This is the Value Investor podcast with Tracy Rinek, All Things Value All the Time. Welcome back value investors. We've been talking a lot about cheap stocks and dividends here in 2023. I've done a couple of podcasts recently because this has been a hot area and a lot of dividend paying stocks tend to be on the cheaper side.
But there is a warning for investors seeking the high yield. Earnings do matter and the dividend comes out of those earnings. So you have to have very strong free cash flows to pay out a dividend, especially on a very consistent basis. That's why we like the companies that pay it out quarter after quarter after quarter.
But earnings are now on the decline for the S&P 500. Many individual companies are going to make less in earnings this year than they did last year. You don't see this kind of scenario very often, these kind of earnings recessions. But some companies therefore are starting to get exposed on the dividend side.
That if it slows enough, they might not be able to make that dividend. And maybe they were too optimistic about what their earnings and their earnings growth might look like in the next few years. So I've warned about looking to see if your company could actually pay the dividend on prior podcast. Remember we've done a couple podcasts where we looked for very high dividend payers.
And that's usually where you see the exposure. So what does it mean if a company is paying say over 5% on the dividend yield? It can mean that the share price of the stock has plunged down. So suddenly it's getting the higher yield because the shares are much cheaper or it could mean, well, it normally that's the main reason, right?
Or it could mean that something good is happening on the earnings side in that particular industry, like we've seen with a lot of the energy stacks. Many of those with their base dividends plus their variable dividend are paying over 5% because the variable side has been so much higher as the price of crude. And at least in 2022, natural gas was very high and producing these amazing free cash flows. You'll see it with a lot of the commodity stocks when that particular commodity is relatively hot.
You'll get these higher free cash flows, then they don't know what to do with it. They already have paid for their expenditures, their cap X. So they will just pay back out to the shareholders in these variable ways. But again, sometimes you have on the other side, the shares have come down so much the yield has risen that it looks juicy there, but it's actually throwing up some red flags that the dividend yield is so high.
Now remember in the recent episode of the high paying dividend stocks, we did talk about Haines' brands ticker HBI. And remember on the show, it was yielding 7%. And the shares have plunged down and that's why I got the high yield. I noted that they paid it since 2012, but no dividend was guaranteed.
They were making enough earnings to cover it, so they weren't in the negative. But there wasn't much room for maneuver there. I think they're paying 60 cents and it was something like 80 cents they were expected to make. And what if they don't even make the 80?
That's cutting it really close because again, you have to pay your expenditures, obviously first before you're paying out this dividend. So lo and behold, suddenly Haines' brands comes out and says their board has decided to cut it, not just a bit, they're cutting it completely, they're eliminating it. So buy by 7% yield because yes, they need to invest that capital in other things going on in the business while this economic environment continues to be kind of challenging on the apparel and clothing side, which is their business. And so to be prudent, they're not going to pay it at all and they're going to reinvest that money back into the business.
So you can't fault them for that, but for anyone who's buying that stock, it was just a shock to suddenly see a dividend that they had been getting for almost 11 years, suddenly slashed completely. Now here in February 2023, we just heard from Intel ticker INTC. Another company I've talked about on the show over the years, they've always paid out the bigger dividend. Again, I'm pretty sure I have warned about it because it has been a juicy one.
And now we should have heated some of those warnings because they are also cutting it, not eliminating it, but they are cutting it over 60%. So they were paying a little over 36 cents a quarter. Now I think they're going down to a little over 12 cents. I look back at the dividend payout, it goes back to 1992.
And I did not see any reductions in there, but maybe there was one along the way somewhere where they had to cut it for some reason, but I did not see it in the pandemic. And I've only seen increases since the dot-com bust. So Intel, another issue going on there. And if you actually look at their earnings and you can see pretty clearly that it probably wasn't going to be around for as long as everybody had hoped who was buying it for the dividend.
So the dividend was yielding, well, yielding 5.6%. It was $1.46 per share. And then just looking to see what they're expected to make this year, only 58 cents, and then $1.83 next year. So not even close to what they're expected to make and even cutting it down.
It barely is going to be covering there, but they probably have some extra cash on hand. I am kind of surprised I didn't eliminate it completely seeing this. That's a little bit, they're a little bit chicken. They didn't want to go there like Haines Brans.
They didn't want to do the complete shack of buy this is going away. So still I'm not liking it that they didn't have the guts to actually do the complete elimination. Complete eliminations are rare. You don't see it happen very often, but even cuts are pretty rare.
Has to be pretty extreme, but a decline in earnings from $1.84 in 2022 to 58 cents is the Zax Consensus right now in 2023 is pretty dramatic and it calls for dramatic action. And that is what the company decided to take. Dividends remember are paid out to the shareholders when business is good, when they have good free cash flows and they are giving back and rewarding those shareholders with some of the gains. So it makes sense that you shouldn't really be getting such a thing when things aren't that good.
And so Intel definitely signaling if you already didn't know that things are not good over there and they're trying to write the ship. So what has happened with Intel shares over the last five years, they're down 46.2%. That's a five year down, but it's most coming in the last year, little bit over year 2022 2023 is when most of the selloff is over the last 10 years because of the last year, the gains are 23%. The S&P 500 is up 163% during that time.
But up through 2021, they were kind of on track with the S&P 500. So you weren't, you were just not down that significantly versus the S&P 500. But that's the risk of individual stocks versus a basket of stocks like the S&P 500. You can have one stock or even a group of stocks blow up in the S&P 500.
And while you may see some impact to what your returns are, you're maybe not gonna see quite as devastating of this impact as if your one stock is down 40 plus percent in a single year, it really pulls down your returns there, even with the dividend being payout in there. Those returns I was just stating, by the way, do not include the dividends. So it's not quite as bad because the dividend was paid out during that whole time period, but S&P 500 pays one too. So you would have been getting at least a little under 2% with S&P 500.
So those are the two bigger announcements that we've heard just recently actually. So that the trend is not going in the right direction, but it made me think of some of the others that I've warned about on the show. So another one that I've always been a little concerned about was New York Community Bank Corps. NYCB, it's come up in some of our other shows because it too has paid the big dividend right now, it's yielding to 7.5%.
I looked at their dividend payout. So when the banks were allowed to pay a dividend again by the Federal Reserve, they did start paying one that was in 2018. They paid 17 cents a quarter since 2018. They've never raised it.
They've never lowered it in that time period. Earnings have improved. They did struggle there for new Mercedes, especially with the Fed having rates so low and net interest margin not being that great. So the 7.5% is 68 cents per share that they are paying.
That's the 17 cents a quarter. And this year expected to make $1.12. They did make $1.23 last year. So they were able to easily cover the 68 cents or fairly easily depending on what else is happening in the business.
They do have inflationary pressures, costs that have to be increasing this kind of stuff, like every business right now. But they've been able to cover this 17 cents a quarter or 68 cents a share since 2018. But I have been concerned about them in years past when earnings were lower. So they've got those earnings back up a bit.
They expect to be down 8.9% this year, but next year 2024 analysts are looking for about 11% increase up to $1.25. So I don't expect New York Community Bank or to be raising the dividend here unless earnings start to spike a little more dramatically. They have been burned in the past. So they're willing to just kind of sit on what they can pay out and be conservative.
But again, the yield right now is 7.5%. That's pretty juicy yield here for any company. A lot of the banks paying a little bit more now. And again, many of them are being conservative on raising the dividend.
They've kind of just kept it where it's been for numerous years. So we'll see if things still look good in the back half of the year. And they may be sitting on some more excess cash if some of the banks don't start raising the dividend. So the banking area is one area I feel could go the other way.
The energy we've seen the big gains and energy prices have come down off those highs, but they still remain higher than the pre pandemic. Still over $70, that's still a good area for the free cash flows for the producers. But the service side also having good free cash flows now too. And so some of them have even been raising their base dividend.
Even with the price decline in the oil and natural gas, they're still raising that base because free cash flow is still strong enough to support it and they can always cut the variable because that's very well right. So you're not really cutting it is what it's going to be. And so that can come down to make up for anything that if earnings are a bit lower, which they are for almost all the energy plays across the board on the producing side energy looks to be lower earnings for this year so far because of the lower prices. So keep that in mind for those two industries.
Now looking at a few other ones, I did want to see kind of what was going on. Is this dividend safe? So I took a look at Coles. We talked about that on the show before too.
Ticker KSS, it's always a little dubious on this one and they do have a more dubious track record. Let's call it that way. But the yield right now is 6.2%. So that's pretty high.
And so I'm wondering what was going on with it. So they did raise their dividend in 2022 from 25 cents to 50 cents a quarter. That's the quarterly. And so that is $2 for the year.
And that's pretty generous there. But things are not as good in 2022. Maybe when they decided to raise it, start the year as what happened as we got towards the end of the year with apparel and the Fed aggressively raising rates. So in 2020, they did cut the dividend.
Not surprising as a pandemic hit. I do remember this. I do remember them cutting it then. And then they've been trying to get back ever since.
And it was 0.70 cents before they cut it in 2020. So that's higher than what it is right now at the 50 cents per quarter. So Coles, what are they expected to do this year? Like I said, the apparel and these bigger department store types, it's kind of a mixed bag right now.
So the fiscal 2023, which we're just finishing up, we just finished it, is looking at 304. So they're paying $2, $2, but that's down last year from 733. So pretty dramatic decline. And they had raised it.
They had doubled the dividend last year. So do I think that's going to be raised? No. Do I think it could maybe be cut?
Yeah. Yeah. But who knows? Just throwing this out there.
That's what I'm doing this podcast about. You have to be vigilant on some of these that don't have the track record that earnings are coming down dramatically. And so you're not surprised if you're buying these for the dividend, which shouldn't be your overwhelming goal unless you're in it just for the income, which can happen. But Coles, I don't know, it's number three right now.
When do they report earnings? Let's see. March 1st. So coming up, we'll hear more, but I'm staying on the sidelines on this one, because who knows?
Another one I looked at because it's the dividend is yielding 8% is Westlake Chemical Partners. So this one was a little more tricky. At first, I thought it was Westlake Chemical. And I was like, what?
Westlake Chemical is paying that high? I better go investigate. And then I realized it was the partners. So they are an MLP that's a little bit different structure.
And that usually pays out a bigger chunk of what's coming in. It has different tax ramifications. This ticker is WLKP as in Paul, the P for the partnership is on at the end there. Again, paying the super big dividend of $1.89.
Then I looked at the earnings and I was a little freaked out. I only expected to pay $1.88 or make $1.88 in 2023 and $2 in 2024. And I'm like, how can this be? How can they be paying out?
Like 100%. That's why you got to do your investigations, right? Because this partnership does have an agreement to kind of work this way. And they have and it says an Op-Coase Ethylene Sales Agreement with Westlake Chemical.
And it's designed to provide for stable and predictable cash flows. The agreement provides that 95% of Op-Coase Ethylene production is sold to Westlake for a cash margin of 10 cents per pound. Net of operating costs, maintenance capital expenditures, and reserves for future turnaround expenditures. So they have this complex agreement with Westlake Chemical.
And on January 23rd, the board for the partnership did approve the quarterly distribution of 47 cents per unit. That has actually already been paid out. So we missed that one. That was paid out on February 16th, 2023.
And but it was the 34th consecutive quarterly distribution to the unit holders. And that has varied depending on what's going on. Now they did say in the earnings that 2023 will likely bring new challenges. And I'm reading off of their press release, such as the current low third party ethylene sales margins and relatively high interest rates.
However, despite these headwinds, the insulative attributes of the agreement with Westlake gives us confidence in another year of solid performance and cash flows. So they're trying to reassure that they feel like they will continue to do this. Because Westlake is one where you are buying basically for the dividend, right? They paid the .471 cents January of 2020 through the pandemic.
No increases since 2019. That was the last time they had any. But that's your in it for this agreement basically. So the last year the shares are down 14.4% so the yield has risen a little bit as they've been down.
But it looks like they're going to be able to keep paying out at least a pretty nice juicy dividend there at Westlake chemical given this agreement and how it all operates. So be sure to check out any of these before you're actually diving in, as I said, to figure out how is it that they're able to pay this out to me. There's no sure things. And if it's too good to be true, many times it often is, right?
Keep that in mind always with investing. So then I took a look at a fifth company, Calmain Foods, ticker, calm, C-A-L-M, calm. And I've seen this all over the place. I never really dug into what they do.
I know many of you are probably saying they're like, Tracy, how can you not know? Because it has been in the news a lot this year and last year. So they are the largest producer and distributor of fresh eggs in the United States of America. And A crisis, as we know, are at record highs.
Everyone knows we all freak out when we're at the grocery store. But Calmain isn't freaking out because that means record quarterly net sales and income for them. That was in fiscal second quarter of 2023. They pay out a variable dividend.
That's how they operate because like an energy company, eggs are like the crude price. It can go up. It can go down. But right now, because of the avian flu hitting the chickens, there's been a real reduction in egg supply.
So again, supply and demand, just like with oil, when you have a lot of demand, but not enough supply, price goes up. So the average eggs went to $2.88 a dozen from $1.15 a dozen in just the last year. That was on the last quarter. It might have even gone up higher.
And then if you're buying the specialty eggs, which I know many of you are, those are the ones that would be like with added extra omegas in there, vitamin B's, the cage free, the fed organic feed, anything that's outside of the regular eggs, I guess, as you can call it. But those have become extremely popular, especially cage free. I didn't realize that several states have now mandated cage free eggs only to be sold in their states. Those prices for specialty eggs, which is what Cau is selling.
So these eggs are showing a 9% yield, Yahoo Finance is showing 5% because of this variable of it. And they just pay out a big dividend in January. The January payout was $1.35, that was up from October's payout of 85 cents, the July payout was 74 cents, and the April 2022 payout was just 12 cents. So you can really see what's happened with earnings, but this is similar to what happened with energy earnings.
It went from almost nothing or negative to suddenly it's surging and it's at new highs. And then I look back a little bit further too, just to kind of see what was going on in April 2021. So two years ago, April, they only paid three cents. They didn't pay any dividends in 2020 when the pandemic hit 2019, April of 2019 paying 27 cents.
So you can see it's like all over the board. So I'm bringing that up because you can't expect $1.35 every quarter, but it depends just like with oil, like where's the price and what are they getting in on that quarter? Now they did say they pay a dividend equal to a third of their quarterly income. So also, if they're not profitable in the quarter, there is no dividend.
So in 2020, when the recession, or I'm well, we did have recession, but when the pandemic hit, then there was no dividend as a result. So we do know they're going to pay a third of that quarterly income. So I kind of like the setup of the variables like this. It is not consistent.
So if you're looking for consistent income, like I'm living off of this, I need this to pay my bills, then this is not the one for you. But if you're in it just while there's an age shortage, and you know, I've always kind of believed if you can't beat them, join them, right? So whenever I've gone to the gas pump and I've cursed like the price of gas, then I'm like, why not buy a refiner stock? If they're making all the money, I might as well too, right?
If I'm giving it to them, I might as well get some back. And so instead of cursing in front of the egg, you know, thing at the grocery store, maybe I need to join in and get some back from Calvane Foods, because that's what's happening here. So what will we get back? We don't know.
I took a look at the earnings. So fiscal 2023, which is what we're still in. So they just reported last year, second quarter, they're still going to report the third quarter coming up in the next couple of weeks here, and the third quarter, you know, so we're halfway through the year. Analysts have 1675 of 515%.
So this does look like a lot like the energies because they only made 272 last year. But when you got record commodity price in your commodity, this is what happens. Fiscal 2024. So that's the second half of this year, for the most part, it is supposed to be down 67%, but down to 550.
So they're still seeing, you know, it takes while if you have a shortage of chickens, and then the egg shortage takes a while to get where chickens to lay more eggs, just does. And the avian flu is still impacting the chickens. Still out there with the outbreak. So yeah, people still think the analysts still believe that earnings are going to remain a little elevated here, but not as good as this fiscal year.
So peak earnings may be right now, but we still have a couple more dividends that are going to be coming the April dividend and then July, if they pay one. So we'll see on Calming Foods and it is C-A-L-M. Oh, by the way, it is his acts number one right now because estimates are on the rise. And it's very cheap on a P basis because the crazy rise in the earnings and PE is just 3.6 here.
So that's really cheap. Is everybody diving in? I want to say people usually do try to buy some of these companies if they're in industry where there's some kind of shortage or something like it. People get in there and like, there's this going on with alcohol or tobacco or there's a shortage of chocolate.
So I'm going to go buy like Hershey's or whatever I don't know. But people try to play it, right? So let me see the over the last year. Yeah, the shares are up a bit, up 38% over the last year, but not soaring by any means.
It's not L-beauty. You're to date up 8.9%. I wonder if people just kind of buy in, get the dividend and then sell, get out of there. That could be.
So we'll see if we get a surge again on the next dividend payout maybe. But no. So people aren't really diving in, kind of surprised, given the outrage we all feel that we're buying the eggs. And I know about you, but I've seen them as high as seven or eight dollars for the dozen, depending on what kind of eggs and if it's a specialty or not.
So it has been rough out there, but they are on the other side. And so they're basically the only ones benefiting at this time, them and their shareholders. So good for them. So that's kind of where we stand with the dividends right now.
And I know many of you are out there looking around for the cheap stocks with the dividends like Calming Foods. That's cheap 3.6 times, but the earnings are going to come down. So you have to really watch what's happening this year with the earnings, with the cuts there, and can they pay it? And even on something that's a variable, you already go into it knowing it's variable, but will it even be paid?
That's another question too. So look for industries, if you can find them where the earnings are actually on the rise, it's not many this year. I do want to say that some of the banks, we are expected to see a rise in earnings there because of the net interest margin increasing. But do your due diligence, do your research, check and listen on those conference calls to see what they're saying about the dividend and whether or not you are going to get it.
And also keep in mind because of the Fed raising, we're now starting to see a lot of savings accounts, high yield savings accounts. And even so those at brokerage firms, I think we all know now that Fidelity is apparently paying like 4% in its brokerage accounts right now, that's better than you can get most places. And that does not have the risk of the share price plunging or not being paid out at least for now. So yeah, you might want to check around at your bank, the CDs, check your brokerage, check where everybody's talking about, where you can get some yield, because it is out there with the Fed raising.
That's the one thing that we're not used to about the Federal Reserve actually raising rates off those really low levels is that we can now get some of it through these other means, even just through our bank. So a double whammy perhaps, perhaps you're in a bank that's paying you a higher yield and you own their stock and you're getting their dividend. That could be kind of nice. That's a very nice payout.
So keep those things in mind. Don't get caught in a hens brands, but if you do, which we did on that other podcast ourselves, it's a lesson learned, but it does happen even to the best of us. So hens brands was one of the stocks on this episode. And I'm going to list them off again in case you don't recall hens brands ticker HBI Intel, INTC, they didn't eliminate it completely, but it's been cut pretty good there at Intel.
Coles, we don't know what's going to happen with that one, but pretty juicy, but can they keep paying it? KSS, we had Westlake Partners. This is the partnership. So a little different than Westlake Chemical.
So WLKP is the ticker there. It's got that P on the end. And then we had CalMain Foods, the AEG producer and distributor, C-A-L-M, remain calm with CalMain Foods, right? 5% yield on, yeah, finance, 9% on Zax, but it's variable.
So that's why there's the differences because the systems never know how to read the variable dividends, but it's very nice right now. We'll see what they pay next quarter. So tune in. So that's it for this week's Value Investor Podcast, but you never know what I'm going to be talking about next week because there is a lot going on out there.
We're suddenly getting these announcements, dividend cuts. We haven't seen that in a long time. And we're getting a lot of revisions to those earnings. So things are changing.
They're a foot out there. So you want to be sure to tune in. There are still a lot of value stocks out there, but there's also a lot of value traps. I haven't done one of those shows in a while.
Epic gets to the end of the earnings season here, where it's we're almost there. I will be looking maybe at that some more, the value traps because we've got a lot of guidance now. We have had some earnings cuts for this year in the guidance. And so who's looking a little trappy here?
Maybe I'll be looking at that. So be sure to subscribe, get us on Apple Podcast, get us on Spotify, get us on Amazon Music, get us with the Zacks Market Edge, but get us somewhere and I'll see you again next week with some more value stocks. This material is being provided for informational purposes only, and nothing herein constitutes investment, legal accounting or tax advice, or a recommendation of buy, sell or hold a security. Do not act or rely upon the information and advice given in this podcast without seeking the services of competent and professional legal tax or accounting counsel.
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