McDonald’s Raises Dividend by 11%
Posted by Eddy Elfenbein on September 23rd, 2010 at 10:10 am

I recently noted that McDonald’s (MCD) stock hit an all-time high. I wrote, “Forty years ago you could have picked up the shares for just 29 cents apiece. That’s adjusted for nine stock splits; four 2-for-1s and five 3-for-2s which equals 121.5-for-1. That’s a gain of close to 26,000% or nearly 15% per year, and it doesn’t include dividends.”

Well, dividends certainly mean something and McDonald’s just raised its quarterly dividend by 11% to 61 cents per share. The new dividend indicates a yield of 3.25% which is 75 bps more than a 10-year Treasury. If McDonald’s goes bankrupt, what’s the point of the government still being in business?

McDonald’s is on a roll. The company has increased sales for 88 straight months. If you bought the stock 20 years ago, it’s now yielding you close to 40%. I’m lovin’ it.

The Gold Bubble Bursts — 141 Years Ago
Posted by Eddy Elfenbein on September 23rd, 2010 at 9:52 am

Gold has been soaring higher and higher recently so I wanted to remind investors that tomorrow marks the 141st anniversary of Black Friday. That’s when Jay Gould and Jim Fisk tried to corner the gold market. And as the name Black Friday suggests, it didn’t end well.

At the beginning of the Grant administration, the U.S. government was selling off its surplus gold and using the proceeds to get the fiat “greenbacks” off the market. There wasn’t a whole lot of faith in the dollar and the government was trying to restore some confidence.

Fisk and Gould went into gold in a big way and tried to encourage officials in the Grant administration to let gold rise higher. George Boutwell, the SecTreas, saw what was going on and on Friday, September 24, 1869, he made his move. The Treasury dumped $4 million dollars worth of gold on the market. Almost immediately, the price of gold plunged from $160 to $130.

Trends Caused by the Great Recession
Posted by Eddy Elfenbein on September 23rd, 2010 at 9:05 am

LiveScience lists some changes caused by the Great Recession:

Shark attacks declined
Energy consumption declined
Fewer babies were born
Violent crime went down
Heavier women became more beautiful
Dead bodies piled up
Adulthood was delayed

Morning News: September 23, 2010
Posted by Eddy Elfenbein on September 23rd, 2010 at 8:38 am

The Fed, Translated Into English
Amid Tension, China Blocks Vital Exports to Japan
Central Banks Struggle for Exit as Recovery Weakens
Blockbuster to Slash Debt by $900 Million via Bankruptcy
Dollar Recoups Losses; Euro Pulls Back
Buyers Send iPhones on a Long Relay to China
Warren Buffett to CNBC: “We’re Still In a Recession”
Bill Gates Tops Forbes 400 Ranking of Richest Americans With $54 Billion
Here’s the Cookie Monster dressed as Issac Hayes singing the theme from Shaft and eating the set. Also, it’s in Dutch. After that, it gets a little strange.

Bed Bath & Beyond’s Earnings: I Freakin Called It
Posted by Eddy Elfenbein on September 22nd, 2010 at 4:16 pm

Me a week ago:

I wouldn’t be surprised to see BBBY smash earnings next week. The stock could even make as much as 70 cents per share (look at me being all bold).

Today’s earnings report:

Bed Bath & Beyond Inc. today reported net earnings of $.70 per diluted share ($181.8 million) in the fiscal second quarter ended August 28, 2010, an increase of approximately 35% versus net earnings of $.52 per diluted share ($135.5 million) in the same quarter a year ago.

That wasn’t a small beat either. Wall Street was expecting 63 cents per share.

Net sales for the fiscal second quarter of 2010 were approximately $2.137 billion, an increase of approximately 11.6% from net sales of approximately $1.915 billion reported in the fiscal second quarter of 2009. Comparable store sales in the fiscal second quarter of 2010 increased by approximately 7.4%, compared with a decrease of approximately 0.6% in last year’s fiscal second quarter.
Also during the fiscal second quarter of 2010, the Company repurchased approximately $193 million of its common stock representing approximately 4.9 million shares.
For the fiscal first half ended August 28, 2010, the Company reported net earnings of $1.22 per diluted share ($319.3 million), an increase of approximately 42% over net earnings of $.86 per diluted share ($222.7 million) in the corresponding period a year ago. Net sales for the fiscal first half of 2010 were approximately $4.060 billion, an increase of approximately 12.5% from net sales of approximately $3.609 billion in the corresponding period a year ago. Comparable store sales for the fiscal first half of 2010 increased by approximately 7.9%, compared with a decrease of approximately 1.1% in last year’s fiscal first half.
For the fiscal third quarter of 2010, the Company is modeling net earnings per diluted share to be approximately $.61 to $.65. For fiscal 2010, the Company is now modeling net earnings per diluted share to increase by approximately 20%, up from the previous model of approximately 15%.

That last line is great news. BBBY made $2.30 per share last year so the company is effectively increasing its EPS projection from $2.64 to $2.76. The Street was at $2.71.
Here are the earnings results going back a few years:

Here’s a closer look at the critical factor, the rebound in BBBY’s margins.

For financial newbies, net margin is a fancy way of saying the “bottom line.” Operating margin is just like net margin but it doesn’t include interest expense or taxes. What’s interesting is that BBBY is able to charge more for its products while sales are still growing at a healthy pace. Net sales have grown by double-digits for the last four quarters in a row.
I said last week that I would be leery of starting a position over $40. I still feel that way but the new guidance makes me willing to go as high as $42. The shares are up after hours. If you’re looking to buy BBBY, don’t it chase it — wait for it to come to you.

CNBC Debuts!
Posted by Eddy Elfenbein on September 21st, 2010 at 10:14 am

From 1989:

The Trading Range is Finally Broken
Posted by Eddy Elfenbein on September 21st, 2010 at 10:05 am

We finally did it yesterday. The S&P 500 had closed between 1022.58 and 1127.79 for 86 straight days.

Thanks to a surge yesterday, the market not only broke though 1130 but finished at 1142.71.

I can’t tell if this bodes well for the market, but I do believe that the market continues to be underpriced, particularly the stock on our Buy List. AFLAC (AFL) broke through $53 per share. Reynolds American (RAI) is getting very close to $60 per share. (I thought dividend stocks were supposed to be boring!)

Although it’s not on the Buy List, I noticed that ConAgra (CAG) just upped its dividend by 15%. The quarterly dividend is now 23 cents per share which is up from 20 cents per share. The stock now yields 4.3% which is about 45 bips above the 30-year Treasury.

Morning News: September 21, 2010
Posted by Eddy Elfenbein on September 21st, 2010 at 9:31 am

Worst Over in Global Poll Pointing to Reduced Market Returns
Airline Profits Expected to Soar This Year
SAIC of China Weighs Buying Stake in G.M.
Irish, Spanish, Greek Auctions Calm Investor Nerves
H.P. Settles Lawsuit Against Hurd
President Obama Defends Actions on Economy
Corporate Political Giving Swings Toward the GOP
Generation Y Giving Cars a Pass

Charlie Munger at the University of Michigan
Posted by Eddy Elfenbein on September 20th, 2010 at 2:09 pm

Ever wonder why Warren and not Charlie is the public face of Berkshire?

Charles Munger, the billionaire vice chairman of Berkshire Hathaway Inc., defended the U.S. financial-company rescues of 2008 and told students that people in economic distress should “suck it in and cope.”
“You should thank God” for bank bailouts, Munger said in a discussion at the University of Michigan on Sept. 14, according to a video posted on the Internet. “Now, if you talk about bailouts for everybody else, there comes a place where if you just start bailing out all the individuals instead of telling them to adapt, the culture dies.”
Bank rescues allowed the U.S. to avoid what could have been an “awful” downturn and will help the country as it deals with the housing slump, Munger, 86, said. He used the example of post-World War I Germany to explain how the bailouts under Presidents George W. Bush and Barack Obama were “absolutely required to save your civilization.”
“Hit the economy with enough misery and enough disruption, destroy the currency, and God knows what happens,” Munger said. “So I think when you have troubles like that you shouldn’t be bitching about a little bailout. You should have been thinking it should have been bigger.”
Germany was unable to stabilize its financial system in the 1920s, and, Munger said, “We ended up with Adolf Hitler.”

Here’s the video.

AFLAC Upgrade
Posted by Eddy Elfenbein on September 20th, 2010 at 1:16 pm

Barron’s has Sandler O’Neil’s upgrade of AFLAC (AFL):

We are upgrading shares of Aflac to Buy from Hold and are increasing our price target to $63 from $54 following a recent analyst day in Tokyo.

We believe that sales of third-sector supplemental-type insurance products will continue to have growth in Japan given the country’s aging population, increasing out-of-pocket medical expenses for consumers, and a government cancer-awareness initiative.

Aflac’s sales through the bank channel will continue to increase over time, and Aflac has more bank distribution relationships than any of its competitors. The bank channel will account for an increasing proportion of Aflac’s sales.

Aflac’s new product sales appear to have continued their upward trajectory, although year-over-year comparisons will be challenging due to significant sales growth in second-half 2009. The child-endowment product will continue to have strong sales, and we expect cancer products will begin to reverse recent declines in sales.

The margins for the child endowment product are a little better than we had thought — management stated margins are about 5% and are similar to medical products.

We are adjusting our 2010 operating earnings-per-share estimate to $5.45 up from $5.44 to account for incremental strength in the Japan operations. We are also increasing our 2011 EPS estimate to $6.00 from $5.95 to account for stronger results in the Japan segment. Consensus EPS estimates are currently $5.46 and $5.99 for 2010 and 2011, respectively.

The stock broke $53 this morning.