It’s that time of the week again! Check out these great articles from around the web.

Does Your Business of Blog Create Passive Incoem @ Value Walk

Screening for Dividend Payers @ DIY Investing

Dividend Income Progress Update @ Dividend Growth Stocks

Final Recent Sell @ Dividend Partisan

Review of Financial Goals @ The Div Guy

We Are Not in a Dividend Bubble @ Dividend Growth Investor

5 Common Financial Mistakes @ Invest it Wisely

Weekly Dow Jones Yield Rankings @ The Dynamic Dividend

Company Overview

Northrop Grumman NOC is an integrated enterprise consisting of businesses that cover the entire security spectrum, from undersea to outer space and into cyberspace. The Company operates in four segments: Aerospace Systems, Electronic Systems, Information Systems and Technical Services.

Sales, Earnings, Free Cash Flow

Revenue for NOC has grown by an average of 11.4% over the past decade, and about 5% over the past 5 years. The 3% growth between 2009 and 2010 was lower than the historical average.

The most recent earnings release came at the end of September, and the close of Q3. Sales were down both quarter over quarter and year over year. Full year 2011, NOC is expecting sales 2-3% lower than 2010, due to “market environment’.

Like we have seem with other defense companies,

[with] the possibility of further budget reductions, our customers continue to be cautious in releasing funds for their activities. While there is uncertainty regarding future budget levels, we believe there is clarity regarding the threat environment and our customers’ need for affordability.

Earnings have grown faster than revenue, though only slightly. The 10 year compounded average growth is 12.3%, though from 2009 – 2010 eps grew a whopping 31%, from $5.21 to $6.82. Analysts expect full year 2011 earnings of $7.00, inline with NOC’s guidance of $6.95 – $7.05.

Free cash flow per diluted share has grown by an average of 9% over the past decade, and has not had a single negative year, but they were close in 2003 when fcf dropped to $0.44. FCF has not yet recovered to the high of $7.56 in 2008, though has been more than enough to cover the dividend of the past 5 years.

Both earnings and fcf have been bolstered by a steady share buyback program, and NOC manages to take about 4% of outstanding shares off the market every year. The company expects to spend about $30 billion buying back shares this year, and has already purchased 12.7 million on the open market.

Both operating and net margin trended up for many years, after some razor thin years in the early 2000′s. After hitting highs of 9.6% and 5.9% in 2007, both dipped substantially in 2008, and seem to have recovered since. Operating margin is up this year 230 basis points, to 12.5%, and net margin is up to 7.8% (for last reported quarter, Q3)

Dividends and Stock BuyBacks

NOC has a long history of paying dividends, but only began regular, yearly increases in 2004, similar to LMT, which began consistent increases in 2003. Over the past 5 years, growth as averaged 12.2% – the last dividend increase came in June of 2011, when the quarterly rate was raised to $0.50, from $0.47, for an annual dividend of $2.00.

The 5 year rolling dividend growth rate has been in the low teens for the last 4 periods, and should stay about there with the latest increase.

Payout ratios are safe. The earnings based ratio was only 27% in 2010, and the cash based ratio only slightly higher at 32%. Even if the company has stagnant, or slow growing earnings for the next few years, they should still have money left for dividend growth.

Balance Sheet

Northrop Grumman has a moderate balance sheet. The current ratio is 1.2, and the interest coverage ratio is 10.9. Debt to total capital is acceptable, at 25.2%.

Return on equity has had a bumpy ride, and is not as consistent as I like to see it.

Stock Price Valuations

current price - $58.63
5 year average low p/e - 8.2
p/e (ttm) - 8.6
p/e (forward) - 8.4
peg - 1.1
5 year high dividend yield - 3.3%
dividend yield - 3.4%

Conclusion

Overall, I will pass on Northrop Grumman right now. The defense industry is very vulnerable at the moment, and if I planned to ride out this volatility with any one company, I’ve been leaning more towards L-3 than either NOC or LMT.

To see other analysis of defense stocks, check out L-3 Communications and Lockheed Martin

To get all my updates, please subscribe to my rss feed

Full Disclosure: I do not own any NOC, LMT or LLL. My Current Portfolio Holdings can be seen here

Apple May Offer Significant Dividend in 2012

Ummm…how great would that be? Could apple become a Dividend Aristocrat?

Overall, I would say no, since it operates in the fast paced world of consumer tech. Remember how popular Blackberry was a few years ago?

Still, this is interesting….

Wow, I feel like I haven’t been back here for so long! It’s been a busy few weeks, and I haven’t been able to post as much as I would like.

Between work, family and the holidays, time is at a premium right now. Add to that a second job I picked up (working for google…hence the removal of the few ads I had up), and a lot of research…I’m planning on buying my first property within the next year, so I’ve been reading up on purchasing homes (and how to rent them out…phase 2).

Which reminds me…Does anyone know how to remove ads from a feed? I’ve tried every which way, and searched as much as possible, and it seems rather impossible…short of deleting my current feed and burning a new one. Any ideas?

Anyway, just wanted to let everyone know I’m still here…I’ll have some stuff up soon. If I don’t talk to you, Happy Holidays!

DP

There are always tons of great articles on seekingalpha, but one of my favorite authors is Chuck Carnevale, who also occasionally posts on Value Walk. He has a great article on seekingalpha about understanding how similar p/e ratios do not equal similar valuations.

This article is the second in a series of articles designed to elaborate on the proper utilization and understanding of the PE ratio as an important investing metric. Our first article in this series looked at how the PE ratio could be used to determine overvaluation. With this article we are going to review two companies where each is fairly valued and each has similar current PE ratios. Moreover, both companies offer yields above 3.5% which is greater than is available on the 30-year Treasury bond (current yield 30-year Treasury bond 3.02%).

Yet even with these similar attributes, almost identical PE ratios and above-average dividend yields, we intend to demonstrate how Darden Restaurants (DRI) offers a much higher potential future total return.

It’s interesting that we become more creditworthy when we actually add a little debt to our balance sheet. Moneycone knows firsthand, and explores his credit score.

Via Paul Krugman, we once again learn that the so called “job creator” myth does not hold up to rigorous study. Whether you are Republican or Democratic should should only matter in the details – the overall plan should be based in fact, not fiction.

It’s always motivating, at least to me, to see how successful someone else has been at dividend investing. Luckily, most bloggers are pretty much open books, and Passive Income Earner is no different.

The Brown-Forman Corporation (BF.A) is a diversified producer and marketer of high-quality consumer beverage alcohol brands. It is one of the largest American-owned wine and spirits companies, and its products include Tennessee, Canadian, and Kentucky whiskeys, Kentucky bourbon; tequila; vodka; liqueur; California sparkling wine; table wine; and ready-to-drink (RTD) and readyto-pour (RTP) products. The largest brand is the iconic whiskey Jack Daniels.

Full Analysis

It was a rough week for markets, and the DOW is down about 3%. This has raised the yields on a number of the DJIA stocks, and dynamic dividend has a nice list to sort through everything. Could be time to enter a position or add to an existing one.

Walmart (WMT) the stock everyone thought was dead, is showing some growth, even in it’s US comparable store sales, in its Q3 Earnings Release. I’m long WMT, and not giving up yet.

The eurozone situation is incredibly worrying, and thanks to Mario Draghi’s recent proclamation that the ECB will only focus on inflation and price stability, one could only think someone is actively trying to break-up the Euro. MoneyIllusion explains the three possible scenarios.

It’s that time of the week again! Check out these great articles from around the web.

October 2011 Dividend Income Update @ My Own Advisor

Could the Debt Problem Come to the US @ The Blog of Horan Capital Advisors

Dividend Income Progress Update @ Dividend Growth Stocks

Top 20 Stock List @ DivPartisan

Does HerbaLife Have a Deal for You? @ 101 Centavos

AFLAC’s (AFL) Fair Value Should be Double – So Should it’s Price @ Value Walk

How Important Is Financial Freedom When You Retire @ Beating the Index

Telus T Dividend Stock Analysis @ The Dividend Guy

Exxon Mobil Dividend Stock Analysis @ Dividend Monk

Weekly Dow Jones Yield Rankings @ Dynamic Dividend

Company Overview

Lockheed Martin Corporation LMT is a global security company engaged in the research, design, development, manufacture, integration, and sustainment of advanced technology systems and products. It also provides a range of management, engineering, technical, scientific, logistic, and information services.

Sales, Earnings, Free Cash Flow

Revenue for Lockeed Martin has grown by an average of 7.3% over the past decade, and about 4% over the past 5 years. The 4.1% growth between 2009 and 2010 fit in line with that average, though going forward even this slight growth rate may be optimistic.

The most recent earnings release came at the end of October, and the close of Q3. Sales grew both quarter over quarter and year over year, but the company’s guidance for 2011 is $46 – $47 billion. Even if we use the top end of the estimate, that’s only 2.6% growth.

Worse still is the company’s outlook for 2012

the Corporation expects 2012 net sales to be flattish compared to 2011 levels

It is worth keeping in mind this does not count the *possible* massive budget cuts that would hit defense spending should the so called “super committee” not reach an agreement by November 23.

Earnings have shown stronger growth, a combined result of increasing sales, higher margins, and a healthy stock buyback program. 10 year growth is unavailable, since LMT operated at a loss in 2001, but the 5 year average growth is 8.2%.

Again though, only modest growth is anticipated going forward. Analysts are expecting earnings of about $7.58 for this year, and LMT’s outlook estimates between $7.40 – $7.60. If LMT hits the top end of that range, that is still an earnings decrease of 4.3%.

Free cash flow per diluted share has grown by an average of 12% over the past decade, and has not had a single negative year. Though 2009 and 2010 were down from the 2008 high of $8.89 a share, the fcf was still enough to comfortably pay the dividend.

Both earnings and fcf have been bolstered by a steady share buyback program, and LMT manages to take about 5% of outstanding shares off the market every year. So far in 2011, they have bought back 29.9 million shares, using $2.3 billion. By the end of the year, they expect to use a total of $3.5 billion on repurchases.

Both operating and net margin trended up for many years, but have lost some momentum in the past 2 years. After hitting highs of 12.2% and 7.8% in 2008, both have dipped, with 2010′s operating margin at 8.9% and net 6.3%.

Dividends and Stock BuyBacks

LMT has a long history of paying dividends, but only began regular, yearly increases in 2003. If we discount the year 2002 (where the dividend was flat) purely for calculation reasons, the 10 year average growth is a whopping 21.8%. Over 5 years, that number is 20.6%. And the latest dividend increase, which came in September of this year, was a massive 33% raise, from $0.75 to $1.00 per quarter.

This last dividend increase is interesting, because it really made the yield explode. Historically, you could expect a yield for LMT of around 2-3%, and if you were lucky close to 4%. But that last increase pushed the yield over the 5% barrier.

5 year rolling dividend growth has been pretty steady above 20% for the past few years. As recently as 2010, the 5 year growth rate was 21%, and I expect this number to increase in 2011, thanks to that 33% raise.

Payout ratios are low, and leave plenty of room for dividend growth. The earnings based ratio was only 33% in 2010, and the cash based ratio dead even, also at 33%. Even if the company has stagnant, or slow growing earnings for the next few years, they should still have plenty money left for dividend growth.

Balance Sheet

Lockheed Martin has a moderate balance sheet. The current ratio is 1.2, and the interest coverage ratio is 11.9. Debt to total capital is a bit higher than I like to see, at 57.5%, though this should go down over the next few years, as LMT pays off old debt with new issues at lower rates (they recently sold some 5 year notes at 2.13%!)

Return on equity has skyrocketed over the years, and is not a useful measure for this company. The artificially high 86% ROE can be attributed to high debt, and stagnant equity. Looking at year 2001, total shareholders equity was $6.4 billion. By 2010, equity had decreased to $3.7 billion. Though I know calculating equity is more complicated than this simple explanation, don’t you want a company to increase assets faster than liabilities?

Stock Price Valuations

current price - $76.95
5 year average low p/e - 11.2
p/e (ttm) - 9.7
p/e (forward) - 10.2
peg - 1.3
5 year high dividend yield - 2.9%
dividend yield - 5.1%

Conclusion

Overall, I will pass on Lockheed Martin. The defense industry is very vulnerable right now, and if I planned to ride out this volatility with any one company, I would not choose one with high debt and no sales growth. Even though they have spectacular dividend growth, I still expect any company I invest in to be growing sales and earnings, rewarding me with income and capital gains.

To see other analysis of defense stocks, check out L-3 Communications

To get all my updates, please subscribe to my rss feed

Full Disclosure: I do not own any LMT. My Current Portfolio Holdings can be seen here