Archive for month: November, 2010

A few weeks ago we covered a bank stock with a nice yield for savvy dividend investors. That stock was M&T Bank. Today, we have located another bank stocks with an absolutely fantastic yield .This bank has been a solid stock performer for years and has gone largely unnoticed by Wall Street. The company is United Bankshares (UBSI).

United Bankshares has been around forever serving its customers since 1839. The company has its corporate headquarters in both Washington D.C. and Charleston, West Virginia. United Bankshares has 112 offices on the eastern seaboard and holds $7.5 billion dollars in assets. It is one of the largest bank holding companies in the world.

As everyone knows, the banking industry is a competitive marketplace. Banks compete for consumer and institutional investor dollars. United Bank competes against regional banks such as BB&T, Huntington Bancshares, and Suntrust Inc. Despite stiff competition, United has held up rather well. United Bank’s revenue growth is 40% higher than the industry average and operating margins are 100% higher than competitors. Profit margin is excellent at 25%

The bank has been one of the top performing banks during the crisis. The company’s revenue and net income have remained high over the past few years making the stock a consistent member of the U.S. Select Dividend Index. The company has over $700 million dollars in cash and $1 billion dollars in debt.

United Bankshares asset quality has been consistently rated highly. The company’s Tier 1 ratio is outstanding at 12% and its risk based capital ratio is 13.4%. This is well above the 10% ratio that most banks have to be at in order to be considered well capitalized. Return on equity was high at 9% and return on asset was slightly below 1%.

The company’s stock trades at 16 times this year’s earnings. The P/E ratio is equal to the industry average of most banking institutions. Earnings are expected to grow at an 8% annual rate over the next few years. Shares currently trade at just 1.5 times book value. The stock trades at 2 times earnings growth and 4 times the company’s sales.

United Bankshares dividend is rock solid. The company just increased it dividend for the 37th consecutive year. That’s quite an impressive streak. Over the past 37 years, the dividend has increased from just 6 cents a share to its present value at $1.20. United’s shareholders have to love the 9% annual dividend growth rate.

The current dividend yield is 4.60% which is higher than the historical yield of 3.90%. The current payout ratio is 75%.United Bankshares is an appropriate stock for investors looking for a solid dividend stock whose dividend will continue to increase over the next few years.

To understand the advantages that can be gained by purchasing dividend paying mutual funds, it may be helpful to understand exactly what the name means. A mutual fund is a collection of bonds, stocks, and money markets that is professionally managed. Investors join a pool of other investors and purchase units in the fund. The amount of the fund’s profit (or loss) is apportioned based on the amount of each investor’s position. Because investors deal with the fund, shares are easy to buy or sell.

Dividends are payments made by a company or a fund to its shareholders. They indicate that the company has made a profit. Typically, paying dividends is a sign that a company’s financial position is solid. Struggling companies either do not have the cash or need all their cash to keep the doors open. The payment of dividends can make the company’s stock more attractive to new investors and keep current investors pleased with performance.

Mutual funds typically pay dividends quarterly. How the dividends are taxed depends on the type of fund. For example, real estate investment trusts and bond funds do not generate qualified dividends in the eyes of the Internal Revenue Service. Stocks and most utilities, on the other hand, receive better treatment for taxes as long as a minimum of sixty days has elapsed between purchase and the date shareholders qualify for a dividend.

Mutual funds offer a convenient method of tapping into a dividend stream. There is no need for the investor to try to identify individual stocks. Most funds are comprised of dozens or even hundreds of stocks, so the investor is instantly diversified. With many stocks in the fund, the risk is minimized, since no one company can have a major impact on the investment. In addition, since purchasing mutual funds does not generate a commission for the broker, it is possible to make small investments at frequent intervals without generating large fees. All of these factors make mutual funds a safer and more economical method of investing than choosing individual stocks.

When purchasing dividend paying mutual funds, investors should look for an established fund with a successful record of accomplishment. A good income fund will feature high-yield stocks as well as a diversified portfolio that offers the potential for dividend growth. Funds must state the scheme and goals under which they operate, so reading the prospectus carefully and educating oneself on investments in general are advisable.

Investors should realize that higher yield stocks often carry a greater risk. Choosing a well-diversified fund minimizes the risk of loss. Since there are so many funds from which to choose, investors should select one that has a portfolio with which the investor is comfortable. Making a mutual fund that pays dividends part of an investor’s portfolio can be an excellent option. However, investors should remember the mantra of diversification, and make sure that their portfolios include other investment options as well.

The Blackrock Equity Dividend Fund I (MDDVX), formerly known as the ML Equity Dividend Fund, seeks current income and long-term total return, primarily by investing in an equity securities portfolio, putting its focus on issuers with good capital appreciation prospects. Normally, it invests a minimal 80% of assets in securities paying dividends. The remaining holdings may include non-convertible preferred stock and convertible securities, with about 16.29% in foreign stocks.

Started on November 25, 1987 (with Investor A class shares first offered on October 21, 1994), the Blackrock Equity Dividend Fund, is a large value fund with a total market cap ranging around $10.3 billion. It has a 5-star Morningstar rating with a low to average Morningstar risk rating within category. It has a Lipper Classification of an Equity Income Fund, and a 2.28% SEC yield and dividends paid quarterly.

Among the top holdings in the Blackrock Equity Dividend Fund are ExxonMobil Corporation, BHP Billiton Limited, AT&T Inc Communication, Churchill Ventures Ltd, J.P. Morgan Chase, Rio Tinto ADR, Total SA ADR, General Electric, Deere & Company, Raytheon Company, Chevron Corporation, Wells Fargo Company, Caterpillar Inc, United Technologies, and El Dupont de Nemours.

In terms of sector weightings, the Blackrock Equity Dividend Fund holds about 14.9% of its assets in industrial cyclicals, followed by about 14.3% in consumer staples, 14.1% in energy, 13.8% in financials, 10% in materials, 7.6% in utilities, 6.0% in telecommunication services, 5.0% in healthcare, 4.8% in consumer discretionary, 4.1% in information technology, and 5.4% in cash and cash equivalents.

The expense ratio of the Blackrock Equity Dividend Fund is 1.08% which is in the average range for its category. Initial maximum sales fees are 5.25% with a minimum initial investment of $1,000, an initial IRA or AIP investment of $50, and minimum subsequent investments of $50.

As of September 2010, the fund has returns of 5.2% over the past 10 years, 2.8% over the past 5 years, -5.7% over the past 3 years, and 10.5% over the past year, with a year-to-date trailing return of 3.5%.
The Blackrock Equity Dividend Fund is managed by Robert M. Shearer and Kathleen Anderson, and is open to new investors.

The above information regards Investor A class shares, although Investor B (MBDVX), Investor C (MCDVX), Class R (MRDVX), Institutional (MADVX), and Service class shares of the Blackrock Equity Dividend Fund are also available.

Southern Company (SO) is the fourth largest utility company in the United States of America. The company is responsible for providing power to 4.3 million customers in the southeastern portion of the U.S. The company serves customers in Alabama, Florida, Georgia, and Mississippi.

The utility company was founded in 1945 and has a long history of providing service to its customer base. The company relies heavily on coal, nuclear, and natural gas to provide energy to customers. Southern Company was recently granted approval by the federal government to build two new nuclear plants in Georgia.

Southern Company has generated over $15 billion dollars in revenue each of the past three years. Earnings have grown 7% per annum each of the past five years. Growth is pegged at 5% per annum for the next five years. The company reported impressive results in its latest quarterly report.

Total sales were up 9.4% and electricity sales were up 6.5% year over year. Industrial sales were up 7.3% which is important since the company derives nearly 30% of its earnings from this segment. The greatest growth came from the residential sector which increased 14% per year. The company should continue to benefit from a continued economic recovery since any uptick in industrial production will lead to greater growth in earnings.

The company operates in a great industry with high barriers to entry for new competitors. The utility industry is incredibly capital intensive and is heavily regulated by state and federal governments. This is advantageous to Southern Company since it enables the company to have a virtual monopoly in its region. Centerpoint and Entergy Energy are the main rivals of the company with both of these companies operating in the Mississippi market as well.

Utility companies are popular with income investors for their great dividend yields. Southern Company has increased its dividend for nine consecutive years. The company is currently paying investors $1.82 a share which is a 4.70% yield. This is only slightly above the historical yield of 4.50%. The company is expected to earn $2.39 per share which places the dividend payout rate of 72%.

Southern Company has been on the rise just recently hitting its 52 week high of $38.62. Even during the global economic crisis, the stock bottomed out at $27 per share. Southern Company is a safe investment as the company has been able to achieve consistent stable growth and sports a safe dividend. The stock currently trades at 15 times earnings which is not unreasonable for the company. Investors should feel comfortable purchasing shares in the mid 30’s.