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A Dividend Thriller: Pitney Bowes Meets 007

 May 30, 2012 11:43 AM
 


(By Kevin Donovan) It was a risky mission:  Find a beaten-down stock with a dazzling dividend to be plucked.  But first a warning: Only operatives with the double-0 prefix and a tolerance for risk need attempt it.

Pitney Bowes Inc. (PBI), a stock crushed after reporting quarterly results earlier this month, now sports a dividend yield north of 10% and some daring new shareholders who should know a good deal when they see it – the people who run the postage meter company.  We can hear them now:  "The name is Bond, James Bond."

For the record, Pitney Bowes reported revenue that missed expectations but earnings that beat them.  Investors, worried about the future of snail mail, fled the stock, sending it to levels that have pushed its dividend yield to a startling 10.8%.  Pitney Bowes was trading at $14.01 at the close Tuesday, down 40% in the last year, compared with a 1.36% gain for the S&P 500.

[Related -Pitney Bowes (PBI): Is That High-Yield Stock Really A 'Dividend Trap'?]

Officers of the firm, however, have stepped up to buy at these levels, apparently believing that the stock is way too cheap, increasing inside ownership about 27% in the last six months.

Here's a summary of recent insider purchases as reported to the Securities and Exchange Commission.

[Related -Top Insider Purchases: ACAD, GFF, OPK, INWK, LIOX, PBI]

Insider

Title

Date of Purchase

Shares Purchased

Purchase Price

Vicki A. O'Meara

EVP

5/24/12

2,500

$13.71

Murray D. Martin

CEO

5/21/12

20,000

$13.55

Michael Monahan

CFO

5/21/12

10,000

$13.56

Johnna G. Torsone

Chief HR Officer

5/21/12

450

$13.51

Daniel J. Goldstein

Chief Compliance

5/21/12

1,850

$13.54

 

Pitney-Bowes' problem is growth.  The increase in digital and decline in snail mail communications in the business world has crimped the company's traditional postage meter business.  Pitney-Bowes is addressing this shortcoming with its Volly secure digital mail platform and Connect+, and launching of a small business cloud-connected metering solution to Web-enable more of its mailing customer base.

The company also signed a multi-year agreement with Facebook to offer global geocoding, reverse geocoding and other location intelligence applications and data for integration into Facebook's applications and services.

In all, Pitney-Bowes said it expects 2012 revenue to be in the range of 2% growth to a decline of 2% versus 2011.  

Can the dividend be preserved?  After all, the payout ratio is 73.96% of earnings and Pitney Bowes has a hefty debt burden, but S&P, in revising its outlook for Pitney Bowes' credit rating to negative, said liquidity should remain adequate to cover uses by 1.2x or more. 

Meanwhile, Pitney Bowes said its free cash flow in the last quarter was $211 million and that it paid $75 million in dividends.

Pitney Bowes is not for the faint of heart, but with cash flow adequate and insiders with bigger stakes in the company, and thus a personal pocketbook reason to keep the stock price from falling, we believe the dividend has a decent chance to survive at current levels.

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