In keeping with this week's theme, REITs, here's my next Bear Alert:
The markets are becoming ever-more skeptical of high ratio stocks. Just look at the tech sector and see the carnage in the FANG stocks (FB, AMZN, NFLX, GOOGL). These are good companies and they are well run, but their share price has become to bloated for conditions where interest rates are tightening and global economies are slowing. But one sector has been bucking this trend, or has it?
The financial sector has a large number of companies who are trading at very high multiples. That was the basic gist of my last post. One particular multiple I'm going to focus on today, because I think it NEEDS saying (no one publishes this ratio outright). The ratio I'm using is the Dividend to Sales ratio. Yep. A company can only spend as much as it takes in, right?
I'm just a humble engineer, not a financial guru of Wall Street, so perhaps I'm just not understanding all the financial slight-of-hand at play here and perhaps there is a perfectly good explanation for what I found...
BUT...
I found ONE company that can seem to mystically pay out more in DIVIDENDS than it makes in SALES. How is that even possible? How do they pay their bills? Salaries? Nah! Forget all that!
They're paying shareholders up to nearly 13% based on today's prices. This company is trading at a P/E ratio of 123.27, a forward P/E of 57.07, holding a PEG ratio of 4.35, a Book/Sh of -7.29, Cash/Sh of 1.39 and pays a dividend of a whopping $2.40/share.
To me that sounds too good to be true. SO, let's do a little math:
With a market capitalization of $2.78B and paying a dividend of 12.98% they're paying $360,844,000 in DIVIDEND annually. They have SALES of $318,900,000 annually. All this and with a NEGATIVE Book/Share ratio to boot. Does the ghost of Arthur Anderson do their books?
While the Forward P/E may look a lot better than the current, do remember that future earnings are NEVER guaranteed.
So, who is this mysterious and miraculous company? It's Communications Sales & Leasing, Inc. (CSAL [NASD]).
S H A L L W E?
Here's a daily chart for the last year (they've only been trading publicly less than a year).
Aside from the obvious trend and the fact that every time a new moving average is introduced the stock gets hit like a glass punching bag, The missing data from the beginning of July seems to be a glitch in E-Trade Pro as FinViz has daily data from that time frame.
Today, however, I'm concerned that the dividend to sales ratio is telling us something disturbing. There are other REITs with high ratios (more than 0.3) but this is the ONLY company I've ever seen so far with a ratio greater than 1 (1.13 to be specific).
If this is something you're paper-trading as a long, your might want to shorten-up your bet. The 200-Day SMA has just recently been introduced and in keeping with past instances, it's shattering to all new lows again.
If you're trading or investing in this thing for real, you should seek the advice of a licensed financial professional immediately and make sure your trade or investment is really safe. To me, the volume bars in that chart say a lot right at the end there (in the last week).
Update: After looking at CSAL's Balance Sheet and Income Statement, it looks like they have 10-11 years before the assets are worth zero (rough calc). With being a REIT, they have to pay out 90% of net income as dividends, so raising cash to replace assets may be problematic. They can only hope their assets will last longer than their expected life. If their rents are Bonded Leases it would offset costs for repair and replacement to the tenants, but I still find the price multiples particularly unsavory.
Disclaimer: This blog is for informational purposes only. I may or may not have positions, long or short, in any stock or security mentioned anywhere on this site or elsewhere at any time. It is the sole responsibility of the reader to interpret the contents here, and to seek the advice of a qualified financial professional before engaging in any trade.
UPDATE (2/12/2016):
Some data on this company has been updated on FinViz this week. The Earnings for the trailing 12 months has been updated to reflect $0.15/sh as opposed to $0.01/sh from the date this post was published. This still reflects a 100+ P/E multiple and the dividend still exceeds the quoted sales.
Here's the updated chart with daily Heikin-Ashi candles as of the end of Friday 2/12/2016.
Have a safe and happy long weekend everyone.
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