Posted by: Howard Silverblatt on January 14, 2011
The MidCap400 set an all time high today, closing at 931.07, surpassing the previous high close of 926.23, set on July 13, 2007.
The S&P; SmallCap600 is 3.16% off its all time high (426.04 now, 439.92 on 4/1/2007)
The S&P; 500 is up 91.16% from its 3/9/2009 low, but still off 17.37% from its 10/9/2007 high
I would expect MidCap investors to buy tonight, with SmallCap investors leaving the tip
MidCap400 sets an all time high.doc
PS - 2011 S&P; 500 sales growth estimate at 9.1% (7.6% ex-Financials) appears low, especially when compared to the 13.5% Operating projection
The next two weeks will bring over half the index reporting Q4, along with their 2011 projections - we'll see where it goes
Posted by: Howard Silverblatt on January 12, 2011
The market set another 28 month high today, closing at 1285.96, last seen on August 28, 2008, which is also the last time it closed above 1300, 1300.68 (there's a potential for tomorrow). Earnings have leveled off at a respectable level, posting low single-digit consecutive quarterly gains, although most of what we hear and read about is strong year-over-year quarterly double-digit gains. Sales, however, have had very little growth, regardless of how you look at them.
The bounce back from the four consecutive quarters of double-digit sales decline has been minimal, at 12.7% from its low in Q1,'09 (through Q4,'10 estimate). Companies have reacted to events in order to survive and protects their business; the government has bailed-out, bought out, subsidized, credited, and stimulated; housing is bad, with foreclosures waiting to increase inventories, and consumers have spent on what they need, with much less of the unneeded not purchased. Earnings are expected to grow at a double-digit rate in 2011, yet sales are expected to be in the mid-high single digits. The implication is that costs will be reduced or efficiencies found, with both hinting at more job reductions. So for me, at this stage of the recovery, something just doesn't add up - how do you get double-digit bottom growth with single-digit top line growth? Companies have been drastically cutting for years now, so it's hard to believe that they were not serious (or diligent) in their effects. Either earnings estimates are too high, sales estimates to low, or Princeton, we have a problem. So I'm hoping its sales. The new depreciation schedule (estimated to be worth $21B) may push companies to do some long-delayed maintenance (but where will the new equipment come from - the US or abroad; or another way to put it, where will those jobs be created), and while the unemployment numbers remain terrible (regardless of which set or assumptions you use), employment continues, and people are spending. So for me, when I start to get those Q4 reports, I'm heading straight to the text (well, maybe I'll play with a few numbers first), to see what the company is forecasting about their 2011 sales. And since the new U.S. postal 100 year stamp for 2011 won't have the quote, I'll say it, "trust, but verify".
Link through for tables, charts, and files
sales_2011.doc
Posted by: Howard Silverblatt on January 7, 2011
The good news is that 2010 was a very good year for dividends, as both payments and attitudes turned around. More issues increases, dramatically fewer decreased, and the 2-year tax extension should add another $74.5 billions into dividend holders pockets. I expect the good news to continue in 2011 as companies continue to increase, and more initiate a dividend policy.
The bad news is that while positive, forward progress has been booked, and is expected for 2011 (starting in about 2 weeks), it won't be until 2013 until we get back to 2008 levels. Picking dividend issues is not as easy as it was, but they are out there. The link below will bring you to 2010 report, along with data files, including a starting list for picking dividend stocks (not a buy list, but a screened starting place).
Don't give up on dividends; they are long-term plays, and over time (years and decades) do better. And don't expect high yields - if you want 6% you can get it, but you'll be checking the issue a lot more, and maybe sleeping less.
Click for full report and files
us dividends holders hit the trifecta.doc
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Companies add $8B to dividend payments in Q4 vs $3.3B in Q4,'09; $26.5B added in 2010 vs. $42.4B taken away in2 009
Trifecta: increases were up 45%, decreases declined 82%, and indicated rate increased over 8% implying a much better 2011 dividend income year
Progress, but a long way to go until we reach where we were
Q4:
Decreases: 27 in Q4,'10 vs. 74 in Q4,'09 vs. 288 in Q4,'08 vs. 52 in '07 vs. 31 in '06
Increases: 696 in Q4,'10 vs. 484 in Q4,'09 vs. 475 in Q4,'08 vs. 792 in Q4,'07 vs 831 in Q4,'06
2010:
Decreases: 145 in '10 vs. 805 in '09 vs. 606 in Q4,'08 vs. 110 in '07 vs 87 in '06
Increases: 1,729 in '10 vs. 1,191 in '09 vs. 1,874 '08 vs. 2,513 in '07 vs. 2,617 in '06
Extras up 39.7% but mostly smaller issues - no major moves or trend, especially not in the S&P; 500
$274B saved from 2003-2010 via lower qualified dividend tax rates, $74.5B expected from 2-year extension -> $348.4B total
Expect to see more dividend increases with even fewer decreases
Increases may be smaller, with the re-emergence of multiple increases in the same year
Expect onslaught of dividend increases to start in two weeks and continue throughout February
(Feb is the biggest month for div increases - fiscal over, annual on the way and holders meetings coming up)
Companies are going to move quickly in 2011 to demonstrate to investors that they are well into the recovery mode, deja vue of 2003
We won't be back to 2008 payment levels until 2013, which assumes a slow improvement in the economy, with employment going up and unemployment lagging, but also getting better
Large-caps appear to be a bit more aggressive, given that 75% of them already pay a dividend compared to less than 40% for the rest of the U.S. domestic market
Financials should split into two groups. Those significantly increasing their rate on a percentage basis, but still well shy of their 2006-7 dollar levels (and will get most of the headlines), and those which will slightly increase and are continuing their string of annual increases. Yes, there are some Financial issues which still have good dividend record.
Posted by: Howard Silverblatt on December 21, 2010
The best way to think of dividend income is as your salary. The good news is that you received an 8.8% pay increase this year and next year looks like it could be a 9% increase. The bad news is that you are still making 18.5% less than you made in 2008, it won't be until 2013 until you get back to 2008, and you need to make up the difference from somewhere, now.
Dividends had a great year, and I expect them to have a great 2011, and if all goes well (or at least jobs start to come back), 2012 should also be a good year. But that doesn't make up for the two worst years in dividend history, and won't get you back to what you received in 2008. Below a few highlights from a dividend report I just finished, with a link to the full report (with files specifically designed to be exported and used).
The bottom line is its going to take until 2013 to get back to 2008, and risk still exits.
dividends_20101221.doc
Key to dividend survival is the decline of the multi-billion dividend cut, in 2008-9 140 cuts cost investors $88.7B
Significant increase in positive dividend actions, with 255 increases YTD for 2010 compared to 157 in 2009; $21.0B in increases vs. $10.7B in '09
Dramatic decrease in negative dividend actions, with 4 increases YTD for 2010 compared to 78 in 2009; $0.4B in decreases vs. $48.0B in '09
Conditions are good for dividends - cash, earnings, cash-flow, low payouts, willingness of companies to prove they are back, investor appetite.
Therefore, the decision comes down to a commitment of resources from the Board of Directors to the shareholders. The problem, at this point, is that the dividend commitment is long-term, and the prospects for economic stability over the next year or two are not at a comfort level that encourages strong long-term commitment. So I believe we're more likely to see smaller increases that correspond to actual improving conditions.
12 initiations or re-instatements in 2010, mirrors dividend growth of 2003 (21) after 2000-2 Bear market
For 2011 I don't expect many decreases, and I estimate that two-thirds of the paying issues will increase their regular cash payments over 2010. Given the current uncertainty of the economy and the market, that statement, in and of itself, is a powerful endorsement of the upward trend in dividends.
As the dividend recovery has grown, the forward indicated dividend rate has reversed its decline and started the long climb back. The current $23.60 indicated rate is 8.8% above the close of 2009, and is a start down the recovery trail. However, it remains 18.5% less than the June 2008 high rate of $28.96, and translates into US$ 48.7 billion less annually. The best way to think of dividend income is as your salary. The good news is that you received an 8.8% pay increase this year and next year looks like it could be a 9% increase. The bad news is that you are still making 18.5% less than you made in 2008, it won't be until 2013 until you get back to 2008, and you need to make up the difference from somewhere, now.
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In the short run I believe the two-year extension of the qualified 15% dividend tax rate reduces the immediate pressure to pay one-time extra dividends or to move up January payments to December. Longer term, the 15% lower tax rate becomes more attractive to investors, who currently have few alternatives. Boards which would have been more hesitant to issue and increase fully taxed dividends, and might have pushed for more buybacks, will now have a higher comfort level of the net return to shareholders, and one less reason not to pay dividends. The two-year extension for qualified dividends to be taxed at 15% is estimated to add an additional US$ 74.5 billion into the hands of individual investors, and bring the ten year tax savings to US$ 348.4 billion (which is $348 not collected by the government). The savings are for dividends paid to individuals in taxable accounts.
Posted by: Howard Silverblatt on December 20, 2010
I have noted an increasing number of companies which have completed share buybacks in excess of their internal use for employee options and M&A; over the first three quarters of this year. The practice, know as Share Count Reduction (SCR), reduces the actual number of shares outstanding, which are used to determine earnings per share (EPS). The result permits companies to report a higher rate of increase for EPS than their aggregate net income. For example, if a company makes US$ 1 billion and has one billion shares outstanding, their earnings per share are US$ 1. However, if they reduce their share count by 5% to 950 million, the same net income will result in an EPS value of US$ 1.05. The practice of share count reduction was very popular in the 2005-7 time period, but has fallen out of fashion due to both the recession and liquidity concerns. For the third quarter share count reductions of at least 2% have picked up considerably, relative to where they have been, with the cumulative change in shares outstanding since the end of 2009 for at least 45 issues in the S&P; 500 are now sufficient enough to impact their fourth quarter earnings per share. Given the lack of SCR impact over the past several years, I have some concern that street earnings estimates may not reflect the lower share count, with the result being that initial EPS reports will appear to have beaten their estimates, and the quick market reaction being an upswing in the stock price. Once fully disseminated and interpreted, any incorrect market action will be corrected. Trades, however, will have been made, with profits and losses posted. Given that analysts had adjusted estimates for SCR several years ago, I believes that they will quickly react to the situation, but most likely not until there have been several published examples (and trades) of the situation. It's not 2005-7, but companies appear to be a bit more aggressive with their authorizations - which do not necessarily translate into actions.
See attached for a detailed report on buybacks Buybacks_20101220.doc