Oil Prices Fall, Oil and Gas Equipment & Service Providers Fall Harder

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Oil prices have fallen from over 100$ per barrel to $82.77 (WTI) yesterday. However the stock prices of many of the companies that produce the equipments for the insustry and provide services have fallen much harder.For example, France-based CGG (CGG) is down nearly 58% year-to-date.

The following are five of the foreign Oil and Gas Equipment & Service Providers that trade on the US markets:

1.Company: CGG (CGG)
Current Dividend Yield:  Dividends not paid
Country: France

2.Company: Petroleum Geo Services ASA (PGSVY)
Current Dividend Yield: 6.52%
Country: Norway

3.Company: Technip SA (TKPPY)
Current Dividend Yield: 3.54%
Country: France

4.Company: SeaDrill Limited (SDRL)
Current Dividend Yield: 16.31%
Country: Bermuda

5.Company: Petrofac Limited (POFCY)
Current Dividend Yield: 3.86%
Country: Channel Islands with HQ in London, UK

Just because the stock prices of these companies look cheap they don’t mean they are a great buy at current levels. Dividends can be cut if oil prices fall further and stock prices can get even cheaper.

Note: Dividend yields noted above are as of Oct 21, 2014. Data is known to be accurate from sources used.Please use your own due diligence before making any investment decisions.

Disclosure: Long TKPPY

The Top 10 U.S. Firms with Highest Growth in Annual Dividends per Share in 10 years

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In an article yesterday we looked at the top 10 US companies based on the dividends paid. More important than the dividends paid is the annual dividend growth rate. This rate is especially important over many years due to the effect of compounding in boosting the investment returns assuming an investor reinvests dividends.

The following table shows the top firms with the Highest Growth in Annual Dividends per Share over 10 years according to a research report by FactSet published last month. Companies with a starting or current dividend yield of less than 2% were excluded in this list. The growth rate calculated is that of compound annual growth rates based on annual dividends per share.

S.No.CompanyTickerSector10-Yr Annual DPS Growth10-Yr Annual EPS Growth10-Yr Annualized Return
1Diamond Offshore DrillingDOEnergy23.10%9.30%
2Occidental PetroleumOXYEnergy17.30%13.50%16.30%
3ONEOK, Inc. OKEEnergy15.70%1.70%24.70%
4Wisconsin EnergyWECUtilities13.70%9.30%13.80%
5Mattel, Inc. MATConsumer Discretionary13.70%7.80%10.80%
6ConocoPhillipsCOPEnergy12.70%8.20%13.90%
7Public StoragePSAREITs11.10%14.40%16.10%
8General Mills, Inc. GISConsumer Staples10.90%7.50%11.70%
9PACCAR IncPCARIndustrials10.70%9.50%11.40%
10Raytheon CompanyRTNIndustrials10.60%21.50%13.80%
S&P 500-6.00%6.30%5.30%

Source: Dividend Quarterly, September 15, 2014, FactSet

All the companies noted above have annual dividend per share(DPS) growth rates exceeding that of the S&P 500’s 6.0%. Energy firms dominate the above list and financials did not make the cut since many of them cut or suspended dividends during the global financial crisis. Wisconsin Energy Corporation(WEC) is a multi-utility operating in the electric and natural gas industries. Long-term investors can consider ConocoPhillips, Raytheon Company and General Mills adding to their portfolios and avoid companies such as Mattel in the consumer discretionary sector.

Note: Data is known to be accurate from sources used.Please use your own due diligence before making any investment decisions.

Disclosure: Long GIS

Can Stocks Help Beat Inflation Over The Long Term?

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Inflation is an economic concept that drives prices of goods and services up. The increase occurs over time. Even in capitalist economies such as the U.S. prices of goods and services increase year after year contrary to economic principles like supply and demand. Prices are pushed ever higher by companies for a multitude of reasons the most important of which is to make higher profits. Another reason prices rise is because of the existence of cartel-like systems in most industries in the country which allows companies to legally take price increases as high the market can bear. Despite the presence of ant-trust laws on the books, the state allows oligopoly, duopoly and even monopoly to thrive in many industries. As a result while certain things like a burger may be available at a fast-food joint for dirt-cheap price of $0.99 other products such as prescription drugs, automobiles or services like top quality cell phone plans, cable tv,  health insurance, etc.  cost an arm and a leg.

Since inflation erodes the purchasing power of money it is important to invest in assets that produce returns that beats inflation. For example, if the inflation rate is 10% in a country and bank deposits earn 5% and equities return 20% it does not make sense to save in bank deposits since one would actually lose money in terms of purchasing power.

The chart below shows performance of various asset types over the long-term after inflation:

Click to enlarge

Stocks Beat Inflation

Note: Cash Equivalents grew to $1.80 during the period shown.

Source: Equities Help Protect Purchasing Power, Franklin Templeton Investments

Stocks beat all other asset types over the long-term by a wide margin including gold. The U.S. dollar is one of the hard currencies in the world. But it has lost an astonishing 73% of its value from 1978 thru 2012.

The key takeaway from this post is that since investors cannot control inflation, prices of goods and services, money supply, etc. they can focus on things that are under their control like deciding which asset type to invest in for the long-term.

The Top 10 U.S. Companies By Dividends Paid

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The U.S. is home to some of the world’s largest and finest companies. For instance, 148 firms in the Fortune Global 500 for 2014 are based in the USA. From technology to entertainment to consumer goods, American multinationals dominate the global marketplace with companies such as Coca Cola(KO), Starbucks(SBUX), McDonald’s(MCD), Pepsi(PEP), Colgate-Palmolive(CL) becoming household names across the world. Despite some failings, American firms continue to lead in innovation relative to their developed world peers in many sectors. With their leadership positions, they are also able to generate huge profits both in the domestic and overseas markets.

From an investment point of view, the U.S. provides a fertile hunting ground for investors looking for growth and income opportunities. Thousands of companies in the small, medium and large-cap categories trade on the exchanges.

Every quarter companies pay billions of dollars in dividends to their shareholders. In fact, according to one study, a record 415 companies in the S&P 500 index currently pay a dividend. Last year, 339 of the S&P 500 companies raised their dividend payments with an average increase of 15%.

The current dividend yield on the S&P 500 is 2.07%. However investors can find plenty of stocks that have dividend yields higher than this. The table below shows the Top 10 Companies by Total Common and Preferred Dividends Paid on a Trailing Twelve  Months basis as of September 15, 2014:

S.No.CompanyTickerSectorDividends Paid in $ Millions (Trailing Twelve Months)Payout Ratio (Annual)Dividend Yield as of Oct 17, 2014
1Exxon Mobil CorporationXOMEnergy$11,218 33.40%3.03%
2Apple Inc.AAPLInformation Technology$11,066 28.70%1.92%
3AT&T Inc.TTelecom Services$9,550 53.40%5.40%
4Microsoft CorporationMSFTInformation Technology$8,879 40.70%2.84%
5General ElectricGEIndustrials$8,298 54.80%3.55%
6Chevron CorporationCVXEnergy$7,732 35.20%3.83%
7Johnson & JohnsonJNJHealth Care$7,569 53.80%2.84%
8Wells Fargo & CompanyWFCFinancials$7,551 29.60%2.88%
9Procter & GamblePGConsumer Staples$6,911 61.00%3.09%
10JPMorgan Chase & Co.JPMFinancials$6,689 33.10%2.85%
S&P 500-$356,487 31.90%

Source: Dividend Quarterly, September 15, 2014, FactSet

Technology hi-flier Apple(AAPL) started paying a dividend just recently in 2012. However the company also spends billions in share buybacks instead of sharing the mountain of cash it holds in the form of dividends to shareholders. Similarly Exxon Mobil(XOM) is also another company that is conservative with its dividend payouts but does not mind spending billions in buying back its own shares. Exxon has spent billions of dollars in the past few years in share buybacks. Income investors can avoid investing for the long-term in Apple and Microsoft since they are still technology companies that depend on growth. Instead Chevron Corporation, Johnson & Johnson, Procter & Gamble and AT&T are better options for the long-term as they offer a decent dividend and steady growth.

Note: Dividend yields noted above are as of Oct 17, 2014. Data is known to be accurate from sources used.Please use your own due diligence before making any investment decisions.

Disclosure: No Positions

Another Take On Why Timing The Market Does Not Work

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Investors should invest in stocks for the long-term and not engage in shot-term trading.Long-term is measured in years and can be considered as at least five years. Trying to time the market is not a good idea for the majority of investors. There are not many people in the world who have successfully predicted the future movement of markets. For most retail investors the saying that it is the time in the market and not timing the market that is important still holds true today. Often quoted phrases like “Sell in May and Go Away”, October is the worst month for stocks,  etc. do not mean anything and we should ignore them.

I recently across an interesting article in The Wall Street Journal by Morgan Housel on the mistakes investors make. He discussed the following three mistakes made by investors:

  1. Incorrectly predicting your future emotions.
  2. Failing to realize how common volatility is.
  3. Trying to forecast what stocks will do next.

Click to enlarge

Timing the market chart

Source: Three Mistakes Investors Keep Making Again and Again, The Wall Street Journal, Sept 12, 2014

Other than factors beyond one’s control, it is fear and greed that determine individual investors’ returns.Studies have proven over and over again that mutual fund investors’ return is usually lesser than the fund returns. This is because a fund return is calculated for a specific period from start to end such as a 5-year period but an individual investor’s return is based on when they get in and when they get out.So during the same 5-year period of the fund return an investor can get in and out many times and that will usually have an adverse impact on their returns.

The S&P 500 plunged to below 700 during the global financial crisis of 2008-09. Since then the index has more than doubled and closed at 1,886 on Friday. Those who completely sold out their holdings in early 2009 and moved to cash missed out on the strong rally.

So the main point is keep one’s emotion in check at all times and not let deviate from long-term goals during extreme volatility in markets.

Five large-cap stocks from developed Europe that investors can consider holding for the long-term are listed below for consideration:

1.Company: Total SA (TOT)
Current Dividend Yield: 4.80%
Sector:Oil, Gas & Consumable Fuels
Country: France

2.Company: Anheuser-Busch InBev SA (BUD)
Current Dividend Yield: 1.88%
Sector: Beverages
Country: Belgium

3.Company: Novo Nordisk A/S (NVO)
Current Dividend Yield: 1.87%
Sector: Pharmaceuticals
Country: Denmark

4.Company:BASF SE (BASFY)
Current Dividend Yield: 3.24%
Sector: Chemicals
Country: Germany

5.Company: Novartis AG (NVS)
Current Dividend Yield: 2.05%
Sector: Pharmaceuticals
Country: Switzerland

 Note: Dividend yields noted above are as of Oct 17, 2014. Data is known to be accurate from sources used.Please use your own due diligence before making any investment decisions.

Disclosure: No Positions