1. Sysco (owned): When I bought SYY in March 2009, it was a no brainer. Buys of CPB LQD SYY The shares were purchased at $19.46, near 10 times earning. I mentioned in that post that I did not recall when SYY had sold for such a low P/E. The yield on the shares then was almost 5%. As discussed in a prior post, the firm had a long history of raising its dividends at a relatively rapid clip. Item # 4 Sysco During the Near Depression period, Sysco raised its dividend, moving from an annual dividend per share of 74 cents in 2007, 85 cents in 2008, and 94 cents in 2009. Since my cost is fixed, I now view my common stock holding holding in SYY to almost be a bond equivalent. Unlike a fixed coupon bond, however, Sysco will hopefully continue to raise the dividend- thereby increasing my yield based on a constant cost basis. While the common stock dividend lacks the security of a senior bond, whose payments can not be reduced, the benefit of consumer stable companies like SYY is that the dividend stream is probably more reliable over time, even during recessions, than virtually any other common stock. While it is an obvious point, the best time to buy a consumer staple like SYY, PEP, PG, KO, or GIS is during the height of a recession. Those stocks will hold up better but they are not a safe haven. Their share prices will decline significantly during a bear market. And, as their price declines, the dividend yield goes up, providing an entry point for a long term investor that will juice the value of the dividend increases for years to come.
Sysco reported diluted E.P.S. of 42 cents per share for its fiscal third quarter results, beating estimates by 2 cents, on 8.7 billion in sales. Net earnings came to 248 million.
2. Personal Income/Spending & the Savings Rate: The Commerce Department reported yesterday that both personal and disposal income rose .3% in March. Personal Income and Outlays, March 2010 Consumer spending rose .6%. The savings rate decline to 2.7% (savings as a percentage of disposable income).
3. Sterling Bancorp (own STL & STL-PA: Regional Bank Stocks stratagem): This is the Sterling bank from NY. Sterling Bancorp reported net income of 1.9 million for the 1st quarter of 10 cents per share. The tangible common equity ratio rose to 7.58% as of 3/31/2010, from 4.59% on 12/31/2009, primarily due to 69 million dollars raised in a common stock offering. Net interest margin was 4.37%.
4. ISM: ISM manufacturing index rose to 60.4 in April from 59.6 in March. The new orders component, which signaled an upturn in early 2009, rose from 61.5 to 65.7. ISM I discussed new orders as a leading indicator for calling the turn out of a recession in a post from April 6, 2009: /ISM Index of New Orders
5. Pitney Bowes (Own): Pitney Bowes reported adjusted Non-GAAP earnings of 55 cents per share. The GAAP number was 38 cents per share and included charges for the health care legislation, discontinued operations, and restructuring. Revenue declined by 2% in the quarter, helped by a 3% benefit from currency exchange. The consensus estimate was for 54 cents on 1.38 billion in revenues. The actual revenue number was 1.3 billion. I view PBI as a dividend play. Free cash flow comfortably exceeded the dividends paid to shareholders during the quarter. I bought 100 shares at 21.9 last January which gave me a 6.5% yield based on my cost. Doug Kass was shorting the stock for reasons that did not appear persuasive to me at the time: Item # 3 Kass: Short PBI
The company reaffirmed its non-GAAP guidance of $2.3 to $2.5 per share. On a constant currency basis, the company expects revenues to be between a decline of 2% to 1% growth. PBI expects more growth in earnings in the second half of the year. This is an unexciting stock that would have no interest to me except on a total return basis. There is nothing in this report that would entice me to add shares at the current price, nor is there anything sufficiently negative to cause me to harvest my profit and to forego subsequent dividend payments.
6. FBSS (own-regional bank strategy): Fauquier Bankshares, one of the 38 banks currently owned in the regional bank basket, reported earnings of 22 cents for the 1st quarter of 2010. The bank took a $476,000 impairment charge on trust preferred corporate bonds. This investment is part of a pool of 230 TPs. Net interest margin was 4.27%. The allowance for loan losses as a percentage of NPLs was 99.23%. NPLs were 1.29% of total assets. "The Company's tier 1 and total risk-based ratio were 10.91% and 12.12%, respectively, at March 31, 2010, 10.97% and 12.21% at December 31, 2009 and 11.16% and 12.29% at March 31, 2009. The minimum capital ratios to be considered "Well Capitalized" by the Federal Reserve are 5% for the leverage ratio, 6% for the tier 1 risk-based ratio, and 10% for the total risk-based ratio"
The estimate by the one analyst following this bank was for 28 cents in earnings. FBSS: Analyst Estimates for Fauquier Bankshares
I roughly calculated that the impairment charge on the TP pool was worth about 13 cents per diluted share. This is a small bank with 3,618,132 diluted shares.
7. More on ACG: I discussed making a small purchase of the CEF ACG in my post yesterday. Bought 200 ACG at $8.12 in Roth Since I am negative on treasury bond prices, I am not positive about the long term outlook for ACG that invests heavily in treasuries. I recognize that this opinion may end up being wrong. The Bobsie Twins, David Rosenberg & David Levy along with their fellow traveler Alan Abelson, warned investors about stocks in March 9, 2009 edition of Barrons.com (Levy article), and instead recommended ten year treasuries then yielding 2.83%, falling significantly in value since then as yields have risen to almost 3.7% now. (link to Abelson's column in the 3/9/2009 edition predicting doom and gloom citing Rosenberg: Barrons.com; Rosenberg predicting in April 2009 a fall in the S & P 500 to the 475 to 650 range and recommending treasuries expecting the 10 year to retest the 2% range: Rosenberg).
I may end up being wrong, though I view the possibility of Rosenberg, Abelson and Levy being right as remote.
I summed up my attitude toward ACG as follows in an email to a reader yesterday:
" I am starting to extend my horizon for a significant bump in rates too. But, I would still expect inflation to become a problem, and more probable than not a serious problem. The year-over-year rate is over 2% now. An inflationary problem did not appear quickly during the 1960s. Once it started to gain momentum, it required the Fed to induce a serious recession to quash it. I frequently copy the chart of the CPI from 1965 to 1982 to drive that point home: Problems Brewing for Stocks and Bonds?/Brokerage Firms-You Have to Look Out For Yourself ACG would be an extremely awful investment during any similar future period.
I will sell this fund, ACG, when the ten year treasury moves over 4.25%, which will be my trigger for selling the 200 shares that I just bought. The duration of the securities in the fund is close to 10 years. If the 10 year falls in price and increases in yield to over 4.25%, I doubt that this fund will be holding its value, suffering a diminution in its NAV at a time its borrowing costs are increasing. This could easily cause a rise in the discount from its current level. But if the period of low rates continues for several more months, it is possible that the NAV will increase some and the discount to narrow. If the discount narrowed to close to zero, I would probably sell it. I just view it as a temporary hold and an alternative to cash earning nothing in the ROTH.
The 10 year treasury note closed at 3.69%. Bloomberg.com: Government Bonds
Some of the government debt problems in Europe will likely stay the Fed's hand longer than I previously expected.
I do not mind taking on the interest rate risk of ACG because I own no U.S. bonds. If I am wrong about interest rates over the next year or so, then ACG could be rewarding over that time frame. I tend not to bet one way entirely. I have no interest in buying treasuries at current prices, except for possibly the 10 TIP at the auction when its coupon is closer to or in excess of 2%. I can purchase these securities via Fidelity at no cost and I do believe that they are good investments for conservative investors in the retirement accounts, provided there is no need to shoot the lights out.
I view the Canadian government paper to be better, both now, and over the long term."
8. Sold BRKS at 10.2 (See Disclaimer): I am cutting back on the number of Lottery Tickets, and this transaction on BRKS was part of an effort to sell non-income producing securities, to improve the overall quality of my security holdings, and to most importantly cut down on LB's work load some. Bought 100 MKZ at 9.96/Bought 50 DSPG at 5.62 and 30 BRKS at 8.62 as LTs/Sold 50 GJT-Some Details about Managing My Two IRA Accounts
9. Sold 200 GRU at $5 (see Disclaimer): This is one the LB sold because it had not moved and it does not throw off income, two major negatives from the LB's point of view. GRU was sold at a small loss: Bought 200 GRU at 5.43/ Bought GE at 15.48
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