Tag Archives: Hike

Trump panel wants to give USPS right to hike prices for Amazon, others
December 5, 2018 12:02 am|Comments (0)

WASHINGTON (Reuters) – The United States Postal Service should have more flexibility to raise rates for packages, according to recommendations from a task force set up by President Donald Trump, a move that could hurt profits of Amazon.com Inc (AMZN.O) and other large online retailers. The task force was announced in April to find ways to stem financial losses by the service, an independent agency within the federal government. Its creation followed criticism by Trump that the Postal Office provided too much service to Amazon for too little money.

FILE PHOTO – A view shows U.S. postal service mail boxes at a post office in Encinitas, California in this February 6, 2013, file photo. REUTERS/Mike Blake/Files

The Postal Service lost almost $ 4 billion in fiscal 2018, which ended on Sept. 30, even as package deliveries rose.

It has been losing money for more than a decade, the task force said, partially because the loss of revenue from letters, bills and other ordinary mail in an increasingly digital economy have not been offset by increased revenue from an explosion in deliveries from online shopping.

The president has repeatedly attacked Amazon for treating the Postal Service as its “delivery boy” by paying less than it should for deliveries and contributing to the service’s $ 65 billion loss since the global financial crisis of 2007 to 2009, without presenting evidence.

Amazon’s founder Jeff Bezos also owns the Washington Post, a newspaper whose critical coverage of the president has repeatedly drawn Trump’s ire.

The rates the Postal Service charges Amazon and other bulk customers are not made public.

“None of our findings or recommendations relate to any one company,” a senior administration official said on Tuesday.

Amazon shares closed down 5.8 percent at $ 1,669.94, while eBay (EBAY.O) fell 3.1 percent to $ 29.26, amid a broad stock market selloff on Tuesday.

The Package Coalition, which includes Amazon and other online and catalog shippers, warned against any move to raise prices to deliver their packages.

“The Package Coalition is concerned that, by raising prices and depriving Americans of affordable delivery services, the Postal Task Force’s package delivery recommendations would harm consumers, large and small businesses, and especially rural communities,” the group said in an emailed statement.

A mailbox for United States Postal Service (USPS) and other mail is seen outside a home in Malibu, California, December 10, 2014. REUTERS/Lucy Nicholson

Most of the recommendations made by the task force, including possible price hikes, can be implemented by the agency. Changes, such as to frequency of mail delivery, would require legislation.

The task force recommended that the Postal Service have the authority to charge market-based rates for anything that is not deemed an essential service, like delivery of prescription drugs.

BAD NEWS FOR AMAZON

“Although the USPS does have pricing flexibility within its package delivery segment, packages have not been priced with profitability in mind. The USPS should have the authority to charge market-based prices for both mail and package items that are not deemed ‘essential services,’” the task force said in its summary.

That would be bad news for Amazon and other online sellers that ship billions of packages a year to customers.

“If they go to market pricing, there will definitely be a negative impact on Amazon’s business,” said Marc Wulfraat, president of logistics consultancy MWPVL International Inc.

If prices jumped 10 percent, that would increase annual costs for Amazon by at least $ 1 billion, he said.

The task force also recommended that the Postal Service address rising labor costs.

The Postal Service should also restructure $ 43 billion in pre-funding payments that it owes the Postal Service Retiree Health Benefits Fund, the task force said.

Cowen & Co, in a May report, said the Postal Service and Amazon were “co-dependent,” but that Amazon went elsewhere for most packages that needed to arrive quickly.

Cowen estimated that the Postal Service delivered about 59 percent of Amazon’s U.S. packages in 2017, and package delivery could account for 50 percent of postal service revenue by 2023.

The American Postal Workers Union warned against any effort to cut services. “Recommendations would slow down service, reduce delivery days and privatize large portions of the public Postal Service. Most of the report’s recommendations, if implemented, would hurt business and individuals alike,” the union said in a statement. 

Amazon, FedEx Corp (FDX.N) and United Parcel Service Inc (UPS.N) did not return requests for comment.

Reporting by Diane Bartz and Jeffrey Dastin; editing by Bill Berkrot

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Apple: Dividend Hike Ahead
April 9, 2018 6:07 pm|Comments (0)

Apple (NASDAQ:AAPL) investors have enjoyed many years of nice returns, albeit with some volatility along the way. The company is working hard on establishing itself as a reliable dividend grower as well as offering returns in terms of capital appreciation.

Rock-solid fundamentals, rising earnings and a huge cash hoard which is now being repatriated are all strong arguments for this stock to be part of any conservative dividend growth portfolio.

Chart AAPL data by YCharts

This chart basically behaves pretty much exactly the way you would want it to behave. Apart from a correction from mid 2015 to mid 2016 this stock has moved steadily from $ 61 five years ago until the current $ 168, a multiple of 2.75x. Adding in a dividend yield during that time of approximately 1.5% translates into an average annual total return of about 24%. Considering the sheer size of this company that is nothing short of impressive.

Apple’s Dividend History

Though Apple used to pay dividends back in the early 1990’s, I don’t really consider that relevant as the company was quite different back then. The relevant history starts in the summer of 2012. In August of that year the company started paying dividends again, at a split-adjusted quarterly rate of $ 0.38. The level was increased in May 2013 to a split-adjusted quarterly rate of $ 0.436. Ever since, a new and higher dividend has been paid each May.

Chart AAPL Dividend data by YCharts

The dividend is growing nicely and reliably each and every year. Between May 2013 and May 2017, when the dividend was last hiked, it increased from $ 0.436 to $ 0.63. That is 44% or an annual average increase of 9.6%. If we look at the last couple of years the annual rate of increase has been very close to this – at 10.6% in 2015, 9.6% in 2016 and 10.5% in 2017.

This trend suggests that the board targets a very consistent percentage-wise increase every year, where it sees through temporary ups and downs in its business. Comments from Tim Cook also suggests that consistency is a priority. Raises will continue to come, though probably not special dividends.

The payout ratio is not so consistent. It has always been comfortably low but has oscillated between 30% in 2014 to a low of 21% in late 2015 before reaching its current level of 26%. As payout ratios go this one is nothing to worry about. At triple the current level I would start to be concerned. Even with no earnings growth, they could continue hiking the dividend at 10% per year for many years to come.

Upcoming Dividend Hike

As mentioned above, May is the month the dividend has been hiked every year since 2013. In conjunction with presenting its first quarter results, the company also announces updates to its capital returns program. This year, it will present its first quarter results on May 1. This will be a very interesting day indeed.

First of all, investors will of course be interested in following the results from operations and how the iPhone X is doing. Further, particularly dividend growth investors will be following closely to see what the dividend hike will be. Lastly, people will want to know the size of the buyback program, the size of which will be decided both by the company’s results but also the amount of cash repatriated due to the new tax code.

Apple has said it will pay approximately $ 38 billion in a one-time tax to repatriate overseas cash. After paying that tax it will still have more than $ 200 billion left for either acquisitions, buybacks or dividends.

Considering that the underlying business is going quite well with EPS coming in at $ 9.21 in 2017, up 11% from $ 8.31 in 2016, the board has plenty of room to increase the dividend. With the payout ratio as low as it is I will consider a 10% hike as a floor.

Then we get to the upside. Though the company has tended to go for smooth dividend increases and funneling surplus cash to buybacks instead, the sheer size of the cash hoard now suggests that some of this will be channeled to dividends as well. The board must be comfortable that the new level will be sustainable and not be so high that it’s difficult to continue with 10% hikes in the years down the road. It is therefore unlikely to be a massive increase – it would make the board’s job harder down the line.

However, a hike which corresponds to the highest hike it has offered since reinstating the dividend, is quite possible in my mind. The highest increase it has had in recent history is the May 2013 increase of 15% to a split-adjusted dividend of $ 0.436. I believe such a hike is quite possible for two reasons. First, there is an expectation in the investor community that some of the massive cash hoard will go towards an extra large increase. Two, such an increase will not be so large as to make the board uncomfortable as to the sustainability of the dividend.

I therefore think the dividend will be hiked by 10-16% this spring for a new quarterly dividend of between $ 0.69-$ 0.73. I think it is more likely to be at the high end of that range rather than the low end.

Risk Factors

A constant risk for Apple is that a competitor will come up with a product that is vastly more appealing than its most important product, the iPhone. It has weathered competition very well so far, but in an innovative space like this, you never know when a new player comes along. After all, Nokia displaced Ericsson and Apple subsequently displaced Nokia in the mobile phone space. Another risk, as it is a global company, is fluctuation of currencies. An appreciating U.S. dollar will decrease foreign earnings when reported in dollars. Privacy has been on the agenda for some time and has really come to the forefront in recent weeks due to the Facebook (NASDAQ:FB) scandal. Some people are concerned about the possibility of having your health records on your iPhone. Apple has taken a clear stand on privacy but the risk of an adverse event and hence bad publicity will not go away.

Current Valuation

The analysis so far shows a rock solid company with a huge cash hoard and growing EPS. However, if the multiple is too high when you buy, even such a company may eventually turn out to be a bad investment.

In order to gauge whether Apple is reasonably priced or not, I will compare it to two global competitors, Samsung (OTC:SSNLF) and Microsoft (NASDAQ:MSFT).

Apple Samsung Microsoft
Price/Sales 3.8x 1.4x 7.5x
Price/Earnings 17.7x 8.9x 75.1x
Yield 1.5% 0.3% 1.8%

Source: Morningstar

First of all, Microsoft’s earnings multiple looks really high. The company posted a loss in the fourth quarter of 2017, which obviously skews the earnings multiple quite a bit. Even so, in addition to losing the Price/Earnings category, it also loses the Price/Sales category while actually coming out on top in the yield category.

Apple comes in second on Price/Sales, beaten by Samsung. Second place is apparently where Apple is supposed to be in this competition as that is the spot it lands in the two other categories as well. Considering the enormous cash level of Apple, I consider the stock to be quite attractive at these levels.

The analyst community expects Apple to turn out an average annual EPS growth rate over the next five years of 13.2%. If we assume that the multiple stays the same – not unreasonable as the multiple is at a decent level – and adding in the yield of 1.5%, we arrive at an expected annual total shareholder return of 14.7%. That has to be considered a nice expected return no matter what kind of investor you are.

At these levels this stock should be added by dividend growth investors, with an emphasis on growth. The current yield is not too impressive but the growth rate is solid and will likely be higher than normal this year. Further, given the solid fundamentals of this company, you can sleep well at night knowing the money will keep flowing in.

Conclusion

Apple is working methodically to establish itself as a reliable dividend grower. It has consistently increased its dividend by 10%, giving investors predictability. The strong underlying fundamentals together with a huge cash pile make it an almost certainty that this predictable dividend growth will continue for many more years to come. This year, due to the repatriation of overseas cash, the hike will likely be larger with a potential hike of almost 16% to $ 0.73. If you’re looking for a fat yield, there are probably better opportunities out there. If, on the other hand, you are a dividend growth investor looking for a high long term growth rate of the dividend, this stock should be in your portfolio.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Editor’s Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.

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