A Few Q2 Stats or Where We At
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Note that while 86% of the earnings are in (9.28% operating margin), many of the stats require the 10Qs, so reporting varies.
Buybacks – With 60% of the numbers reported, buybacks are running 40% ahead of Q1,’10 and 122% ahead of Q2,’09, which is the lowest quarter I have on record (starts in Q1,’98). The buyback poster child, Exxon-Mobil was restricted in its Q2 buybacks, and the impact is seen in the Energy sector, which is running just 3% higher than Q1,’10. IT remains the dollar leader, and is showing a 27% gain over Q1,’10. IBM is again #1 ($4.10B), with MSFT at second ($3.84B), and P&G on third ($2.58B – they have a long way to match the old XOM record, but they appear to be on their way); XOM is fifth ($1.57B). Telecommunications and Utilities are running at over a 100% increase, but they are working off low comparisons (they are also the 2 smallest sectors). It still appears that companies are buying enough to just keep up with their options, since shares and diluted shares (-0.15%) so far are flat. I expect the rest of the year to continue the same way, with companies taking the necessary steps to neutralize options and earnings dilutions. Buyback program announcements appear to have now slowed, but they are just authorizations and move in cycles; however, it would appear that most companies are back in the buyback trend. If the market improves we could see an increase as companies race to purchase additional shares to cover expiring options that come into the money. While those buyback would register at the full price, the net addition (purchase price – strike price) should be marginal. If the market turns down I would expect some pullbacks, but not significantly given the current outstanding options, strikes and expiration; if the market turns Bear however (12% slide form here), companies will re-evaluate, as will I.
Cash - Q1,’10 set a new record for cash and equivalent in the S&P Industrials (Old) at $837 billion, just as Q4,’09, Q3,’09, Q2,’09, Q1,’09, and Q4,’08 (a full six pack) did. With 70% of the issues accounted for Q2,’10 cash is running 1.1% lower than Q1,’10, which at this point is just statistical noise. While the actual value is relevant to headline news (new record or first fall in 6), the value represents 10.2% of market value and 68 weeks (for those that have reported) of expected 2010 operating income. While there have been ‘requests’ for companies to use the money (more buybacks, increased or special dividends), companies have mostly continued along their conservative spending ways. When they do finally start to spend it could be massive, especially if it is plant and equipment, which could cause manufacturers (some even in the U.S.) to start hiring (recall workers, new ones or extend current hours), which is what I believe the economy needs – jobs.
Capital Expenditures – Not enough data yet, but the reported values are running 3.9% below Q1,’10. An accelerated depreciation schedule would help, but only if it had much higher limits than the previous small-business one. Credits and higher deductions may sway a few, but the overall determination for the company is if they see the need for it. Also, with tax issues just starting to be discussed (behind closed doors, openly after the August recess), we are a long way off from legislation.
Shares – Share counts appear to be flat from Q1,’10, coming in 0.15% lower. Financials have stopped their offerings, with Health Care moving the most, reducing their shares 1.2% – not a lot of action. There has been little Share Count Reduction reported yet.
Dividends – ‘Staying the course’, while increases have continued to pick up, the big story remains the lack of cuts. The bottom line is that year to date S&P 500 companies has added $12.7 billion to shareholders annual income statement, compared to the first eight months of last year when they took away $40.9 billion. Also a dividend tax note below – I expect to put out more on this come September.
YTD there have been four: FII, LTD, VZ, and WY (Weyerhaeuser was for stock valued at $26.41), versus nine for 2009 and 14 in 2008. Diamond Offshore Drilling (DO) has declared a ‘special’ $0.75, in addition to their $0.125 quarterly payment, to which S&P will review for its status. We expect talk of specials, along with the probability of it happening, to increase as the 15% qualified tax dividend tax law approaches its 2010 sunset date. The House has started to take up tax issues, with the Senate scheduled to start after they return from the August recess. Capital gains and dividend tax increases represent attractive income as pay-as-you-go programs come under review, and a 60 vote majority becomes more difficult. The current numbers for dividends being ‘discussed’ (this is politics, which makes predicting the market seem easy) is 28% in Congress and 20% from the White House. Therefore there is the possibility of a large tax gap in qualified dividends paid in 2010 vs. 2011. If Congress doesn’t do anything a $1 dividend paid in December nets you $0.85 vs. $0.604 in January 2011 (not counting a potential med tax). The ’86 Tax Reform Act was the reverse with rates going down, and we saw some companies delay their Q4 to early January. Here we could see January payments paid in December: 41 S&P 500 companies paid $4.0B in the first ten days of January 2010.
Original source for this article: Business Week
Dividends Post A $62 Billion Turnaround
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The rebirth of dividends in the U.S. domestic market which started in the first quarter of this year has continued in the second quarter, with more issues increasing their cash dividends, but more dramatically, the downslide in decreases has stopped. The hole in investor’s pockets has been closed, but filling it back up again will take years. For the second quarter of 2010 only 34 U.S. common listed issues decreased their dividend rate verses 250 issues that did so in the second quarter of 2009, and increases picked up 43.8% for the period to 335 issues from 233 issues last year. Overall, indicated dividend rates went up $7.0 billion for Q2,’10 verses a $4.9 billion reductions in Q2,’09. The first half of 2010 posted a $13.4 billion increase in dividend rates compared to the $48.6 billion decline in the first half of 2009 – a $62 billion turnaround. But before you go out and celebrate realize that we have just started to come back from the worst dividend period in history. While some companies have increased, it will take years just to get back to where we were in 2008. Specifically I believe it will be 2013, and that is if the economy improves, if not,.. So the bottom line is yes we are headed in the right direction, but the ‘road is lonely, dark and deep’ and many dividend investors need the money now. One other note, the BP suspension, which two months ago would not even have been thought of, has rightfully unnerved dividend investors. They now need to more closely examine potential liability issues. In addition to environmental issues, they need to add medical and consumer products, plant and working conditions, and services to the list of concerns.
Please see file for details
dividends_201006.doc
Original source for this article: Business Week
