Saturday, 25 May 2013

A Look at National Oilwell Varco


While surfing the internet, I stumbled onto National Oilwell Varco, aka No Other Vendor. Below is a description I pulled off the net:

National Oilwell Varco (NYSE: NOV) is the world's leading supplier of equipment to the oil and gas industry, and its name can be found on 90% of the offshore and land drilling rigs across the globe. NOV is a provider of equipment and components used in oil and natural gas drilling and production operations, oilfield services, and supply chain integration services to the upstream oil and gas industry. NOV's product portfolio is so extensive that it has been called a "one stop shop" for drilling contractors, and it conducts operations in over 800 locations across six continents.

As you’ll see below, the company has only paid dividends since 2009, and the current dividend yield is low.

A low dividend yield is a turn off for many investors. I don’t mind so much, as long as the dividend increases are large enough to compensate. To add income, I’ve been pondering selling covered calls on low yield stocks I own (e.g. CVS). If I were to purchase NOV, this is surely a strategy I would use.

Average Dividend Yield Analysis*

NOV
Year
High Price
Low Price
1Q
div.
2Q
div.
3Q
div.
4Q
div.
Special Dividend
Annual Dividend
High Yield
Low Yield
2003
$12.43
$8.75





$0.00
0.00%
0.00%
2004
$18.69
$10.83





$0.00
0.00%
0.00%
2005
$34.17
$16.54





$0.00
0.00%
0.00%
2006
$38.80
$25.81





$0.00
0.00%
0.00%
2007
$82.00
$26.88





$0.00
0.00%
0.00%
2008
$92.70
$17.60





$0.00
0.00%
0.00%
2009
$50.17
$22.19



$0.10
$1.00
$0.10
0.45%
0.20%
2010
$67.72
$32.18
$0.10
$0.10
$0.10
$0.11

$0.41
1.27%
0.61%
2011
$86.71
$47.97
$0.11
$0.11
$0.11
$0.12

$0.45
0.94%
0.52%
2012
$89.95
$59.07
$0.12
$0.12
$0.12
$0.13

$0.49
0.83%
0.54%
2013


$0.13
$0.26
$0.26
$0.26

$0.91


2014


$0.26
$0.26
$0.26
$0.26

$1.04


Stock prices are per calendar year.
10y ave
---
---
Dividends are recorded in the quarter they were paid.
4y ave
0.87%
0.47%








3y ave
1.01%
0.56%








5y
$119.12
$222.64








3y
$102.57
$186.92







Super Cheap
$81.63


The table shows the 3 year average dividend yield to be 1.01% ((1.27% + 0.94% + 0.83%)/3). I use the numbers in the “High Yield” column for obvious reasons.

Using the current annual dividend of $1.04, one would have to pay $102.57 for a 1.01% dividend yield.

Buying the stock at its low in 2010 would have earned you an initial yield of 1.27%. Using the current annual dividend, that corresponds to a stock price of $81.63 today (see “super cheap” price in the table above).

Note: The average dividend yield analysis is positively skewed due to NOV doubling its dividend on May 20th, 2013.

Graham Price

NOV’s 2010, 2011 and 2012 EPS were $3.89, $4.70 and $5.83. 3Y Ave EPS = $4.81.
NOV’s BV is $48.10.
Graham Price = SQRT (3Y Ave EPS * BV * 22.5) = $72.12

Cyclically Adjusted Price to Earnings Ratio

NOV’s 10Y Ave EPS = $3.05
CAPE = Stock Price / 10Y Ave EPS = $69.98 / $3.05 = 22.9
A CAPE below 20 is good.

Conclusion

NOV is attractively priced with respect to average dividend yield and Graham price.

NOV increased EPS from $0.45 in 2003 to $5.83 in 2012. That’s an increase of 13 times over 9 years. 2013 and 2014 EPS are estimated at $5.82 and $7.32, respectively.


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

Saturday, 18 May 2013

A Look at Baxter International


I recently purchased 75 shares of Baxter International @ $71.03. Here’s how the numbers stack up.

Average Dividend Yield Analysis*

BAX:US
Year
High Price
Low Price
1Q
div.
2Q
div.
3Q
div.
4Q
div.
Annual Dividend
High Yield
Low Yield
2003
$31.32
$18.18




$0.582
3.20%
1.86%
2004
$34.84
$27.10




$0.582
2.15%
1.67%
2005
$41.07
$33.08




$0.582
1.76%
1.42%
2006
$48.54
$35.12




$0.582
1.66%
1.20%
2007
$61.09
$46.07
$0.582
$0.168
$0.168
$0.168
$1.09
2.36%
1.78%
2008
$71.53
$47.41
$0.218
$0.218
$0.218
$0.218
$0.87
1.84%
1.22%
2009
$60.99
$45.46
$0.26
$0.26
$0.26
$0.26
$1.04
2.29%
1.71%
2010
$61.88
$40.25
$0.29
$0.29
$0.29
$0.29
$1.16
2.88%
1.87%
2011
$62.50
$47.55
$0.31
$0.31
$0.31
$0.31
$1.24
2.61%
1.98%
2012
$68.91
$48.98
$0.335
$0.335
$0.335
$0.45
$1.46
2.97%
2.11%
2013


$0.45
$0.45
$0.49
$0.49
$1.88


2014


$0.49
$0.49
$0.49
$0.49
$1.96


Stock prices are per calendar year.

10y ave
2.37%
1.68%
Dividends are recorded in the quarter they were paid.

5y ave
2.52%
1.78%







3y ave
2.82%
1.99%







5y
$77.86
$110.18







3y
$69.50
$98.49






Super Cheap
$61.22


The table shows the 3 year average dividend yield to be 2.82% ((2.88% + 2.61% + 2.97%)/3). I use the numbers in the “High Yield” column for obvious reasons.

Using the current annual dividend of $1.96, one would have to pay $69.50 for a 2.82% dividend yield.

Buying the stock at its low in 2003 would have earned you an initial yield of 3.20%. Using the current annual dividend, that corresponds to a stock price of $61.21 today (see “super cheap” price in the table above).

Graham Price

BAX’s 2010, 2011 and 2012 EPS were $2.39, $3.88 and $4.18. 3Y Ave EPS = $3.48.
BAX’s BV is $12.83.
Graham Price = SQRT (3Y Ave EPS * BV * 22.5) = $31.71

Cyclically Adjusted Price to Earnings Ratio

BAX’s 10Y Ave EPS = $2.56
CAPE = Stock Price / 10Y Ave EPS = $92.30 / $3.95 = 28.5
A CAPE below 20 is good.

Conclusion

I made my decision to buy BAX based on the 5 and 3 year average dividend yield numbers.  However, Graham Price and CAPE indicate the stock is not a bargain.

BAX increased EPS from $1.53 in 2003 to $4.18 in 2012. That’s an increase of 2.7 times over 9 years. 2013 and 2014 EPS are estimated at $4.70 and $5.20, respectively.

You can also read Compounding Income's recent purchase of BAX.


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