Category Archives: NLO Dividend Watch List

Top Five Watch List Performance Review

In our ongoing review of the NLO Dividend Watch List, we have taken the top five stocks on our list from July 26, 2013 and have checked the performance one year later. The top five companies on that list can be seen in the table below.

Out top five clearly have underperformed the market. We highlighted two companies on our list, Caterpillar (CAT) and IBM (IBM). Caterpillar did extremely well outperforming the market by 10% while IBM was flat year-over-year.

We stated the following about IBM last year:

Second on the list is another Dow 30 component, IBM (IBM).  One may want to note that IBM appears to be fairly priced according to Valueline which stated that this stock trades at roughly 9.5x its cash flow.  With 2013 expected cash flow of $20.35 per share, the stock fair value is $193.  Our valuation model has a fair value of $180 thus leaving virtually no margin of safety on the shares.

U.S. Dividend Watch List: July 25,2014

The market may be consolidating after reaching 1,990 mark. Our database of companies near the low continued to expand. At the beginning of June, we logged 30 companies on our list. That number has since exploded to 84 this week. If the market continue to make new high with many of the quality name lagging behing, it is a sign of trouble or that the speculative phase of the bull market has taken hold. Below are the companies on our watch list. Continue reading →

Top Five Watch List Performance Review

In our ongoing review of the NLO Dividend Watch List, we have taken the top five stocks on our list from July 12, 2013 and have checked the performance one year later. The top five companies on that list can be seen in the table below.

The top five under performed the market, particularly the S&P 500, by a wide margin. Three of the five companies are utility companies which we know is facing a strong headwind. Surprisingly Connecticut Water (CWT) managed to do relatively well. On the flip side, IBM (IBM) was the worse performer lossing 2%. However, we estimated the company's fair value to be at roughly $180. So for the stock to trade down from $192 to $188 didn't surprise us.

U.S. Dividend Watch List: July 11, 2014

The market gave up some ground this week as the S&P 500 lost 0.9%. The earning season kicked off this week so expect more volatility to come. In the mean time, we are seeing a large influx of companies onto out watch list. Our observation is that these stocks are trading in a narrow band within their 52-week range rather than drop down to a more appropriate discount level. The market is currently trading at a large premium at more than 19x so we this alone is a headwind for individual stock to move higher. While we are not suggesting that this bull market is coming to an end, we do feel that a digestion process is much needed for fundamental to catch up to the technical. Below are 31 companies on our watch list. Continue reading →

Top Five Watch List Performance Review

In our ongoing review of the NLO Dividend Watch List, we have taken the top five stocks on our list from June 28, 2013 and have checked the performance one year later. The top five companies on that list can be seen in the table below.

The top five companies returned an average 10.9%. The first company we highlighted was IBM (IBM) which we believed to be fairly priced. The excerpt below was taken from last year's post.

The third company, IBM (IBM), make for an interesting potential research.  Recall that Warren Buffett’s Berkshire Hathaway is a major shareholder of the company.  The company’s stock price plunged in mid April, recovered in May, but has given back all of the gain in June.  Because Buffett isn’t bothered by the short-term fluctuation in price, the recent actions means nothing to him.  One may want to note that IBM appears to be fairly priced according to Valueline which stated that this stock trades at roughly 9.5x its cash flow.  With 2013 expected cash flow of $20.35 per share, the stock fair value is $193.  Our valuation model has a fair value of $180 thus leaving virtually no margin of safety on the shares.

At the closing on Friday, IBM closed at $181 which was right on our target.

The second company was Caterpillar (CAT). We were more bullish on the shares and the stock rose more than 30%. Last year we stated the following.

This Dow Jones Industrial component has been in and out of our watch list for several months. This suggest some form of ‘line’ trading on the longer time frame. The stock yields 2.9% with 32% payout ratio. Earning estimates might have hit bottom as consensus now expects the company to earn $6.88 compared to $8.90 in the previous year. Cash flow should remain strong which will help the company retain, if not raise, their dividend payout or buyback shares.

U.S. Dividend Watch List: June 27, 2014

The market was virtually flat for the week. It appears that further consolidation may be needed if the S&P 500 is to break 2,000 mark and the Dow Jones Industrial Average to break the 17,000 level. The number of companies on our watch list remain somewhat elevated at 42 companies which is a sign that market breadth is relatively weak. Below are 42 companies on our list. Continue reading →

Top Five Watch List Performance Review

In our ongoing review of the NLO Dividend Watch List, we have taken the top five stocks on our list from June 7, 2013 and have checked the performance one year later. The top five companies on that list can be seen in the table below.

All of the top five companies are utility companies and we kept pounding the table on the fact that they are likely to underperform in the rising rate environment. However, we did point out one company that standout in our view which was Caterpillar (CAT). We stated the following last year:

Caterpillar’s (CAT) target price was lowered by Goldman Sachs from $100 to $97. The analyst cut sales forecast by -7% in 2013-2015 because of mixed outlook in the mining machinery market. Valueline Investment Survey estimates that Caterpillar trades at 8x cash flow while the company expects their cash flow per share to be $10.90 in 2013. This means the company might be fairly valued at the current price. Our valuation model, however, placed CAT fair value at $100 which implies a +20% upside.

The stock last traded at $108 which equate to 27.8% gain based on the price from the list.

U.S. Dividend Watch List: June 6, 2014

The S&P 500 is only 2.5% shy of the 2,000 mark. At the current run rate, we might achieve that by the end of the coming week. Below are 30 companies on our list. Continue reading →

Top Five Watch List Performance Review

In our ongoing review of the NLO Dividend Watch List, we have taken the top five stocks on our list from May 31, 2013 and have checked the performance one year later. The top five companies on that list can be seen in the table below.

Four of the top five companies on the last year’s list are utility companies.  We believe strongly that under the rising interest rate environment, these companies will face tremendous headwind.  Last year, we stated the following:

Last week we wrote a short commentary (here) on utility companies and low interest rate environments.  Four of the top five companies on our list are utilities.  Connecticut Water (CTWS), Northwest Natural Gas (NWN), Southern Company (SO), and Consolidated Edison (ED) should be assessed with the view that if interest rate rise, their margins can shrink dramatically.  Since the beginning of May, we’ve seen 10-year yields rise by 50 basis points (from 1.66% to 2.16%).  Below is the performance of these four companies in May.  We can’t draw to many conclusions or direct correlations that interest rate are the reason that caused the stocks to underperformed…yet.

The best performing company on our list was Carbo Ceramics (CRR). which gained 108%.  Ironically, the company was of heavy interest to us because of our position in the stock.  Below are our commentary about Carbo Ceramics.

Another company we’d like to highlight is Carbo Ceramics (CRR).  The stock has experienced tremendous move rising from $64, when we took position late last year (here), to peak out at $97.  It took the stock 8 months to rise 49% but less than 2 months to give it all back.  The stock now trades at $65.90.  It is worth noting that we wrote a follow up commentary on our action of buying and selling the stock (here).  Our risk averse and conservative approached was the reason we avoided such a collapse in price and may be looking to accumulate shares again at the current level.

U.S. Dividend Watch List: May 30, 2014

The market (S&P 500) has achieved its all-time high on Friday.  Despite such strong action in the market, companies in our database continue to lag the market.  By the end of the week, there are 49 companies on our list. Continue reading →

Top Five Watch List Performance Review

In our ongoing review of the NLO Dividend Watch List, we have taken the top five stocks on our list from May 24, 2013 and have checked the performance one year later. The top five companies on that list can be seen in the table below.

Weyco (WEYS) gain of 14% didn't beat out the market gain of 15% but such performance is exceptional nonetheless. We stated that the stock was range bound and multiple was contracting. Such contraction allowed earnings to catch up and build a support on stock price. While earning fell 4%, multiple by nearly 20% which was the key gain in the stock.

Frisch's Restaurants (FRS) was the best performer on our list with gain of nearly 40%. The key driver was the rise in earning. A quick glance at last year data would suggest that EPS rose by 140% (from $0.66 to $1.60). On a fiscal year basis (ending in May) the company earned $1.35 per share in 2013.

We highlight one important key aspect about the second company on the list, Connecticut Water (CTWS) and that is to be aware of investment made in utilities companies during rising rate cycle. Although Connecticut Water did extremely well considering the circumstances, the majority of utility companies did not. The four utility companies average gain was 0% for the year with Consolidated Edison (ED) as the worse performer declining 7%.

U.S. Dividend Watch List: May 23, 2014

The S&P 500 reached its all time high and closed above the 1,900 mark.  Despite that, we are seeing large number of companies.  At the end of the week, there are 53 companies on our watch list.  Please see below for the complete list. Continue reading →

Top Five Watch List Performance Review

In our ongoing review of the NLO Dividend Watch List, we have taken the top five stocks on our list from May 17, 2013 and have checked the performance one year later. The top five companies on that list can be seen in the table below.

We didn’t make specific highlights on any companies from the list.  The market pushed to its all-time high last year providing us with little opportunity to invest.  Despite this fact, our top five managed a double digit gain and nearly matched that of the S&P 500.  If we were to include the performance of John Wiley (JW-A), our average again would be +16.5% as John Wiley returned +40%, excluding dividends, in one year.

U.S. Dividend Watch List: May 17, 2014

When the market reached its peak last year, there were only 6 companies on our list.  This time around, there are 56 companies!  We don’t have any definitive answer to why this has occurred.  The implication of this, however, is that it could be a bearish sign.  Despite all this, we believe there are great companies to start researching for long-term investment and income opportunities.  Below are the 56 companies on our watch list.

Continue reading →

Top Five Watch List Performance Review

In our ongoing review of the NLO Dividend Watch List, we have taken the top five stocks on our list from May 10, 2013 and have checked the performance one year later. The top five companies on that list can be seen in the table below.

Iberiabank (IBKC) had a tremendous run over the last year.  Below is the commentary we made last year.

The company’s book value has increased at an annual rate of +11.5% over the past five years while the dividend has risen at +6% annually over the same period.  Countering the positives, earnings per share has fallen from the peak in 2006 at $3.57 to the bottom in 2009 at $0.19.  The current earnings per share is $2.59, which far from the bottom in 2009.  The company never cut its dividend through the credit crisis but it has yet to increase their payout.  The stock trades at a 10% discount to its book value and yields 2.9%.

The company’s dividend payment has remained unchanged at $1.36 per share.  Anyone who purchased shares at the 10% discount to book value would have done well as shares are now trading at 17% above book value.

Weyco (WEYS) was second on our list and did relatively well.  We highlighted the worrisome trend in the underlying fundamentals of the company.  Growth has slowed tremendously in both sales, profits, and cash flow.  The market appeared to be pricing in these factors.

U.S. Dividend Watch List: May 9, 2014

Minor divergence occurred between the blue-chip and the overall market as the Dow rose +0.4% compared with the S&P 500 falling -0.2%.  Below are 22 companies that are in our watch list this week.

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Top Five Watch List Performance Review

In our ongoing review of the NLO Dividend Watch List, we have taken the top five stocks on our list from April 19, 2013 and have checked the performance one year later. The top five companies on that list can be seen in the table below.

Our top five continued to outperform the market by a good margin.  We commented specifically on Cato (CATO) and Caterpillar (CAT).   We didn’t go into specific about Cato other than the fact that revenue had declined.  Now that some time has passed, it’s interesting to look back and note that earnings (TTM) actually fell -12% ($2.11 to $1.86).  Based on this decline, you would think that the stock should have fallen by a similar amount, if not more.  However, we can see that the opposite occurred because of the multiple expansion.  One year ago, Cato was trading at just 10x its earnings compared to today at 14x.  We can’t conclusively say what drove the price up but we will speculate that reversion to the mean is the key aspect to this story.  If we look at the historical average, CATO typically trades at 13x its earnings.

As for Caterpillar, we said the following:

"We highlighted this CAT’s bullish technical pattern on December 6, 2012 (found here) and the stock took off to trade close to $100, a gain of +16% gain.  Those gains, however, were short-lived and the shares are now trading 6 points lower than our December write-up.  Fundamentally, the stock is very interesting at less than 10 times earnings and a 2.4% yield."

We spoke about reversion to the mean above and this concept can be applied to the Caterpillar trade over the past year.  Let’s take a step back and look at earnings from one year back.  The CAT had net earnings of $8.48/share.  Fast-forward to today and you will note that earnings fell to $5.75/share or roughly -32%.  That’s a large drop in profits in any business.  However, one year ago the stock was trading at less than a 10x multiple when the shares on average traded at 20x multiple.  Buying shares at a 50% discount to its historical average provide a wide margin of safety, something investors should look for when investing.  Incorporating the concept of reversion to the mean with a margin of safety and we can see how CAT turned out profitable despite a significant profit contraction.

We also highlighted IBM (IBM) last year but the shares have literally gone nowhere.  Going back to the where shares traded one year ago at 13x multiple, this is essentially the same as their 5-year average.

U.S Dividend Watch List: April 18, 2014

Below are 31 companies that are in our watch list this week.

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Top Five Watch List Performance Review

In our ongoing review of the NLO Dividend Watch List, we have taken the top five stocks on our list from  April 5, 2013 and have checked the performance one year later. The top five companies on that list can be seen in the table below.

Our top five crushed the market by a wide margin. Worth noting is that even though FactSet Research Systems and Cato Corp. ended the year with gains in the teens, they managed to achieved gains of +50% and +40%, respectively. This suggests that abnormal gains need to be taken advantage of by selling the principal at minimum.

The best performer was Myers Industries (MYE) which gained 57%.  We said the following about the stock:

The stock has broken the $13.50 level which has been the support for over 6 months.  We now look for $13 to be the a support level on a technical basis.  Fundamentally, the company is growing its bottom line at a very healthy rate.  Net income rose +22% from $24,505 to $29,962 while EPS rose +24% from $0.71 to $0.88.  The dividend also increased by +14% from $0.28 to $0.32.  More information of their 2012 performance can be found here.  Anyone wishing to learn more about the company may want to checkout their investor presentation which can be found here.

It’s worth noting that Myers was trading 15 times earning last year when net profit was $0.88 per share.  Net profit fell to $0.76, 13.6% decline from previous year.  One might think that the stock would fall by similar margin.  The only factor that could be the main driver for the stock increase would be the 44% increase to their dividend (found here).

U.S Dividend Watch List: April 4, 2014

Below are 30 companies that are in our watch list this week.

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Watch List Performance Review

In our ongoing review of the NLO Dividend Watch List, we have taken the top five stocks on our list from March 15, 2013 and have checked the performance one year later. The top five companies on that list can be seen in the table below.

Our five companies that topped our list last year had an amazing run, outperforming the market by nearly +7%.  Our assessment was that Diebold (DBD) was a bargain with the following commentary:

"Diebold (DBD) has been on our list on consistent basis for several weeks if not months.  The company’s main business comes from manufacturing and servicing ATM machine for regional banks.  Our valuation model suggests a buy at $33 and ‘bargain’ of $25.  Currently, the stock is trading just $3 above the ‘bargain’ level thus we are considering the possibly of adding this name as part of our portfolio."

Microsoft (MSFT) was noted with the following thoughts last year:

"The company [Microsoft] needs little introduction and some of you may know the reason why the stock is trading relatively weak compared to the Dow up +5% versus +10.75% YTD, respectively.  The new tablet, Surface, sales came in much lower than expected and the adoption rate isn’t very promising.  All that aside, the technical pattern is very bullish.  The stock has broken out of its range pattern (red box) and has established a higher-high/higher-low indicated by the green line.  The dividend yield of 3.28% and payout ratio of 51% should provide sufficient margin of safety."

Both stocks were considered to provide sufficient margin of safety to any long-term investor.  Not to be outdone has been our longstanding warnings that utilities like Northwestern Natural Gas (NWN) would not perform well in a low interest rate environment.  On this topic, we've had the following pointed thoughts:

"Those seeking yield have pushed many of the utilities companies, with some exception, below their historical low dividend yields.  Many utility companies, utilize the debt market (issuing bond) to operate their business.  The low interest rate cycle we are in has made many companies profitable via issuing low yielding bonds.  While such a cycle could remain for some time, it will not last forever.  Any long-term investor should beware of how higher interest rates will affect utility company (May 24, 2013)."

"The top two through four spots are utility companies, Northwest Natural Gas (NWN), Consolidated Edison (ED), and New Jersey Resources (NJR).  All of them yield more than 3.5% and two (NWN & ED) have yields north of 4%.  While that yield is attractive, utilities typically will reach much higher yield at the bottom of utility cycle (November 9, 2012)."

We hope that regular readers of our work have seen the same warnings regarding REITs and other interest rate sensitive sectors of the market.  With this in mind, it was of little surprise that Northwestern Natural Gas (NWN) would perform poorly in the last year.

U.S. Dividend Watch List: March 14, 2014

Our complete watch list contains more than 40 companies thus we will focus on the 17 companies below:

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Watch List Performance Review

In our ongoing review of the NLO Dividend Watch List, we have taken the top five stocks on our list from March 1, 2013 and have checked their performance one year later. The top five companies on that list can be seen in the table below.

Our top five companies outperformed the blue chip index by a wide margin.  Diebold (DBD) surprised us because while the stock swung to a loss, it continued to march higher in price.  Although we hate to point to any single catalyst, this one is worth noting.  An article in BloombergBusinessweek highlighted a potential driver for the stock being due to the looming software upgrade to ATM systems.

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Watch List Performance Review

In our ongoing review of the NLO Dividend Watch List, we have taken the top five stocks on our list from February 15, 2013 and have checked their performance one year later. The top five companies on that list can be seen in the table below.

Last year we highlighted the fact that Weyco (WEYS) and Family Dollar (FDO) could be worth considering and expected the companies to raise their dividend.  Although share price performance didn’t keep up with the market, the stock did relatively well excluding dividend.  Weyco increased their dividend by nearly +6% from $0.17 to $0.18 per quarter.  Family Dollar, with an extremely low payout ratio, increased their payout by +23.8%.

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Watch List Performance Review

In our ongoing review of the NLO Dividend Watch List, we have taken the top five stocks on our list from February 8, 2013 and have checked their performance one year later. The top five companies on that list can be seen in the table below.

McGraw Hill (MHFI) was the best performer and the key reason why the top five companies are up substantially more than the market in the last year.  At the time, we stated that the key reason why MHFI tumbled was because the U.S. government filed a civil lawsuit against the company on charges related to credit rating prior to the financial crisis.  The market apparently paid no attention to that lawsuit and MHFI skyrocketed upward.

U.S. Dividend Watch List: February 7, 2014

Below are 53 companies on our U.S. Dividend Watch List that are currently of interest to us.

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