Faux Dividend Games $SPX $SPY $QUAL $DJX $XLF #dividend

Interest rates are rising; right. Dividend stocks offer the best long-term returns; right. Investors are seeking yield; right. So right now dividend paying stocks look very good in relation to blue chip low yield bonds.

Fast forward when interest rates are say three percent higher on no risk treasuries. What can dividend yielding stocks offer in return? The blue chip performers will not change and if circumstances permit steadily increase their dividends rewarding shareholders. Second and third tier companies who offer attractive yields will be under pressure to risk adjust.

This of course will be their downfall. They second and third tier will not be able to sustain their dividend much less increase it. The buy and hold narrative for dividend yield investors will crumble and capital losses will occur.

Dividend investors need to scrutinize their yield stock and segregate for quality. Right now low-interest rates floated a lot of boats.

Start thinking

George Gutowski writes from a caveat emptor perspective. Follow him on Twitter @financialskepti

Big Pharma Good for your Health? Where is anomaly? $JNJ $PFE $BMY $NVS

Big pharma is like the beautiful mythic siren. Calling calling until you turn your boat and flounder on the rocks just below the waterline. Society gets sick and needs drugs. Great business model what could be better as a defensive play with excellent growth prospects.

As in any grouping there are winners and losers. Some stocks are better. The problem is they all face the same issues. Patents constantly expiring and then facing generic knock off price competition. What anomaly stands out and should we pay attention.

Dividend yields are very similar ranging from 2.91% to 3.4%

PE ratios range from 19.2 to 22.5

Short Interest Ratio as a % of outstanding float tells a different tale.

JNJ 2.64%

Pfizer 0.77%

Bristol-Myers Squibb 1.96%

Novartis 0.11%

Interestingly enough Novartis with the smallest short sale ratio has the highest dividend yield and lowest PE ratio. Dividends do prop up stock valuation. But consider it this way short selling is like a tide; goes in goes out goes in goes out. The higher the short position the more bullish because all shorts must eventually cover.

So Novartis has no bullish short position. Dividends are high and therefore will be increased aggressively. Management will try to conserve cash. The shorts do not smell a correction as yet but the higher dividend yield frequently identifies the stock with the higher propensity to move upward. The lowest PE ratio encourages investors to believe there is room to bid up the price. The shorts as yet are not betting against the story. But as the stock rises upwards the short position will increase. Counter-intuitive counter-cyclical. then when the stock taps out the momentum drops and shorts cash in.

So in the very near term the stock should be facing upward action. Just as an elevator goes up with counter pulleys and cables pulling in the opposite direction the stock will peak and start a descent warming the heart of the short selling community. Watch the short selling position and you’ll know the end is near.

George Gutowski writes from a caveat emptor perspective.

GE the case against $GE. Hint: Too much retail and we are running out of Cheerleaders.

General Electric (NYSE:GE) has redeemed itself in the eyes of shareholders. Coming back from the 2008 financial meltdown the stock has climbed nicely and so has the dividend. You cannot help but notice all the positive feel good stories about why its a good idea to go long and stay long. Buy and hold heaven here we come.

Near its 52 week highs the dividend yield is 3.19%. The S&P 500 clocks in at 2.5%. Pretty good you’re thinking. Buying stocks at 52 weeks highs is tricky business, Sir.

Here are a few tidbits to think about.

Some 40% of shares are owned by retail investors. Season that with the understanding that margin debt is at or near record highs again. In a margin squeeze GE is big and liquid. It can solve a lot of emergency margin call pressure.

The short position has jumped but is still below 1% of float. The sharks are smelling the blood in the water.

Sell side analysts are overwhelmingly bullish. No significant sell or reduce calls from anyone. The cheerleaders are maxed out. You can re-issue the buy rating once in a while to make it look good but there is no one else to help with momentum.

Yes some of the fundamentals look good. GE is not going bankrupt. But the hype is starting to become excessive. All you need is a few down spikes and the spell will be broken. Retail investors will sell in a panic and institutions will go long on value.

Same old, same old.

George Gutowski writes from a caveat emptor perspective.

Monsanto Nails it. Dividend Increase Maybe. Management Needs to Confirm Earnings $MON

Monsanto

Monsanto (Photo credit: arbyreed)

Monsanto (NYSE:MON) came out charging with an unexpected blockbuster quarter. US farmers flush with last years crop failure insurance money have bought premium seeds and setting themselves up for success this summer.

Pity the investor who did not buy this stock in Aug when it was around $70. You would look very astute with the current $98 per share. So here are the issues. Dividend yield at about 1.5%. If earnings are truly up then management needs to confirm with a dividend increase.

Money flow is mildly negative at 0.92. Short interest has recently risen by 7% but is still only a snick over the 1% of public float mark. Shorts have to be covered. Increasing the dividend makes short positions more expensive. Managements usually hate short positions.

So we need a dividen hike or the market starts to belive management does not believe their own words. In that case the shorts take over.

George Gutowski writes from a caveat emptor perspective. Follow him on twitter@financialskepti or his evil twin who is writing a Wall Street Murder Thriller twitter@georgegutowski .

Apple Declares Golden Apple Dividend But it’s Not a Dividend Stock $AAPL

Image representing Apple as depicted in CrunchBase

Image via CrunchBase

The long-awaited dividend announcement came down from the Apple Tree. Apple (Nasdaq:AAPL) will skim a little bit of cash and line the pockets of investors. The dividend yield at the currently stratospheric price point is just under 2%. If you are a true dividend oriented investor this will not turn your head. Yield hounds who must surely know rising interest rates and probably inflation are just around the corner will not be truly impressed with a 2% yield.

Coupled with the cash dividend will be a share buy back to fund employee share purchase plans. A nice touch of financial engineering. Can you blame them everyone else is doing it? This allows them the flexibility of manufacturing EPS.

The market is applauding for now. But this is not the Golden Apple as everyone contemplates. True dividend paying stocks return capital to their shareholders in a defined and systemic manner.   Dividend levels while not contractual obligations become matters of trust. When dividends are reduced or cancelled share values erode deeply reflecting the drastically eroded business model. Dividend payout ratios are usually established in advance. Apple has done of these things. The dividend is being justified as something that will not erode the pile of cash that Apple has accumulated. No one is looking at dividend coverage ratio’s and assessing business risk. So therefore Apple is still not a dividend stock.

You would not set your stock selection screens for a 2% dividend  yield and then hit the buy button.

Microsoft (Nasdaq:MSFT) with 50% of Apple’s market cap has a dividend yield of approximately 2.5%. Microsoft’s cash balance is around $52 Billion. Yet Microsoft is starting to be viewed as a senior with an established cash flow base from its Office Product and enterprises services. There is real pressure on Microsoft to act more like a utility and pay up. Microsoft has made a few acquisitions and is probably glad the Yahoo thing (Nasdaq:YHOO) didn’t real work.

Apple has had to eat its own babies to develop new compelling products. Microsoft has eaten the neighbours children several times over and can point to a more entrenched product line. Apple is one marketing failure away from disturbing their slavish clientale. Microsoft can launch Vista and shrug off the problem.

The real comparison is IBM (NYSE:IBM) Big Blue currently has a dividend of under 1.5%. The market cap is just behind Microsoft and the cash balances are nowhere near what Apple or Microsoft have to offer. In short they are a dividend stock. The CFO   needs to watch earnings and cash flow to ensure he can cover the dividend. Apple simply is not in that category.

Which is why Apple has Golden Apples but not Golden Dividends.

George Gutowski writes from a caveat emptor perspective.

Gannett Double Dividend Gamble $GCI #newspapers #dividends

Gannett Logo

Image via Wikipedia

Gannett Co. Inc. (NYSE:GCI) doubles its dividend. But makes less money. Oxymoronic moment for traditional dividend investors. Print is still in trouble and while digital seems to be improving it still is not doing any heavy lifting.

Dividend coverage ratio must be laughable.

Media is driven by political cycles. This is an off-year. Next year the presidential race is on and so are the big ad buys. The wary investor may conclude a long-term play to turn dividend players into believers when the dividend coverage ratio improves and Gannett can claim improving fundamentals. Or the board senses a coming takeover bid and wants to juice the value with some old school fundamentals.

In any event doubling the dividend on decreasing revenues is a gamblers move. The stock is down in a down market today. Gannett is not a true candidate for dividend aristocrats. Yield investors beware.

Disclosure: George Gutowski writes from a caveat emptor perspective. I hold no positions in stocks mentioned in this post. I have no plans to initiate new positions within the next 72 hours.