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: