Thoughts on a Dividend Provider: Dominion Energy

Poor free cash flow generation leads to a pass
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Dominion Energy (ticker D), a $50.7 billion Virginia-based energy producer and transporter, is set to report its third-quarter results on October 30, Monday. So far this year, Dominion Energy has underperformed the broader S&P 500 index has generated 6.14% total returns vs. the index’s 16.07%.

Nonetheless, the company has a trailing 3.75% dividend yield with 84% payout ratio in the recent 12 months. Take note, however, that Dominion also raised $850 million from share issuances, therefore, diluting its existing shareholders’ ownership as a result.

In its recent six months operations that ended in June, Dominion recorded 12.2% revenue growth from last year to $6.2 billion and 4.7% higher in profits to $1.02 billion. Meanwhile, total expenses rose by $415 million (or 10.8%) resulting to profit margin that was 119 basis point lower than its year-ago period.

Dominion also carried $260 million in cash and cash equivalents as of June ($117 million lower than a year earlier), and $37 billion in debt ($7.5 billion more) with debt-equity ratio of 2.5x compared with 2.07x a year earlier.

In the past three years, Dominion allocated $17 billion in capital expenditures, raised $11.6 billion in debt (net repayments), raised another $3.6 billion in share issuances, and accumulated a negative or a free cash outflow of -$4.96 billion.

Meanwhile, 18 analysts have an average OVERWEIGHT recommendation on Dominion Energy with a price target of $80.36 vs. $78.96 at the time of writing.

Brought by poor free cash flow generation in recent years, Dominion Energy is a pass.

Disclosure: I do not have shares in Dominion Energy.

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Why Filipinos Should Consider Selling PLDT, MERALCO, and Metro Pacific.

Former Philippine Ambassador to Greece and Cyprus, Roberto Tiglao, wrote a book for Filipinos to study and understand

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(President Rodrigo Roa Duterte and Roberto Tiglao, Image Source)

Published on January 19, 2017, Roberto Tiglao’s well in-depth eye-opening book, Colossal Deception, is now available on Amazon.com.

The well-respected writer provided years of his extensive research discussing the history and occurrences that resulted in the now illegal foreign ownership of the Philippines’ largest public utility companies: 360 billion Php telecommunications company-PLDT (TEL); 321 billion Php electricity distributor-MERALCO (MER); 217 billion Php diversified company-Metro Pacific Investments (MPI), among other companies by an Indonesian billionaire and former Suharto crony Anthoni Salim.

Thinking of all the relevant risks that could ensue when the politically-willed and nothing but the truth, strong man Philippine President Rodrigo Roa Duterte finally takes action against this treachery aided by no other than Manuel V. Pangilinan (Philippines’ 50th richest), I thought hard and began selling my shares a few days later.

Treachery may be a softer word, but any action willfully performed to violate the Philippine Constitution to enrich one man and his few selected goons pockets is and should certainly be punishable by law.

Brought by this realization and countless risks, I no longer see myself supporting these kinds of companies, and have sold all my MER and TEL shares effective 10/18/2017. I am also considering selling my recently purchased Pepsi Philippines (PIP) shares because of its foreign ownership structure along with my investments in Globe (GLO).

The Duterte administration a.k.a. the Philippine government must begin investigating no other than the country’s Securities and Exchange Commission that is led by chairwoman Teresita J. Herbosa for possible collusion that allowed dummy corporation/s (especially PLDT) skirt the Constitution back in 2013 followed by the chief executives of these ill-serving corporations.

After sinking the government’s teeth and tearing the rich and corrupt apart, such that of Mighty King’s 45 billion Php settlement, Roberto Ongpin’s 2 billion Php exit from Philweb (WEB)Lucio Tan’s 10-day deadline response to a 6 billion Php settlement (PAL) among others, no one or group of big fishes are certainly above the law in the country.

To sum it up, NATIONALIZATION would be one of the critical words that could send share prices of these foreign-controlled utility companies spiraling down.

I personally do not see how the administration sees it fit to strike hard with the Philippine Stock Index at all-time highs, but one thing is for sure, the government already knows about these committed shenanigans.

One must remember that “Bulls Make Money, Bears Make Money, Pigs Get Slaughtered.” 

*An earlier unedited post indicated I sold my shares effective 10/18/2019. 2019 was updated to 2017.

Good Buy After A Price Drop: JD.COM

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Strong sales growth indicates undervaluation, conservative investors should wait for pullback

Stock: JD.com Inc (JD.OQ) 

JD.com, a $55 billion Beijing-based e-commerce company, was recently featured by Barron’s whereby it was projected that shares could gain 30% or more in the next year.

JD.com has performed outstandingly so far this year having generated 52.2% total return vs. the S&P 500 index’s 15.9%.
Having generated profits only in its past quarter in the last ten, JD does not have any trailing PE ratio. Meanwhile, the company has a 1.2x PS ratio (vs. 6.6x peer), and 7.2x PB ratio (vs. 6x peer).
In the recent half, JD.com delivered 42% year over year revenue growth to ¥169.4 billion (Chinese Yuan Renminbi) and losses of ¥257 million vs. ¥1.16 billion a year earlier.
Richard Liu, Chairman, and CEO of JD.com (JD)
“JD’s growing strength as China’s largest retailer continues to position us to capture new and expanding market opportunities.
“As we broaden our range of offerings, including a rapidly growing roster of top international brands, our customer base continues to expand, with female shoppers becoming an increasingly active user base. Looking forward, as JD’s smart technologies and big data help us revolutionize the online shopping experience, our ‘retail as a service’ initiative will further extend the capabilities of our platform to partners throughout China.”
As of June, JD had ¥27.9 billion and ¥29.7 billion in debt (+¥6.4 billion) with debt-equity ratio 0.59x (vs. 0.59x a year earlier). The company’s equity rose ¥11.2 billion year over year to ¥50.4 billion.
JD, in the past three years, allocated ¥12.7 billion in capital expenditures, raised ¥158 million in share issuances, ¥62.4 billion in debt and other financing activities (net repayments), and have generated an accumulated deficit of -¥4.7 billion in free cash outflows.
Meanwhile, 40 analysts have an average recommend of buy with price target of $50.21 (29.4% higher than $38.79 at the time of writing). Using historical revenue growth and PS averages and a 10% margin indicated a per share figure $50.
Disclosure: I do not have shares in JD.com

East and West Japan Railway Comparison

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East generates more business than West Railway

Stock: West Japan Railway Co. 9021 (Japan: Tokyo); East Japan Railway Co. 9020 (Japan: Tokyo)

So far this year, West Japan has outperformed its peer having provided 6.11% percentage points more in total returns to shareholders.

Both railways trace their origins from April 1, 1987, during the privatization of the Japanese National Railways.

In the recent quarter of operations, West outperformed east in terms of year over year revenue growth having generated 26% (vs. 3-year ave. 2.69%) to ¥352.5 billion compared to East’s 4.3% (vs. 3-year ave. 2.15%) to ¥711.9 billion.

Meanwhile, profit margins for both railways were better than its prior year operations with 9.9% for West and 12.1% for East Railway (vs. 3-year margin averages of 5.73% and 8.25%, respectively).

As of June, West increased its cash by ¥8 billion to ¥41.5 billion while East’s rose by ¥279 million to ¥59.8 billion. On the other hand, debt increased in the West by ¥68.3 billion to ¥958 billion and ¥42.4 billion in the East to ¥2.9 trillion.

In addition, West’s equity rose by ¥71.8 billion to ¥962 billion while East’s increased by ¥238.2 billion to ¥2.7 trillion. Both railways, nonetheless, appeared to be similarly leveraged with 1x and 1.06x debt-equity ratios, respectively.

In the past three years, West’s dividend payouts represented just 10.5% of its accumulative free cash flow vs. East’s 61.4%. West also raised ¥90.2 billion in debt and other financing activities compared to East’s net debt reduction of ¥113.6 billion.

Solving for the corresponding conservative per share figures using historical PS multiples, revenue growth, and 15% margin indicated a figure of ¥6,494 (-17% lower than today’s price of ¥7,831) for West and  ¥9,296 (-11% lower than today’s price of  ¥10,485) for East Railway.

In summary, both railway companies have a leveraged balance sheet, steady revenue growth, but it does seem that East generates more business overall and has provided more payouts to shareholders in recent years. West, nonetheless, has outshined East in the recent quarter albeit it still has yet to be a net debt payer in the recent quarter compared to its peer.

All these reasons could probably explain why East Japan is valued ¥2.51 trillion more than its western counterpart.

Disclosure: I do not have shares in any of the companies mentioned.

Take Some Profits: PTT PCL (Thailand)

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Thailand oil and gas company has provided handsome returns in the past year

Stock: PTT PCL (PTT:TB) 

PTT, a ฿1.2 trillion (Thai baht; $35.91 billion USD) Thailand oil & gas integrated company, has an attractive 4.3% dividend yield with 18% payout ratio.

PTT is 51%-owned Thailand Finance Ministry.

In PTT’s recent six months of operations that ended in June, PTT reported an impressive 22% revenue increase compared to its year prior operations to ฿988.6 billion and 58% rise in profits to ฿76.7 billion.

PTT recorded much higher other income (+฿12.7 billion year over year) and gains in foreign exchange (+฿5.72 billion) leading to much better overall profitability for the company.

As of June, PTT had ฿214.5 billion in cash and cash equivalents (+฿15.7 billion higher than a year earlier), and ฿583 billion in debt (-฿1.22 trillion lower than a year ago) having led to a debt-equity ratio of 0.73x vs. 0.87x a year earlier.

Overall equity also increased by ฿65.4 billion to ฿795.4 billion.

In the past three years, PTT allocated ฿400 billion in capital expenditures, raised ฿40.6 billion in share issuances, reduced overall debt (net issuances) by ฿230.3 billion, and provided ฿137.6 billion in dividends and repurchases representing 34% of its ฿400 billion in free cash flow.

Applying a conservative flat revenue growth multiplied with its recent PS multiple averages indicated a per share figure of ฿240.73 vs. ฿420 at the time of writing.

Having returned 27.32% this past year, investors should probably consider reducing their exposure to PTT (if any). Despite an attractive yield and low payout ratio, the company’s shares are a pass right now.

Disclosure: I do not have shares of any of the companies mentioned.

Tatneft Has a Solid Dividend Yield

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Despite low payout ratio, company shares now trades at premium

Stock: Tatneft’ PAO (ADR)(OTCMKTS:OAOFY)

Tatneft, a ₽970.4 billion (Russian Ruble; $16.7 billion USD) Russian integrated oil and gas company, has an appealing 5.4% dividend yield accompanied with a 22% payout ratio.

Although already considered to be high of yield there is still room for Tatneft to even raise this payout since the company pursues a progressive dividend policy distributing at least 30% of the net profit based on RAS (Russian Accounting Standards) as dividend payments, according to filings.

In its recent six months operations, the 67-year-old oil and gas company reported 19% revenue increase compared to its year-ago period to ₽318.7 billion and a more impressive 27% profit rise to ₽61.74 billion.

In particular, Tatnefts biggest business generator—exploration and production (60% of total unadjusted revenue) rose 28.6% year over year while the oil and gas company’s relatively new banking business (5% this first half vs. nil last year) recorded segment earnings margin of 7.4%.

The 35.93% owned Republic of Tatarstan-owned Tatneft also had ₽77.1 billion in cash and cash equivalents (+₽37.4 billion from year ago period) and ₽40.9 billion in debt (+₽26.3 billion from last year) with debt-equity ratio 0.06 times vs. 0.02 times a year earlier.

Further, overall equity rose by ₽69.15 billion to ₽713.3 billion.

Meanwhile, Tatneft has been quite very prudent in terms of its cash flow allocation in recent years. From 2014-2016, the company allocated ₽251 billion in capital expenditures, reduced its debt by ₽58.5 billion, raised ₽211 million in share issuances, and provided ₽74.7 billion in share repurchases and dividends representing 45% of its ₽167.3 billion free cash flow in the period.

Analysts have an average overweight recommendation on Tatneft having a price target of $43.14 a share vs. $43.39 at the time of writing. Applying historical revenue growth, PS averages and a 15% margin indicated a per share figure that is 25% lower than the current at $32.68 a share.

Having provided a wonderful 48.6% total return in the past year alone and despite the attractive yield and low payout ratio, Tatneft is a pass.

DisclosureI do not have shares in any of the companies mentioned.

Assessing Webster Financial’s Recent Operations

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Riding Webster Financial’s preferred shares may serve too late

Stock: Webster Financial Corporation(NYSE:WBS)

Webster Financial Corporation, a $4.9 billion Connecticut-based bank holding company and financial holding company, has a 22x P/E ratio (vs. industry 19x) and a dividend yield of 1.9% (vs. industry 1.8%).

Although lacking any appealing even just at par with the Vanguard S&P 500 ETF’s (ticker VOO) 1.94%, Webster’s preferred E-shares (ticker WBS-E) has an attractive 6.4% albeit non-cumulative at a liquidation value of $25 per piece vs. $25.22 a share at the time of writing.

With one payout, December 15, 2017, remaining on the preferred’s clause before possible be repurchased back by Webster by year-end, a mere 0.40 cents or 1.6% yield per preferred share may not be a prudent investment when accompanied by a -0.87% return upon liquidation netting a possible 0.72% return.

Nonetheless, Webster delivered 10% increase in its interest income (3year average: 7.66%) to $446.5 million and 25.2% profit rise (3year average: 4.88%) to $116.8 million in its recent first half of operations.

James C. Smith, chairman and chief executive officer

“Webster again reported solid business and financial performance, with record levels of net interest income and pre-provision net revenue resulting in record net income and earnings per share growth of over 20 percent from a year ago.

“Our investments in strategic growth initiatives are producing positive results for shareholders as Webster bankers excel in service to our customers and communities.”

Company metrics (some; 3)

1 Net interest margin (NIM)

In the first half, Webster registered 3.25% in its NIM vs. 3.10% a year earlier.

2 CET1 risk-based capital

10.84% as of June compared to 10.50% compared to the same period last year.

3 Return on average tangible common shareholders’ equity (annualized basis) (non-GAAP)

Figures were 12.56% vs. 10.94% last year.

Meanwhile, Webster’s cash also increased by $6.84 million year over year to $231.8 million as of June.

In the past three years, Webster allocated $107 million in capital expenditures, raised $801 million in long-term debt (net repayments and other financing activities), allocated $303 million in repurchases and dividends have represented about 35% of the bank’s free cash flow.

Analysts have an average hold recommendation with a $52.80 target price vs. $53.01 at the time of writing. Having traded twice its book value vs. 3-year average of 1.7x and par dividend yield compared to the broader market, Webster common and preferreds are a pass.

DisclosureI do not have shares of any of the companies mentioned.