Dividends Value » MS

No Such Thing As Free (TARP) Money *

D4L — Wed, 13 May 2009 10:30:05 +0000

Several banks have learned the hard way that when you get the U.S. government’s money, even in the form of a loan, as a bonus you get the government’s “help” running your business. Needless to say, this is not very appealing to most businesses. Looking at the country’s deficit, the government doesn’t specialize in running anything in the black. So what’s a company to do when they realize they’re in a bad relationship?

Kelly King, Chairman and CEO of BB&T (BBT), a large U.S. regional bank and vocal critic of the government’s bank bailout plan, described its participation in the TARP program as “destructive.” King went on to say “Our plan is to repay the TARP funds as soon as it is humanly possible. It creates excessive controls, it has a negative impact on our people and our strategies and it runs a great risk of politicizing the lending process, which is very unhealthy.”

On May 11th, BBT announced that it would sell $1.5 billion of stock and reduce its dividend by 68 percent so that it can repay a $3.1 billion investment. Goldman Sachs & Co (GS), JPMorgan (JPM) and Morgan Stanley (MS) are arranging the stock offering.

Having previously increased its dividend for 37 consecutive years, this is a tough pill for a once-proud Dividend Aristocrat to swallow. King said the decision marked “the worst day in my 37-year career,” and pledged to increase the payout when he can. Like most dividend cutters, BBT’s shares plummeted falling over 7.5% on the day of the announcement and another 7.5% on the following day.

BBT wasn’t the only one running from the government’s “help”. Two other large U.S. banks that passed the government’s “stress test” announced stock offerings on Monday to raise capital in order to repay their TARP debt. U.S. Bancorp (USB), the parent company of U.S. Bank, said Monday that it has launched a $2.5 million public offering of its common stock and Capital One Financial Corp. (COF) also announced a public offering of 56 million shares of its common stock.

As with all individual income stocks that cut their dividends, I immediately sold my entire position in BBT after reading the announcement.

Full Disclosure: No position in the aforementioned stocks. See a list of all my income holdings here.

Johnson & Johnson (JNJ) Increases Dividend For 47th Consecutive Year *

D4L — Fri, 24 Apr 2009 10:30:35 +0000

Thursday, Johnson & Johnson (JNJ) declared a 6.5% increase in its quarterly dividend rate, from $0.46/share to $0.49/share (yield: 3.6%). This follows last week’s 10% increase from the other blue-chip ampersand company Proctor & Gamble (PG). JNJ’s CEO William C. Weldon stated, “Given our strong financial position, confidence in the future of Johnson & Johnson, and in recognition of our solid results in 2008, the Board has voted to increase the dividend for the 47th consecutive year.” JNJ is engaged in the research and development, manufacture and sale of a range of products in the healthcare field. The Company has more than 250 operating companies within three segments: Consumer, Pharmaceutical, and Medical Devices and Diagnostics. (Analysis)

Below are several other companies joining JNJ and PG in rewarding their shareholders with higher cash dividends:

Southern Company (SO) raises annual dividend by 4.2% to $1.75/share, Yield: 5.94%
Coach (COH) initiates $0.30/share annual dividend, Yield: 1.32%
Hudson City Bancorp (HCBK) bumps its quarterly dividend to $0.15/share, Yield: 4.93%
J. M. Smucker (SJM) boosts dividend 9.3% to $0.35/share, Yield: 3.65%

Just when it looked like the financials had got all the bad news aired, Morgan Stanley (MS) jumped in and filled the void. On Wednesday MS reduced its quarterly dividend to $0.05/share and decided to the change the company’s fiscal year end to December. The Board of Directors declared a $0.016667 dividend per common share covering the period from December 1, 2008 through December 31, 2008. The total dividend of $0.066667 per common share covering the four month period from December 1, 2008 to March 31, 2009 is payable on May 15, 2009 to shareholders of record on April 30, 2009.

It is always good to see the dividend raisers exert themselves. Hopefully this trend will continue as the fearful & fragile make way for the confident & capable. As a dividend investor, I look forward to the coming weeks. For more companies with a long string of consecutive dividend increases, see this list.

Full Disclosure: Long JNJ, PG. See a list of all my income holding here.

(Photo: Steve Woods)

Don’t Fall Into A Dividend Trap *

D4L — Sun, 26 Oct 2008 10:30:00 +0000

Prices are falling and yields are rising on dividend stocks. It’s a great time to be a dividend investor. That is assuming one of these wonderful stocks you just picked up doesn’t do the unspeakable – cut its dividend.

A recent Forbes article listed these four companies as a potential dividend traps:

General Electric (GE) – 6.60% yield
Morgan Stanley (MS) – 5.97% yield
Macy’s (M) – 5.52% yield
Nordstrom (JWN) – 3.79% yield

In addition, the article listed Bank of America (BAC), which has already cut its dividend. In the case of General Electric, the company has stated it will freeze its dividend through 2009. These are great times, but we have to be diligent and do our homework before investing.

Disclosure: Long GE. See a list of all my income holdings here.