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Dividend Stock Advisor

In the Heart of Earnings Season

By David Peltier | 04/23/15 - 03:11 PM EDT
Stocks in Focus: T, MO, GE, HP, LMT, SON, COP, KLAC, PFE, SO

We're in the heart of earnings season and this issue is packed with six reviews of quarterly reports from the model portfolio, in addition to four earnings previews of companies due to announce results in the next two weeks. We also had two dividend hikes in the model portfolio over the past two weeks.

According to S&P Capital IQ, the earnings season has been relatively strong so far. While overall earnings from S&P 500 companies are down 1.6% from the previous year, 74% have exceeded consensus analyst estimates. This is on par with the same time last year and better than the historical average of 66%. Growth has been driven by financial and health care names, while energy stocks have been a drag, as expected.

Earnings Reviews

AT&T (T:NYSE) announced mixed quarterly results on April 22. The company earned $0.63 per share in the first quarter, which matched expectations. Revenue increased fractionally from the previous year to $32.58 billion and came in just short of the consensus analyst estimate. A higher number of tablet users drove wireless subscriber numbers in the period and the churn number is improving. That said, price competition continues to weigh on average revenue per user.

On the conference call, AT&T management said that it continues to believe the DirecTV (DTV:Nasdaq) acquisition will close in the second quarter. AT&T boosted its cost synergy estimate 60%, to $2.5 billion annually, by the third year after the deal closes.

The stock bounced back nearly 5% over the past two weeks and recently changed hands around $34.00. We maintain that the stock is attractive to purchase at current levels, for the 5.5% dividend yield.

Altria (MO:NYSE) posted quarterly numbers on April 23 that exceeded the consensus analyst estimates. The company earned $0.42 per share in the first quarter, as revenue grew more than 6%, year over year, to $4.27 billion.

The upside was driven by market share gains for Marlboro cigarettes and Altria's smokeless tobacco brands in the period. The company had strong pricing in the quarter and said that demand benefited from lower gasoline prices. In addition, the company launched its next-generation e- vapor products in the quarter.

MO shares added fractionally to recent gains over the past two weeks and recently traded at around $52.60. We view the shares as attractive to hold at current levels, for the 3.9% dividend yield.

General Electric (GE:NYSE) announced mixed quarterly numbers on April 17. Excluding one-time items, the company earned $0.31 per share in the first quarter, which was a penny ahead of expectations. On the other hand, revenue fell 3%, year over year, to $33.1 billion, and fell short of the consensus analyst estimate. Higher orders and margins drove the earnings upside in the period.

GE's growth continued to be driven by its industrial segment, which delivered 3% organic revenue growth, despite almost $1 billion of currency headwinds. Despite lower energy prices, the company's operating profit in its oil & gas division advanced 11% in the quarter.

Earlier, on April 10, GE announced the sale of its real estate portfolio. The company will receive $26.5 billion from Blackstone (BX:NYSE), Wells Fargo (WFC) and other, non-disclosed buyers. Management also announced a new $50 billion (1.85 billion shares) stock buyback program. As for the dividend, GE said it will maintain its quarterly payout of $0.23 per share (3.4% yield) through 2016 and resume increases after that.

The stock added 4% to recent gains over the past two weeks and recently changed hands around $27.00. We maintain the company is attractive to purchase at current levels.

Helmerich & Payne (HP:NYSE) delivered better-than- expected quarterly results on April 23. Excluding one- time items, the company earned $0.96 per share in the fiscal second quarter (ended March), while revenue fell fractionally from the previous year, to $883 million.

Looking ahead to the June quarter, management expects that lower energy prices will result to a 32% sequential decline of U.S. land drilling days. As a result, H&P will reduce its monthly FlexRig production from four to two units in June. In October, the company plans to further cut its production to just one unit per month.

It was a volatile two weeks for the stock, which is actually little changed over that period. We continue to believe the shares are attractively valued at $75.35, for the 3.7% dividend yield.

Lockheed Martin (LMT:NYSE) posted mixed quarterly numbers on April 21. The company earned $2.74 per share in the first quarter, which exceeded the consensus analyst estimate. On the other hand, revenue fell 5%, year over year, to $10.11 billion, and missed expectations.

On the conference call, management said that it plans to repurchase $1 billion (5 million shares) worth of stock in the second quarter. The buyback program is expected to add $0.07 per share to annual earnings.

The stock fell fractionally over the past two weeks and recently traded at around $197.65. We consider Lockheed as attractive to purchase at current levels for the 3% dividend yield.

Sonoco Products (SON:NYSE) announced quarterly results on April 16 that fell short of the consensus analyst estimates. The company lost $0.56 per share in the first quarter, as revenue grew fractionally from the previous year, to $1.2 billion.

Management said the downside was a result of higher pension costs and the stronger U.S. dollar. That said, Sonoco maintained its full-year earnings guidance of $2.60 to $2.70 a share. On the conference call, the company said that orders improved in March and April and that it is keeping a tight lid on costs.

The shares dropped 2% over the last week and recently changed hands around $44.55. We believe that Sonoco is attractive to purchase at current levels, for the 3.1% dividend yield.

Earnings Previews

ConocoPhillips (COP:NYSE) will announce quarterly results on the morning of April 30. The company is expected to post a loss of $0.09 per share in the first quarter, down from a profit of $1.81 a year earlier, on $9.59 billion of revenue. Management has exceeded the consensus analyst profit estimate each of the past eight quarters.

ConocoPhillips will host a conference call at 12 p.m. ET that can be accessed at the company's website: www.conocophillips.com. On the call, we'll be listening for any commentary from management regarding press reports that ConocoPhillips is considering selling its North Sea assets.

The stock added 2% to recent gains over the past two weeks, along with the underlying price of crude oil. We maintain the company is attractive at $68.45, for its 4.25% dividend yield.

KLA-Tencor (KLAC:Nasdaq) is scheduled to report quarterly numbers after the close of trading on April 23. The consensus analyst estimates call for the company to earn $0.75 per share in the fiscal third quarter (ended March), down from $1.23 in the previous year, on $726.6 million of revenue. Management has exceeded profit expectations seven of the past eight quarters.

KLA-Tencor will host a conference call at 5 p.m. ET that shareholders can access at the company's website: www.ir.kla-tencor.com. A replay will also be available online for a year. On the call, we'll be listening for any forward guidance.

The stock added fractionally to recent gains over the past two weeks and recently changed hands around $60.00. We continue to believe that KLA-Tencor is attractive to purchase at current levels, for the 3.3% dividend yield.

Pfizer (PFE:NYSE) will announce quarterly results on the morning of April 28. The company is expected to earn $0.49 per share in the first quarter, up from $0.57 a year ago, on $10.73 billion of revenue. Management has exceeded the consensus analyst profit estimate seven straight quarters and we expect another solid result this time around.

Pfizer will host a conference call at 10 a.m. ET that shareholders can access at 888-835-0567, using the passcode "first quarter earnings." Both the live call and a replay will also be available at the company’s website: www.pfizer.com. On the call, we'll be looking for an update from management about the clinical pipeline.

The shares were little changed over the past two weeks and recently changed hands around $35.30. We maintain that Pfizer is attractive to purchase at current levels, for the 3.2% dividend yield.

Southern (SO:NYSE) is scheduled to report quarterly numbers on the morning of April 29. The consensus analyst estimates call for the company to earn $0.57 per share in the first quarter, down from $0.66 in the previous year, on $4.53 billion of revenue. Management has met or exceeded profit expectations five straight quarters.

The Georgia-based utility will host a conference call at 1 p.m. ET that can be accessed at the company's website: www.southerncompany.com. A replay will also be available online for a year. On the call, we'll be looking for an update on recent regulatory and cost concerns.

The stock ticked higher over the past two weeks and recently traded at around $44.75. We continue to believe that Southern is attractive to purchase at current levels, for the 4.8% dividend yield.

Dividend Reminders

Lockheed Martin announced its latest quarterly dividend of $1.50 per share (3% yield) on April 23. Investors at the close of trading on May 27 will qualify for the payment on June 26.

Sonoco boosted its quarterly dividend on April 15, to $0.35 a share (3.1% yield). Investors at the close of trading on May 12 will qualify for the payment on June 10. The company has raised its payout 33 consecutive years and can cover the dividend 1.9x with expected full- year earnings of $2.64 a share.

Southern increased its quarterly dividend on April 20, to $0.5425 a share (4.8% yield). Investors at the close of trading on May 13 will qualify for the next payment, on June 6. The utility has boosted its payout 14 consecutive years and the payout can be covered with 76% of expected 2015 earnings of $2.84 a share.

Regards,

David S. Peltier

Southern Hikes Dividend
Stocks in Focus: SO

With the new payout, the stock has a current yield of 4.85%.

04/20/15 - 04:12 PM EDT
Sonoco Is Still Attractive
Stocks in Focus: SON

The company just boosted its dividend.

04/16/15 - 10:54 AM EDT

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