Month: October 2011

Oct. 11 (Bloomberg) — Su Sian Lim, a Singapore-based economist at Royal Bank of Scotland Group Plc., talks about the outlook for interest rates in Southeast Asia. Indonesia will probably leave interest rates unchanged for an eighth month today, after a tumble in the nation’s currency curbed scope for lower borrowing costs to bolster expansion as global economic growth weakens. Lim speaks with Rishaad Salamat on Bloomberg Television’s “On the Move Asia.” (Source: Bloomberg)

Oct. 11 (Bloomberg) — Robert Minikin, a senior foreign-exchange strategist at Standard Chartered Plc in Hong Kong, talks about the outlook for China’s yuan, the euro and the U.S. dollar. Minikin speaks with Rishaad Salamat on Bloomberg Television’s “On the Move Asia.” (Source: Bloomberg)

The Central Bank of Nigeria hiked its monetary policy interest rate by 275 basis points to 12.00% from 9.25%, after convening an emergency meeting as a result of heightened global uncertainty and a desire to preserve the value of its currency, the Naira.  The Bank also voted to raise the cash reserve ratio to 8% from 4% previously.  

Bank Governor, Lamido Sanusi, said: “The global economic horizon remains highly uncertain, with the signs getting more ominous as policy makers find it increasingly difficult to take the necessary economic decisions that may avert a new wave of  recession.” 

“Three self-reinforcing negatives continue to define the global economy: the sovereign debt crisis in the Eurozone, significant undercapitalization of internationally-active banks, and negative market sentiment leading to continuing flight to cash as a safe haven and deleveraging. The first and second aspects intensify the third, and without confidence and some appetite for financial assets and credit, the debt crisis and financial solvency concerns in turn become deeper”

Previously the Nigerian central bank raised the the monetary policy rate by 50 basis points to 9.25%, after hiking the rate 75 basis points to 8.75% in July, and increasing it by 50 basis points to 8.00% at its May meeting this year.  Nigeria reported annual headline inflation of 9.3% in August, down from 9.4% in July, 10.2% in June, 12.4% in May, 11.3% in April, and 12.8% in March, but within the Bank’s inflation target of 10%.  

The Nigerian government doubled the minimum wage to 18,000 Naira recently.  Nigeria reported annual GDP growth of 7.72% in the June quarter, after growing 7.43% in the March quarter, while the Bank is forecasting 2011 growth of 7.8%.  

Nigeria’s currency, the naira (NGN), has weakened about 8% against the US dollar so far this year, with much of the weakness coming in the past few weeks.  The USDNGN exchange rate last traded around 164.25.

Oct. 11 (Bloomberg) — Viktor Shvets, head of regional strategy at Samsung Securities Co., talks about the outlook for global equities. Shvets also discusses People’s Bank of China monetary policy and the nation’s banking system. He speaks with Susan Li on Bloomberg Television’s “First Up.” (Source: Bloomberg)

Oct. 11 (Bloomberg) — Robin Marshall, director of fixed income at Smith & Williamson Investment Management, discusses the euro-zone crisis and prospects for closer fiscal integration among member states. He talks with Maryam Nemazee on Bloomberg Television’s “The Pulse.”

Netflix Reverses DVD, Streaming Split

by Justin Dove, Investment U Research
Tuesday, October 11, 2011

The broad market sell-offs over the past few months were especially brutal on Netflix (Nasdaq: NFLX). That’s because, in July, Netflix announced that it was raising prices and splitting its streaming and DVD rental businesses.

The decisions led to a mass exodus of over one million customers and the stock falling 65 percent between mid July and late September. The stock even fell 19 percent in one day on September 15 after Netflix announced it was expecting to lose 600,000 customers for the quarter rather than adding the 400,000 it had forecast.

While it was obvious the company was headed for a rough patch due to insanely high valuation and the rapid emergence of competitors, not many saw this much of a dip coming. Although the broad market sell-offs due to global recession fears have certainly played a part, the market has definitely spoken in terms of Netflix.

Therefore the company announced on Monday that it has decided to rescind its previous decision to split its DVD and streaming services into two different product offerings.

Netflix: Too Little, Too Late?

Jeff Reeves of MarketWatch.com feels that “this Netflix debacle is not so easily resolved by wishing it away.”

He gives three reasons as to why he feels Netflix won’t rebound from this debacle:

• “Some subscribers are gone for good” – Reeves argues that the whole thing may have left a bad taste in the mouths of many subscribers. He also cites that Netflix doesn’t offer a good enough catalogue of new releases and that many “mildly dissatisfied customers sometimes stick around out of laziness or complacency. Once they’re gone, however, they need more than the status quo to return.” I can certainly see the validity to this point.

• “DVD business publicly revealed as disposable” – This is probably Reeves’ biggest stretch. He argues that somehow former customers’ feelings will be hurt by feeling marginalized, and they’ll never return. I don’t buy this. I think most customers are simply worried about a price point in this industry and Netflix rose above that. First by raising its prices, and second by splitting options for its customers (effectively raising prices even more).

• “Netflix’s poor leadership exposed” – This could be a valid point. Netflix did execute poor judgment with its decisions to raise prices and lower customer options. It’s also disheartening that it failed to come to terms with Starz and will lose that content in January. As Reeves points out, Starz’ content currently makes up eight percent of its streaming library. However, one good sign is that the company understands its mistakes and isn’t being stubborn. It would be much more disheartening to see Netflix act like the stubborn Co-CEOs over at Research in Motion (Nasdaq: RIMM).

The Future Success of Netflix

Although Reeves makes some good points about the future success of Netflix, his bearishness may be a bit overstated. Its current P/E ratio at roughly 30 is much more palatable than the highs in the 80s back in July. And at least management can own up to its mistake in judgment and try to fix it.

Losing the Starz relationship will definitely hurt, considering it likely means Netflix will lose the rights to stream films from Walt Disney Studios and Sony Pictures Entertainment. But it’s adding DreamWorks Pictures to the fold for 2013, which should offset some of the losses. It’s also beginning to generate its own content, which it hopes will separate it from similar services.

“House of Cards,” will be Netflix’s first original show, which is expected to premier in late 2012. According to The New York Times, it’s also in talks to distribute new episodes of the cancelled sitcoms “Arrested Development” and “Reno 911.”

It’s unlikely Netflix will see its highs of $300 a share again anytime soon. But it’s also probably a bit oversold due to the broad market sell-offs and overboard bearishness. Investors may want to keep an eye on Netflix, as this could be a low point for the stock.

Good investing,

Justin Dove

Article by Investment U

Oct. 11 (Bloomberg) — Daniel Morris, a global strategist at JPMorgan Asset Management, discusses the euro-zone sovereign debt crisis and the outlook for equity and bond markets. He speaks with Owen Thomas on Bloomberg Television’s “Countdown.”

Oct. 11 (Bloomberg) — Alan Keir, HSBC Holdings Plc’s global head of commercial banking, talks about the bank’s quarterly report on global trade volumes. He speaks with Maryam Nemazee on Bloomberg Television’s “The Pulse.”

By DividendOpportunities.com

As income investors, we can get caught up in yields… almost to a fault. But there is something else you should be studying that could make just as big a difference to your long-term returns: dividend growth.

That’s because dividend growth can make even lower-yielding stocks into big income producers over time. Take a look below at the income streams from a stock yielding 7% but not growing dividends, versus a 5% yielder that hikes payments an average of 10% a year over seven years. If you held 1,000 shares trading at a $10 share price, here is the income stream each would produce over a year:

In just five years, that 5% yield would actually be worth more than the 7% yield. And just two years later, your income stream would grow to be 27% more than the stock yielding 7%. Keep in mind, this doesn’t take into account rising share prices. If both yields stayed the same, the share price of the 5% yielder would have to grow to $17.72 — a 77% gain.

Buying stocks that increase dividends allows you to take advantage of one of the most powerful tools in the investors’ arsenal — the wealth-building effect of compounding. And consistent dividend growth is like jet fuel for the compounding engine.

But there are more advantages to companies able to consistently grow dividend payments. One often overlooked “plus” is that they tend to be safer investments. Dividends are a litmus test of a company’s true financial strength. Only companies able to grow earnings through good times and bad will commit to consistently raising dividends. And these are the types of business that tend to see more stability in their shares.

The best measure of their value is how dividend growers perform over time. And the best proof lies in a special index created by Standard & Poor’s, called the “Dividend Aristocrats.” Every company on this list must have posted increased dividends in each of the past 25 years.

According to S&P data, the Dividend Aristocrats have consistently outperformed the broader S&P 500. The Dividend Aristocrats fell only -22% during the 2008 market crash, much less than the -37% decline for the S&P 500. Moreover, the group rebounded 27% the following year, slightly better than the 26% gain on the S&P 500.

As you would guess, the ranks of the Dividend Aristocrats are exclusive — only 42 of the 500 companies in the S&P made the list this year (about 8% of the index). To hone in on the top contenders for my Dividend Opportunities readers, I used this list of 42 companies as my starting point and then looked at the eight companies that tend to raise payments the fastest:

Pitney Bowes (NYSE: PBI)  | Yield: 7.6%
Pitney Bowes yields 7.6% and has recorded 29 consecutive years of dividend growth. Its business is boring — it makes postage meters and mail processing equipment, but its dividend growth is anything but. Dividends have grown an average of 10% a year since Pitney Bowes began paying investors in 1982. The 2011 increase of about 1.4% was below average, but it did raise the annual payment to $1.48 per share.

Cincinnati Financial Corp (Nasdaq: CINF) | Yield: 6.1%
The only financial company that made this list is property/casualty insurance provider, Cincinnati Financial. This company has raised dividends 50 years in a row — a wonderful half-century of increasing payments. Dividend increases of late have slowed in line with the overall economic outlook, but consider that in 1999 the company paid just about $0.60 a share, compared to today’s $1.60 annual rate.

Leggett & Platt (NYSE: LEG) | Yield: 5.4%
Fixture and furniture manufacturer Leggett & Platt saw a rebound in its markets and signaled confidence in its future prospects in August 2010 by hiking the dividend 4% to a $1.08 per share annual rate. Last month, the company reaffirmed its stance by raising the dividend again to $1.12. The company boasts an impressive track record of 40 years of dividend growth.

Johnson & Johnson (NYSE: JNJ) | Yield: 3.6%
Johnson & Johnson’s 3.6% yield isn’t likely to “wow” you — but remember the example above when it comes to growing dividend payments. The company has increased dividends 49 years in a row. The last increase, announced in April, boosted the dividend by 6% to a $2.28 annual rate.

Abbott Labs (NYSE: ABT) | Yield: 3.7%
Drug manufacturer Abbott Labs has grown dividends for 39 years running. Like Johnson & Johnson, it’s another medical company that doesn’t pay a high “headline” yield, but it can grow payments. In the past decade, dividend growth has averaged nearly 9% a year. The last hike, in April, was a 9% increase. Abbot now pays a $1.92 annual dividend per share, up from just $0.74 in 2000.

Automatic Data Processing (Nasdaq: ADP) | Yield: 3.0%
Automatic Data Processing provides payroll processing services to thousands of businesses nationwide. Even with unemployment now at a high, this company has been able to hike dividends every year for 36 years straight. The last increase raised the payment by 6% to a $1.44 annual rate. In the past decade, annual dividend growth has averaged an impressive 12%.

McGraw-Hill (NYSE: MHP) | Yield: 2.4%
You might not know it, but McGraw-Hill actually owns Standard & Poor’s, so it is only fitting this company makes S&P’s Dividend Aristocrats list. McGraw-Hill’s ranking comes thanks to 38 straight years of dividend growth. In the last decade, dividends have grown an average 8% a year. The last dividend hike, in February, lifted the annual rate to $1.00 per share.

PPG Industries (NYSE: PPG) | Yield: 3.1%
PPG Industries is a relatively new member to the list, with “only” 26 years of dividend increases — but it has paid 452 consecutive dividends. This maker of sealants and window coatings last raised dividends in May by two pennies per quarter to a $2.28 annual rate.

Before investing in any of the ideas above, I would want to examine each in more detail, considering factors like business outlook and financial strength. Still, the combination of dividend increases and a solid yield makes this list an interesting starting point for further research.

Good Investing!

Carla Pasternak’s Dividend Opportunities

Disclosure: StreetAuthority owns shares of ABT as part of the company’s various “real money” portfolios. In accordance with company policies, StreetAuthority always provides readers with at least 48 hours advance notice before buying or selling any securities in any “real money” portfolio.

Three Beat Up Oil and Gas Plays Set to Outperform the Market

by David Fessler, Investment U Senior Analyst
Tuesday, October 11, 2011: Issue #1618

When analysts pronounced commodities “overbought,” investors headed for the exits, selling indiscriminately. That’s always a setup for bargain hunters.

I have three energy stocks that are way oversold, and are ripe for participation in a snapback rally. In addition, oil prices have now halted their slide, and seem to be heading back north.

Let’s take a look at a few companies that could benefit from another about-face in oil prices…

Independent Oil Exploration and Production

The first company is Premier Oil PLC, (LSE: PMO.L). Based in London, England, Premier Oil is an independent oil exploration and production company. It’s divided up into three operating units: the North Sea, Asia and the Middle East/Pakistan.

The company’s total reserve and resource base is estimated to be about 488 million barrels of oil equivalent (MMboe). The company estimates it can add as much as 200 MMboe in its three core operating regions.

It plans to make value-adding acquisitions in the nine countries in which it operates. It recently agreed to purchase EnCore Oil, a deal that will significantly expand its presence in the North Sea.

A World Leader in Natural Gas Production

BG Group, (LSE: BG.L), is primarily engaged in the production of natural gas. Also based in the United Kingdom, BG Group has three segments: exploration and production (E&P), liquefied natural gas (LNG), and transmission and distribution (T&D).

The company recently acquired an interest in three offshore blocks off the coast of southern Tanzania. It operates in a total of 13 countries. With a market cap of nearly $69 billion, BG is one of the world’s leading producers of natural gas.

The company recently signed a long-term LNG sales agreement with India. In the last four years, the company has doubled its proven gas reserves, which now stand at just over 16 billion barrels of oil equivalent (Bboe).

Its largest production area is offshore Egypt, where in 2010 it produced 54.1 MMboe. BG is responsible for 35 percent of all the gas produced in Egypt.

Shares are currently trading about 30 percent off their 52-week high, but are rebounding along with the rising price of oil and natural gas.

Since most of its natural gas is sold internationally, the low prices in the United States have no material effect on its ability to sell gas at a handsome profit.

Investors wanting exposure to a growing natural gas company with primarily international customers should consider adding BG to their portfolio.

An Oil Discovery Machine Firing on All Cylinders

The last company I’ll mention isn’t oversold as much as the first two. It’s an oil discovery machine, and lately it’s been firing on all cylinders.

Tullow Oil, (LSE: TLW.L), continues to announce discoveries that just add to its value, and its shares have been responding in kind. Its American traded ADR shares are up just over two percent for the last year, but 16 percent off their 52-week high of $12.35.

With a market capitalization of $18.72 billion, Tullow is an independent oil and gas company with 53 licenses in 15 countries. Its four geographic markets include South America, South Asia, Europe and Africa.

Africa is by far its most active area, and it’s the leading independent oil producer in the region. Tullow is named after the small town near Dublin, Ireland where its Founder and CEO, Aidan Heavey, is from.

Heavey knew nothing about the oil and gas business, but on a tip from a friend, jumped in. He concentrated on small fields in Africa at first, and gradually built the company into one of the largest independent oil and natural gas producers in the world, and the largest in Africa.

In the last four years, he’s nearly tripled the company’s proven reserves to 1.4 billion barrels of oil equivalent. Over the last decade, its London-traded shares have soared 1,530 percent, making it one of the greatest investments in the oil and gas sector over that time period.

It has two major projects currently underway in Uganda and Ghana. Both promise future upside for Tullow shareholders, as additional reserves are added.

Investors wanting exposure to the African oil sector will be hard pressed to find a better play than Tullow Oil.

Good investing,

David Fessler

Article by Investment U