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

Apple Behaviourial Investing Conundrum Growth vs Dividend $AAPL

How many articles and blog posts about Apple (Nasdaq:AAPL). The conversations in the investor marketplace come down to two solitudes which have yet to resolve.

There are those who focus on Apple as a growth company. constant product innovations. Constant increases in revenues and profits. It’s all so damn sexy. New iPad. New iPhone. Apple is the one to beat. Samsung has a compelling offering and may take share so load up on the market place news.

Then there are articles on the dividend. The tone is how boring that Apple pays a dividend and therefore supports price because of yield. Boo Hoo how sad but that is what a dividend is supposed to do.

Apple investors are in a transitional frame of mind. Is this a sexy growth company or do the dividend investors start to pile in. The dividend investor buys because they believe in the financial metrics. The growth investor buys because they believe in the next generation of product offerings. Two very different orientations.

So what of it?

The growth investors have the greatest psychological risks. They are anchored in their perspective of Apple being exciting and growing in leaps and bounds. They will seek and receive confirmation with product announcements. When the news cycle lessens in intensity they will become discouraged and find less reason to hold or increase positions. Sell buttons get punched.

They forget what a dividend investor is anchored to which is yield. So if Apple is on your watch list as a dividend investor watch the frenzy cycle. There will be buying  opportunities disguised a growth investor sell offs.

This battle will go back and forth several times before the growth investors lose their anchor when they have lost enough of their money.

George Gutowski writes from a caveat emptor perspective.

Apple Investors and Heroin Addicts. Whats the Difference? $AAPL

Investors interested in Apple (Nasdaq:AAPL) are seeing a behavioural economic clash. Traditionally Apple has titillated the markets with stunning announcements. New and very sexy products. Increasing market share. Wildly increasing cash balances. Apple mentions in media were at orgasmically high rates. Frenzy frenzy frenzy. Normally associated with smaller names but this was Apple. Safety oriented pension plans were big investors.

Investors were hooked on the frenetic energy of constantly improving news which made the metrics look damn fine. Investors became anchored: emotionally, psychologically, addictively to the feed back loop. Buy more because more good news is coming. You’ll see.

Apple is a highly successful business not a perpetual money-making machine. Competition found its feet. Unsustainable metrics collapsed. The huge cash position is now being used to woo back the investor with dividends, huge share buy backs sometimes financed by debt (which currently is cheap)

But when you analyze the media and investment commentary there is one common unifying theme. It is the lament of a heavy drug user who is finding the drug losing its potency. Traders relying on a long Apple short something else now have to think for a living. Some seem to be incapable of thinking.

Apple has dropped obviously. They still have enormous cash positions and enormous abilities to raise debt at very cheap levels. The products while facing more competition are still in high demand. The applications eco-system is still enormously tilted in favour of Apple.

Apple is considered the new Sony. Sony never had the enormous cash position that Apple enjoys. Apple has not lost its ability to innovate. It does have more effective competition.

Apple does have one enormous advantage over Google and Android driven offerings. They have not pissed off the Chinese with search engine politics. The Chinese market is huge. Even if it does slow down it will still be huge. Samsung will always be treated with suspicion in China. Apple is the only entity which can bridge the cultural divide and create shareholders wealth.

Apple is relying on financial engineering for now. Investors are being enticed with dividend yield and share buy backs. Hard core Apple investors   traders do not understand how to deal with a dividend stock. The dividend stabilizes and allows you to become patient. Get paid while you wait.

Heroin addicts looking for the next rush are not anchored in the same fashion. Therefore we will have a rotation within the shareholder base.

George Gutowski writes from a caveat emptor perspective.

Bank of America Short Term Pref Dividend Shuffle Long Term Pain. $BAC

Bank of America (NYSE:BAC) thinks it will save some $500 million a year when it redeems its prefered shares. Yes cancelling the 8% plus with nose bleed yields will help. The dividends paid on preferreds will drop by one-third and earnings available to common shareholders will increase about 20%. All without changing any risk profile. Nice work.

CFO Bruce Thompson says he has no plans to replace the preferreds at this time. This begs the question. What will become the dividend on the common. They currently yield about 0.34% with the shares trading near the 52 week high. You cannot be a big money center bank and pay a lousy dividend to the common share holders.

If you believe interest rates are artificially low you would want to lock in some long-term capital at advantageous rates. Never mind about the short-term thinking of todays capital adequacy ratio. Banks and their investors need to think in five and ten-year time frames.

Lock up some long-term preferreds at low rates. Lock up some thirty year bonds are very low rates and wait for the economic cycle to make you look like a superstar. Institutions still are and always will be your largest core investors. They will understand the value narrative and buy in.

Then you will move beyond having to make sharp deals with Warren Buffett and concentrate on becoming a powerhouse.

George Gutowski writes from a caveat emptor perspective.

Apple Plays Dividend Hang Time. Traders Can Now Use Ex-Div Timeline $AAPL

Apple Inc.

Apple Inc. (Photo credit: marcopako )

Apple (Nasdaq:AAPL) released the worlds smallest earnings release in relation to the global scale of Apple. In about one page plus financials the earnings release explained one of the largest enterprises that bestrides the planet. Basically you have to listen to the conference call and then read the transcript very carefully.

Now that Apple is a dividend paying stock please note the dividend hang time. In the release they announce the Board of Directors has approved a quarterly dividend of $2.65 @ share. The dividend is payable on Thursday Aug 16, 2012 to shareholders of record Monday Aug 13, 2012. The dividend was declared today Tuesday July 24, 2012 a full twenty (20) days in advance of the record date.

Apple has become a dividend paying stock. Many investors still have not fully internalized this profound change. The hang time will help keep the stock value up as investors are paid to wait. Any significant dips allow sharp traders to take advantage of ex-dividend valuations.

George Gutowski writes from a caveat emptor perspective.

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.

Jakks Pacific suspicious guidance announcement timing. Suspicious like it stinks bad suspicious. $JAKK

Jakks Politoed

Image by PokePlushProject via Flickr

Jakks Pacific (Nasdaq:JAKK) issued updated guidance telling investors that they are having difficulty selling toys. About a week before Christmas Jakks figures out things are going bad so they finally fess up. Hard to believe they did not see the trend lines before. But then again maybe they do not use computers.

It gets worse.

They issue the update well after market close on friday. Hmm bad news issued on a Friday well after trading is over.

Another timing issue. On Nov 22 Jakks announced that its Board of Directors has declared a regular quarterly cash dividend of $0.10 per common share. The dividend will be payable on January 3, 2012 to shareholders of record at the close of business on December 15, 2011.

Of record Dec 15. So on Dec 16 they issue negative guidance. Hey lawyers and regulators lets take a look at trading patterns and the effect of being of record for dividend purposes.

Just doesn’t engender trust in management. By the way not one word on what they are doing to address the fundamental problem of terrible sales.

George Gutowski writes from a caveat emptor perspective.

#Caterpillar good results but no #dividendsignal $CAT #dividends read why

High Reach Demolition Excavator - Hydraulic de...

Image via Wikipedia

Caterpillar (NYSE:CAT) recently announced some attractive earnings and the market bid the price up. I always look for confirmation of earnings with an increased dividend. The dividend signal is one of the best tools that management can use to create confidence. So far they do not want to pull the trigger.

Therefore we have a no signal signal. Following the hype of the earnings release and the cleverly worded press release management is still not sure.

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.