Raytheon dividend will rise 8.9 percent in ’17

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The board of directors made it official this week, voting for an 8.9 percent annual dividend hike. It’s the 13th straight year the Waltham-based defense contractor has boosted its quarterly payout and, incredibly, all but one of those increases were higher in percentage terms than this one.  

Raytheon has increased its quarterly dividend to 79.75 cents per share from 73.25 cents, bringing the annualized payout to $3.19 from $2.93. The first installment of the new dividend will be paid May 11 to shareholders of record as of April 12.

I wrote two weeks ago (http://bit.ly/2nFp4Ot) about what an incredible deal holding Raytheon stock has been for the past dozen years, and my point had nothing to do with the fact the stock has quintupled in value in that time (not that that hasn’t helped). Rather, my emphasis has been on the steady, and rather outsized, increases in its dividend.

In 2004, Raytheon’s annual dividend was 80 cents per share. This year, it will be nearly quadruple that. Have any of your other sources of income done that? For the vast majority of you, I imagine the answer is no.

This is passive income, that which you do not work for. Someday, you won’t be working, and that someday may come sooner than you want it to. Having an investment that you can count on to go up every year is not a bad asset to have.

Raytheon has done a good job of diversifying its customer base. It has done a better-than-good job of weeding out efficiency in the past few years, as it has grown its profits as its annual revenue has fluctuated between $22 billion and $25 billion.

Earnings per share in 2016 were $7.55, up 11.7 percent from $6.76 recorded in 2015. Researchers at Zacks estimate that the company has long-term earnings growth potential of 7.5 percent — not extravagant but solid enough to maintain some level of dividend growth (if not 9 or 10 percent every year).

Avid ’17 forecast dampens enthusiasm of a solid Q4

 

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The results are in for Avid Technology, and they’re not too late and not too painful.

The outlook for this year leaves a bit to be desired, however.

On Thursday morning, Burlington-based Avid, which makes digital-editing technology used in newsrooms and feature films, reported net income of $5.2 million (13 cents per share) for the fourth quarter of 2016, reversing a loss in the same period a year earlier. Excluding one-time items, profits were 30 cents per share, quite a bit better than the 15 cents per share that analysts were forecasting.

The company posted revenue of $115.3 million in the period, up from a forecast of $113.5 million.

For all of 2016, Avid reported profit of $48.2 million ($1.20 per share) on revenue of $511.9 million. So yeah, for now anyway, Avid shares are selling for just 4 times earnings. But analysts expect earnings of just 13 cents per share in 2017, which would now puts the P/E ratio at something like 36. Not so pretty anymore, right?

There’s also a bit of a disconnect when one looks at revenue expectations for this year. Avid officials announced Thursday they expect revenues to come in at between $405 million and $435 million, which is short of the analyst forecast calling for $447.9 million (and, granted, it’s just three analysts).

Avid shares responded positively on Thursday, moving up 28 cents to close at $4.88. However, they gave back 18 cents Friday to close at $4.70, and appear to have dropped a few more pennies in after-hours activity.

Arrhythmia (ahem, Micron) fighting to get back to profitability

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I said I would weigh in once Fitchburg-based Arrhythmia Research Technology reported its fourth-quarter and year-end 2016 results, and they’ve finally landed. I say “finally” because Yahoo Finance estimated they would be out between March 8-13, and it ending up taking more than a week afterward. Anyway, they’re here.

And they’re… well, kind of blah. For the fourth quarter, Arrhythmia (which, starting Friday, will go by the much more sensible name of Micron Solutions Inc.) reported a net loss of $322,000 (11 cents per share) on revenues of $4.81 million. That’s slightly better than the year-ago results of a loss of $386,000 (14 cents per share) on revenues of $4.75 million.

For all of 2016, Arrhythmia reported a net loss of $712,000 (25 cents per share) on revenues of $19.64 million. Again, the loss was slightly narrower than 2015, which ended with a net loss of $792,000 (28 cents per share) but annual revenues saw a disappointing decline of 8.6 percent, from $21.5 million in 2015.

CEO Sal Emma noted that the 2016 results were “short of sales and profit goals.” He blamed the shortcoming on lower demand from “one large orthopedic customer,”  which of course is always a risk if any one of your customers provides a disproportionate amount of your revenue.   

Another concern is that Arrhythmia is running into a competitive pricing environment with its bread-and-butter sensor products.  

Emma says, however, that Arrhythmia began adding new medical-device and orthopedic customers requiring components used in total knee arthroscopy, surgical instruments and “other implantable fixation devices.” He said margins would expect to improve by the middle of this year. We’ll see.

I do like this company, even though American-based contract manufacturers have gotten killed by global pricing pressures in recent years. I think Arrhythmia has done a good job of diversifying its offerings, most notably with so-called “less lethal” devices — specifically, the 40mm Blunt Impact Projectile used by law enforcement to quell riots and such. It also makes scanning devices used in rifles and festoon clips used to fasten upholstery in automobiles.

I also think Arrhythmia’s valuation is compelling. Shares closed Wednesday at $4.09, given the company a market cap of just over $11.5 million (about 60 percent of annual sales, and that’s pretty modest). And despite being a low-priced stock, Arrhythmia’s shares are not particularly volatile. They post a beta of 0.69, according to Yahoo Finance, meaning they are only 69 percent as volatile as the typical stock.

After losing big money earlier this decade, Arrhythmia posted its only profitable year in 2014, when it earned $659,000, or 66 cents per share. If it can find a way to approach that level of profitability, its current valuation would be seen as extraordinarily cheap — just over six times earnings.

The question is, can it get there — or even close to there?

The low share price makes it easier for small investors to purchase round lots — an even 100 shares of what will soon be called Micron Solutions (Ticker, starting Monday, MICR) currently runs for just over $400, plus commission. For many (but not all) people, that’s an affordable and fun way to get in on a local stock.

I can’t tell you whether Micron is headed for $6 or $2, and as an investor, you have to decide how much you’re willing to lose before getting out.

  

 

Mercury Systems is a hot stock — but for how much longer?

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Don’t look now, but Andover-based Mercury Systems has won another Navy contract. And this one could be a biggie.

Mercury, which has announced a smattering of $2 million and $3 million contracts over the past several months, said after Monday’s market close that it landed a five-year, follow-on pact with the Navy to deliver advanced Digital RF Memory subsystems that support jamming in a multi-threat environment. Potential value: $153 million.

Key word is “potential.” The phrasing of the press release says the pact is worth “up to” that number. It could turn out to be significantly less. But it’s still a much bigger number than we are accustomed to seeing. It also represents more than half of a year’s worth of revenues.

Mercury, under youthful CEO Mark Aslett, has done quite well in recent years. Long based in Chelmsford (it only recently started using “Andover” as a dateline in its releases), annual revenues have climbed from $209 million in fiscal 2014 (the company operates like a school year, from July 1 to June 30), to $235 million in 2015 and $270 million last year. Analysts are predicting revenues of nearly $400 million for the current fiscal year, which ends in June.    

Profitability has increased as well. It’s a trend anybody would like.

President Trump has said he aims to increase defense spending and, if he’s successful, Mercury is among the companies that would seem to benefit.   

Nevertheless, shares of Mercury have advanced by a third this year alone, from $30.22 to Monday’s close of $40.20. They’ve more than doubled from the start of 2016, when they traded for $18.36.

So, long-story-short, you’re probably pretty late if you buy here. Mercury’s market cap is nearly $2 billion, so shares are trading at five times sales even based on $400 million in revenues for fiscal 2017.

I’d be cautious.

Avid shares take a dip

 

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There are a lot of neat public companies that are headquartered in the Merrimack Valley, but there are also some you should avoid unless you really know what you’re doing.

One of those that fits in the latter category is Burlington-based Avid Technology Inc. Avid does some pretty cool stuff — it makes and sells software and hardware used in digital media content production. In addition to newsrooms, its technology has been used in feature films, even winning Academy Awards.

But financially, it’s been a bit of a bumpy ride.

On Wednesday, Avid was scheduled to release its fourth-quarter and full-year results for 2016. Alas, the report was postponed, as the company said doing so would allow its independent auditor to complete “routine procedures related to the 2016 financial audit.”

Initial quarterly earnings releases are generally unaudited, but full-year results are required to be — that’s why there tends to be a slightly longer lag time between the end of a quarter and a full-year report than there is for a regular quarterly report.

The fact that Avid needs more time doesn’t necessarily mean there’s something wrong, but investors have a tendency to fear the worst. And indeed, Avid shares plunged 17 percent Thursday to close at $4.44. Remarkably, they’re still up a tiny bit on the year, but that comes after a nearly 40 percent fall in 2016.

For longer-term investors it’s particularly irritating, because Avid has had to do this type of thing before. Three years ago its shares were delisted for 10 months after the company was in the midst of restating several years of its earnings, and hadn’t filed a financial report in more than a year.

Lastly, Avid seems to be trending in the wrong direction. After posting $563 million in revenues for 2013, sales slipped to $530 million and $506 million in the next two years, respectively. Three analysts who still cover the company are predicting 2016 revenues to come in slightly higher than the year before, at $510 million.

Who knows? After doing its due diligence, Avid could soon unveil a pleasant surprise. But betting on that isn’t investing. It’s gambling.

Raytheon investors, you’re due for a(nother) raise

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Imagine, for a moment, that you heard rumors that you were up for an 8.5 percent raise this year. You’d be pretty psyched, right?

Further imagine that your raises over the previous 12 years were as follows (we’re rounding here, but you’ll get the point) — 9 percent, 11 percent, 10 percent, 10 percent, 16 percent, 15 percent, 21 percent (!), 11 percent, 10 percent, 6 percent, 9 percent and 10 percent.    

In case you’re interested, your pay would have increased 266 percent in the past dozen years. Know anybody that fortunate who has held the same job?

If you’re thinking there’s a catch to all this, here it is: The figures above do not represent raises from an actual job; rather, they are the dividend increases issued by defense contractor Raytheon Co. since 2005.

Put another way, raises you would have received for not even working.

Barron’s reports that research firm IHS Markit is predicting that Raytheon will increase its dividend by 8.5 percent this year, from $2.93 per share annually to $3.18. As you can see from the figures above, this would be on the low end of Raytheon’s 13-year run of dividend increases.

At the risk of stating the obvious, you can’t (normally or regularly) get raises like this in your working life. That’s why investing in dividend-paying companies is such a great idea. Investing in dividend-paying companies that have a history of hiking dividends is even better. And when you have a dividend-paying company that regularly increases its dividend and which happens to be based in your own backyard (so that you can follow it more closely), well, what more can you ask?

Here’s another interesting tidbit. Back in 2004, when Raytheon was paying 80 cents per share annually, it represented about a 2.8 percent payout. Had the stock never moved in price, your present dividend would be more than 10 percent of your original investment. Try finding that return on any fixed-income investment.

Oh, yeah, Raytheon stock has moved since 2004. In fact, it has moved quite a bit. Shares closed Wednesday at $154.73, up 33 cents.   

Charles River Labs settles case for $1.8M

The Associated Press is reporting that Charles River Laboratories International Inc., based in Wilmington, has agreed to pay $1.8 million to settle charges it overbilled the federal government. When you’re $19 trillion in debt, as Uncle Sam is, these types of things can rankle you.

The full story is here — https://yhoo.it/2mDleVx

Nevertheless, it understates the case that this is a slap on the wrist — Charles River Labs reported 2016 sales of $1.68 billion, or about 950 times the amount it agreed to pay. As the story states, the company spotted the error itself and cooperated fully.

So if you’re an investor in Charles River Labs (I’m not), this doesn’t move any needles.

Shares of the company, which provides drug-discovery services worldwide,  closed Monday at $89.16, down 38 cents. They’re up a touch more than 17 percent so far this year.

 

 

 

 

 

For Micron Products, it’s all in a name

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Those who live in Fitchburg and nearby communities know it as Micron Products Inc. But good luck finding a stock listing once you’re told the maker of medical and automobile components (as well as blunt weapons) is a public entity.

That’s because the parent firm of Micron is called Arrhythmia Research Technology Inc. It’s rather bizarre, because Arrhythmia’s only holding is… Micron.

Well, somebody apparently decided enough of that.

Arrhythmia announced on Thursday that effective March 24, its corporate name will change to Micron Solutions Inc. The business on Sawyer Passway in downtown Fitchburg, best known for its contract manufacturing of electrocardiography products, will still be called Micron Products. But close enough.

The company’s stock ticker symbol, currently “HRT” (for heart, get it?) will change to “MICR.” Shares will continue to trade on the New York Stock Exchange.

This is a simple, and quite frankly, long overdue move that should help the 100-employee company attract some local investor attention.

Micron — ahem, Arrhythmia — is due to report fourth-quarter and year-end results for 2016 sometime in the next week. I’ll comment more then.

Shares closed Thursday at $4.10. They’re up 7.9 percent so far this year.