Update Sysco (SYY)
On February 1 Sysco (SYY) reported earnings of 45 cents a share for the company’s fiscal second quarter. That was 3 cents a share above Wall Street projections. Revenue for the three months that ended in December 2009 was $8.87 billion, roughly matching analyst expectations for $8.83 billion.
The most encouraging news in my opinion came on operating margins.
Second-quarter revenue fell by 3.1% from the year-earlier period showing that the company and the economy aren’t yet out of the woods. But the company’s efforts to wring costs out of its distribution system paid off. Operating margin expanded by 0.6 percentage points in the quarter to 5.2%.
That matches the highest annual margin the company has recorded in any of the last 10 years. That bodes well for earnings and earnings growth as the U.S. economy picks up steam. Higher revenue at a higher operating margin would give an extra boost to earnings and the company’s continued cost-cutting should lead to gains in market share as it takes business from less efficient food service companies or buys them out right. Food service is still a very fragmented industry: Sysco is the biggest player by far at 15% market share. (The No. 2 company has a 10% share and the third largest just 3%.)
The company’s board of directors seems to have faith in that scenario. Sysco raised its quarterly dividend by a penny a share (a 4% increase) to 25 cents payable to shareholders of record on December 31, 2009. (I added these shares to the Dividend Income portfolio on December 8, 2009.)
At an annual rate of $1.00 a year, Sysco paid a yield of 3.52% as of February 18.
Update Verizon (VZ)
When Verizon (VZ) reported fourth quarter earnings on January 26, everything was in line. There were no real surprises. And that was disappointing to investors who were looking for signs that a rising economy was lifting margins in Verizon’s legacy landline business or who were hoping for some sign that Apple (AAPL) was going to strike a deal with Verizon to sell the iPhone.
Didn’t happen.
So investors are stuck with the same old story. Which fortunately is pretty good despite its lack of surprises.
Sell Suburban Propane (SPH)
I’ve got to sell something out of the Dividend Income portfolio today to make room for my buy of Telkom Indonesia. After Suburban Propane (SPH) announced a 34 cent a share earnings miss on February 4 the choice is pretty easy.
Revenues, which fell 17% from the December quarter of 2008, also missed analyst projections. By volume propane sales fell 9%. Some of that was due to warmer than average weather but the biggest part of the decline came in the non-residential sector where the slow economy ate into volumes.
Buy Telkom Indonesia (TLK)
Telkom Indonesia (TLK), or Telekomunikasi Indonesia, is a complicated machine with all the parts, I think, moving together in the right direction. Let me explain.
First, there’s the growth in Indonesia’s economy, which is forecast to show a 5.2% increase in GDP in 2010 after 4.3% growth in 2009.
When elephants fly–dividends from emerging market stocks
When emerging stock markets hand you lemons, make lemonade.
Specifically dividend-paying lemonade.
So far 2010 hasn’t exactly been kind to emerging market stocks. The ETF (exchange traded fund) that tracks the iShares MSCI Emerging Markets Index (EEM) was down 6.4% from the close on December 31 through the close on February 8.
Individual emerging markets did even worse. The iShares MSCI Brazil Index ETF (EWZ) was down 15.8% from December 31 to February 8. The iShares FTSE/Xinhua China 25 Index ETF (FXI) was down 12%. The iShares MSCI BRIC Index ETF BRIC) of stocks from Brazil, Russia, India, and China was down 13.4%.
So how do you make lemonade from these lemons? Especially when it’s not at all clear that these markets, which have tumbled on worries about a slowdown in China’s economic growth (for more on why I think that worry is overstated see my post http://jubakpicks.com/2010/01/28/the-rout-in-global-stocks-is-a-tempest-in-the-teapot-of-chinas-command-economy/ ) and on fears that the budget crisis in Greece would spread to the rest of the European Union, are done falling.
