THE DIVIDEND INVESTMENT ARCHIVES

Thursday, July 14, 2011

Intelligent Speculator � Google (GOOG) Under Attack From All Angles � Print

Google (GOOG) Under Attack From All Angles

Posted By IS On July 14, 2011 @ 5:00 am In Stock Opinions | 2 Comments

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Today we take a look at Google, which is reporting earnings today! When Larry Page stepped up to the table ^[2] to become in charge again of the company he had co-founded over a decade ago, he knew he had a lot of different challenges to work on. It has only been a few months but it’s safe to say that things have not gotten any easier for Google as it tries to protect its key businesses and become relevant players in many others where it faces solid competition. A good friend of this blog helped us illustrate what is going on. That is not to say that Google isn’t counter-attacking many of these companies. I do however think that Google faces more competition than any other company in the world.

The Good News For Google

Most internet users connect to the web through a laptop or desktop and scour the internet through Google’s search engine. Google places ads on those listings. It has dominated this market for years and despite competition from many of the largest tech companies, Google’s market share has been stable and even increased slightly. There are some challengers that have gained increased exposure in “search” such as Twitter ^[3], Youtube and Itunes but the biggest of those 3, Youtube, is owned by Google. The main challenge here is Google’s absence in China where Baidu (BIDU) dominates ^[4] mostly thanks censorship laws and other interventions by the Chinese government that even caused Google to mostly pull out of China. It is certainly a limitation on Google’s growth in search to be out of the one market that seems to be growing these days.

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Platforms Are Changing

Google’s biggest concern stems from the fact that users are now interacting with the web in very different ways which can influence Google’s earning power.

^[6]-Move to Mobile: Increasingly, users are reaching the web from mobile devices to get local information, communicate with friends, etc. Google is a major player in the mobile space thanks to its search engine (used on almost all mobile operating systems) but also thanks to Android, which is the most used mobile operating system (34.7% market share as of the end of March). I don’t think it’s difficult to argue that Google is in a great position to beenfit from the growth of mobile, mostly thanks to Android. That being said, Microsoft has been aggressive, and there are always questions about which direction Apple will head towards. Thanks to the Iphone, the top smartphone almost everywhere around the world, Apple has a lot of influence ^[7] and with the recent rumors of Apple releasing cheaper phones that could go mainstream, Android’s dominance is far from certain.

^[8]-Move To A Social Web: While surfing the internet used to be about searching and finding information, the incredible rise of Facebook ^[9] has had a huge part in a big change of how consumers actually connect to the internet. That is significant in many different ways but it also means that Google’s search becomes less relevant. Why? Because Google does not have access to Facebook data (and even lost access to Twitter recently) making it vulnerable. Facebook has strong ties to Microsoft which would certainly mean even stronger ties between Facebook and Bing. How would a world where the web is increasingly closed look for Google? Very dangerous. It’s unclear how this will play out but I think it’s very clear how serious Google is taking this. After Larry Page confirmed that social was the top priority for Google, and the one employees bonus would be decided on, Google finally launched what now looks like a credible product a few days ago; Google+. Does it stand a shot against Facebook? It’s difficult to say and there’s a strong possibility that both will co-exist rather than only one surviving. At this point, even surviving and becoming a Facebook rival would be a huge accomplishment for Google. Of course, it’s far from done, as most users already have their networks up and established on Facebook, something few will be tempted to duplicate, but it does look like Google’s most promising attempt by far.

^[10]Cloud Computing

It seemed as though Google had taken an incredible lead in the clouds years ago thanks to Google docs, and other such initiatives. While those products do still look solid and have great market share, the recent announcement by Microsoft of its Office suite being offered in the clouds, as well as various Amazon products have put into question Google’s offerings. Can it continue to increase its presence? Will it ever make significant money out of it? Amazon’s AWS offerings looks like a product that Google could and should have offered.
These days, cloud computing also means bringing the complete pc experience (operating system, browser, etc) to the clouds and Google does have a solid presence on those fronts but still faces many challenges there as well.

Antitrust Agencies

I think it’s easy to overlook how big of a problem recent investigations by US and European government agencies are having. If Google is going to run into all kind of legal complications every time it makes an acquisition, launches a new product and thinks about entering a new market, it will certainly make a big difference. It’s difficult to say how much of a problem all of those same issues ended up creating for Microsoft in the 1990′s but I don’t think anyone doubts that Microsoft could have became a very different company had those regulations not been in place. Would Google have acquired Twitter or smaller social players if not for worries of more involvment and issues with authorities? Perhaps. If every move is being analyzed by the US government, is there any doubt that it will end up slowing down Google significantly? Does anyone not think that it’s easier for Facebook or Amazon to make acquisitions these days than it is for Google?
Who Else Is Throwing Rocks?
I don’t think there are any doubts that many other companies are facing off with Google from local players such as Groupon and Yelp to smaller players such as Dropbox in cloud computing.
Disclosure: Long Google ^[11]

Wednesday, July 13, 2011

Investing in Dividend Aristocrats (Part 1) - Seeking Alpha

The S&P 500 Dividend Aristocrats Index is a very prestigious and popular index among dividend investors. The Index measures the performance of blue-chip S&P 500 companies that have increased their dividends for at least 25 consecutive years. The large-cap companies in this index must also have an average daily trading volume of at least $5 Million for the six months prior to the index reference date.

In a previous article, we have already indicated that the Dividend Aristocrats Index beat the S&P 500 index over the past 1, 3, 5 and 7 years. Since the beginning of 2011, the companies in the S&P 500 Dividend Aristocrats Index returned 9.44 % vs. 7.60% gain for the SPY.Average dividend pay-out ratio of all 42 stocks in the S&P 500 Dividend Aristocrats Index is 42%, while the average dividend yield of all 42 stocks is 2.58%. (The market data are sourced from Standard & Poor's and Fidelity.)

As we are concerned about the Fed’s loose monetary policy, we believe investors should protect themselves against inflation. We think the Dividend Aristocrats that are able to increase dividends are attractive options for defensive investors that demand better risk-return combination and some inflation protection.

Below, we compiled a list of 21 stocks from the S&P 500 Dividend Aristocrats Index and showed how they have performed this year:

		Dividend Yield	Dividend Payout Ratio	YTD Return
CenturyLink Inc	CTL	7.12%	86%	-8.78%
Cincinnati Financial Corp	CINF	5.44%	95%	-4.79%
Consolidated Edison Inc	ED	4.42%	69%	11.58%
Abbott Laboratories	ABT	3.44%	44%	13.87%
Clorox Co	CLX	3.29%	53%	9.83%
Bemis Co Inc	BMS	2.74%	46%	6.43%
Coca-Cola Co	KO	2.65%	52%	6.05%
Automatic Data Processing	ADP	2.58%	60%	20.55%
AFLAC Inc	AFL	2.49%	21%	-15.08%
Chubb Corp	CB	2.44%	26%	7.08%
Emerson Electric Co	EMR	2.36%	51%	2.94%
3M Co	MMM	2.19%	37%	14.88%
Air Products & Chemicals Inc	APD	2.19%	43%	8.89%
Exxon Mobil Corp	XOM	2.17%	29%	13.87%
Archer-Daniels-Midland Co	ADM	2.04%	20%	2.18%
Becton, Dickinson & Co	BDX	1.78%	33%	7.24%
Brown-Forman Corp B	BF.B	1.65%	32%	10.42%
Dover Corp	DOV	1.58%	32%	20.52%
Cintas Corp	CTAS	1.44%	33%	22.03%
Ecolab Inc	ECL	1.20%	29%	13.10%
Bard, C.R. Inc	BCR	0.64%	13%	23.94%
	AVERAGE	2.66%	43%	8.89%
	SPY			7.60%

Since the beginning of this year, the average YTD return of these 21 stocks was 8.89% vs. 7.60% for the SPY. All these stocks except two – CTL and CINF – have dividend payout ratio of less than 75%. The average dividend pay-out ratio of those stocks is 43% and the average dividend yield is 2.66%.

Here are the 10 highest dividend yielding stocks in our list:

CenturyLink Inc. (CTL): CenturyLink Inc. is a leading integrated communications company providing Internet services in the United States. CTL recently traded at $40.71 and has a 7.12% dividend yield. CTL lost -8.78% since the beginning of this year. The stock has a market cap of $24.45B and a P/E ratio of 13.66. Steven Cohen had more than $200 Million in CTL at the end of March 2011. (See Steven Cohen’s other top holdings)

Cincinnati Financial Corp. (CINF): Cincinati Financial Corp. is a U.S. insurance company specialized in property casualty insurance. CINF has a 5.44% dividend yield, but lost -4.79% since the beginning of this year. The stock has a market cap of $4.74B and a P/E ratio of 12.81. Jean-Marie Eveillard’s First Eagle holds the largest CINF position among the 300+ funds we are tracking.

Consolidated Edison Inc. (ED): Consolidated Edison Inc. is an energy company providing electric, gas and steam utility services in the United States. ED has a 4.42% dividend yield and returned 11.58% since the beginning of this year. The stock has a market cap of $15.81B and a P/E ratio of 14.49. Michael Messner and Jim Simons are among ED investors.

Abbott Laboratories (ABT): Abbott Laboratories is a multinational pharmaceutical company. ABT has a 3.44% dividend yield and returned 13.87% since the beginning of this year. The stock has a market cap of $83.22B and a P/E ratio of 18.66. Ken Fisher had more than $400 Million in ABT at the end of March 2011. (See Ken Fisher’s Favourite stocks here)

Clorox Co (CLX): Clorox Co. is a global company providing chemical and food products worldwide. CLX has a 3.29% dividend yield and returned 9.83% since the beginning of this year. The stock has a market cap of $9.11B and a P/E ratio of 33.67. Carl Icahn’s Icahn Capital had $700 Million in CLX at the end of March (Check out Carl Icahn’s other top stocks).

Bemis Co Inc. (BMS): Bemis Co Inc. is a U.S. company supplying flexible and pressure sensitive packaging products in the United States. BMS has a 2.74% dividend yield and returned 6.43% since the beginning of this year. The stock has a market cap of $3.61B and a P/E ratio of 16.87. Chuck Royce and Jim Simons are among BMS investors.

Coco-Cola Co. (KO): Coca Cola Co. is a large U.S. company providing non-alcoholic beverages worldwide. KO has a 2.65% dividend yield and returned 6.05% since the beginning of this year. The stock has a market cap of $157.39B and a P/E ratio of 13.27. Warren Buffett has a massive $13 Billion holding in KO.

Automatic Data Processing (ADP): Automatic Data Processing is one of the leading providers of integrated computing services in the world. ADP has a 2.58% dividend yield and returned 20.55% since the beginning of this year. The stock has a market cap of $27.49B and a P/E ratio of 22.46. Jean-Marie Eveillard’s First Eagle holds more than $150 Million of ADP.

AFLAC Inc (AFL): AFLAC Inc. is a U.S. company providing supplemental insurance services. AFL has a 2.49% dividend yield but lost -15.08% since the beginning of this year. The stock has a market cap of $22.17B and a P/E ratio of 10.65. Bill Miller had nearly $200 Million in AFL at the end of March 2011.

Chubb Corp. (CB): Chubb Corp. is one of the largest insurance companies in the United States. CB has a 2.44% dividend yield and returned 7.08% since the beginning of this year. The stock has a market cap of $18.44B and a P/E ratio of 8.87. Both Ken Griffin and Steven Cohen have more than $100 Million in CB.

Disclosure: I am long CTL.