Advertisement

Archive for Sunday, April 28, 2002

The Motley Fool

April 28, 2002

Advertisement

Last week's answer

A private company, I trace my roots back to 1847 and two brothers who invented a lozenge-cutting machine, a sugar-pulverizing machine, and a machine to print letters on candies. Rather progressive, I offered my employees a profit-sharing plan in 1906 and insured all their lives in 1920. My products include Clark bars, Sky bars, candy button strips, Masterpieces chocolates, Sweethearts Conversation Hearts, saltwater taffy, Haviland Thin Mints, Mighty Malts Malted Milk Balls, and my eponymous wafers. In Boston, a water tower is painted like a roll of my wafers. I sell more than 8 million Sweethearts and 4 billion wafers annually. Who am I? (Answer: NECCO)

Know the answer? Send it to us with Foolish Trivia on the top and you'll be entered into a drawing for a nifty prize! The address is Motley Fool, Box 19529, Alexandria, Va. 22320-0529. Send questions for Ask the Fool, Dumbest (or Smartest) Investments (up to 100 words), and your Trivia entries to Fool@fool.com.

Dividend yields

I own shares in 14 of the largest corporations in America. The dividend yields vary, from 0.52 percent for one company to 3.5 percent for another. What's a good number? Should I sell the low-yield shares and buy high-yield ones? D.J. Mikler, via e-mail

Not necessarily. Let's say you own shares in Procter & Gamble, which recently traded around $91 per share with a dividend yield of 1.6 percent. That means it's currently paying out $1.52 per year in dividends. The 1.6 percent yield is based on the current stock price, but remember you bought in at a different price. If you bought your shares a decade ago, you probably paid around $26 per share. Divide the current dividend of $1.52 by $26 and you'll arrive at a dividend yield of 5.9 percent. That's the yield that you are earning, based on what you paid for your shares.

So if you sell your P&G shares now, you'll realize a capital gain of about $65 per share, which will be subject to taxes. If you plan to park what's left in shares of another company, you may have trouble finding a more compelling firm with a yield that tops 5.9 percent. Remember that many healthy, growing companies increase their dividends regularly, so your effective yield is likely to increase as time goes by.

Instead of focusing exclusively on the yield, though, be sure to evaluate your holdings regularly, to make sure you still have faith in them.

Where can I learn about and compare brokerages online? D.R., Quincy, Mass.

You'll find information and ratings at www.gomez.com and www.broker.fool.com. You can check out individual brokers and firms via the Securities and Exchange Commission, at www.sec.gov/investor/brokers.htm.

Investing in contentment

When I started working for $13,000 a year, I set aside $25 per pay period to give to the less fortunate. It helped me be grateful for a home, a regular job and my health. I was poor, but I was making a difference in the world. I'm now financially comfortable, and I have seen people making more than $400,000 a year who are less content than I was when I earned $13,000. K. Labosh, Lancaster, Pa.

The Fool Responds: This is a great lesson. According to psychology professor David G. Myers: "In the USA, Canada and Europe, the correlation between income and happiness is, as University of Michigan researcher Ronald Inglehart noted in a 1980s 16-nation study, 'surprisingly weak (indeed, virtually negligible).' Happiness is lower among the very poor. But once comfortable, more money provides diminishing returns." This lesson can even help with your investing. If you're responsibly and slowly building toward long-term financial comfort rather than taking chances on short-term riches, you may end up wealthier and happier, too.

Research resources

Here are some resources you might tap to help you determine how healthy and promising a company is as a possible investment. (Note: If you don't own a computer, make use of your local library, and perhaps check out "Select Winning Stocks Using Financial Statements" by Richard Loth (Dearborn Trade, $19.95). Many libraries also offer Internet access, permitting you to check out the Web addresses below.)

The company's own Web site. Look for links labeled "About Us," "Corporate Information," "Investor Relations," etc., and try to read through at least the most recent annual report. Even its "career opportunities" section can give you insights into how heavily it's hiring, what kind of people it needs, and what various employees do in their jobs. Search engines such as Google.com can help you find a company's Web site.

Online company data providers, such as http://finance.yahoo.com and http://quote.Fool.com. All financial statements that companies must file with the Securities and Exchange Commission are available through sites like Fool.com and Yahoo! and also at www.freeEdgar.com.

Analyst research reports. These are available at www.MultexInvestor.com. Some are free if you register; some cost money. Multex also offers a host of data and some opinions on most stocks, as does www.Morningstar.com (which also offers mutual fund reports).

Historical P/E ratios and other measures. You can look these up at Multex and www.SmartMoney.com. This can be very handy. If a company you're examining has a P/E of 24, for example, and you see that over the past five years its P/E has usually been around 30, then you might be looking at an attractive price right now.

Insightful articles on companies that interest you in current issues and archives of financial periodicals. These include The Wall Street Journal, Investor's Business Daily, Fortune, Forbes, BusinessWeek, SmartMoney, Barron's, The New York Times business section, The Economist, etc. Your local newspaper's business section might be informative, too. Also useful are www.FindArticles.com and www.eLibrary.com.

Industry information. Research an industry and learn about a company's competitors at these Web sites: www.virtualpet.com/industry/rdindex2.htm and www.activemedia-guide.com/indreporter.htm.

Bristol-Myers suffers sales, inventory headache

Bristol-Myers Squibb (NYSE: BMY) has a headache that not even its popular Excedrin pain reliever can cure. The personal care products and pharmaceutical giant recently warned that it will badly miss first-quarter and full-year earnings estimates and announced several changes to help "reset its growth track."

Previously, it had revealed that its wholesalers who make up a significant portion of its revenue stream had too much inventory on hand. Bristol-Myers said it needed to work with the wholesalers to reduce that inventory, and that such a move "will negatively impact its financial results in future periods." What's more, fault for the buildup lies squarely on Bristol-Myers' shoulders.

The excess is "primarily due to sales incentives offered by the company" to the wholesalers.

In addition to inventory problems, sales of some of the company's most popular drugs are slowing, hurt in part by generic alternatives. As a result of all this bad news, the stock price tumbled all the way to a five-year low and fueled takeover rumors.

To get back on track, the world's No. 5 drug-maker will reorganize its management, for starters. But chairman and CEO Peter Dolan admits this will be a transition year, and a quick turnaround is unlikely. It might be best to take a "show-me" attitude with the stock to make sure Dolan's reorganization produces positive results.

Commenting has been disabled for this item.