Thursday, September 27, 2007
Wednesday, September 26, 2007
Following is an update on the year to date performance of the Dow dogs as of September 26, 2007:
Sunday, September 23, 2007
Michael King and Scott Martin of the University of North Florida provide some research into market sector returns in a paper titled, Federal Funds Target Rate Changes and Sector Equity Returns (link to paper can be found at bottom of linked page). The study, published May 25, 2007, examines the return of the S&P 500 sectors for the period January 1, 1999 to May 11, 2005. This is a rather short time period; however, it does capture market action during a point in time when the Fed was announcing its policy actions immediately following a Fed meeting. Prior to 1994 the FOMC meeting results were made public 45-days following the FOMC meeting.
During the time period noted above, the FOMC met 54 times. Subsequent to the meetings, the following Fed actions were taken:
- 14 rate increase.
- 13 rate decrease.
- 27 no change in rate.
- on average, in a decreasing Fed Funds rate cycle, Consumer Discretionary, Technology, Materials, Health care and Financial sectors increased in value. The other sectors, Consumer Staples, Utilities, Energy and Industrials declined in value.
- In the "all cycles" column, for a 100 basis point (one full percentage point) decrease in the Fed Funds rate, consumer discretionary stocks rose 1.169%.
- In the "increasing rate cycle" column, for a 100 basis point increase in the Fed Funds rate, consumer discretionary stocks decline .446%
- In the "decreasing rate cycle" column, for a 100 basis point decrease in the Fed Funds rate, consumer discretionary stocks rose 1.49%.
Friday, September 21, 2007
Certainly an interesting week with the Fed lowering both the Fed Funds Rate and the Discount Rate by 50 basis points on Tuesday. The Fed's action added fuel to the fire and propelled the market higher on the week. Standard & Poor's Dividend Aristocrats generally kept pace with the market on the week.
The weakest performing Aristocrats tended to fall into the financial and discretionary sectors. The defensive sectors: staples, health care and financials did underperform the overall market.
Thursday, September 20, 2007
Tuesday, September 18, 2007
- The record buyback activity was fueled by IBM’s landmark $15.7 billion stock buyback during the second quarter.
- Large quarterly buybacks were also reported by Exxon Mobil at $7.6 billion and Microsoft at $7.2 billion.
- Over the past eleven quarters, when the buyback bonanza started, S&P 500 issues have spent approximately $1.12 trillion on stock buybacks compared to (a similar) $1.24 trillion on Capital Expenditures and $594 billion on dividends.
- Standard & Poor’s also notes that the top-ten buyback issues accounted for 35% of all stock buybacks during the quarter with an aggregate amount of over $54 billion.
S&P 500 2nd Quarter Buyback Activity Sets Record at $158 Billion
Standard & Poor's
By: David R. Guarino & Howard Silverblatt
September 6, 2007
Saturday, September 15, 2007
This week the American Association of Individual Investors reported individual investor bullishness increased to 40.00% versus last week's 38.38%. The bearishness level fell by a larger amount with a large part of those surveyed moving to a more neutral stance. This caused the bullish minus bearish level to rise to a +5 versus last week's -4.
Thursday, September 13, 2007
Microsoft (MSFT) and Harley Davidson (HOG) both announced dividend increases today.
Microsoft announced a 10% increase in their quarterly dividend. The quarterly dividend increases to 11 cents per share versus 10 cents per share in the same quarter last year. The estimated payout ratio will equal 25% based on June 2008 estimated earnings of $1.73. The 5-year average payout ratio is approximately 23% excluding the $3.00 special dividend in 2005.
Harley Davidson announced a 42.9% year over year dividend increase. The new quarterly dividend increases to 30 cents per share versus 21 cents per share in the same quarter last year. The company did increases its quarterly dividend in the 2nd quarter this year to 25 cents per share. The estimated payout ratio will equal 31% based on estimated 2008 earnings of $3.88. The 5-year average payout ratio is approximately 13%. The payout ratio in 2002 equaled 7%.
Wednesday, September 12, 2007
After the market close, McDonalds Corp. (MCD) announced a 50% increase in the company's annual dividend. The new annual dividend will be $1.50 versus $1.00 last year. The company pays one dividend during the year in December. The ex-date will be around November 13, 2007.
- The company stated in the press release announcing the dividend that the increase is an effort to return $15-$17 billion to shareholders through 2009.
- The 5-year historical payout ratio is approximately 34%.
- The estimated payout ratio on estimated 2007 earnings of $2.85 is approximately 53%. Estimated earnings for 2008 are $3.03.
- The company carries an S&P Quality Ranking of A.
Saturday, September 08, 2007
Some facts Skinner details in his research report:
- Skinner shows that the increased volatility of earnings helps explain changes in payout policy over the last 30 years.
- First, Skinner shows that since 1980 there have been three main groups of payers: 1) established firms that have always paid dividends and now also make repurchases on a regular basis; 2) firms that make regular repurchases but do not pay dividends; and 3) firms that make occasional repurchases.
- Skinner finds that firms in the first group have been paying dividends for decades and continue to do so largely because of their dividend history. Over time, managers of these firms increasingly use repurchases to pay out earnings increases, with dividend policy becoming more conservative. This suggests the reluctance to reduce or omit dividends has become stronger in recent years (emphasis added). Skinner also finds that these firms dominate the set of publicly held firms, accounting for more than half of all total earnings and payouts.
- Dividend policies are incredibly sticky once firms have established a dividend amount, they feel as if they have to maintain that level of dividend going forward.
- ...prior research has shown that managers set dividends based on current and past earnings.
From a historical perspective, aggregate buyback amounts now exceed aggregate dividend payments. I noted this in an earlier post, Stock Buybacks Continue At A High Level.
From a cautionary standpoint, Skinner finds, "those firms that both pay dividends and make repurchases have a conservative dividend policy and use repurchases to supplement dividends in years with strong earnings." The issue here is the buybacks are based on past earnings and cash flow results and not on a company's expectations of future earnings prospects.
When evaluating dividend growth aspects of a firm, the growth rate of a dividend is an indication of a company's future earnings growth prospects. This was detailed in a study by Robert Arnott and Clifford Asness titled, Surprise! Higher Dividends = Higher Earnings Growth (pdf).
The Dividend Puzzle
By: Douglas J. Skinner
The Evolving Relation between Earnings, Dividends, and Stock Repurchases
Social Science Research Network
By: Douglas J. Skinner
Buyback vs. Payout($)
By: Shirley A. Lazo
September 10, 2007
Friday, September 07, 2007
Thursday, September 06, 2007
Wednesday, September 05, 2007
In the first chart, it appears the S&P Index may be breaking out of a short term downtrend. In the second chart, the downtrend remains firmly in tact. In both charts, two points should be considered:
- the recent rally has been occurring on lower volume.
- the S&P close today was below the 50-day moving average.
As noted in one of my prior posts, Patience is a Virtue at this Point in the Cycle, there are a number issues the market needs to digest over the course of the next month or so that could determine the future direction of this market.
Tuesday, September 04, 2007
Sunday, September 02, 2007
- The sectors showing the best return for August were Information Technology, Consumer Staples, Health Care and Utilities.
- Total Return for the S&P 500 Index includes the dividends.
- Net Total Return is reinvestment of the dividend excluding estimated withholding taxes.
- The category definitions can be found at Standard & Poor's website.