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This is a series of articles describing how to quickly understand the key aspects of the annual report from a company that you have invested in with your hard earned money. This series started with an overview post on November 30, 2010.

7. Dividends

I typically do not like dividends. There are truly bad companies on the market that use dividends to keep their stock holders satisfied rather than using that money to grow the company and create long-term growth. Also, I buy a stock when its price is growing and sell it when the market is moving against the stock; therefore, I may miss a dividend payout in order to preserve my capital during a market correction. When you become addicted to dividends, you lose the perspective that the company may not be performing adequately or you may be tempted to stay with a stock during a price correction that ultimately erodes your investment cash.

I personally prefer that the company keep its dividend to a minimum and use its cash to grow the company faster. This will cause the stock price to appreciate in the long term. Your investment strategy may be different though.

Even though I don’t make my decisions based on dividends, it is important to understand what the company is doing regarding dividends. The annual report is the communication vehicle for the management of the company to tell you, the owner, how much you will be receiving for your dividend check.

You need to be comfortable with this payout. Is it adequate? Is it hurting the other investments the company could be making? Is it increasing enough to fit your goals?

Here are the links to all 9 posts of the series:

  1. The 7 critical items to read first in an annual report in 20 minutes (Part 1 of 9)
  2. The 7 critical items to read first in an annual report in 20 minutes (Part 2 of 9)
  3. The 7 critical items to read first in an annual report in 20 minutes (Part 3 of 9)
  4. The 7 critical items to read first in an annual report in 20 minutes (Part 4 of 9)
  5. The 7 critical items to read first in an annual report in 20 minutes (Part 5 of 9)
  6. The 7 critical items to read first in an annual report in 20 minutes (Part 6 of 9)
  7. The 7 critical items to read first in an annual report in 20 minutes (Part 7 of 9)
  8. The 7 critical items to read first in an annual report in 20 minutes (Part 8 of 9)
  9. The 7 critical items to read first in an annual report in 20 minutes (Part 9 of 9)

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Company name ResMed Inc.
Stock ticker RMD
Live stock price [stckqut]RMD[/stckqut]
P/E compared to competitors Fair
MANAGEMENT EXECUTION
Employee productivity Fair
Sales growth Good
EPS growth Good
P/E growth Poor
EBIT growth Good
ANALYSIS
Confident Investor Rating Fair
Target stock price (TWCA growth scenario) $51.22
Target stock price (averages with growth) $70.95
Target stock price (averages with no growth) $54.32
Target stock price (manual assumptions) $44.58

“ResMed Inc. (ResMed), is a holding company for the ResMed Group. The
Company, through its subsidiaries, is a developer, manufacturer and
distributor of medical equipment for treating, diagnosing, and managing
sleep-disordered breathing and other respiratory disorders. Sleep-disordered
breathing (SDB), includes obstructive sleep apnea (OSA), and other
respiratory disorders that occur during sleep. It has developed a number of
products for SDB and other respiratory disorders including airflow
generators, diagnostic products, mask systems, headgear and other
accessories. Its manufacturing operations are located in Australia,
Singapore, France and the United States. Major distribution and sales sites
are located in the United States, Germany, France, the United Kingdom,
Switzerland, Australia, Norway and Sweden. On October 1, 2009, it acquired
100% of Laboratoires Narval SA. Laboratoires Narval manufactures and
distributes a mandibular repositioning device (MRD). ”

Confident Investor comments: At this time, I think that a Confident Investor can cautiously invest in this stock as long as the price is correct. Most of the fundamentals of this company are good but there are some concerns.

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Company name Old National Bancorp
Stock ticker ONB
Live stock price [stckqut]ONB[/stckqut]
P/E compared to competitors Fair
MANAGEMENT EXECUTION
Employee productivity Poor
Sales growth Fair
EPS growth Poor
P/E growth Good
EBIT growth Poor
ANALYSIS
Confident Investor Rating Poor
Target stock price (TWCA growth scenario) $13.29
Target stock price (averages with growth) $13.36
Target stock price (averages with no growth) $9.9
Target stock price (manual assumptions) $11.09

“Old National Bancorp (Old National) is a financial holding company. Old
National, through its wholly owned banking subsidiary, Old National Bank,
provides a range of services, including commercial and consumer loan and
depository services, investment and brokerage services, lease financing and
other traditional banking services. Through its non-bank affiliates, it
provides services to supplement the banking business, including fiduciary
and wealth management services, insurance and other financial services. The
Company provides financial services primarily in Indiana, eastern and
southeastern Illinois, and central and western Kentucky. Old National
operates in two segments: community banking and treasury. ”

Confident Investor comments: At this price and at this time, I do not think that a Confident Investor can confidently invest in this stock.

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This is a series of articles describing how to quickly understand the key aspects of the annual report from a company that you have invested in with your hard earned money. This series started with an overview post on November 30, 2010.

6. Shares outstanding and Stock repurchase

You will almost definitely need to search for these terms in order to read about this information. The discussion will likely be buried in the report and not obvious in the Table of Contents.

You need to understand why the shares outstanding changed. Did the company buy back a lot of shares via a stock repurchase plan? Did they issue more shares?

There is no right answer for this metric but you need to understand what happened and you need to be comfortable with the reason. Was this change in your long-term best interest even if it hurt you in the short term? You definitely want to make sure that the company is not changing this number to hide some other shortcoming.

While stock repurchasing is a way to increase the stock price of the company, it generally means that the company is using its own cash to buy its stock. This means that the company isn’t using its money to pay for long-term assets or revenue producing assets. Do you really like the idea that the company is putting $5,000,000 into its own stock rather than spend that money on better marketing or more product development?

Here are the links to all 9 posts of the series:

  1. The 7 critical items to read first in an annual report in 20 minutes (Part 1 of 9)
  2. The 7 critical items to read first in an annual report in 20 minutes (Part 2 of 9)
  3. The 7 critical items to read first in an annual report in 20 minutes (Part 3 of 9)
  4. The 7 critical items to read first in an annual report in 20 minutes (Part 4 of 9)
  5. The 7 critical items to read first in an annual report in 20 minutes (Part 5 of 9)
  6. The 7 critical items to read first in an annual report in 20 minutes (Part 6 of 9)
  7. The 7 critical items to read first in an annual report in 20 minutes (Part 7 of 9)
  8. The 7 critical items to read first in an annual report in 20 minutes (Part 8 of 9)
  9. The 7 critical items to read first in an annual report in 20 minutes (Part 9 of 9)

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Company name IBERIABANK Corporation
Stock ticker IBKC
Live stock price [stckqut]IBKC[/stckqut]
P/E compared to competitors Good
MANAGEMENT EXECUTION
Employee productivity Fair
Sales growth Good
EPS growth Good
P/E growth Good
EBIT growth Good
ANALYSIS
Confident Investor Rating Good
Target stock price (TWCA growth scenario) $91
Target stock price (averages with growth) $118.3
Target stock price (averages with no growth) $95.77
Target stock price (manual assumptions) $73.4

“IBERIABANK Corporation (IBERIABANK) is a multi-bank financial holding
company with 209 combined offices, including 136 bank branch offices in
Louisiana, Arkansas, Florida, Alabama, Tennessee, and Texas, 26 title
insurance offices in Arkansas and Louisiana, and mortgage representatives in
47 locations in 12 states. The Company is the holding company for
IBERIABANK, a Louisiana banking corporation, Louisiana; IBERIABANK fsb, a
federal savings bank; Lenders Title Company, an Arkansas-chartered title
insurance and closing services agency and IBERIA Capital Partners LLC, a
corporate finance services firm in formation. The Company offers traditional
commercial bank products and services to its clients. These products and
services include a an array of commercial, consumer, mortgage, and private
banking products and services, cash management, deposit and annuity
products, and investment brokerage services. ”

Confident Investor comments: At this price and at this time, I think that a Confident Investor can confidently invest in this stock.