This Company Smokes Other "Dividend Plays"

By Kyle Metivier - September 24, 2012 | Tickers: LPHI, PM, RBA | 0 Comments

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“It is an unfortunate human failing that a full pocketbook often groans more loudly than an empty stomach.” - Franklin Delano Roosevelt

Progress Report:  Philip Morris International (NYSE: PM), mentioned January 16, 2012 trading around $76 per share, currently flirting with 52-week highs around $92 a share (“Healthy Yield, Bad Habit”).

There are an awful lot of analysts out there. Too many, it seems. Add to that the countless knuckleheads such as yours truly, that find plenty of time to share their thoughts with anyone willing to spend a few minutes attempting to digest their madness a few times each week. I can’t even fathom how anyone sorts through the thousands upon thousands of daily inundations cascading in every direction. It’s a tremendously daunting task, I know firsthand. I receive hundreds of emails each day, professing to know the next 1,000% stock breakout. Throw in the masses that utilize Twitter to strut their stuff, and it can get pretty ridiculous some days (but you appreciate the weekends even more).

I recently received an analysis from a friendly newsletter that mentioned Ritchie Bros. Auctioneers Incorporated (NYSE: RBA), as a potential dividend opportunity. Now if you are unfamiliar with these folks, they are the planet’s largest auctioneer of industrial equipment. I know it sounds sexy, especially when it comes time to auction off 15-year old Caterpillar cranes and backhoes. I reside fairly close to one of their outfits, but not close enough to make any money offering $5 parking spaces on my front lawn. Ritchie Bros. offers loyal shareholders a decent dividend yield at 2.5%, paying 49-cents per share each year (that’s 12.25-cents every quarter). The stock has withstood some “challenges”, and the share price has reflected that by way of a 12% return to the downside, year-to-date. The company definitely has a stranglehold in their market, the moat is wide and the dividend is safe, with a 61% payout ratio. But the thinking that this type of business should outperform in a (don’t say it), slow-growing economy means the stock should be up, right?

Why even consider such a “dividend play” when there are countless stocks we can buy, hold, reinvest the dividends and obtain decent returns all at once? Philip Morris is the perfect example of such a holding, up a solid 22% since the aforementioned post (18% year-to-date). The company recently announced their 5^th dividend increase (over 10%), in 5 years, paying the few “buy-and-hold” investors who are left, $3.40 per share annually (85-cents each quarter). The increase puts the yield at a heartier 3.7%, which is nice, considering the share price (my next post will be in iambic pentameter). I realize there are those of us that don’t like investing in a company marketing a product that makes people sick, die, and even worse, come home smelling like a dirty ashtray on a Friday night. But we are all adults here, even those analysts who refuse to recognize an atrocious call on a stock.

While some of these self-professed market wizards do get a call right every now and then, it’s important to know who it is you follow. If they don’t hold themselves accountable, you most certainly should. Believe me, I scour through my countless posts, digging through each mention, and there are times when I want a round of high-fives, and there are many moments I would like to run away and hide (Baidu, anyone?). The amount of information is endless; my inbox is flooded with articles I still have yet to fully absorb. While I respect the amount of time and attention to detail, I always recommend taking every ounce of information with a grain of salt, even with those who you trust, and especially with those who lather you with 237% returns, beating their chests like some Vegas insider.

As an example, I don’t scold the individual that suggested Life Partners Holdings (NASDAQ: LPHI), nor are they the type of person that screams amazing returns in emails. Ultimately it was my responsibility to do the homework and decide whether or not to pull the trigger. That minor play for me is down a horrific 76%, and it is a constant reminder to know what you are investing, how much you are comfortable losing, and learning from the good calls as well as the truly abysmal ones. There’s nobody to blame for not knowing the company was about to come under SEC scrutiny. How could anyone know that until it happens? I find it amazing that the company is still shelling out the dividend (10-cents each quarter, 25% yield; stay away). But I still have a great amount of respect for this person, listen to what they have to say, nobody bats 1,000 in this game.

So if you are considering Ritchie Bros. for the sole purpose of a “dividend play”, there are better opportunities out there. They are a solid, well-run company, don’t get me wrong. But where there’s smoke, there’s fire, and Philip Morris is blazing quite a trail.

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