Bank of America investors have gone through a lot in recent years. BAC was one of the main players during the recent credit crisis and was very much involved in the Lehman Brothers and Bear Sterns fiasco. We even called BAC a casino play at one point as the stock dripped from a high of $45.03 in February 2008 to a low of $3.14 about 12 months later, a drop of over 93%!!! Even by the very low standard of US banks at that point, BAC was a disaster.

However, being one of the big US banks certainly has its benefits and as the government and Treasury got involved to support the biggest financial institutions, and in the end it proved to be enough to help BAC and most of the others to make it through. While no one would say that they have fully recovered, their survival is no longer in question and that has helped investor confidence. Even when stress tests revealed that BAC needed $35 billion, the bank was able to get it done.

So life is good now?

For most of the banks, life is indeed going fairly well. Many have become solid dividend payers as you might have seen when we discussed the best financial dividend stocks and others such as Citigroup (C) are poised to resume paying dividends as they continue to restructure and improve their operations.

Wikileaks

There is one thing that might cause trouble in the banking system though. Wikileaks, an organization that has been discussed perhaps more than any other in recent months had disclosed a few months ago that its next target would not be the US or even another foreign government but rather a public company. Founder Julien Assange even made public that the target was a big US bank and that the information was important enough to collapse the entire bank. Rumors had been circling around that Bank of America was the target and the bank even seemed to think it was a possibility as it started hiring lawyers and PR teams to prepare for what could become a serious problem.

Today, CNBC confirmed that Bank of America was that big bank that would soon be the target of Wikileak’s next big documents release.

What kind of information could be leaked?

You would think that some illegal operations probably happened, perhaps surrounding the subprime mortgage. Proof of that and of knowlege by executives of the company could certainly mean major legal liabilities and even more important public relations nightmare. There could also be more information about bonuses being paid out, which would cause outrage in the public. There are probably millions of different things that these documents could contain including information about misdealings with clients, knowingly deceiving the clients or the public in general, etc. If the leak of the US government’s files is any indication of how serious things could be, BAC has a lot to worry about.

So would you sell BAC?

It’s difficult to say but honestly, I think that the possible demise of BAC is overstated. Let’s not forget how much support was given to these institutions by the US government. Even a couple of years after the crisis, the government is not going to let things go too far for BAC and would probably support the institution. So no, I’m not a big fan of going short BAC right now. I would consider buying a “Put Option” to possibly gain when the news comes out… but would close that option out when the leak did happen. It might work, it might not. If you are looking for a good future dividend payer, buying if the stock drips might be a great idea. The cost will be smaller and I don’t think that this leak will change the long term future of BAC as one of the premiere financial institutions in the world.

Disclosure: No positions on BAC

Yesterday we wrote a post about the impacts of the Iphone being offered on Verizon (VZ) but we focused on Apple’s (AAPL) point of view. That being said, Verizon is one of the top dividend stocks in the US and this deal could significantly change the medium and long term perspectives for investors that are looking to build a strong and consistent passive income portfolio. Even in the past, I had considered adding Verizon to my top picks but this latest deal puts the carrier in a great position.

How does this change things for Verizon?

-Verizon is now one of two carriers that can offer both Android and Apple smart phones
-The fact that it was picked by Apple is a signal that the investments in its network  are paying off
-As an increasing number of corporate accounts consider using Apple, they will now have the option to bring their accounts to Verizon

So just how does Verizon rank as a dividend stock?

Of course, we will be ranking Verizon based off of the top 20 things that we consider when evaluating dividend stocks.

Dividend Metrics

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How often do you see a stock that has a dividend yield over 5% that has increased both over 1 year and over 5 years? It’s very rare. From a dividend perspective, Verizon is a very solid choice and the two main questions would be:

-Can Verizon afford to keep up the dividend payments?
-Can Verizon continue to increase its dividend?

Company Metrics

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No doubt, these numbers are not as impressive. Verizon has seen decreased earnings, is paying out more than what it is making, and has a fairly high level of debt. It’s not uncommon for a communications company to be struggling these days because of the very high level of competition in the industry. That being said, the sales are growing and the arrival of the Iphone should help sales growth accelerate but also improvement in the margins and earnings. Hopefully that will be enough to bring down the payout ratio without having to tough the dividend payout.

Stock Metrics

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In technical terms, there is no doubt that the stock looks very attractive and it’s trend analysis score is also very impressive

Industry Metrics & Fit within your portfolio

No doubt, the communications industry is a difficult one and while it’s not as bad as the airline industry, there are quite a few similar aspects between the two. Large investments are required and there is so much competition that price pressures are very high which makes it very difficult to sustain a hgh profitability level. There is consolidation going on which will certainly help in the medium to long term.

That being said, Verizon is one of the companies that is starting to make a strong name for itself and the arrival of the Iphone will certainly help in those matters.

Overall Analysis

I think that if you do not have a communications company in your dividend portfolio, Verizon might be the one for you. It is in a great position and will certainly have a major sales and reputation boost that will translate in additional business outside of the Iphone as well. That being said, I’m a bit worried about the high payout ratio and the diminishing margins. The investments required to upgrade Verizon’s network if the Iphone demand is high could continue to put pressure on those margins.

So I would not consider Verizon at the very top of dividend stocks but it would still be a very nice addition to most portfolios.

Do you agree?

Disclosure: Long Apple, No positions on Verizon

It had been discussed for ages and some had started to fear it would never happen. Apple’s Iphone has been the company’s door into the smartphone market and while it continues to compete with both Research in Motion and Google’s Android, Apple had one obvious issue in its most important market. While users in almost every other market in the world had the choice of at least 2 different carriers, US consumers were stuck. They needed to use AT&T (T) if they wanted the Iphone.

Even if AT&T was perceived as the top carrier, it would still take away significant market share. But knowing that AT&T is perceived as having many different issues, as offering inferior customer service and coverage was a good enough reason for many to look at Iphone alternatives. The other big thing was that with no competition, AT&T was able to offer the plans as if it were running a monopoly.

I had suggested offering the Iphone on Verizon (and other carriers) in my post about being Apple CEO Steve Jobs for a year and was surprised that there would be arguments about that specific point. But there were. The main thing that were said were that we didn’t know the terms of the transaction and how much AT&T was paying Apple to be the exclusive carrier. That is true. But that is not my point.

Long term vision

I consider that no matter what AT&T was offering, it was for Apple’s benefit, not for the users. In the short term that can work. But in the long term, Apple will be better served by offering a better product to its customers. The phone, the software, the apps are obviously huge parts of that. But so is the plan that users can get. Customers had been asking for unlimited data plan since the launch of the Iphone and Verizon (VZ) will be offering it as one of its options, which great news for potential customers. In the long term, being the number one phone will be worth a lot more than whatever AT&T is paying.

How important is this step?

Estimates are that Verizon will add 10 million additional Iphone users in 2011. That is 10 million users that will log into Itunes, buy Iphone apps and give even more incentives to outside providers to develop software and hardware for Apple users. It is a critical step in my opinion.

What’s next for Apple?

I know that many do not agree with this and it’s unlikely to happen given the history but support Adobe Flash would be a great way to take away the 2nd most important reason why users to not buy the Iphone. Apple has announced that limited support for Flash will be integrated through Apps so that is one big step. The next one obviously would be having the internet browser support Flash even if it were to notify users when something crashes because of Flash (such as what Mozilla’s Firefox does).

Disclosure: Long Apple, No positions on Verizon

The numbers are making the headlines all over the place aren’t they? How many times did you read about Facebook’s incredible 50 billion valuation even though the Goldman Sachs investment was very much in line with recent valuations. But Goldman Sachs, with its reputation, certainly gave credibility to that valuation. Many were shocked. But even more surprising to those was the fact that Goldman is being forced to shut down additional investors: there is simply too much demand for Facebook stock at that valuation.

Some have argued that the valuation was way out of line including this post that was probably looking more for attention than actually being serious. How could someone possibly compare P/E ratios for Facebook and Apple. Regular readers know how much of a believer I am in Apple. But they would also know that I consider Facebook to be the best investment out there. Yes, you heard me right. Facebook is not overvalued but quite the opposite, it remains a great deal opportunity.

Google factor

Do you remember when a little search engine  named Google decided to IPO? Many critics said its 85$ IPO was crazy and expensive for a company that had not proved how it could expand it pricing model. You can take a look at one article from 2004 from Business Week… does that bring back any memories? How do you think that turned out? I don’t think many doubt that Facebook will likely become as big and important as Google eventually as it quickly becomes the center of the web experience.

A look at the numbers

What many are bringing up is the estimated profits for Facebook in 2010, a respectable $500 million. So yes, the company is currently trading at a 100 P/E ratio. Expensive right? Some companies such as Open Table trade at even higher P/E’s. Comparing Apple’s P/E to Facebook’s is silly. Why? Because Facebook is growing at a very impressive pace and that is one of the most important factors when evaluating a P/E ratio. For example, it’s very realistic to expect that Facebook could increase profits by 100% in 2011 to $1 billion. That is not a stretch by most estimates. If that were to happen, investors that bought the current shares at a 100 P/E would now get twice as much earnings for the same value, or a 50 P/E. Add a few more years and you will see what I mean. As much as I like Apple, what are the odds that the company will double its profits in 2011? Zero….

Can Facebook keep up the growth?

If you agree with the analysis so far, the main question would be how much growth Facebook can sustain. As I’ve said in the past, Facebook is growing its revenues quickly, but not as quickly as its users because it is fully focused on the product rather than the profitability. I did suggest some things I would do if I were Mark Zuckerberg for a year but those will likely not happen as Facebook will continue to focus on the product. If Facebook were to focus on the revenues & profits, I would expect growth to be much higher than 100% in the first few years. But the company is focused on the long term and that is unlikely to change for some time (and why should it?).

So please stop the nonsense

I think that Goldman Sachs has been making a brilliant investment that will pay off in many different ways over the next few years and anyone who thinks the P/E ratio can come back here in a few years to discuss, I’ll be more than happy to take a look back!

Disclosure: I unfortunately do not have any positions on Facebook but have a long Apple position

It’s always a challenge isn’t it? We hear about social investing, about making the world a better place but it’s easier said than done. Through our actions, we can make a big difference in the world and while one investor making “socially responsible” choices will have a small impact, grouped together they can have a much more significant one. It is the same as recycling isn’t it? One person recycling would have a very limited difference but the green movement is starting to have a very real impact not only on the environment but on how businesses are being run.

Of course, the primary goal of investing is making good returns. Just as the primary goals of making income are to save and spend it. But many of us still take time to make charitable donations in order to have a positive impact in the world. So my question to you is: Will you take the opportunity of the New Year to make your passive income portfolio a more socially responsible one?

There are an infinite number of ways to get this done and even the definition of socially responsible investing (SRI) is debatable. The definition from socialinvest..org is that “SRI investors encourage corporations to improve their practices on environmental, social, and governance issues“. Please note that this is different from ethical investing. How so? I do think that an oil company can be a good socially responsible investing for example if it can provide more sustainable and favorable business means than its competitors from an environment and social point of view.

What I did was take components of the S&P500 that were included in socially responsible investing indexes such as the Dow Jones sustainability indexes. That left me with about 100 names. From those, I took out all of the names that paid less than 2% of annual dividend yield which left me with exactly 50 names. Then, it becomes about selecting good dividend names and I did that using the 20 things that I look for in dividend stocks. I removed stocks that had a payout ratio over 50% or that had dividend growth under 5% for the last 5 years. How many names are left? 19! And many familiar names are left of course such as Pepsi (PEP), part of my 4 stocks picks for 2011, H&R Block (HRB) which came out as a top dividend financial stock, Entergy (ETR), one of the big dividend growth stories among others.

My final cut will be taking out stocks that have a debt to capital ratio over 50% which leaves me with 16 names that on the surface seem to be socially responsible and good dividend payers. Doing good in the world while investing, is it possible? I would love to hear your thoughts about this:

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