4% Dividend Yield And Company Efficiency Makes Boeing (BA) A Highly Profitable Stock
February 28, 2010 - The Wall Street Transcript has just published High-Yield Investing Strategies Report offering a timely review of the General Investing sector. This Special Report contains expert industry commentary through in-depth interviews with public company CEOs, Equity Analysts and Money Managers. Please find an excerpt below.
View Details of This Special Report
Recent Wall Street Transcript Special Reports.
Randall R. Eley is President and Chief Investment Officer of The Edgar Lomax Company, an investment advisory firm in Springfield, Virginia. He graduated from Yale University in 1974 with a BA degree in Political Science and received a JD degree from the University of Chicago Law School in 1977. Prior to founding the company, he was a practicing corporate attorney specializing in bond law with the Omaha, Nebraska-based firm of Kutak Rock.
TWST: Would you give us some names of your top holdings?
Mr. Eley: Let's take this sector by sector. We're most overweight in materials, and our biggest holdings there are DuPont (DD) and Alcoa (AA). Here you are looking at companies that are known to be cyclical, but their managements have historically done a pretty good job of navigating even the most difficult economic environments. Incidentally, Alcoa came into 2009 with a trailing one-year p/e ratio of 5 and a dividend yield of 6%, which we really liked.
While we certainly cannot guarantee that they will not reduce their dividend, we think that Alcoa's management is going to do everything possible not to reduce it. While DuPont's earnings are expected to slide, it is a company that has a tremendous history of having actually evolved over time from one profitable business to another. Being one of the mainstays among chemicals and conglomerates in general, they came into this year with a p/e ratio of 7 and a dividend yield of 6.5%. Then we go to industrials where we've got two names that we especially like. One is Boeing (BA), again a very cyclical company.
While it's well known that aircraft orders have been reduced and that some have been canceled, Boeing still has been quite profitable. We think there is a good chance that they will continue to run a rather efficient, profitable operation. In the meantime, you're getting about a 4% dividend yield. Then you have General Electric (GE), whose problems stem from too much leverage, particularly with respect to its finance unit. It appears there is a good chance they are going to lose their AAA rating at some point in the not-too-distant future. Even as there have been widely reported problems, including write-offs, GE has remained profitable through thick and thin.
Then we come to energy. There should be no issue about the ability of these companies to bring in revenues and therefore operate profitably; they simply need to run cost-effective businesses with those revenues. We have about 4% of our money in Chevron (CVX), followed by just over 3% each in Occidental Petroleum (OXY) and ConocoPhillips (COP). Oil prices have gone down significantly over the last few months, and integrated oil companies have recently begun reporting declining earnings. These stocks have fallen so far this year that it appears investors in general are assuming that oil prices will decline significantly below current levels and then stay down for an extended period.
Oil doesn't work that way. Just as the sharp rise in oil prices sowed the seeds of an eventual decline, there is no doubt in my mind that the sharp recent decline in oil prices has sown very potent seeds of an ultimate rise. These companies all have the ability to reduce costs and take steps to be profitable with the revenues that are coming in. In contrast to some of the retail operations, they don't have to worry about whether people will make enormous cuts in the purchase of their products. Finally, I will talk about the financials, where we have basically an S&P 500 Index weighting.
This is an area from which many people are beginning to flee completely because of all of the well-known and admittedly very serious problems that most of our largest financial institutions are experiencing. The country has learned that our five largest investment banks were, for all practical purposes, broke. Every single one of them. Even so, you cannot maintain a profitable, large and complex economy like America's without a large and functioning financial sector. We're seeing the government get involved here in a major way. Whether one's view is that the government should or should not be involved, this was bound to happen due to the too big to fail doctrine.
The remainder of this 74 page High-Yield Investing Strategies Report can be immediately viewed by purchasing online.
The Wall Street Transcript is a unique service for investors and industry researchers - providing fresh commentary and insight through verbatim interviews with CEOs and research analysts. This Special Issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.
The Wall Street Transcript does not endorse the views of any interviewees nor does it make stock recommendations.
For Information on subscribing to The Wall Street Transcript, please call 800/246-7673