marketing, and petrochemicals.
Consolidated Edison, Inc. (ED)
Yield: 4.2% | Years of Growth: 41 | P/B: 1.48
Consolidated Edison, Inc. is an electric and gas utility holding company serves parts of New York, New Jersey and Pennsylvania.
People's United Financial Inc. (PBCT)
Yield: 4.8% | Years of Growth: 17 | P/B: 1.60
People's United Financial Inc. provides a full range of banking and financial service products to individuals, corporations and municipal customers in the U.S. Northeast.
Mercury General Corp. (MCY)
Yield: 5.0% | Years of Growth: 27 | P/B: 1.48
Mercury General Corp., operating primarily in California, writes a full line of automobile coverage for all classifications of risk.
Old Republic Intl (ORI)
Yield: 5.2% | Years of Growth: 33 | P/B: 1.05
Old Republic Intl is an insurance holding company that engages mainly in the general (property and liability), title, and mortgage guaranty and consumer credit indemnity run-off businesses.
As with past screens, the data presented above is in its raw form. Some of the companies would be disqualified for poor dividend fundamentals. However some of the others may be worth additional due diligence.
My database, D4L-Data, is an Open Office spreadsheet containing more than 20 columns of information on the 250+ companies that I track. The data is sortable and has built-in buttons and macros to make it easy to use. Companies included in the list are those that have had a history of dividend growth. The D4L-Data spreadsheet is a part of D4L-Premium Services and is updated each Saturday for subscribers.
Full Disclosure: Long CINF, CVX, ED, PBCT in my Dividend Growth Stocks Portfolio, and long MCY, ORI in my High-Yield. See a list of all my dividend growth holdings here.
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Tags: CINF, LG, CVX, ED, PBCT, MCY, ORI,
8 Stocks Compounding Shareholders' Wealth With Increased Dividends
Some goals for building wealth would include putting kids through college, paying off mortgages, helping family members and enjoying a financially worry-free retirement. If you don't have a generous relative or wealthy parents, you will need to devise a plan to help you reach your goals. My plan includes great dividend stocks that increase their dividends each year.
Below are several companies compounding their shareholder's wealth with increased cash dividends:
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Tags: TXN, GS, KMI, KMP, PAG, VLP, HCSG, WNR,
Weekly Links: October 20, 2014
Each Sunday I highlight any notable articles that I came across over the past week, along with any Carnivals I participated in. For those readers not familiar with carnivals, it's where personal finance bloggers submit their best articles of the week with one blog serving as the host. The entries are separated into various categories such as Investing, Credit, Debt, Budgeting, Frugality, Wealth Building, Money Management, Financial Planning, Insurance, Taxes, The Economy, Real Estate, et. al.
Articles you might find interesting:
- 8 Stocks Compounding Shareholders' Wealth With Increased Dividends
- Verizon Communications Inc. Is Focused On Generating Cash And Lowering Debt
- How Saving Grows The Economy – Comic Book Version
- A Look At Four Great Dividend Stocks
- S&P 500 down almost 50 points, DOW down more than 400 points! Time to buy? Not yet.
- My Dividend Portfolio: Q3 2014
- New Purchases – 10/14/14
The DIV-Net Featured Articles:
- 5 Stocks With Strong Dividend Growth Metrics
- 10 Stocks Giving Investors More Money
- Can General Electric Return to its Previous Blue-Chip Dividend Growth Stock?
- Think Like An Owner – Part 2
- Disney: A Wide-Moat Stock To Hold Forever
Articles from D4L-News:
When Dividend Stocks Become Top Picks
Looking for yield? Who isn’t these days. Now just may be a fortuitous time to snap up some dividend paying stocks to enjoy both the equity growth of a new product cycle, as well as a sweet dividend. The reason: Interest rates worldwide are at all- time lows and not exhibiting signs of rising, at least for the moment. ith the US economy in mid-cycle growth, now might be a good time to add some large cap Technology stocks as income generating equities to your portfolio. Investors might also consider...
3 Dividend Stocks That Have Delivered Cash for Decades
There’s a strong tendency among income investors to seek out safety in dividend stocks. The theory, of course, is that if a company can afford to pay out dividends, or even raise the payout every year, it must be generating enough free cash flow to do so. It also means that said dividend stocks also have plenty of money to both run and grow the business. There’s only one caveat to all this, which is that it is possible for these stocks to become...
5 Dividend Stocks That Could Double Your Money in 10 Years
Now that you're well aware of the big risks associated with yield-chasing, let's have a look at five high-yield dividend stocks that have the potential to double your money in a decade or less based solely on their stipend. Here are five high-yield dividends that could double your money in a decade or less...
3 Top-Tier Stocks With Massive Dividends
Dividend stocks are great. Unfortunately, many of the highest-yielding stocks offer little in the way of capital appreciation. In fact, most tend to pay out 10%-12% annual yields, but their share prices fall year after year. Naturally, I think the best dividend stocks aren't just stocks that can pay a big dividend, but those that can also grow in value over time. Here are three stocks that have historically fit the bill with close to double-digit yields and capital appreciation on top...
Retirees, You CAN Count On Dividend Stocks To Deliver From Here
I just finished reading another article that I disagree with. Not only do I disagree with the author but the article further supports those investors who follow the dividend growth investment path. The author's suggestion is as follows: "While the accumulation stage and spending stage are entirely different beasts, perhaps a retiree should think like a young accumulator whose greatest weapon is investing in stocks on a regular schedule to acquire stocks when they offer sensible or attractive valuations? That would mean...
Click Here For More Dividend News
There are some really good articles here, please take time and read a few of them.
D4L-Premium Services Updated:
The D4L-Dashboard, Analytical Reports, D4L-Data, and The D4L-Newsletter (October edition) have been updated and are available at the D4L-Premium Services web site at: [Click Here] Not a subscriber? [Click Here] for for more information on the benefits of these services, sample reports, pricing and subscription information.
(Photo: Sachin Ghodke)