Tag Archives: Dividends Buybacks

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The Call for Verizon Wireless Consolidation Grows Louder

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By 24/7 Wall St.

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In this morning’s top analyst upgrades and downgrades from 24/7 Wall St. (released each morning), one of the top upgrades was in Verizon Communications Inc. (NYSE: VZ). It was an upgrade from Citigroup that caught our eye but the other side of the coin is that Citi also raised Vodafone Group PLC (NASDAQ: VOD) to Neutral from Sell.

The driving force behind today’s upgrade is not exactly a slate of new phones and it is not that Verizon will out-yield the higher dividend offered by AT&T Inc. (NYSE: T). Today’s upgrade was based upon the hope that Verizon will move to make a leveraged buyout of the rest of the Verizon Wireless division that is partly owned (at 45%) by Vodafone. Even with the added debt, the team expects that a deal would immediately add to earnings and cash flow.

This would be a very complicated deal and it would not be easy to accomplish. The problem is that the value of the unit as a whole might be worth more than $100 billion and Citi feels that this might require a whopping $70 billion or more in debt to be taken upon by Verizon without consideration of other swaps.

We would note that Vodafone recently said that it was open to considerations, and Verizon’s management has also said that they would love to own all of the stake. Our issue is the size of the deal and we think that Citi’s suggestion will add enough leverage that it could jeopardize the dividend. That being said, if Verizon wants to do this deal it better go ahead and do it while interest rates are dirt cheap for corporate borrowing costs. The telecom giant also better try to go out as far on the curve as it can with a long string of laddered maturities so that it can pay that debt off in time.

If you will recall, AT&T recently committed a lot of effort to debt to help fund its expansion and capital spending plans. With rates so low and with the market willing to lend serious money to creditworthy businesses, Verizon might seriously want to consider doing this sooner rather than later if it wants to do it at low borrowing rates.

AT&T now yields about 4.9% versus about a 4.3% dividend yield for Verizon. The difference between these two telecom giants today is that Verizon is literally a couple of cents away from a 52-week high while AT&T is about 6% shy of its 52-week high.

Filed under: 24/7 Wall St. Wire, Analyst Calls, Dividends & Buybacks, Telecom, Telecom & Wireless Tagged: T, VOD, VZ

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Lexington Realty Raises Capital After Big Share Gains

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By 24/7 Wall St.

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Lexington Realty Trust (NYSE: LXP) has joined the waves of other companies raising capital by secondary stock offerings. The single tenant-REIT has priced an underwritten registered public offering of 20,000,000 common shares at a price of $11.70 per share. Lexington said that it plans to use approximately $137.9 million of the net proceeds from this offering to repay the outstanding debt under its unsecured revolving credit facility. The remainder of the proceeds will be used for general corporate purposes.

BofA/Merrill Lynch, Wells Fargo Securities, Jefferies and Barclays were fingered as the joint book-running managers for this secondary offering; co-lead managers named were J.P. Morgan and KeyBanc Capital Markets. Lexington also has granted this underwriting group a 30-day option to purchase up to an additional 3,000,000 common shares at the same terms as the offering.

Lexington closed at $12.05 on Monday against a 52-week range of $7.82 to $12.19. As far as the gross proceeds of $234 million, its pre-secondary market cap was $2.28 billion.

This trust pays roughly a 5% dividend yield to its investors as of the close, although that will be slightly higher as shares are down 2.7% at $11.72 this morning.

Filed under: 24/7 Wall St. Wire, Dividends & Buybacks, IPOs & Secondaries, REIT Tagged: LXP

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Infrastructure To Lead GE Dividend Growth Ahead

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By 24/7 Wall St.

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General Electric Co. (NYSE: GE) was making key dividend news this morning because in the Jeff Immelt annual letter to shareholders the company promised $18 billion to be returned to shareholders this year via dividends and stock buybacks. What was not clear was how it was going to get there.

GE is a true conglomerate, but the standout area of the report that is going to drive this capital will be infrastructure orders. GE has significant assets to divest (or which could be divested). Another big boost will come from continued improvements in GE Capital returning money to the parent company. Still, infrastructure is going to perhaps be the key driver of growth when you break out what GE includes here.

GE Chairman and CEO Jeff Immelt said in his annual letter that about $60 trillion of infrastructure investment is needed by 2030 to support the billions of new consumers joining the middle class in the emerging world and to support developed-market productivity. Immelt said, “About one-third of our infrastructure revenues comes from businesses we weren’t in a decade ago. These include fast-growth businesses like Oil & Gas, Life Sciences, and Distributed Power.”

Industrial is a huge area and Immelt said that services represent about 75% of GE‘s industrial earnings. He even claimed a $157 billion of service backlog, and included that GE will lead in the shale gas revolution. Immelt also said, “At $100 billion of revenue with 15% margins, we are the largest and most profitable infrastructure company in the world.”

On that capital plan, GE plans to buy back shares to get the total share count below 10 billion shares so that it is where it was back before the financial crisis. Immelt has already said that he plans to allocate a significant portion of the NBCU cash sale proceeds to repurchase shares. All in all, GE plans to return $18 billion to investors this year through dividend and buyback.

As it stands now, GE‘s dividend budget is close to $8 billion in the capital plan. Buying down the outstanding shares is one thing and $10 billion compared to a market cap of about $245 billion is a decent sum of shares being bought up off the market. That being said, a higher dividend represents a significantly more confident stance over a multi-year period.

GE shares are down 0.8% at $23.58 shortly before the close. The annual letter and capital plan are not the culprit behind the drop in GE shares. A downgrade from Nomura to Neutral from Buy did the damage today, although we would make not that GE‘s share price was within 15-cents of a multi-year high.

Filed under: 24/7 Wall St. Wire, Conglomerates, Dividends & Buybacks, Infrastructure Tagged: GE

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Business, Finance, Occupation & Industry

Shareholder Attack of Smithfield Has Risks, But Merits Too (SFD, HRL, TSN)

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By 24/7 Wall St.

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Smithfield Foods Inc. (NYSE: SFD) is trading higher on word that a top shareholder called Continental Grain Co. has sent a letter urging the company to consider strategic alternatives. These alternatives include a breakup of the company into three units and include a dividend. We have just pondered whether or not there is the formation of an activist investor bubble happening or not, but either way this effort to drive Smithfield has some points which are very hard to ignore.

We cannot help but wonder if this strategy is a bit aggressive for the company if executed in full. Continental Grain owns about 6% of Smithfield, but what is interesting is that the group has recently lightened up by selling a small portion of its stake. The activist letter states:

Since the current management took over on August 31st, 2006 and through March 1, 2013, Smithfield stock has declined by 26 percent while, including dividends, Tyson Foods Inc. (NYSE: TSN) stock returned +70 percent and Hormel Foods Corporation (NYSE: HRL) returned +131 percent — a shocking divergence in shareholder return among industry competitors. During this time, Smithfield has paid no cash dividends, while Tyson has cumulatively paid $429 million and Hormel has paid $728 million.

Despite the poor performance of Smithfield stock (last year alone it was down 11 percent while the S&P was up 16 percent), management has been extremely well compensated. The CEO has received $37 million in total compensation over the past two years.

While a breakup into three units would probably unlock value, it is important to realize that the market cap here at a new 52-week high of $25.67 is only $3.57 billion. That may just unlock value to the point of irrelevance for each of the units. That being said, it is pretty unforgivable that Smithfield has not paid a dividend out to its shareholders. If the company could take away that $37 million going forward then it would have enough to pay a 1% dividend yield without dipping into other cash.

Here are the points of interest in a supplement to the SEC filing which outline Continental’s efforts.

Filed under: 24/7 Wall St. Wire, Activist Investor, Compensation, Consumer Goods, Consumer Product, Corporate Governance, Dividends & Buybacks, Food, Retail Tagged: HRL, SFD, TSN

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Strong Household Net Worth Gains, Led By Houses and Financial Assets

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By 24/7 Wall St.

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A report from the Federal Reserve is signaling that US households have seen a substantial rise in their net worth. With the recession not being too long ago and with many workers still unemployed, this is great news when the news flow is still mixed to cautious on so many fronts.

Today’s report of the Flow of Funds Summary Statistics for the fourth quarter of 2012 shows that household net worth was up more than $1.1 trillion from the prior quarter to about $66.0 trillion at the end of the fourth quarter of 2012. It also shows that the value of corporate equities and mutual funds owned by households expanded by $130 billion and the value of real estate owned rose by $480 billion in the quarter.

This matters because the report on net worth is the difference between the value of households’ assets and liabilities. There are still some debt areas growing in the report. Debt of the domestic nonfinancial sectors expanded at a seasonally adjusted annual rate of 6.5% in the fourth quarter, which is 4 percentage points higher than the third quarter. Household debt rose by an annual rate of 2.5% in the fourth quarter and that is actually a contraction of 0.75%. Consumer credit rose at an annual rate of 6.5% percent.

U.S. companies are also sitting on a virtual mountain of cash. That is partly tied to corporate bonds but that figure rose to $1.79 trillion from $1.77 trillion the prior quarter.

There is a huge difference of what is happening at the federal level versus the state and local levels. State and local government debt had been flat in the third quarter but it fell by 3.75%. Washington continues in its irresponsibility trend as the federal government debt rose at an annual rate of 11.25% in the quarter. It is very hard to consider that this is good news on the Federal side, but it is the lowest growth of federal debt with a formal 10.9% growth for all of 2012, down from 11.4% debt growth in 2011, 20.2% growth in 2010, 22.7% in 2009, and 24.2% in 2008.

The total assets were not seasonally adjusted, but this grew from $78.2187 trillion in the third quarter to $79.5248 trillion in the fourth quarter. Real estate values rose from $19.4357 trillion to $19.9144 trillion. Financial assets rose from $53.6061 trillion to $54.3905 trillion.

The real household net worth figures rose from $64.8981 trillion in the third quarter up to $66.0717 trillion in the fourth quarter.

FULL DATA FROM FEDERAL RESERVE

Filed under: 24/7 Wall St. Wire, Accounting, Banking & Finance, Bankruptcy, Compensation, Consumer Product, Corporate Governance, Dividends & Buybacks, Earnings, Economy, Personal Finance Tagged: featured

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Business, Finance, Occupation & Industry

Banks Hopeful for Dividend Hikes and Stocks Buybacks

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By 24/7 Wall St.

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In the coming weeks, the financial sector may move from worrying about the spending sequestration to the coming stress tests of the 19 major banks in the United States. We recently covered the Seven Safest Banks in America for 2013 and that list may get to be expanded handily in 2014 after the result of the stress tests.

At issue is that the banks are expected to pass these tests. If so, there is going to be one serious advantage that has not been there in years. That will come from returning capital to the shareholders. Companies like Bank of America Corp. (NYSE: BAC) and Citigroup Inc. (NYSE: C) have such low dividend yields that they might as well not be counted as dividend payers at all. Some of the banks likely will be freed up to begin returning capital via higher dividends and common stock buybacks.

Bank of America Corp. (NYSE: BAC) has a yield of only 0.36% and Citigroup Inc. (NYSE: C) yields only 0.1%. Our take is that Bank of America may get to increase its payout before Citigroup, but that may be solely due to management remaining the same. There are still many pending legal cases against Bank of America from borrowers and from various government agencies and trading partners. If these banks are not allowed to lift their dividends this year, then we almost certainly would expect that to take place in 2014.

Here are some other banks that may have a shot at dividend hikes or resuming some share repurchase programs:

  • Regions Financial Corp. (NYSE: RF) has a $10.8 billion market cap and only a 0.52% dividend yield. Regions cut the payout from $0.38 to $0.10 in 2008, and then in 2009 it cut that payout from $0.10 all the way down to only $0.01 per share per quarter.
  • SunTrust Banks Inc. (NYSE: STI) has a $14.7 billion market cap and only a 0.72% dividend yield. This bank raised its payout to $0.05 per share quarter from $0.01 in mid-2011, but that has been static ever since at the one-penny level.
  • Zions Bancorp. (NASDAQ: ZION) has a $4.4 billion market cap and only a 0.17% dividend yield. This dividend fell from $0.43 to $0.32 per share per quarter very briefly in 2008 and then down to $0.04 for two quarters before the dividend fell down to $0.01 per share quarter, where it has been since mid-2009.

The good news is that most banks are expected to pass the stress tests. The bad news is that merely passing a stress test does not come with assurances that the Federal Reserve will allow these banks to automatically hike dividends and begin repurchasing common stock.

Filed under: 24/7 Wall St. Wire, Banking & Finance, Corporate Governance, Dividends & Buybacks, Regulation Tagged: BAC, C, RF, STI, ZION

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