Research

Can Pitney Bowes Continue To Deliver A 12% Dividend Yield?

We first heard of Pitney Bowes Inc. (PBI) in the 1990s because it was well-known for its postage meters and other corporate and business mailing solutions. Pitney Bowes was also a solid performing company to invest in at the time as it received a 4 star performance rating and a “thumbs up” rating to its Dividend Reinvestment Plan in Charles Carlson’s book Buying Stocks Without a Broker in 1996. PBI was also included in Gene Walden’s 100 Best Stocks to Own in America in 1997 and 1999. We were recently attracted to Pitney Bowes because of its high 11% (as of August) dividend yield and its software solutions and enterprise services businesses. We liked that PBI had been paying a dividend since 1934 and has boosted it since 1982. We were shocked at the deterioration in PBI’s stock price since 2007 as the firm was free cash flow positive and still boosting its dividend. However, we took a pass when we saw that the software business only accounted for 8% of its revenue and all of its revenue streams saw year-over-year declines in Q2 2012. Although PBI reported positive net income and free cash flows, the company’s adjusted EPS missed consensus expectations by $.02 and its revenue missed by $60M (4.6%).

Pitney Bowes has delivered 30 years of dividend increases but we are not as optimistic about it reaching its 31st year in 2013 and even less optimistic about it reaching its 32nd year in 2014. PBI’s first dividend increase was in 1983 and it increased its per share dividend every year at rates exceeding 10% which resulted in its annualized split adjusted dividend climbing from $.10/share in 1982 to $1.14/share in 2000 and represented a compounded annual growth rate of 14.4%. The good news is that Pitney Bowes has increased its dividend every year since then in spite of its inconsistent financial performance. The bad news is that its cumulative dividend increase was only 31.6% over the last 12 years and this represents a compounded annual growth rate of 2.315% during this time period. But what investors should also take note of is that PBI’s annual dividend increase only exceeded 2% from 2006-2009. PBI increased its annual per share dividend by $.02 in each year from 2001-2005 and 2010-present.

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