Thursday, 31 January 2013

A Look at Lockheed Martin


Lockheed Martin’s shares have tumbled about 10% over the past week.

Although I’m a little weary when it comes to companies reliant to a large extent on government spending, LMT’s stock price and yield are attractive.

I suspect that western governments will continue to invest and spend on defense so as to remain military superpowers.  

Average Dividend Yield Analysis*

LMT-N
Year
High Price
Low Price
1Q
div.
2Q
div.
3Q
div.
4Q
div.
Annual Dividend
High Yield
Low Yield
2002
$71.52
$45.85
$0.11
$0.11
$0.11
$0.12
$0.45
0.98%
0.63%
2003
$58.95
$40.64
$0.12
$0.12
$0.12
$0.22
$0.58
1.43%
0.98%
2004
$61.77
$43.61
$0.22
$0.22
$0.22
$0.25
$0.91
2.09%
1.47%
2005
$65.46
$52.54
$0.25
$0.25
$0.25
$0.30
$1.05
2.00%
1.60%
2006
$93.24
$62.52
$0.30
$0.30
$0.30
$0.35
$1.25
2.00%
1.34%
2007
$113.74
$88.86
$0.35
$0.35
$0.35
$0.42
$1.47
1.65%
1.29%
2008
$120.30
$67.38
$0.42
$0.42
$0.42
$0.57
$1.83
2.72%
1.52%
2009
$87.06
$57.41
$0.57
$0.57
$0.57
$0.63
$2.34
4.08%
2.69%
2010
$87.19
$67.68
$0.63
$0.63
$0.63
$0.75
$2.64
3.90%
3.03%
2011
$82.43
$66.36
$0.75
$0.75
$0.75
$1.00
$3.25
4.90%
3.94%
2012
$95.92
$79.05
$1.00
$1.00
$1.00
$1.15
$4.15
5.25%
4.33%
2013


$1.15
$1.15
$1.15
$1.15
$4.60


Stock prices and dividends are per calendar year.
11y ave
2.82%
2.08%
Dividends are recorded in the quarter they were paid.
5y ave
4.17%
1.97%







3y ave
4.68%
2.41%







5y
$110.36
$233.03







3y
$98.23
$190.69






Super Cheap
$87.62


The table shows the 3 year average dividend yield to be 4.68% ((3.90% + 4.90% + 5.25%)/3). I use the numbers in the “High Yield” column for obvious reasons.

Using the current annual dividend of $4.60, one would have to pay $98.23 for a 4.68% yield.

Buying the stock at its low in 2012 would have earned you an initial yield of 5.25%. Using the current annual dividend, that corresponds to a stock price of $87.62 today (see “super cheap” price in the table above).

Graham Price

LMT’s 2010, 2011 and 2012 EPS were $7.18, $7.85 and $8.36. 3Y Ave EPS = $7.80.
LMT’s BV is $7.55.
Graham Price = SQRT (3Y Ave EPS * BV * 22.5) = $36.39

Cyclically Adjusted Price to Earnings Ratio

LMT’s 10Y Ave EPS = $6.12
CAPE = Stock Price / 10Y Ave EPS = $89.79 / $4.08 = 14.2
A CAPE below 20 is good.

Conclusion

LMT increased EPS from $1.18 in 2002 to $8.36 in 2012. That’s an increase of 7.08 times over 11 years. Pretty dam good, although I don’t think EPS will increase as fast over the next decade.

Based Average Dividend Yield and CAPE, LMT appears undervalued. I’m seriously considering buying 50 shares if it hits $85.


*My method is not perfect as the stocks low price may have occurred before the annual dividend increase.



Saturday, 26 January 2013

A Look at United Technologies


In 2012/2013, I added a fair bit of Industrials to my portfolio, which, at the time, was over weight consumer staples. For the right price, I would very much like to buy some UTX. There was an opportunity in November 2012 when it dipped below $75, but it just didn’t go low enough.

Average Dividend Yield Analysis*

UTX-N
Year
High Price
Low Price
1Q
div.
2Q
div.
3Q
div.
4Q
div.
Annual Dividend
High Yield
Low Yield
2000
$39.88
$23.25
$0.10
$0.10
$0.10
$0.11
$0.41
1.76%
1.03%
2001
$43.75
$20.05
$0.11
$0.11
$0.11
$0.11
$0.44
2.19%
1.01%
2002
$38.88
$24.42
$0.12
$0.12
$0.12
$0.12
$0.48
1.97%
1.23%
2003
$48.38
$26.76
$0.12
$0.14
$0.14
$0.18
$0.58
2.17%
1.20%
2004
$53.14
$40.34
$0.18
$0.18
$0.18
$0.18
$0.72
1.78%
1.35%
2005
$58.89
$48.43
$0.22
$0.22
$0.22
$0.22
$0.88
1.82%
1.49%
2006
$67.47
$54.20
$0.22
$0.27
$0.27
$0.27
$1.03
1.90%
1.53%
2007
$82.50
$61.85
$0.27
$0.27
$0.32
$0.32
$1.18
1.91%
1.43%
2008
$77.14
$41.76
$0.32
$0.32
$0.32
$0.385
$1.35
3.22%
1.74%
2009
$70.89
$37.40
$0.385
$0.385
$0.385
$0.385
$1.54
4.12%
2.17%
2010
$79.70
$62.88
$0.425
$0.425
$0.425
$0.425
$1.70
2.70%
2.13%
2011
$91.83
$66.87
$0.425
$0.48
$0.48
$0.48
$1.87
2.79%
2.03%
2012
$87.50
$70.71
$0.48
$0.48
$0.535
$0.535
$2.03
2.87%
2.32%
2013


$0.535
$0.535
$0.535
$0.535
$2.14


Stock prices and dividends are per calendar year.
13y ave
2.40%
1.59%
Dividends are recorded in the quarter they were paid.
5y ave
3.14%
2.08%







3y ave
2.79%
2.16%







5y
$68.14
$102.89







3y
$76.76
$99.01






Super Cheap
$51.97


The table shows the 3 year average dividend yield to be 2.79% ((2.70% + 2.79% + 2.87%)/3). I use the numbers in the “High Yield” column for obvious reasons.

Using the current annual dividend of $2.14, one would have to pay $76.76 for a 2.79% yield.

Buying the stock at its low in 2009 would have earned you an initial yield of 4.12%. Using the current annual dividend, that corresponds to a stock price of $51.97 today (see “super cheap” price in the table above).

Graham Price

UTX’s 2010, 2011 and 2012 EPS were $4.74, $5.49 and $5.35. 3Y Ave EPS = $5.19.
UTX’s BV is $28.82.
Graham Price = SQRT (3Y Ave EPS * BV * 22.5) = $58.03

Cyclically Adjusted Price to Earnings Ratio

UTX’s 10Y Ave EPS = $4.08
CAPE = Stock Price / 10Y Ave EPS = $89.79 / $4.08 = 22
A CAPE below 20 is good.

Conclusion

UTX increased EPS from $1.92 in 2001 to $5.35 in 2012. That’s an increase of 2.78 times over 11 years. Not stellar, but not bad either.

Based on my three metrics, the stock price of UTX is just too expensive.


*My method is not perfect as the stocks low price may have occurred before the annual dividend increase.