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You know that buying a stock makes you part owner of a company, theoretically with millions of other people. But, while ownership has its privileges (at minimum you get a neat stock certificate and an invitation to the annual meeting), being an owner doesn't necessarily pay. Sure, you make money if the stock goes up, but only if you sell, and you can, in theory, lose all the value of your investment if the stock tanks.
Enter the dividend. Here, you get money simply from holding the stock. Companies pay a yield, which is expressed in a percentage based on the stock's price. For example, if a stock trades at $10, and pays a 10% annual yield, your dividend payment would be a $1. (Usually, companies break out the payments quarterly, so, using our example, you¿d get, well, a quarter each quarter.)
Companies that pay dividends fall into a few categories. First, you've got your big, stable companies that generate enough cash that it makes sense to throw some back to shareholders. Next, there are businesses, like real estate investment trusts, that are in the business of sitting back and receiving cash, then distributing it to holders. And, then there are companies that need to dangle a high dividend yield like a carrot to ease investor fears. Cigarette-maker Altria has been doing this for years.
Simply because a company pays a dividend doesn't make it a good investment. After all, you may want to take a chance on a growth stock that can move higher in price than dividend payers are known to do. But, you can¿t beat the safety of knowing that, even if a stock doesn't move in a year, you¿re at least making something off your investment.
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Thursday, July 10, 2008
Fitch Affirms Heinz's IDR at 'BBB'; Rates New Issues; Outlook Stable
Comtex
CHICAGO, Jul 10, 2008 (BUSINESS WIRE) ----Fitch Ratings has affirmed the ratings of H.J. Heinz Company (Heinz) and its subsidiaries, as follows:
H.J. Heinz Co. and H.J. Heinz Finance Co.
--Long-term Issuer Default Rating (IDR) 'BBB';
--Bank facility 'BBB';
--Senior unsecured debt 'BBB';
--Short-term IDR 'F2';
--Commercial paper 'F2'.
H.J. Heinz Finance UK Plc. and H.J. Heinz B.V.
--Long-term Issuer Default Rating (IDR) 'BBB';
--Short-term IDR 'F2';
--Commercial paper 'F2'.
H.J. Heinz Co. of Canada, Ltd.
--Short-term IDR 'F2';
--Commercial paper 'F2';
The Rating Outlook is Stable.
At fiscal year end April 30, 2008, Heinz's total debt was $5.2 billion.
Concurrently, Fitch has assigned a 'BBB' rating to Heinz's $500 million 5.35% notes due July 15, 2013. Heinz intends to use the net proceeds from this issuance to repay a portion of its commercial paper and for general corporate purposes. The notes contain a Change of Control Triggering Event. Upon the occurrence of both a Change of Control Event and rating downgrades below investment grade, unless the company has exercised its right to redeem the notes, it may be required to repurchase the notes at a price in cash equal to 101% of the principal amount plus accrued interest. The notes are expected to be issued under a new indenture. The indenture contains restrictions on secured debt; however, it does not contain any financial covenants.
At the same time, Fitch has assigned a 'BBB-' rating to H.J. Heinz Finance Company's (HFC) $350 million series B cumulative preferred stock. HFC intends to use the proceeds from this offering to repay commercial paper and indebtedness incurred to redeem HFC's $325 million of series A preferred shares on July 15, 2008. The payment of dividends and the liquidation preference with respect to the series B shares will rank junior to indebtedness and other liabilities of the company. Heinz does not provide a guarantee for these securities. Dividends are cumulative and there are restrictions on Heinz's ability to pay dividends, redeem or retire its common shares during periods when dividends on the series B shares are not fully paid, subject to certain limitations. HFC must maintain a Liquidity Agreement that will allow it to borrow up to $400 million. The series B shares must be redeemed on July 15, 2013 at the liquidation preference plus accumulated and unpaid dividends. The shares are not redeemable prior to that date.
Heinz's ratings continue to reflect the company's cash flow generating ability, its product and geographic diversification and its leading global market positions. For fiscal 2008, Heinz's total debt-to-operating earnings before interest, taxes, depreciation and amortization (EBITDA) was 2.7 times (x) and its operating EBITDA-to-gross interest expense was 5.2x. Funds from operations (FFO) fixed charge coverage was 3.7x. Credit metrics have remained relatively stable over the past three fiscal years. While debt levels have increased, strong earnings and cash flow allowed for higher dividends and capital expenditures, as well as significant share repurchases. The ratings incorporate the operating and financial strategy outlined in Heinz's High Performance Plan for fiscal years 2009 and 2010. With a low priority for share repurchases in this plan, there is room at the current rating level to accommodate the company's bolt-on acquisition strategy.
For the fiscal year ended April 30, 2008, Heinz generated solid 11.9% sales growth to achieve sales of $10 billion. This sales increase was composed of 3.6% from higher volume, 3.3% from price increases, (0.2%) from net acquisitions/divestitures and 5.1% from foreign exchange. Organic sales growth (volume and price) was 6.9%. Operating income rose 8.5% to $1.6 billion. Pricing and productivity initiatives enabled Heinz to partially offset commodity inflation, which is prevalent across the packaged foods sector. However, margins have declined slightly, as a portion of commodity inflation has not been offset. Commodities increased more than 8% in fiscal 2008 and the company expects a similar rate of increase (8%-9%) during each of the next two years.
Fitch remains mindful that activist shareholders occupy two seats on Heinz's Board of Directors and that there is risk in the near-to-intermediate term of a more aggressive financial strategy. The Board of Directors has recommended that these two directors be re-elected at part of the slate of 12 Directors at the company's annual meeting in August 2008.
Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.
SOURCE: Fitch Ratings
Fitch Ratings Judi M. Rossetti, CFA, CPA, +1-312-368-2077 Carla Norfleet Taylor, CFA, +1-312-368-3195 Wesley E. Moultrie II, CPA, +1-312-368-3186 Media Relations: Brian Bertsch, +1-212-908-0549
Copyright Business Wire 2008 ********************************************************************** As of Sunday, 07-06-2008 23:59, the latest Comtex SmarTrend� Alert, an automated pattern recognition system, indicated a DOWNTREND on 06-27-2008 for HNZ @ $48.50. For more information on SmarTrend, contact your market data provider or go to www.mysmartrend.com SmarTrend is a registered trademark of Comtex News Network, Inc. Copyright � 2004-2008 Comtex News Network, Inc. All rights reserved.
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