Flickr photo: Prince Roy

Considered passé during pre-2008 boom years (slow-poke pennies vs. sexy roadster growth stocks), and even laughable during the past two years of recession slash-and-burn, dividend stocks are finally creeping back onto the investment radar screens.

Last month, analyst Alan Brochstein noticed several clients cozying up to the dividend-friendly, utilities sector. Curious, he screened almost 100 utility companies and found  10 intriguing possibilities to research further.  

Jim Cramer soon followed for stocks, favorably weighing in on nine dividend picks that included General Mills (GIS), Pfizer (PFE), and AT&T (T) as his New Year’s welcoming gift. And this past week, even more pundits jumped on the dividend bandwagon, citing an improving economic climate as the reason to plunge.

This is good news for those looking to add beyond of covered calls but caution still calls for additional research before jumping in. One analyst recommends a very simple method:  “Ask if a company’s earnings are still growing because revenues are still growing or are earnings growing because they managed to reduce costs?”

Some recommendations for further research might include:

3M (MMM):

• $2.04/share dividend
• Future product line expansions
• 12% profit margin
• Almost 23% return on equity

GlaxoSmithKline (GSK):

• $1.96/share dividend
• A pharmaceutical heavyweight
• 18% profit margin
• 58% return on equity

Waste Management (WM)

• $1.16/share dividend
• Increasingly ‘green’ recycling focus
• 7.54% profit margin
• Almost 15% return on equity;

But keep in mind that the economy isn’t out of the woods just yet. As long as consumers continue a  bargain-savvy approach to shopping, WalMart (WMT) will remain a dividend stock possibility  - $1.09/share – despite a paltry 3.34% profit margin.

Want to know more? Check out this list of the 250 highest dividend yielding stocks around the world.

Flickr photo: ctsnow

Coverage can be a good thing – and not just for the general public’s viewing. Take covered call options, for example.

According to Brian Overby: “Covered call selling (or “writing”) may offer a relatively low-risk way to generate income on existing stock positions in sideways or range-bound markets.” In other words, coverage can generate warm profits even in times of a still-blustery economic climate.

Unfortunately, thanks to months of cratered portfolio performances, not to mention that inexorably approaching dysfunctional stress factor called “The Holidays,” many investors still prefer the instinctual safety of running with the crowd at this time. Can we really blame them?

Perhaps not.

However, here’s some hard data support to cheerlead Mr. Overby’s position (no pun intended). Earlier this year, the Wall Street Journal reported on the CBOE BuyWrite Monthly Index (BXM) findings and found:

“Over the past two years, someone who invested in a regular S&P 500 index fund would be down 43%. At the lows, early last month, they were down 54%.

Over the same period, someone following the BXM would have lost a much more modest 25%. At the worst point they were down 37%.

Over a ten year period, buy-and-hold investors in the total US stock market have lost about 2% of their money. Investors pursuing a BXM strategy would be up about 13%.

But the real appeal of this strategy emerges over twenty years. From April 1989 to the present, the BXM has made total returns of about 400% — slightly ahead of the broad US equity market. In other words, the buy-write index beat the stock market, with a lot less volatility.”

It appears that covered call options might just be one of those income-generating secrets unfortunately saddled with an overly risky name. Here are some ways to find out whether this investment method might be that little extra vitamin boost for a Scrooged portfolio:

• TradeKing’s PDF: Five Tips for Successful Call Writing;
• Chicago Board of Exchange Options Learning Center;
• A list of upcoming options-education seminars around the country.

“Very nice,” the now-savvy investor might say, “but let’s not move so fast here. What about short-term/long-term capital gains tax ramifications?”

Well, that depends on whether you’re writing calls in a sheltered (IRA) or non-sheltered account. For non-sheltered accounts, Allan Ellman discusses tactics in his Blue Collar Investors blog but for those CPA-minded individuals who want to hear it directly from the horse’s mouth, specific tax information can be found in IRS Publication 550, Investment Income and Expenses, pages 57 – 58.

Last, but not least, if covered call options do happen make it to the 2010 New Years’ Investment Resolutions List, keep in mind that not all brokerages will allow writing covered calls. The best course of action is to first decide if this is something to pursue before researching which brokerage company can best suit your new investment strategies.

Christmas shoppers proved pundits right in keeping to their budgets on Black Friday. Double digit employment, continuing housing market troubles and overall consumer cautiousness, helped sustain the holiday spirit of bargain thriftiness.

Topping the Christmas shopping list were pragmatic items such as toys, clothes and books. This meant cost-minded stores such as Wal-Mart (WMT), Target (TGT),  Sears (SHLD)and Amazon.com (AMZN), have reaped the benefits.

This past Sunday, The National Retail Federation calculated that:

“195 million people visited stores and websites over the Black Friday holiday weekend, up from 172 million last year. However, shoppers spent less, with average spending dipping 8%, to $343.31 a person from $372.57 a year earlier. Total spending over the holiday kickoff weekend reached $41.2 billion, up only slightly from $41 billion a year ago.”

However, Cyber Monday helped get the online shopping season off to a nice start.

Escaping the traffic, parking and crowds has always been the lures of online shopping – except where overloaded server capacity is concerned. Retailers, initially disappointed at the low number of hits during work hours, quickly cheered up as site statistics began showing heavy morning and evening traffic.

Shop.org found that:

“… 41.5 percent of those making a purchase on Cyber Monday were planning to shop early in the morning and a sizeable number of Cyber Monday shoppers planned to shop in the early evening (32.9%) or late evening (22.7%). The shift in spending coincides with a decline in people shopping from the office. According to the survey, 91.5 percent of Cyber Monday shoppers planned to shop from home on Cyber Monday while just 13.5 percent planned to shop from work…”

The top five online winners so far, include:

• 1. Amazon (AMZN sales up 28% from last year);
• 2. Wal-Mart (WMT sales up 22% from last year);
• 3. Apple.com Worldwide Sites (AAPL sales up 39% from last year);
• 4. Target (TGT sales up only 2% from last year);
• 5. Best Buy (BBY sales up 25% from last year).

Retailers are expected to continue offering more discounts in an attempt to woo consumers away from their frugal habits. However, in the continuing 2009 battle between brick and mortar versus online shopping, stores might ironically end up competing against themselves.

One interesting note concerns luxury retailers.

In down times, these items are typically the last to get hit and the last to recover.  This particular recession hit luxury goods harder than most since many previous buyers were those “purchasing up” beyond their financial means.  Yet there are indicators that this industry might be turning around sooner than expected.

Maybe there’ll be a run on those Neiman Marcus Cupcake Cars after all.

Flickr photo: mikebaird

Slowly, but surely, the number of cautiously positive reports about stocks poised for rebound are showing up more frequently in our RSS feed inboxes.  

While the unemployment rates are still too high, the number of mortgage restructures progressing far too slowly, and big banks still cutting out loans to small businesses (both in the U.S. and overseas), the stock market is taking some steps toward growth.

This week, Alan Brochstein shared his analysis of large cap stocks that appear to be on the edge of taking off. It is a diverse list of companies including Pepsi (PEP), Magellan Health Services (MGLN) and Alberto Culver (ACV).  The more interesting possibilities included Watson Wyatt (WW) and DeVry (DV).

But take note that the interest is not necessarily for the individual company numbers. Instead, the interest is in the industries as a representative whole and how they will continue to expand in the coming year(s).

Contract Employees

Watson Wyatt (WW) represents a pinnacle of consulting and one that dovetails nicely with all this talk about “a jobless recovery”.

Why pay for a full time employee when a well-experienced contract consultant is readily available? No hiring paperwork, no worry about the employee moving on to a better job when the economy (finally) opens up. Best of all, it keeps the bottom line lean and mean for Wall Street with no Social Security, benefits or unemployment insurance payouts to report.  

I believe the trend will push more toward the idea of retaining a skeleton crew to handle daily tasks while hiring a contractor who can immediately jump in when big projects come up.

Watson Wyatt (WW) is spot on to move, but don’t forget to keep an eye on the trickle down to those smaller cap companies like Kforce (KFRC) and Resources Connection (RCN).

Better Educational Options

Typically, a rise in unemployment causes people to re-think their career options. Unfortunately, a return to school means running up against a wall of skyrocketing costs from traditional four-year colleges.

Enter the non-traditional options that offer classroom training along with the option of distance learning for those requiring the flexibility. Local community colleges, DeVry (DV), ITT Educational Services (ESI) and other online providers have finally gained some respect in the past few years.

These institutions are set to move further ahead as more mid-career professionals seek the immediate focus of certification programs without the hassle of traditional college fluff classes.

And don’t be too quick to look down on ITT Educational Services (ESI).

The company offers training  in a number of practical hands-on fields including, electronics,  web development, drafting and design, criminal justice, business and health sciences. And practically speaking, most companies still prefer paying a skilled expert to keep aging equipment going, versus purchasing expensive, brand new tools. At least they will for the next year or so.  

Finally, while it’s nice to see online educational options finally come into their own, don’t forget about a company that helps make it all possible.

Blackboard, Inc. (BBBB) provides the online learning platform technology to over 5,000 institutions. Recently, it even added apps for the ever-present Blackberry carriers while also partnering with Microsoft’s web browsers.

It may be nice to invest in the overall educational institutions but having shares in the company that makes the online learning platforms possible, could also be a smart move.

So…what’s Warren’s next move?

It’s one of those loaded questions (aside from when the Fed will finally start raising interest rates) that often shoots many pundits square in the foot. However, pain is little deterrance from the overall fun of peering into our own crystal balls after Warren makes a move.  

Last week’s news that Berkshire Hathaway (BRK) had made its biggest deal bid so far, set off another speculative scramble in various forums. What was Warren Buffett up to, what did it mean and just where might he be going next?

And why not conjecture? Last week  the Wall Street Journal commented that Burlington Northern (BNI);  

“…is the largest rail transporter of coal and grain. Each year, Burlington Northern hauls enough coal to supply one out of every 10 homes in the nation and hauls enough grain to supply 900 million people with a year’s worth of bread.”

Considering current infrastructure repair needs in the U.S., overall expense of truck hauling and the Administration’s current push toward an eventual high-speed train system, why not shore up a cheaper method of transportation and rail supremacy while keeping an eye peeled for other potential revenue streams? 

This is what makes Buffett watching so much fun.

Some analysts have listed potential takeover options as retail, drilling, and healthcare companies while others debate the wisdom of his adding to the current Berkshire holdings.

Keeping in mind the Buffett Mantra of …

“…maintaining Berkshire’s Gibraltar-like financial position, which features huge amounts of excess liquidity, near-term obligations that are modest, and dozens of sources of earnings and cash; widening the “moats” around our operating businesses that give them durable competitive advantages and  acquiring and developing new and varied streams of earnings.”

….while never forgetting a potential target’s Return on Equity, let’s look at some of the possibilities  making the S&P’s Potential Buffett Short List.

Coach (COH)

A high end, international retail company for women’s and men’s accessories. The company’s primary products include handbags, footwear, jewelry, wearables, business cases, sunwear, travel bags, fragrance, and watches. A quick fact check reveals that while Coach ‘s cash position is strong, the high beta could swing for exclusion. 

• Cash holdings: $994.68M;
• Current ratio: 3.026 current ratio;
• Profit margin: 19.09%
• Beta: 1.73
• An average annual 41% and average quarterly 8% ROE.

 Diamond Offshore Drilling (DO)

An offshore oil and gas drilling contractor worldwide specializing in deep water, harsh environment, conventional semisubmersibles, and jack-up markets to independent oil and gas companies and government-owned oil companies. The quick fact check definitely bets for this company making the potentiasl short list. 

• Cash holdings: $256.07M;
• Current ratio: 2.986;
• Profit margin: 38.26%
• Beta: 0.83
• An average annual 33% and average quarterly 10% ROE.  

Precision Castparts (PCP) 

A United States/United Kingdom company manufacturing metal components and products for three segments: Investment Cast Products, Forged Products, and Fastener Products. These particular segments deliver to the aerospace/aviation industries, nuclear sub propulsion needs, power generators and both residential and commercial sewer systems.  Quick facts are hedging for this possible contender although the volatile beta (courtesy the aerospace/aviation segment) is certainly a distraction. 

• Cash holdings: $632.10M;
• Current ratio: not applicable;*
• Profit margin: 16.05%
• Beta: 1.51
• An average annual 23% and average quarterly 5% ROE.  

*Total assets for the past three years greatly exceed the total liabilities.

DryShips, Inc. (DRYS) 

DryShips, Inc. engages in the ownership and operation of drybulk carriers that operate worldwide. The company’s fleet carries various commodities, including coal, iron ore, grains, bauxite, phosphate, fertilizers, and steel products. The company was founded in 2004 and is based in Athens, Greece.  Quick facts reveal that the negative profit margin, high beta, and low annual ROE, in comparison with the other contenders, make it a long shot candidate. 

• Cash holdings: $291.58M
• Current ratio: not applicable*
• Profit margin: (123.16%)
• Beta: 4.15
• An average annual 10% ROE

*Total assets for the past three years exceed total liabilities.

But let’s not forget about the possibility of adding to the existing Berkshire holdings. After all, too much of a good thing – is really a good thing.

Except, perhaps,  when it comes to Kraft.

 Coca Cola (KO) 

• Cash holdings: $9.13B
• Current ratio: 1.267
• Profit margin: 20.51%
• Beta: 0.61
• An average annual 29% and average quarterly 8% ROE 

Kraft (KFT) 

• Cash holdings: $3.03B
• Current ratio: 1.08
• Profit margin: 6.22%
• Beta: 0.64
• An average annual 11% and average quarterly 3% ROE 

Apparently, there really is nothing quite like a Coke after all to bring out happiness.

Flickr Photo: stopnlook

Last fall, heated arguments flooded media outlets on whether Congress should bail out failing banks such as Goldman Sachs (GS), JP Morgan (JPM), Bear Stearns and CIT (CIT).  

Opinion was sharply divided. Some feared the long-reaching impact of large-scale financial failures while the others cried foul against rewarding blatantly risky practices.

One year and billions later, bank stocks remain a mixed bag for potential investors looking to 2010.

In 2009, the FDIC took over almost 100 banks, injecting approximately $22.8 billion in needed cash.  Yet for those deemed Too Big To Fail, over $70 billion has been repaid from the original  $200 billion federal bailout program, specifically, JP Morgan, Goldman Sachs (GS) and Bank of New York (BK).

More notably, Goldman Sachs’ second quarter net income of $3.4 billion has been further cushioned by managing the final stock takeover transactions of Burlington Northern Santa Fe railroad and the Stanley Works acquisition of Black & Decker.

Unfortunately, JP Morgan hasn’t had as good a bounce back. This week, the company announced a $700 million dollar settlement with the SEC. The charges? Making unlawful payments to friends of public officials in order to win municipal bond business in Jefferson County, Alabama.

The 2009 Profit King-Of-The Hill Race may just only include Goldman (GS) and Morgan Stanley(MS), but as cash-heavy companies seek out more bargains, 2010 could be the year investment banks return to favor.  

Thus, the 2010 first pick nod goes to the investment banks.

Lagging behind in second place, are those retail banks such as Wells Fargo (WFC), Bank of America (BAC) and Citigroup (C). Lending has slowed to a trickle, fees have multiplied and skyrocketed, while TARP cash sits idle on company balance sheets.  

Analysts chalk it up to increased underwriting caution with the OCC reporting,

“Depressed real estate market, changes in risk appetite, refinancing concerns, and the impact that relaxed underwriting standards from prior years had on payment performance.”

A cynic might chalk it up to underwriters hastily closing the barn door after the horses are all gone.

Those individuals who adeptly managed their savings and good credit (yes, these people exist) are finding it  almost impossible to buy a home.  Small businesses that did everything right, holding solid balance sheets and consistent payment histories are also finding it difficult to renew, let alone obtain, current credit lines.

Instead, too many times the line amounts are arbitrarily frozen or cut.

This results in small business owners falling back on savings or maxing out high interest credit cards. The financing companies may get a short term bounce but it comes at the cost of continued, long term economic aggravation.

In October, President Obama announced an initiative for smaller banks to take up business community lending.  CNN Money reported that,

“Under the new plan, banks with less than $1 billion in assets will be able to borrow money from the government at a 3% dividend rate. Supporting this plan were the following statistics: Among banks with assets of less than $1 billion, 56% of their business loans go to small companies, according to the government data. From larger banks, only 21% of business loans go to small firms.”

The announcement may have come just in time as CIT, one of the largest lenders to small businesses, filed for bankruptcy protection this week.

CIT’s declaration not only imperils small businesses unable to obtain credit lines elsewhere, but also adds a $2.3 billion dollar loss to the high risk, preferred stock bag the Treasury Department (i.e., taxpayer) is holding.

Time for the banks to get off their TARP cushions and start lending, preferably to those small businesses and retail customers who did it right over the past several years but have been penalized for others’ risky habits. Fresh cash flow for new equipment and renovations can do wonders for market rejuvenations. 

Perhaps by mid-2010, retail bank stocks could look attractive once again.

Green energy has certainly been heavily promoted as the sexy new way to self-sufficiency. Wind, ethanol, solar energy, coal – the possibility of weaning ourselves off Middle Eastern oil dependencies is an exciting new frontier. Naturally, California has been leading the rest of the states in this race by a wide margin where solar energy cell implementation is concerned.

In July, The New York Times reported that:

“A decade ago, only 500 rooftops in California boasted solar panels that harvest the sun’s energy. Today, there are nearly 50,000 solar-panel installations in the state. From 2007 to 2008, the solar capacity in California grew by a third and now represents about two-thirds of the national total.”

As solar tech demand desperately sought supply, more companies began jumping into fray hoping to claim market share.

In August, Trade King blogger BigDog weighed in, observing that indeed, Chinese companies were aggressively gaining market share by making and selling solar panels to the U.S. market for less than cost. But has undercutting been a wise move when the global economy remains so lackluster? Or has this sector become oversaturated, ripe for weeding out the weaker in favor of the stronger companies?

Market Watch seemed to be wondering the same thing:

“Solar-module prices have dropped 40% since the beginning of 2009 and almost one out of every two panels produced in 2009 will not be installed, but stored in inventory. This inventory glut will have a long-term impact on the solar business, with panels set to remain in a state of oversupply until 2012.

But more fallout is likely, just as is consolidation in the industry. Analysts estimate there are at least 200 solar companies, including startups, developing different types of solar-cell technologies.”

These comments are causing some analysts to re-weigh short term technical advantages against long term fundamentals. For example, one of the early industry darlings, First Solar (FSLR), is apparently having a few growing pains. A cautionary trading volatility note was sounded in June while earlier this week, options analyst Fred Ruffy commented:

“FSLR…suffered an 11% loss on July 31 when the company reported earnings that easily beat Street estimates, but then failed to offer adequate guidance about the future. Investors and analysts are concerned about persistent price declines and excess supply. During its last earnings call, First Solar said it initiated a rebate program designed to drive sales in Germany.”

Perhaps revisiting some short term fundamentals might provide a foundation for this increased awareness.

How fast/slow are the Accounts Receivable trends?

As the global recession continues, receivable turn times stretch out further. Analysis of 2009′s first and second quarters shows from best to worst, how much longer some companies are waiting for payment:

• JA Solar (JASO): 16% faster turn time
• Trina Solar (TSL):  5% slower
• Yingli Green Energy Holding (YGE): 7% slower
• Energy Conversion Devices (ENER): 10% slower 
• Canadian Solar (CSIQ): 40% slower

How fast/slow are the Accounts Payable trends?

Slower influx of receivables can affect the turn time a company needs to make its payables, sometimes forcing companies to tap expensive short term borrowing options. Analysis of 2009′s first and second quarters shows from best to worst, how much longer it’s taking to make payments:

• Trina Solar (TSL): 8% slower
• Yingli Green Energy Holding (YGE): 12% slower
• Energy Conversion Devices (ENER): 40% slower 
• JA Solar (JASO): 40% slower
• Canadian Solar (CSIQ): Twice as slow

All are relatively consistent overall with the exception of JA Solar. Further research is warranted to determine why the company managed to speed up its receivable turn time while simultaneously experiencing a slowdown in making its payments.

Are inventory holdings increasing?

Was Market Watch correct? Are inventory holdings increasing? Analysis of 2009′s first and second quarters does indeed show some fluctuations and it will be interesting to see how future earnings compare to these benchmarks.

• Yingli Green Energy Holding (YGE): 19% decrease
• Trina Solar (TSL): 12% decrease
• Canadian Solar (CSIQ): 6% increase
• JA Solar (JASO): 15% increase
• Energy Conversion Devices (ENER): 34% increase

How much accumulated debt?

Ultimately, a company’s ability to quickly change course even with slower receivable/payables or increased inventory, can be affected by its debt load. Chinese companies may have gained market share at the expense of balance sheet undercutting, but are they paying a price? How have these companies handled their short term (S/T) and long term (L/T) debt loads in the past two quarters? Is there a cause for concern ?

• Energy Conversion Devices (ENER): No S/T debt; L/T debt – no change
• JA Solar (JASO): 75% S/T debt decrease in favor of L/T debt in 2Q
• Yingli Green Energy Holding (YGE): 30% S/T debt decrease; 40% L/T debt increase
• Trina Solar (TSL): 12% S/T debt decrease; doubled L/T debt
• Canadian Solar (CSIQ): 22% S/T debt increase; 30% L/T debt increase

Reviewing these fundamentals confirm that there are still short term investing opportunities (with, perhaps, the exception of Canadian Solar). However, if consumer spending reluctance continues, long term holdings adjustments just might be the next order of business.