Insiders Like Two Dividend Plays: KO and RPM

[HenryTo]

Latest insider news from the WSJ. P/E still 20 - but at some point, I think KO will definitely be a buy: http://www.marketthoughts.com/zs20050303.html
-------------------------------------------------------------------------------
Insiders Like Two Dividend Plays

By NAUREEN S. MALIK

AT FIRST BLUSH, beverage giant Coca-Cola and RPM International, which provides building materials and services, seem to have little in common.

But both companies share a number of traits: They have posted robust earnings growth and increased their dividend to yields well above the market average, even while enduring lackluster stock performance.

Insiders apparently like this seeming disconnect, judging from a spate of recent buying.

These days, "it's hard to get a yield above 3% unless you are getting into distressed stocks, closed-end funds or REITs," says Jonas Ferris, editor of the newsletter Insider Moves, explaining why insiders are flocking to these stocks.

RPM and Coca-Cola are paying "above-market dividend yields, really because stocks have fallen pretty significantly in recent years," says Ferris.

Coca-Cola shares have been trading sideways this year, sustaining a dividend yield of 2.7%. Meanwhile, RPM stock is down 13% and is paying out a dividend yield of 3.7%.

The Standard & Poor's 500 index is down 3% and has a yield of 1.8%.

Ten Coca-Cola executives and directors acquired nearly 152,000 shares by exercising options on them since April for $5.4 million, according to Thomson Financial/Baseline data. The options, which expired this week, were priced at 35.63 a share.

"This reflects their confidence in the long-term growth prospects of the company," says Ben Deutsche, Coca-Cola spokesman. He notes that executives must meet certain ownership guidelines based on their position in the company.

Securities and Exchange Commission filings show insiders at the beverage giant sold just enough of those shares to cover options-related expenses and taxes.

Today, Coca-Cola reported third-quarter earnings of 54 cents a share, beating Wall Street consensus estimates by a penny, due to overseas sales growth and more stable trends in North America.

Robert van Brugge, senior research analyst at Sanford Bernstein & Co., says "the underlying trends were very positive." The main concern at Coca-Cola is "simply execution" in dealing with bottlers and introducing new products.

Brugge has a Market Perform rating on the company with a $48 price target.

Overall, Jaseem Hasib, research analyst at Thomson Financial, says the insider purchases are a vote of confidence for the changes being implemented by Chief Executive Officer Neville Isdell. "The key fact is they don't expect the stock to decline significantly, and thus they are leaving the capital on the table," he says.

In February, the board approved a 12% increase in quarterly dividends to 28 cents per share. It was the 43rd consecutive annual increase in dividends.

Meanwhile, RPM has raised quarterly dividends, for 32 straight years, to 16 cents. With a strong growth rate compared to peers, "there really is no need for them to do that," says Thomson Financial's Hasib.

Donald Miller, a director, is vouching for the company's long-term prospects. He made an initial purchase of 25,000 shares in the open market for $440,000 on behalf of a family trust. Miller also serves as chairman of Axiom International Investors, a venture capital firm.

Ferris notes that Miller's transaction comes within days after the company raised its dividend. "That's a pretty good dividend yield especially for a non-utility, non-energy company," says Ferris.

Saul Ludwig, analyst at KeyBanc Capital Markets, says RPM posted "record earnings last year, and I expect them to produce record earnings this year." He maintains a Buy rating with a $22 price target.

Ludwig says the one crack in RPM's façade is ongoing asbestos litigation for Bondex, a putty to fill in cracks in the drywall that the company stopped selling in 1975. RPM has been paying $60 million in lawsuits and attorneys fees over the past two years, when the company's asbestos insurance coverage ran out after hitting the payout cap, he says.

Even so, Ludwig thinks investors can get a total annual return of 12% to 15% by buying up shares of RPM.