Bank of America: Back from the brink


It’s pretty easy to tell when the Great Recession hit our country just by looking at Bank of America’s dividend history. In September 2008 the bank made a quarterly payout of 64 cents per share. Three months later it was 32 cents per share. And in March 2009 — the month many economists mark as the nadir of that particular business cycle, and when the stock market hit rock bottom — Bank of America disbursed a feeble penny per share.
Indeed, B of A was hit hard, thanks in large part to its ill-advised acquisition of Countrywide Mortgage (remember thatoutfit? I know, you don’t want to…). The penny-per-share quarterly dividend continued for six-and-a-half years, until finally in September 2015 it was raised to a nickel. It has gone up in each of the two following late summers (to 7.5 cents per share in 2016 and then to 12 cents per share in 2017), one sign that Bank of America is in many ways righting itself under the steadying hand of CEO Brian Moynihan.
B of A is based in North Carolina, but has a second headquarters of sorts in Boston after its purchase of Fleet Bank in 2004. That made it the largest bank in New England. And despite the recessionary hiccups of nearly a decade ago, it’s still massive, with more than 200,000 employees, 4,500 financial centers and 16,000 ATMs.
But size means little without stability — in fact, without stability, size can scare the hell out of you —  and Bank of America appears to have won back investors’ favor. I would not at all be surprised if the dividend was hiked again at summer’s end by another 33 percent, to 16 cents per share quarterly.
Why? In a word, earnings. After posting earnings of $1.85 for 2017, Bank of America is expected to increase that to $2.51 this year. At $32 a share, that’s a modest price-earnings ratio of 12.7.
And just think: Less than a decade ago, the share price bottomed out at $2.53.
Furthermore, in each of the past four quarters, B of A has surpassed analysts’ forecasts, so it has been on a run of over-achievement. Last week, the Motley Fool had a terrific article detailing Bank of America’s efficiency gains and its ability to adapt to changing technologies. Read it here:
And as for 2019, profits are forecast to rise another 14 percent, to $2.87 per share.
So, yeah, the dividend is going to get hiked, and I think 16 cents per share quarterly could prove to be conservative. I mean, it’s still only a 2 percent yield at the current stock price (and would represent roughly a 30 percent payout ratio), and I don’t expect B of A’s stock price to hang around at $32 if upcoming earnings are in line with forecasts.
Oh, and one more thing. In my last blog item, on Washington Trust Bancorp, I noted that well-run community banks sometimes get snapped up by the big guys. To be clear, there is no evidence of anything percolating, but B of A would make a logical suitor for Washington Trust.
Just sayin’.
Disclosure: I do not own shares of Bank of America. 


Cisco succeeds as a dividend grower


If I were to tell you that an unnamed company is raising its dividend by 13.8 percent this year, you probably wouldn’t guess that said company had the hottest stock in the land less than 20 years ago. Especially if I were to add that this same company raised its dividend 11.5 percent last year and a whopping 23.8 percent the year before that.

Ladies and gentlemen, meet onetime networking favorite Cisco Systems.

Cisco was one of the golden children of the networking boom of 20 years ago. Working in Lowell at the time, I had a ringside seat as the Santa Clara, Calif.-based maker of internet switches and routers snapped up a bevy of Greater Lowell startups, including a $2 billion stock purchase of Lowell-based GeoTel and an almost laughable $5.7 billion acquisition of Acton-based ArrowPoint Communications. Cisco was led by former Wang Labs exec John Chambers at the time, and he understandably had a keen eye for the technology garden that was Greater Lowell.

But yes, as far as currency goes, stock in those days was like crypto-whatever is today. Inflated almost to the point of valueless.

Then the nuclear winter happened. In 2002, the networking darlings went bust, some of them quite literally. For larger players such as Cisco, the damage was for the most part limited to stock prices — as well as the media attention that came with it.

Fast-forward 15 years or so. Cisco has raised some eyebrows in the analyst community with its shift in emphasis from routers and switches to software and cybersecurity. And for those who are skeptical of its long-term success, the company is making up for its lack of robust growth with a dividend that offers a competitive yield (nearly 3 percent) and that which executives are ready and willing to increase in a meaningful way.

Cisco, which homogenized its Greater Lowell acquisitions (there were 16 in 1999 alone) into one campus off I-495 in Boxboro, where it is believed to still employ more than 1,000 people, has other enticing attributes:

* Its stock price has leapt more than 32 percent in the past year, roughly keeping pace with the market as a whole.

* It’s expected to post earnings for the current fiscal year, which ends in July, of $2.58 per share, a price-earnings ratio of 17.5. Not outrageous at all for a premium tech stock.

* It holds a remarkable $73 billion in cash, or $15.30 per share. Its debt is about half that, so even if were to pay off all of its debt in one fell swoop, it would still have about $7 a share in cash. In a way, that makes the PE even more modest.

* Last month, while announcing the latest dividend increase, Cisco executives also said they planned to buy back $25 billion in stock. As mentioned in this blog previously, fewer shares outstanding boosts earnings per share.

As I stated last summer, Cisco’s stock isn’t doubling in two years anymore (and then crashing back to Earth at some indeterminate time afterward). It’s no longer a hare, and may now be something of a tortoise.

But for prudent investors, it just might be enough to help you win your race.

Disclosure: I do not own shares of Cisco Systems.  

Progress report: Hedge fund departs, stock plummets


Last September I blogged about the impact that a New York-based hedge fund called Praesidium Investment Management Co. was having on Progress Software Corp., a Bedford-based provider of business enterprise software.

Praesidium, whose ownership peaked at 9.3 percent of all Progress shares, was demanding several changes at Progress, including the removal of board Chairman Jack Egan (son of Richard Egan, the “E” in EMC Corp.) and the acquisition of an undisclosed company (believed to be Aptean Inc., a privately-held company from Atlanta that’s in the same general business as Progress).

Progress Software, for its part, resisted the moves. It actually did make some recent changes on its board of directors, but none of those changes was the removal of Egan. And it never appeared to make a move to acquire Aptean. I noted at the time that whether Praesidium got its way or not, the fact that it was leaning on Progress was likely a good thing for shareholders.

And it certainly has been. Progress shares were trading at $37 and change at the time of my September post, already up 18 percent on the year and near their all-time high. They subsequently rose as high as $52.36 only six weeks ago before beginning a steady retreat (might it have been due to rumors of Praesidium’s exit?).

Which brings us to Wednesday evening, after the markets had closed for the day. In a Securities and Exchange Commission filing, Praesidium announced that it had liquidated its stake in Progress Software. On Thursday, Progress shares declined 12.6 percent, to $38.81 (and yet, still higher than last September). On Friday they rallied back above $40, in part due to riding a general market rally that saw the Dow bolt ahead 440 points on the strength of an ultra-strong jobs report.

Did Praesidium lose or did it win? Sure, it didn’t get the changes it desired, so it took its toys and went home. But you can bet it sold its stake somewhere near the top of the cycle, while buying somewhere in the low 30s, or even high 20s. It’s tough to beat the pros, folks.

Indeed, that’s what analyst Mark Schappel of Benchmark seemed to be saying, according to MarketWatch, when he lowered his price forecast for Progress to $35 from $42. He said the hedge fund had likely determined that “most of the easy money had been made.”

How about ordinary shareholders? Well, you’re still up 40 percent or so in the past 12 months so maybe it’s time too look under the hood.

Progress’ trailing 12-month price-earnings ratio of 52 is lofty, but its forward PE is a more tame 17, based on expected fiscal 2018 earnings of $2.35 per share. Shares sell for 4.7 times sales (Oracle Corp., the 800-pound gorilla in enterprise software, is at 5.6 times sales).

How about dividends? You know how I love to look at dividends. Progress joined the ranks of dividend payers two years ago, paying out 12.5 cents per share each quarter. In September it raised the payout to 14 cents per share, thus giving shareholders a 12 percent raise. The present yield is 1.2 percent.

Perhaps more importantly, Progress announced at the time of September’s dividend hike that its future policy was to aim to give shareholders 25 percent to 30 percent of its annual cash flow from operations in the form of a dividend. That suggests that investors can expect another hike come September. There is not enough of a history to know whether that hike will be in the form of a double-digit percentage increase.

One red flag: The payout ratio is roughly 66 percent, according to Morningstar. That’s high.

So I guess I’d hold off.

Disclosure: I do not hold shares in Progress Software.

Dunkin Donuts’ delights extend past coffee


It was the great Fidelity mutual fund manager Peter Lynch who urged investors to follow one particular mantra: Invest in what you know. Lynch, who has multiple daughters (I’m thinking it’s three, but I can’t quite remember), paid close attention to where they shopped when they were teenagers and landed some of his hottest picks as a result. One that stands out — to me, anyway — was retailer Gap Inc. (yes, I’m dating myself a bit here).

With that in mind, Bay Staters and Granite Staters alike, what institution more than any other appears to be a regular part of our lives? Hint: Its logo is orange and pink, which on the surface sounds like it wouldn’t work at all but…

Yes, of course. We’re talking about Dunkin Donuts. There seems to be one on every corner. For example, in Lowell alone there are 10 of them.

Have you ever thought of “Dunks” as anything more than a place to get your morning fix? Perhaps you ought to. There’s a lot to like about Canton-based Dunkin Donuts as an investment.

For starters, it isn’t obnoxiously valued for such a well-known brand. Shares closed Thursday at $60.02, which represents a price-earnings ratio of 22.6 for expected 2018 earnings of $2.65. Rich, yes. But not obnoxious. The price is pretty close to the midpoint of the stock’s 52-week range, which runs from $50.89 to $68.45. Shares have declined nearly 7 percent since the start of the year, so at this point you might be catching it while it’s taking a breather.

Dunkin Donuts stock is not volatile. At all. According to Yahoo Finance, it has a Beta of 0.24, meaning it’s only 24 percent as volatile as the market in general.

Lastly, and you knew this was coming… dividends! Dunkin Donuts began paying a quarterly dividend last year of 32.25 cents per share, or $1.29 per year. On Feb. 6, the company announced that it was increasing its quarterly dividend by 2.5 cents, to 34.75 cents per share (or $1.39 annually). This represents a 7.75 percent raise for shareholders. Did you get a 7.75 percent raise at your job this year? I’m betting you didn’t.

Based on Thursday’s closing stock price, the dividend offers a yield of 2.3 percent. Not bad. Certainly better than you’re going to get from a CD.

And so, local coffee enthusiasts, it seems you could do a lot worse than taking Peter Lynch’s age-old advice. Invest in what you know.

Disclosure: I do not own shares of Dunkin Donuts.


Time for UniFirst to up its dividend


On March 9, 1999 — 19 years ago this week — Wilmington-based UniFirst paid to its shareholders a quarterly dividend of 3.75 cents per share. Its share price at the time was $21 a pop, providing investors a rather modest yield of 0.7 percent.
UniFirst, a provider of workplace uniforms and laundering services, has since grown by leaps and bounds. It’s a global company, posting revenues of nearly $1.6 billion for its most recent fiscal year, which ended last August. Its share price is now $157.50 per share, up seven and a half times from where it was when it issued that 3.75-cent-per-share dividend payout.
So guess what its quarterly dividend is now? Yup, it’s still 3.75 cents per share. In case you’re bad at decimals that comes to 15 cents per share annually. At the current share price, it’s a yield of less than 0.1 percent. It hardly matters.
The question is: Why? Why hasn’t UniFirst, an extraordinarily successful company for decades — it was founded in 1936 — upped its dividend in nearly 20 years?
It’s not like it’s never happened before, although the company appears to have always gone in baby steps. Its annual revenues had reached $100 million when UniFirst began issuing dividends in 1986, and the quarterly payout was 1.25 cents per share. Oddly, its first decision to alter the payout was in fact a cut, in November 1989, when it paid 0.75 cents per share — but it was just for that one time. Then in 1990, the new quarterly dividend was 1.5 cents per share. In 1992, it was increased to 2.5 cents per share, in 1996 to 3 cents per share, and then, as noted at the top of this story, in 1999 it was increased to 3.75 cents per share.
Where it has stayed ever since.
By no means is the dividend a heavy lift for UniFirst. According to Morningstar, the current payout represents just 4 percent of the company’s profits. That’s puny.
To be clear, it would carry some risk for UniFirst to pay what might be considered even a semi-healthy dividend. To get to a 2 percent yield, the company would have to pay out more than 20 times as mush as it does now. That means 4 percent of profits becomes 80 percent of profits, and that’s not responsible. Going to a yield of 1 percent is far more palatable. It also appears safe, given the steady growth and stability of UniFirst’s business.
Analysts are calling for net income of $5.56 per share in the current fiscal year, up about 8.5 percent from the $5.12 per share earned last year. Revenues are forecast to be $1.65 billion, up a more modest 3.5 percent. For fiscal 2019 (I know, this is dangerous, as a lot can happen) the estimates are earnings of $6.14 per share on revenues of $1.7 billion.
Last year, history was made at UniFirst when it promoted 43-year-old Steven Sintros to become its CEO after longtime top executive Ronald Croatti died unexpectedly in May. Croatti was the son of founder Aldo Croatti, and had led UniFirst for 26 years (he even made an appearance on the hit TV show “Undercover Boss” in 2011). You’d be hard-pressed to question the growth that Croatti was able to achieve and, given the share price, how UniFirst investors benefited.
But the stock is godawful expensive now, at more than 30 times fiscal 2017 earnings and nearly 29 times expected 2018 earnings. It’s hard to imagine the stock continuing to be rewarded with this kind of premium with earnings growth expected to be in the mid to upper single digits.
And at some point, growth is going to get even harder for UniFirst, and when that time comes it’s dividends that will keep investors interested. Perhaps the company would be well-advised to start addressing this.
Disclosure: I do not own shares of UniFirst.

Progress Software boosts dividend, shrugs off investor demands


MARKING PROGRESS: Founded in 1981, Bedford-based Progress Software Corp. first issued a dividend last year. This month it said it is increasing the quarterly payout by 12 percent, to 14 cents per share.

One of the things I have consistently preached in this blog is local companies that have shown a willingness and consistency to pay — and increase — dividends. The annual percentage increase one gets from dividends often far exceeds what one can expect from a paycheck or any (other) investment. This has been demonstrated in recent examples involving TJX Cos. and Raytheon, and to a lesser extent, Enterprise Bank.

Now I present to you Progress Software, a provider of enterprise software based in Bedford’s Oak Park.

Progress is pretty new to the dividend game — it only started paying them last year, and the yield is a modest 1.3 percent. But on Sept. 12, the company announced that it was giving its shareholders a 12 percent raise, as the quarterly payout increases from 12.5 cents per share to 14 cents per share, starting in December.

Adding to the good news was that Progress reported “preliminary” third-quarter earnings that were better than expected. The official report for what the company calls its third quarter (June 1 through Aug. 30) comes Wednesday afternoon. And if you’re a stock geek, you don’t want to miss that one — and it has nothing to do with dividends and earnings.

Progress has been in a bit of a tiff with its second-largest shareholder, a hedge fund called Praesidium Investment Management. During the summer, New York-based Praesidium requested (OK, demanded) that Progress replace Jack Egan, chairman of the board of directors, and to acquire an unnamed private company favored by the hedge fund.        

This past week, Progress publicly responded negatively to those demands, saying Egan (son of Richard Egan, the “E” in EMC Corp.) had the support of directors and that the suggested acquisition “was not in the best interest” of shareholders.   

Both Progress and Praesidium have declined to name the targeted company, although Reuters reported that it is Aptean Inc., an Atlanta-based enterprise software company that Reuters reported was put on the market last year in an effort to fetch $1 billion.

Praesidium managing partner Kevin Oram said in response to Progress’ statement Tuesday that Progress “did not address the central concerns of our letter and presentation,” which also include adding five board members, including a Praesidium representative. Praesidium later told the Boston Business Journal that it was “not going away,” although it has modestly reduced its stake in Progress in recent months.

(Disclosure: Oddly enough, Mr. Oram and I are high school classmates, although we have not spoken in about nine years).

As a shareholder, disagreements such as these shouldn’t necessarily be viewed as a bad thing. Praesidium, if nothing else, is pushing Progress to perform to its highest level. The company’s better-than-expected third-quarter earnings and dividend increase are certainly signs that the company is performing well, and if Praesidium (which told its investors earlier this year that 40 percent of its portfolio was in enterprise software) pushes it to do better, then it’s all the better for you.

Progress shares closed Friday at $37.29, and they’re up more than 18 percent so far this year. On Tuesday they reached their all-time closing high of $37.71.

Finally, Progress management has even given its shareholders some transparency on its dividend policy. In the release earlier this month, it said it was setting a target to pay out 25 percent to 30 percent of Progress’ annual cash flow from operations in dividends. 

TJX shareholders get (another) 20 percent raise


DOUBLE THE DEALS: TJX Cos. has a T.J. Maxx store immediately abutting a HomeGoods store off Route 102 in Londonderry, N.H. Customers can browse both stores without having to leave and re-enter.  

How would you have like to have gotten a 20 percent raise in each of the past four years? If you were a shareholder of TJX Companies Inc., owner of the discount T.J. Maxx, Marshalls and HomeGoods chains, you know what I’m talking about.

Framingham-based TJX Companies Inc. on Friday announced the declaration of a quarterly dividend on its common stock of 31.25 cents per share payable Nov. 30, to shareholders of record on Nov. 9.

This will mark the second consecutive quarter that TJX will have issued that payout, after increasing it from 26 cents per share, or 20.6 percent, during the spring.

That’s a great annual percentage raise, and it’s not exactly news for TJX shareholders.In 2013, the first year the company issued a dividend, the quarterly payout was just 14.5 cents per share. It increased 20.7 percent, to 17.5 cents per share the following year, and then another 20 percent, to 21 cents per share, in 2015. Then it went up by 23.8 percent, to 26 cents per share in 2016.

Shares closed Friday at $73.74, up 53 cents on the day. They’re actually down a bit — 50 cents, or 0.7 percent) from the start of the year.

The stock actually hasn’t done a lot in four years — it closed out 2013 at $63.73, 2014 at $66.11, 2015 at $69.15 and last year at $74.24. It’s been a steady, if unspectacular rise, and there’s been very little volatility. Yahoo Finance reports a beta of 0.44, meaning the shares are less than half as valuable as the market as a whole.

The elephant in the closet: Yeah, but TJX is retail, and thanks in large part to Amazon, retail stocks have stunk. So far, TJX has been relatively immune to Amazon’s threat. TJX is cheap, it turns its merchandise over quickly and its customers seem to know exactly what to expect when they come inside the store. And they get it.

Furthermore, according to a recent article in Forbes, TJX has just four senior vice presidents in addition to its CEO. Macy’s has 10. So TJX appears to run a tight ship.

Valuation? Admittedly, meh.. It sells for 21 times trailing 12-month earnings and 17 times forward earnings (that is, what’s expected in the current fiscal year, which ends in January). So it’s not a blow-you-away bargain. But for what it’s worth, it’s in the same league as Walmart, whose shares sell for 19 times trailing earnings and 17 times expected earnings.   

The stock yield still isn’t much — 1.7 percent. But only a little more than 30 percent of TJX’s earnings are paid out as dividends. So the payout is safe, and has room to grow.

Maybe even another 20 percent next year.

Disclosure: I do not at present own shares of TJX.


Why I’m Not Selling My GE Shares


On Monday, the Dow Jones industrial average leapt more than 250 points. But it was no thanks to General Electric, one of the venerable stock index’s 30 components, and which saw its shares decline modestly.


It’s been that kind of year for GE, whose stock price has dropped more than 23 percent this year. It’s by far the index’s worst performer, the so-called “Dog of the Dow.” And the past two months, in particular, have been brutal:

  • There was a poor, but not entirely unexpected, second-quarter earnings report in mid-July. That led to CEO Jeff Immelt to announce his resignation. I was starting to become increasingly convinced that he would get in 20 years, just like his predecessor, Jack Welch, and just like his predecessor, Reginald Jones. It was looking like a GE thing. Hire a CEO at 45, and let let him ride it til the end.
  • In mid-August, it was revealed that Warren Buffett’s Berkshire Hathaway had sold all of its (remaining) shares. Of course, there are people who think everything Buffett touches is gold, and everything he rejects is junk — which in turn plays a large role in why his moves end up looking better than they might otherwise be. The copycats give his investment performance a nice little tailwind.
  • Later came word that the company would make $2 billion in non-specified cuts. Boston Mayor Marty Walsh made sure to insist that any action regarding personnel would not affect the number of people (reportedly about 800) coming to Boston in the headquarters move. We’ll see.
  • And finally, several analysts have warned GE will cut its dividend for the first time since 2009, when it slashed the quarterly payout from 31 cents per share to 10 cents. Ouch.

Again, that’s just in the past two months. Shortly before that, analysts began cutting their ratings, in at least one case to “Sell.” They made some noise about sluggish organic growth. Weak cash flow. Face it, the days of former Prudential Securities analyst Nicholas Heymann cheerleading Welch’s every move are long over. 

By the way, I am a GE shareholder. It’s one of two (Johnson & Johnson is the other) that I acquired as part of a dividend reinvestment program nearly a decade ago. And while I am mildly concerned about the potential dividend cut, I have no plans to sell my holdings (and it goes without saying, said holdings are far more modest than were Mr. Buffett’s).


I guess I just think that GE is too broadly diversified, with holdings in aviation, power, health care, water treatment and, yes, even still light bulbs. It’s too technically sound and its management is too deep and, frankly, too good for this iconic conglomerate to just die. New CEO John Flannery has a lot of problems to solve, but I really think he’s going figure most of them out.

I’ve dealt with a dividend cut before and while I don’t like it, it doesn’t have to be the end of the world. I mean, look at Chrysler a generation ago. It stopped paying dividends altogether in 1980, and didn’t restart them until 1984. It sustained a bankruptcy and a humiliating bailout from the federal government. Yet by 1997, its dividend had roared to $1.60 per share annually — more than half its share price from 20 years earlier (split adjusted).

GE is a hell of a lot better company than was Chrysler, a one-trick pony that was No. 3 in its specialty — making and selling cars.

In my dividend reinvestment plan, I bought 10 shares of GE in May 2008, and paid $32.40 apiece. The dividend then was the aforementioned 31 cents per share quarterly, for a yield of 3.8 percent.

The following year the dividend was cut to 10 cents quarterly (Great Recession, mind you). The share price plummeted to less than $6 at one point, but I kept on reinvesting the dividend payout. I also threw an occasional and spare $100 at it, recognizing that this company simply was not going to fail. It was not WorldCom or Webvan or even AIG. It’s a diversified conglomerate that makes and sells real things — in some cases, very complicated things, like wind turbines, aircraft scanners and CT scanners. Things that make it impractical to attract much competition.  

Today my shares (I now have about 35 of them) sell for a little less than $24. That’s not a good capital return from 2008 — down more than a quarter. But it’s a pretty terrific one from the depths of the spring of 2009. And I’m getting a 4 percent yield while I wait for the dust to clear on this most recent “crisis.” And I really believe it will.

Besides, MSNBC loud-mouth Jim Cramer said this week that GE is “not yet a buy.” Doesn’t that tell you “buy”?

GE recently announced that Mr. Flannery will make his first official report to investors. I look forward to it. And in the meantime, I may even find another $100 to throw at my dividend reinvestment plan.   


Acton’s Psychemedics could prove to be lucrative sleeper


I first noticed Acton-based Psychemedics several years ago when its shares were yielding 6 percent. When I looked into it further, I found the company was profitable, too.

I was thrilled with the discovery. But I also wondered why nobody else seemed to notice.

Psychemedics, which is headquartered at Nagog Park, provides testing services for the detection of drugs through the analysis of hair samples. Services are sold to such entities as employers, for applicant and employee testing; treatment professionals; law-enforcement agencies; school administrators; and even parents who may be concerned (or suspicious) of a child’s drug use.   

With our nation’s opioid epidemic raging on, a company like this stands to get attention. That said, Psychemedics’ more recent news centers around a contract it won a couple years ago to supply testing for professional drivers in Brazil.

This week Psychemedics released its second-quarter results, and some may view them as being a little disappointing. Revenue was $9.7 million, flat with the same quarter a year ago. Net income came in at $900,000, or 16 cents per share, which was lower than the comparable year-ago figure ($1.6 million, or 30 cents per share).

Shareholders indeed punished the stock. It closed Wednesday at $25.84, which was already down a little bit from its 2017 closing high of $27.15 on July 11. The second-quarter results were announced after the markets closed on Wednesday, and on Thursday the stock slid by $4.60 (17.8 percent) to close that day at $21.24. Today (Friday), as I write this, shares have declined even further, to about $20.50.

A price of $20.50 gives Psychemedics a yield of about 2.9 percent. The heady days of 6 percent payouts are probably gone, but nearly 3 percent isn’t too bad.

Psychemedics has paid a quarterly dividend consecutively for 21 years — it makes this clear in the opening paragraph of its second-quarter earnings report. But said dividend hasn’t risen steadily, as has been the case with other companies covered here, like Enterprise Bank and Raytheon. In fact, it’s been stuck at 15 cents per share, per quarter, since 2012. In 2008 it was as high as 17 cents per quarter, with a special 50-cent-per-share payout in the fourth quarter of that year. The current payout ratio, according to statistics posted in Yahoo finance, is 40 percent, meaning the company pays out 40 percent of its profits in dividends. So there’s some room to grow it again.

CEO Raymond Kubacki noted in this week’s release that while the second-quarter results “may appear to be disappointing,” he added that they “do not reflect the underlying strength of the company.” He also noted that the second quarter is the first in which the company has a year-over-year comparison that includes its new Brazilian market.

Kubacki then presented a strong case for why the Brazilian deal is going to be lucrative going forward. I’ll give his case here, as taken from the aforementioned press release:

  1. It is a large and expanding market. The Brazil professional driver market is large by law (all professional drivers must pass a hair test in securing and renewing their driver’s license), and it is also expanding by law (the law requires that in September 2018, professional drivers must renew their licenses every 2½ years, instead of the current every 5 years). This virtually doubles the size of that major portion of the market. At the same time, the great success of this professional driver program (highlighted below) has the government discussing and considering possibly requiring a hair test for some other types of drivers licenses. These factors and results have given us confidence in the long-term attractiveness of this market.
  2. We have recognized from the beginning that there are greater uncertainties and continual challenges that accompany any new, large market as it develops, and we plan to address them, as they may occur. In the past quarter, we have made a number of strategic decisions and are implementing a number of strategic initiatives that we believe are in the best long-term interests of the company. Our market share remains strong and we have taken further strategic actions to solidify and strengthen our long-term position in the market.  In addition, we now have established a wholly-owned subsidiary in Brazil and have brought on a Country Manager, a Brazilian national to manage our business in Brazil and work with our distributor. We believe in the long-term attractiveness of this market and are willing to make short-term investments and sacrifices. As you know, public companies are often criticized for managing too much for the short term. With these strategic initiatives, we believe we are managing the company for the long term.

Kubacki then threw out some impressive numbers, including that highway deaths and disabilities in Brazil declined by 39 percent during the first year of the testing. Perhaps more telling, 31 percent of professional drivers chose not to renew their licenses, a sign that the bad apples are being weeded out.

Finally, the CEO goes on to mention that Psychemedics’ U.S. business is “gaining strength.” I would be interested in hearing in the not-too-distant future of other international opportunities; after all, if this technology is such a hit Brazil, why can’t it be anywhere else?

I don’t own Psychemedics at this time, but I am starting to pay closer attention again. There seems to be a lot of promise, and the company has shown a willingness to pay dividends to those willing to wait for growth. Dividends are a big part of this blog’s point of emphasis. A modest dividend now looks awfully good 10 years down the line if it gets steady increases while you hold shares.

The company’s other stats are pretty good. Psychemedics now sells for 13.8 times its last 12 months of earnings, and 2.6 times sales. It’s not particularly volatile, as its beta of 0.96 suggest it’s actually a smidge less volatile than the typical stock. It has nearly $7 million in cash, against $3 million in debt.

Lastly, Psychemedics is not a well known or heavily traded stock; its average daily volume is less than 30,000 shares daily. Even when investors reacted after this week’s earnings report, Thursday’s trading amounted to 128,500 shares, or about four times typical volume. That still isn’t a lot. And I like that, because if you’re in before the institutions, you get to ride their coattails once they decide the company is worth their attention.

Psychemedics, at the very least, appears to be a promising sleeper. Should its expectations in Brazil and beyond come to fruition, it could be a lot more than that.

Enterprise Bank, a model for internal growth, opens 24th branch



Lowell-based Enterprise Bank recently opened its 24th branch office, at 15 Indian Rock Road in Windham, N.H. 

It’s easy to forget that Lowell’s Enterprise Bank has yet to see its 30th birthday. Steady growth will do that, and then some.

Sometime in recent days — I can’t pin it down, although I drive by nearly every day — Enterprise opened its 24th branch office. It’s at 15 Indian Rock Road in Windham, N.H. That address sounds like it might be somewhere in the proverbial sticks, but it really isn’t. It’s Route 111, a major thoroughfare connecting commuters from Nashua and Hudson to I-93 on the other side of Windham, abutting the Salem line. The road is essentially the main street of Windham, a bedroom community that in recent years has chipped away at developing a commercial center. There’s a wine shop, a 24-hour fitness center, the expected gas station/convenience store and several other small businesses. There’s a Shaw’s supermarket up the street. Plenty of traffic.

But there’s also only one other bank in the vicinity, and I say that with some degree of hesitation. A Santander Bank branch sits well off the road about a half-mile east, hidden partially behind trees and the aforementioned Shaw’s. It’s pretty easy to miss, unless you’re looking for it.

So this is (another) great opportunity for Enterprise Bank to gain market share organically, something it’s been quite adept at ever since founder George Duncan decided to start the institution from scratch in the midst of a national savings and loan scandal, in 1988.

Did you know…. that Enterprise has posted net income of more than $20 million in the 12 months ended June 30? That’s roughly $1.77 per share. Perhaps more impressively, the bank seems to announce 8-11 percent year-over year growth in categories such as loans, deposits, net income and total assets almost like clockwork.

Ask Duncan (still whistling to work each weekday, at age 77) or CEO Jack Clancy how the bank manages to do this, and you get the same canned answer(s): contributions from our dedicated team, community involvement, relationship building and a customer-focused mindset.

Sure, it sounds corny. But it’s true.

Enterprise’s growth kicked up a notch last year, and  investors noticed — the stock closed out 2016 at $37.26, about 70 percent higher than its low for the year. This brought the bank’s price-earnings ratio up to the mid-20s, which is rather rich for a bank stock.

But while the growth has continued at a high level (the second quarter brought a 17 percent gain in net income, for example), shares have stagnated. They closed Tuesday at $33.98, down nearly 9 percent on the year. The price-earnings ratio has settled to about 19 — still not cheap, but not exorbitant for a proven grower.   

Longtime observers will point out the fact that this is a stock that rewards its investors with dividend hikes each year. Enterprise currently pays 13.5 cents per share, per quarter, or 54 cents per year. The yield is modest (1.55 percent),  and so is the annual increase — 2 cents per share, per year, since 2008. But for 10 years running, and I don’t have to remind you that this period encompasses a rather nasty economic downturn, you’ve been getting that raise. And longer than 10 years ago, the annual percentage gains were higher.

Has your job been as dependable in terms of issuing raises?

Suppose you bought shares on June 30, 2008. You would have paid about $11.75 apiece. The annual dividend then was 38 cents per share, or 3.2 percent. Not too bad. Now suppose you held those shares until now. Well, in 2017 you’re getting 54 cents per share for those same shares (which have tripled in value, by the way). That’s a yield of 4.6 percent, based on the 2008 price that you paid. See? The yield only looks puny when you compare with shares bought today. If you’re a buy-and-hold investor with a steady dividend payer (and increaser), the yields look a lot better.

A year or two ago, a colleague of mine asked me if it was a good idea to add to his Enterprise holdings. They were trading at about $24 at the time. I responded that I thought the price was a bit rich, that he would likely get them for a cheaper price a few months hence.

I was wrong. Dead wrong. It wasn’t until this year that the rally ended. Actually, more like plateaued. It just goes to show (again) that just because a stock goes up, doesn’t mean it won’t go up more. If it’s a well-run company, and pays an increasing dividend each year (the two often go hand in hand), there’s rarely a bad time to get a piece of the action.

I worked in Lowell for more than 20 years. I can say I would be hard-pressed to find a public company that’s as well-run as this one.