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I've been attempting to evaluate stocks based upon criteria given in "Dividend Stocks for Idiots." This begins with determining certain ratios -- Dividend per share, Indicated Dividend per share, Earnings per share, price to earnings, etc. So before starting to evaluate anything, I thought I should just spend some time trying to determine these figures for a single stock. I used AT&T (T).
I've run into problems, and I hope that perhaps some of you experienced in evaluating companies might help.
First, when I attempt to calculate these ratios on my own (using balance sheets on Yahoo, say), I find it difficult to do. I'm looking for "Net Profit" and what I am given is "Net Income." Is that the same? I don't know, but when I make my best guess, I end up with ratios that diverge greatly from ratios I find on the web for the same company.
Second, that got me looking on the web for these ratios rather than calculating them myself. I found that something as simple (I would have thought) as P/E differs greatly on the web. I found P/E values for AT&T that ranged from 9.40 to 44.90! Clearly I'm missing something -- perhaps this last value is some sort of percentage rather than a ratio. I'm attempting to approach the idea of evaluating stocks objectively, but I'm wondering if there is anything objective at all about all this data.
Any suggestions? (Short of hiring a financial adviser...)
The P/E ratio if calculated on the same numbers should be about the same. I just looked at the P/E ratio on T at the two sources I use Yahoo finance and Smith Barney and it was 14.87 on one and 14.89 on the other or basically the same. As far as net profit and net income they should be the same but it depends a lot on accounting methods used. Also, if the figure is stated before taxes and other items. I would not get into too much detail on what is reported in a financial statement. The statements are prepared by accounts and lawyers who can almost make it look like anything they want it to.
AT&T (T) is a stock I have held for years because of it's dividend. It has went down in value and up in value but I have always received my dividend. It is in an industry that I like. Every body needs a cell phone (not me) to text or talk to each other while I am trying to eat in a restaurant. They are now used for data and even TV. AT&T and Verizon are the leaders in this market in the US. What I am trying to say is when you look at a dividend paying stock look at the industry the company is in and how it is preforming in that industry.
When I am looking at a stock I look at the P/E ratio. I like a ratio of 10 to 20 generally. If it is above or below what I like I try to find out why. I also look at the income per share to make sure it's income is above the dividend it is paying and if it is sustainable. Once I find a stock I like I look at news articles on the stock I use Yahoo and Smith Barney. All of your discount brokers offer the same service. Than I take a chance. Investing in stocks is a risk. I have done OK but many people have not. The stock market reacts irrationally in many ways to news good or bad. To be a successful investor you should not.
Please remember this is not investment advise as I have no idea what I am doing.
Thanks. The problem, I'm realizing, is whether or not the ratios are figured over different periods of time. Looking at Yahoo, it looks like AT&T had a loss last quarter compared to a profit the previous three. If I figure the ratios using figures from last quarter, they turn out wildly different than those on the web which, apparently, average performance together over a period of time. I guess there is not simple way for me to do this sort of analysis on my own (with my little Excel spread sheets) with the level of knowledge that I have. I have NO background in business or anything related to it, so the jargon (or "terms of art", to be generous) are confusing -- particular since different terms seem to mean the same thing -- or seem to.
And freein05, I'm no where CLOSE to putting any money in the stock market. I'm just trying to see if I can figure out how to go about evaluating stocks if I were. I'll just stick to the Yahoo site, I guess, and work from that.
Not to beat a dead horse, but I just looked up At&t P/E ratio on E*trade and they give it as "P/E (Trailing 12 mo.)...44.56x". What the #$%? Well, if I run my p/E formula for this latter quarter, figuring in the loss that I see on Yahoo, I get P/E=41.46. But that's for the one quarter -- how can that be for "Trailing 12 mos.", which would yield something more like your P/E=15. Clearly I'm comparing apples and oranges. I guess they all just look like "fruit" to me.
Maybe I should just go back to my CDs and forget about it...
There is absolutely nothing wrong with investing in CDs. I would keep maturities less than 5 years. Interest rates are bound to go up down the road. The fed said yesterday they will keep rates low till 2014.
You may also talk to E-Trade or other firms about mutual funds and exchange traded funds. Tell them what your goal is and let them give you some suggestions. Talk does not cost anything.
Capital One and Ally Bank, among others, are paying around 1% on savings or money market accounts. You might compare the CD rates you are looking at to these rates before going with a CD.
However, I got tired of earning these low rates and bought a portfolio of higher yielding stocks and high yield mutual funds and have been quite happy. Check-out seekingalpha.com for some ideas about buying high dividend stocks.
... I got tired of earning these low rates and bought a portfolio of higher yielding stocks and high yield mutual funds and have been quite happy.
Others have said the same thing in this forum, but, for the life of me, I don't see where these "higher yields" are coming from. CD rates go to a little below 3% now, and I don't see stock dividends that are doing much better. Maybe I'm looking in the wrong place. Are these "higher yields" calculating in the appreciation of the shares?
CDs have a definite yield with a definite maturity; dividend stocks have a variable yield with infinite maturity. I'm not arguing in favor of CDs, just trying to understand how, objectively, these stocks look better.
Maybe the operative phrase is "have been quite happy." I guess that's what it comes down to: finding a strategy that provides the income you need and still lets you sleep at night.
I'd still like to understand the advantage of these stocks that so many seem to see. Ah, well, I'll just keep hacking away at it...
PS ... and thanks for the link, Stuboyle, a lot of interesting information.
dado potato
1-28-12, 12:17pm
www.seekingalpha.com is a site that includes a lot of commentary (good, bad, and indifferent) about dividend stock investing. It it possible to search all the recent articles about a specific stock, such as T. Also, it is often possible to ask of a poster (and get good, bad, and indifferent answers) questions one may have about confusing ratios and what-not.
My rule of thumb for CDs is, 1% or less, I buy a six month term, @2% 1 year, @3% 2 years, 4% 3 yrs, 5% the longest term offered. My IRA has some CDs still getting 5%.
My rule of thumb for CDs is, 1% or less, I buy a six month term, @2% 1 year, @3% 2 years, 4% 3 yrs, 5% the longest term offered. My IRA has some CDs still getting 5%.
Thanks, reader99. My rule of thumb has been "the highest rate at less than 10 years." I get a de facto laddering of CDs that way.
I've still got some CDs at over 6%, believe it or not. For what it's worth -- and it's not much -- I don't think there is gonna be any significant inflation for a long time. So I'm still buying the highest rate under ten years which, at the moment, seems to be PenFed CU at 2.75%/7 yrs.
Since I don't think there's gonna be much inflation, and since that means that rates will stay low, I'm looking into dividend-yielding stocks since so many folks swear by them. I imagine getting the same low yield but maybe some appreciation of principal. But I'm afraid that might be too exciting for me. My tolerance for gambling -- er, "risk" ;) -- is pretty low.
.. and thanks for the heads-up on seekingalpha.com, dadoPotato.
Mangano's Gold
1-29-12, 6:28pm
uji, I've got to say that I think it pretty neat that you are trying to recalculate P/E ratios. I think your approach (picking one company to test) is a good way to understand where the numbers are coming from. I have a few comments below.
Thanks. The problem, I'm realizing, is whether or not the ratios are figured over different periods of time. Looking at Yahoo, it looks like AT&T had a loss last quarter compared to a profit the previous three. If I figure the ratios using figures from last quarter, they turn out wildly different than those on the web which, apparently, average performance together over a period of time. I guess there is not simple way for me to do this sort of analysis on my own (with my little Excel spread sheets) with the level of knowledge that I have. I have NO background in business or anything related to it, so the jargon (or "terms of art", to be generous) are confusing -- particular since different terms seem to mean the same thing -- or seem to.
And freein05, I'm no where CLOSE to putting any money in the stock market. I'm just trying to see if I can figure out how to go about evaluating stocks if I were. I'll just stick to the Yahoo site, I guess, and work from that.
Not to beat a dead horse, but I just looked up At&t P/E ratio on E*trade and they give it as "P/E (Trailing 12 mo.)...44.56x". What the #$%? Well, if I run my p/E formula for this latter quarter, figuring in the loss that I see on Yahoo, I get P/E=41.46. But that's for the one quarter -- how can that be for "Trailing 12 mos.", which would yield something more like your P/E=15. Clearly I'm comparing apples and oranges. I guess they all just look like "fruit" to me.
Maybe I should just go back to my CDs and forget about it...
As of this writing, I'm calculating AT&T's P/E (trailing 12 mo) as 44.18. Mind you, this will move as the stock price moves (which is daily/hourly) or when earnings are released (quarterly). Trailing 12 mo's is commonly used because it gives you a year worth of data. Using one quarter alone (and multiplying it by four) is not a good approach since it is such a short period of time and you can have pretty wild swings because of seasonality or other things (like AT&T showing a loss).
Here is how you get the 44.18 - first you need the EPS figure. I got AT&T's from [see pdf link below from AT&T's site). On page 5, go to the line "Diluted Earnings (loss) per Share." Your book should define what this is. The EPS for the last four quarters were: ($1.12), $.61, $.60, and $.57. If you add them you get $.66. This means that each share of stock* earned during the past year (trailing 12 mo's). That $.66 is our denominator.
The stock price right now is $29.16 (the numerator). So $29.16/$.66 = 44.18.
When reading the various P/E's you saw on the websites, the key is to know which periods/dates they are referring to. You may see forward-looking P/E's which are guessing at what 2012 may look like. Or they may be a snapshot it time, but that time was last month or quarter.
Sorry if you are more confused than before reading this...lol
http://www.att.com/Investor/Growth_Profile/download/master_Q4_11.pdf
* it is a little more complicated than that but that is essentially what it means.
Mangano's Gold
1-29-12, 6:37pm
Also, above you asked about "net profit"and "net income". Net Income is the term in US accounting standarsinds (GAAP). I'd guess that your book used the term "profit" since it is a general term. International Accounting Standards (IFRS) use the term "profit", though.
On a separate note, in my opinion individuals doing research for investing purposes isn't very useful. I mean, one isn't likely to make better decisions by pouring through financial information. People who live, eat, and breather this stuff already do. So anything you find has already been factored into the stock price. Just my opinion.
Sorry if you are more confused than before reading this...lol
Not at all! This is just what I needed. I calculated a value, then saw these wildly differing values for the same thing, and just wanted some reassurance that I was on the right track. (At least in calculating P/E.)
As to calculating the value myself:
First, I won't put money in anything I don't understand; so I have stayed clear of stocks. So many folks say they are doing well either investing in "dividend stocks" or in "value investing," I thought I'd take a little time and try to sort things out -- for myself, anyway.
Second, do you think that the market is "efficient" enough to price intrinsic value of a business into it's stock price? If that's so, how do folks like Mr. Buffet et al. make money? Are they just lucky? (Not rhetorical, by the way, actually hoping for an answer...)
I have been lucky a number of times. Years ago I bought some VW stock because it had a very low price on it. I really had no idea what I was doing. I was new to buying stock. I paid $11 a share in about 6 months it started to go up. Than it started to shoot up I had no idea why. When it hit $115 a share I sold it. If I had waited a day I could have gotten $215 a share. I still had no idea what was happening.
I later found out BMW was trying to buy VW and had bought millions of option on VW and the options were coming due and they had to cover them. So BMW had to pay almost any to buy VW stock to cover it's options.
That nice gain I had on VW was just pure luck. I held the VW stock in my IRA so I did not have to pay taxes on the gain.
Mangano's Gold
1-31-12, 11:16pm
Second, do you think that the market is "efficient" enough to price intrinsic value of a business into it's stock price? If that's so, how do folks like Mr. Buffet et al. make money? Are they just lucky? (Not rhetorical, by the way, actually hoping for an answer...)
Well, I think that the market is efficient enough to make research a waste of time. This doesn't mean that a particular stock (or even the whole market) isn't over or under valued at any point in time. It just means that current values are the collective judgment of a large number of investors. All available information is already embedded in the stock price.
Take AT&T for example. You've got (well-paid) eggheads and whiz kids all over the world who analyze everything there is to know about AT&T. The stock is bought and sold as different players make different judgments on the valuation. And you've got a stock price that moves with these judgments. So the obvious question is - why would some random individual investor think he knows a better price for this stock than the collective judgment of everyone else?
I don't mean to sound discouraging about investing. I find it interesting that you are pursuing knowledge in this area. Particularly if you are coming at this from a different field/background, it is probably a great mental exercise and very educational.
So the obvious question is - why would some random individual investor think he knows a better price for this stock than the collective judgment of everyone else?
I take your point. The question I have now is, why would any "random individual investor" even buy a stock? Sounds like a don't-try-this-at-home sort of enterprise. Perhaps what you mean is that I shouldn't bother calculating these things myself but should look to some reliable professional for the data.
All I'm trying to work out is, if I were to start into stocks, is my only option to put myself in the hands of a "professional", or can I do my own due-diligence?
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