Earnings Season Part 1 - Stable to High-Yield Dividend Stocks

I know all the talk last week was about the GameStop and AMC frenzy, but there were a lot of important earnings reports released

Hello Everyone,

I hope you all are having a great weekend. Last week we officially launched into Earnings Season, but much of the discussion throughout the week was on “The Short Squeeze” to remember with GameStop (GME) and AMC Theaters (AMC) being two of the primary focal points.

Both stocks were heavily shorted by various Hedge Funds and the WallStreetBets community on Reddit took note and put together a plan to take down those Hedge Funds by buying up these heavily shorted stocks.

🎮 Here is how crazy the GameStop frenzy has been.

1/4/21 Opening Trade: $17.35

1/29/21 Closing Trade: $325.00

YTD Gain: +1,773%

Pretty incredible to watch the madness and how the Reddit community folks came together. I had people texting me and messaging me on social media about these stocks, some people I know that have NEVER invested, that is how crazy it got.

It is great for people that made money, but in no way shape or form should GameStop, a brick and mortar video game store, be trading at these valuations. It has been a crazy ride, but if you made money, I would collect those winnings.

In this piece I will be covering stable dividend stocks and high-yield dividend stocks. In subsequent pieces I will cover Dividend Growth stocks and non-paying Dividend stocks as well.

Now , let’s look at some Earnings that were released this week.

💊 Johnson & Johnson

Symbol: JNJ

Stock Price: $163.07

Dividend Yield: 2.5%

$5K Invested would earn $124 per year in Dividends

Q4 Earnings Expectation: $1.82

Q4 Earnings Actual: $1.86 (BEAT by 4 cents)

Q4 Revenue Expectation: $21.67 Billion

Q4 Revenue Actual: $22.48 Billion (BEAT by $0.81 Billion)

JNJ had a solid Q4, led by their largest segment, Pharmaceuticals, which saw $12.26 billion in sales, an increase of 16% YOY. The company’s second largest segment, Medical Devices, generated $6.58 billion in sales, a 0.7% decrease YOY. Lastly, their consumer segment, generated $2.6 billion in sales, which was an increase of 1.4%.

In addition to solid earnings, the company completed a successful trial of their COVID-19 vaccine in which JNJ is expected to file for emergency use this coming week. The United States plans to order 100 million doses of the JNJ vaccine, which was found to be 66% effective in preventing moderate to severe COVID. The percentage is lower than that of Pfizer (95% effective) and Moderna (94%) effective, but as the company board member put it, “the disease we are fighting today is much different than it was when those others were going through trials.” In addition, JNJ performed their trial amongst three continents, in which the US, the vaccine was 72% effective.

JNJ continues to evolve over the years and is an all around stable investment. Let’s look at some current valuation metrics.

P/E 20.3x

Fwd P/E 17.2x

5-Yr Avg P/E 17.0x

P/S 5.3x

Fwd P/S 4.8x

5-Yr Avg P/S 4.5x

P/FCF 21.8x

5-Yr Avg P/FCF 17.3x

🚁 Lockheed Martin

Symbol: LMT

Stock Price: $321.75

Dividend Yield: 3.2%

$5K Invested would earn $162 per year in Dividends

Q4 Earnings Expectation: $6.40

Q4 Earnings Actual: $6.38 (MISS by 2 cents)

Q4 Revenue Expectation: $16.95 Billion

Q4 Revenue Actual: $17.03 Billion (BEAT by $0.08 Billion)

Lockheed had a decent year given the circumstances of COVID-19. Revenues increased 7% in Q4 and 9% in all of 2020. On the year, the company’s largest segment, Aeronautics, increased 11% on $26.3 Billion in sales.

The company recorded over $68 billion in orders during the year, which grew the backlog by $3 billion, to $147 billion. In December alone, the company closed $4.8 billion in orders. The company remains a cash flow king, recording $6.4 Billion in Free Cash Flow, which was an increase of 10%. The increased FCF led to an 8% dividend increase during the year.

P/E 12.9x

Fwd P/E 12.3x

5-Yr Avg P/E 18.5x

P/S 1.4x

Fwd P/S 1.3x

5-Yr Avg P/S 1.7x

P/FCF 14.1x

5-Yr Avg P/FCF 22.5x

🚀 Raytheon Technologies

Symbol: RTX

Stock Price: $66.74

Dividend Yield: 2.9%

$5K Invested would earn $142 per year in Dividends

Q4 Earnings Expectation: $0.69

Q4 Earnings Actual: $0.74 (BEAT by 5 cents)

Q4 Revenue Expectation: $16.24 Billion

Q4 Revenue Actual: $16.42 Billion (BEAT by $0.18 Billion)

Raytheon just finished its first year, after merging with United Technologies earlier in the year. RTX has been hampered by the slowdown in the commercial aerospace industry. It was a double whammy for Raytheon as the pandemic put a slowdown on aerospace as did the issues with the 737 MAX. The company’s commercial business was down more than 40% during Q4. Though commercial sales were down, military revenue held strong with the Pratt & Whitney segment seeing a boost of 18% during the quarter, which was related to F-135 engine sales.

The company’s guidance was underwhelming, but gave some insight into how management expects 2021 to play out. Q1 looks like the slowdown will continue, but they see things slowly ramping up as the year goes on. The 2021 outlook for sales is $64.4 billion, which would be a 14% boost from ‘20. Backlog at the end of the quarter was at $150.1 billion.

P/E 19.1x

Fwd P/E 18.8x

5-Yr Avg P/E 16.7x

P/S 1.4x

Verizon

Symbol: VZ

Stock Price: $54.75

Dividend Yield: 4.6%

$5K Invested would earn $229 per year in Dividends

Q4 Earnings Expectation: $1.17

Q4 Earnings Actual: $1.21 (BEAT by 4 cents)

Q4 Revenue Expectation: $34.5 Billion

Q4 Revenue Actual: $34.7 Billion (BEAT by $0.23 Billion)

Verizon has been in the middle of the 5G rollout, and while that has been positive, they are seeing strong growth from the likes of T-Mobile (TMUS). The company recently reported Q4 earnings, which saw adjusted EPS increase 7% and revenues remain flat year over year. For the full year, revenues dipped 2.7%, but cash flows saw an increase of 16.8%, which is beautiful to see as a dividend investor.

Paying phone subscribers of was lower than expected. To be honest, considering the addition of the new iPhone and 5G, I was expecting a little more from these guys and didin’t get. Cash flow was great.

I currently have a position in AT&T, like the yield, but not overly excited about AT&T or Verizon at the moment.

P/E 11.2x

Fwd P/E 11.0x

5-Yr Avg P/E 13.1x

P/S 1.8x

P/FCF 9.6x

AT&T

Symbol: T

Stock Price: $28.63

Dividend Yield: 7.3%

$5K Invested would earn $363 per year in Dividends

Q4 Earnings Expectation: $0.74

Q4 Earnings Actual: $0.75 (BEAT by 1 cent)

Q4 Revenue Expectation: $44.5 Billion

Q4 Revenue Actual: $45.7 Billion (BEAT by $1.21 Billion)

We just spoke about revial Verizon, so let’s discuss another wireless giant in AT&T. The company has really gone nowhere since the end of March, trading at nearly the same price point. As an investor, that is a little concerning.

5G continues to rollout and will be a tailwind, but weighing the company down is the company’s $153.8 billion in debt. There have been discussions of the company selling DirecTv, which they are bound to lose billions on the deal, but it will also help them lower the mountain of debt.

On a positive note, the company continues to maintain strong levels of Free Cash Flow, recording $27.5 billion of FCF during the year, which equates to a dividend payout ratio of 55%. Another positive outlier in the earnings release was the growth in HBO Max, the company’s streaming service. HBO Max activations doubled since the conclusion of Q3 and now have nearly 61 million subs worldwide. The company made big news during the quarter when they announced that their 2021 film slate would forego traditional theater releases and move directly to HBO Max. This made some in the film industry very upset, and we will have to see how that plays out moving forward. All in all, the company needs to lower debt, but for the time being the high-yield dividend remains stable.

P/E 9.0x

Fwd P/E 8.9x

5-Yr Avg P/E 12.4x

P/S 1.2x

P/FCF 7.5x

Altria

Symbol: MO

Stock Price: $41.08

Dividend Yield: 8.4%

$5K Invested would earn $419 per year in Dividends

Q4 Earnings Expectation: $1.02

Q4 Earnings Actual: $0.99 (MISS by 3 cents)

Q4 Revenue Expectation: $5.1 Billion

Q4 Revenue Actual: $5.1 Billion (BEAT by $0.04 Billion)

Let’s wrap up Part 1 with the highest yield stock discussed, Altria. Altria is the US leader in tobacco and cigarette products, and you may be thinking to yourself, well that is a dying sector. If you thought that, you are certainly right.

However, offering a premiere product, one that is as addictive as nicotine, Altria has pricing power over its customers. Over the years, cigarette volumes have continued to decline. This is not new to management, which is why they have gone out and diversified their portfolio. Altria is in the marijuana space, the e-cigarette space, the liquor space, and much more. In terms of timing an valuation, the company has not been very successful thus far, but that was under a prior leadership team.

The company reported numbers that were largely in-line with expectations during the quarter. One announcement the company did make in the earnings release was the fact that the board authorized a $2 billion share repurchase program that is expected to be completed by June 2022.

In December, the FDA approved the IQOS 3 device to be sold in the US, which could provide a boost starting in Q1 ‘21. The company’s IQOS rollout continues to take shape and should be a positive given the sample size we have seen thus far.

P/E 9.4x

Fwd P/E 9.0x

5-Yr Avg P/E 15.1x

P/S 2.9x

P/FCF 9.4x

Summary

We took a look at some high-profile dividend stock earnings from last week, and I have a position in all mentioned except Verizon. I do believe the company has been run much better when compared to AT&T, but in all honest T-Mobile is the name to watch.

In terms of valuation, I believe Lockheed offers a lot of upside potential at current levels. MO and T are going to be high-yield plays, but you cannot expect a lot of growth from them whereas LMT could offer share price growth as well as dividend growth.

The next article piece I will drop will focus on some non-dividend paying growth stocks.

Please send me a message on Twitter as I would love to hear what you think of the Earnings write-ups. If there are any particular stocks you would like me to look into, please let me know and I will do my best.

Have a great week!

Mark

Disclaimer: This newsletter is intended for informational purposes only and any opinions are my alone and not to be used to make investment decisions.