Our latest Research - 31/10/2014

DividendMax write up 31/10/2014 – US dollar denominated stocks in the FTSE 100

Today, considerably later than promised we are going to look in the Optimizer at the dollar denominated dividend payers to find those that have been able to maintain their CADI in the face of the falling dollar. We are not going to consider the actual US stocks but the logic of a boost to your dividend from a rising dollar will still hold with them. So we will consider the UK only. The dollar is on the rise, so now is a good time to consider these stocks.

The initial criterion throws up well over 100 stocks across the DividendMax database, which is far too many to list. We are going to focus on safety and trade-ability so we should focus on scale and therefore we will select FTSE 100. In DividendMax all dividends are translated into local currency because ultimately that is what they are paid in; so buying a dollar denominated dividend stock carries currency risk as we shall see later. It also brings with it the possibility of a larger rise in the dividend than expected should the pound weaken against the dollar as we have seen recently in general and a few weeks back when the pound got hammered as the markets feared that the Scottish would vote for full independence.

Because we measure dividends in local currency, an eyeball test of the hundred or so stocks is necessary (which leads me to consider a new field / filter in DividendMax to denote the currency in which the dividend is paid) Looking through the list gives you some idea of how few companies have managed to cope with the dollar’s decline. Those that have a CADI of greater than 6 years in sterling terms are:

Shire, BG Group, Smith & Nephew and Antofagasta.

However, it has struck us that a number of well-managed companies have hit five-year lows recently and that has been the reason for our delay in publishing this research. We just felt that the time was not right. It may still not be right, but we thought it would be good to put some statistics in front of you and let you digest.

Some companies that originally had CADI’s that were not impacted by currency movements have had proud records wiped out by the scale of the increase in the pound, such as BHP Billiton Royal Dutch Shell and Rio Tinto to name just a few who all maintain their CADI’s in dollar terms, but not sterling.

The table below looks at the fundamentals of all of the companies in the FTSE 100 that declare their dividends in dollars:

We are going to eliminate all of the stocks that yield below 3% on the Optimizer which gets rid of Fresnillo, Randgold, BG Group, Smith & Nephew, SABMiller, Shire and Experian.

Next, we seek a level of dividend cover that will give us peace of mind and we go for the industry standard of 2. This leaves us with BP, Standard Chartered, Royal Dutch Shell, BHP, Petrofac, Anglo American, Rio Tinto, Antofagasta and Glencore.

Looking at the list we like most of them on valuation grounds and for that reason we will take a further look by seeing what the brokers are saying about them.

Well. There you go. A portfolio of absolute heavyweights and with the exceptions of Standard Chartered and Anglo American hardly any brokers think that you should be a seller. The market is currently saying that all of the brokers are wrong as this lot have been hammered recently.

Taking into account recent stock price movements I am going to go for one oil stock (BP), the only bank (Standard Chartered) and one miner (BHP), which just gets the nod over Antofagasta on the grounds that I am not sure at all what they will pay out this year. It could be a lot, but current broker forecasts suggest not. For BHP, read RIO as there is not much difference between the two. BHP look more interesting to me as I believe shareholders will generate real value out of the current demerger proposal in spite of the whinging analysts and fund managers.

Let’s have a look at the dividends paid by each company over the past 6/7 years:

BHP

We are estimating a full year dividend for 2015 of 79.4p, up 8.4%

BP

*They have declared a Q3 dividend for 2014 of approximately 6.2p going ex on 6^th November 2014.

Standard Chartered

Current stock market valuations would suggest that this is a golden opportunity to pick up these quality stocks. BP has the highest annualised yield just now due to the proximity of the Q3 dividend next week and I would not put you off them. However, the share price declines of BHP and Standard Chartered merit further investigation.

Standard Chartered are back to the level they reached during the financial crisis. They traded at 944p yesterday. That is very harsh. The financial system was on the verge of collapse and today Standard are valued at the level they reached during that period. They stand out amongst all of the UK banks as the only one to have increased their dividends through out the entire period. I rang a trader pal up yesterday and asked what is up with them. He told me that they need a rights issue. I said to him that they specifically said in their recent IMS that they would not need to issue equity. He said ‘ The market does not believe them’. In any event, at the current price, they represent outstanding value and this is a wonderful opportunity to pick up quality at an excellent price.

BHP Billiton is another company that has been absolutely slaughtered and like Standard Chartered is trading at a 5 year low. What have they done wrong? Very little as far as I can see! They, like Standard have increased their dividend throughout the period and when they demerge their less profitable businesses early next year, they will unleash a good deal of value. I am a great believer that Natural resources prices can only go one way over time and that being the lowest cost producer in lean times will stand you in great stead when times get better. Billiton fits this criteria and if low iron ore prices persist, competitors will go to the wall. No doubt about it. Certain governments think it is wise to support loss-making concerns, but this cannot go on forever as we found in the UK with coal. Subsidising coal caused the biggest conflict that I have seen in my lifetime in this country. A very great deal of pain was felt and the nation was divided. Terrible times.

I am not going to suggest a single stock. I strongly believe that BHP and Standard Chartered represent immense long-term value at current share prices.

Of course, you all know my view of Apple and if this were to consider US stocks, they would always be my number one choice for a company to own. Still, by a street, the best company in the world.