The electric power utility gave 4% to 6% earnings growth for a few years out as acceptable and it will separate its Ohio businesses. For 2012, AEP sees $3.05 to $3.25 EPS versus Thomson Reuters targets of $3.17 EPS.

AEP has noted a refocus on its transmission business and putting capital to work in the regulated generating fleet to comply with new EPA regulations. The regulated units generate a significant portion of AEP’s earnings and supports its dividend.

The company is filing with the Federal Energy Regulatory Commission to separate its Ohio businesses and it will terminate and then replace its Interconnection Agreement for its eastern generating assets under a new power cost sharing arrangement. The Public Utilities Commission of Ohio approved AEP’s plan back in January to move forward with the separation of its Ohio generation assets.

As far as FERC is concerned, the company expects that the FERC will decide on the implementation of corporate separation and the termination and replacement of the Interconnection Agreement in the first quarter of 2013.

On a day when the DJIA is down 1%, AEP is up 0.3% at $39.50 and the 52-week trading range is $33.09 to $41.98.

AEP’s dividend should not just be safe ahead… it should still grow even with the coal risks which could lie ahead.

JON C. OGG

As far as 2012 is concerned, Pfizer is targeting $2.20 to $2.30 earnings per share, which is slightly under prior targets and is currently compared to a Thomson Reuters consensus of $2.28 EPS.  The new 2012 guidance for sales is $60.5 billion to $62.5 billion versus a prior range of $62.7 billion to $64.7 billion.  The Thomson Reuters consensus is $2.30 EPS for this coming year.

The company noted:

• Its Primary Care unit revenues were favorably impacted primarily by foreign exchange;  growth from Celebrex, Lyrica, Pristiq and Spiriva, among others; and the addition of $93 million, or 2%, from legacy King products…
• Negatively impacted by the loss of exclusivity of Lipitor and Caduet in Nov-2011 and Aricept in Nov-2010; Together, those losses reduced Primary Care unit revenues by $775 million, or 13%, versus fourth-quarter 2010.
• Emerging Markets unit revenues were negatively impacted by foreign exchange and increased pricing pressures.
• Animal Health unit revenues rose 13% due to the addition of legacy King products as well as strong performance in the global livestock portfolio.

Pfizer has been trading up and down in the early hours of the pre-market and shares are up 0.3% at $21.65 on last look against a 52-week range of $16.63 to $22.17.

JON C. OGG

On an adjusted basis, P&G sees Fiscal 2012 earnings of $4.00 to $4.10 EPS and total sales up about 3% to 4%.  Thomson Reuters has a consensus earnings estimate of $4.17 EPS and $86.15 billion.  That would be a tad light on earnings and up to $1 billion light on revenues.

Higher commodity costs are expected to be a drag on third quarter earnings and a unfavorable product mix and an unfavorable geographic mix are all also dragging on earnings for the current quarter.  For the rest of the year, foreign exchange is expected to hurt sales by about 3% to 4%.

Rival Kimberly-Clark Corporation (NYSE: KMB) already took it on the chin this week after its earnings, while Colgate-Palmolive Company (NYSE: CL) has traded higher after its earnings.  Many investors have been moving to more risk-trade investments rather than defensive stock trades this week after Ben Bernanke telegraphed that the FOMC believes interest rates will remain exceptionally low through the end of 2014.

Kimberly-Clark now yields almost 4% and P&G yields about 3.2%, while Colgate-Palmolive yields almost 2.7%. 

P&G shares are indicated down 1.3% at $63.95 and the 52-week trading range is $57.56 to $67.72.

JON C. OGG

The dividend yield is roughly 4.7% and it pays out close to 60% of its expected income as dividends. It also has a double-digit return on equity and it trades at just under 12.5-times expected 2012 earnings estimates. Shares are trading around $39.75 and its consensus price target is about $41.10. Our own internal target is actually $44.00 on the stock and that means any pullbacks are buying opportunities. The dividend was just raised in November and we would not look for another dividend hike until late in 2012.

The giant utility has a new CEO and the stock is close to a 52-week high, but it also would have to rally another 25% or so before challenging its multiyear highs around $50.00. The utility sector is often invested in via the Utilities Select Sector SPDR (NYSE: XLU), of which AEP is a key component, but AEP is cheaper than many of the components inside the ETF. This sector is also one which many former CD-investors (certificates of deposit) are still buying into for high dividend yields.

Depending on pricing on any given market trading day, an alternative currently would be NextEra Energy, Inc. (NYSE: NEE) with a lower yield but with a dividend that should rise in the first quarter of 2012. PPL Corporation (NYSE: PPL) is another alternative with very close to many of the same financial characteristics as AEP.

AEP and other utilities will benefit from the low interest rate climate that Ben Bernanke has promised will continue through at least mid-2013. The company serves more than 5 million power customers and its geographic footprint spans 11 states. Finally, AEP has been decreasing its coal mix, and that is on the path to drop to under half of its power generation fleet share in the coming years.

Two issues to consider are that AEP is fighting many proposed regulations that would increase the costs for it and its rivals. AEP may also choose to use its financial strength to make selective acquisitions here and there.

If you want to receive the full 24/7 Wall St. 2012 Model Dividend Portfolio, it is being offered in full, with more than 10 different stocks, to those who sign up for our free daily email subscriber list below. Each morning we send our free email list subscribers a snapshot of the key feature stories, the top daily analyst upgrades and downgrades, previews for key events and many other aspects governing your finances.

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Barron’s listed  Berkshire Hathaway Inc. (NYSE: BRK-A), Comcast Corporation (NASDAQ: CMCSA), Freeport-McMoRan Copper & Gold Inc. (NYSE: FCX), Metlife, Inc. (NYSE: MET), and Procter & Gamble (NYSE: PG).  The list also includes some ADRs via Seagate Technology PLC (NASDAQ: STX), Royal Dutch Shell (NYSE: RDS.A), Vodafone Group PLC (NYSE: VOD), Sanofi (NYSE: SNY), and Daimler (DDAIF).

The aim was companies with low P/E ratios, somewhat high dividends, and companies with an expected upside of potentially 15% to 20%.  This won’t excite many investors.  Apple Inc. (NASDAQ: AAPL) was not in the list nor was Google Inc. (NASDAQ: GOOG).  Neither pays a dividend, but both have relatively low P/E ratios considering the recent growth (14 for Apple and about 17 for Google).  If you use the Thomson Reuters consensus analyst price target, Apple has 29% upside and Google has 16% upside.

Berkshire Hathaway Inc. (NYSE: BRK-A) is interesting now that it has added International Business Machines Corporation (NYSE: IBM) and Intel Corporation (NASDAQ: INTC) to its portfolio.  IBM yields a low 1.5% today and is buying back stock despite trading at all-times highs.  The company’s goal is $20.00 in earnings per share by 2015.  Intel just warned about a large revenue shortfall but its dividend yield is now about 3.5%.

Comcast Corporation (NYSE: CMCSA) is actually still interesting because of its growth and value and because it is changing its mix to include content.  The 2% yield is one which has room for further dividend growth and the cable giant’s share price actually offers almost 30% to the Thomson Reuters consensus price target.

Freeport-McMoRan Copper & Gold Inc. (NYSE: FCX) and Seagate Technology PLC (NASDAQ: STX) are both very opportunistic calls.  Hard disk drive troubles around the globe, a prior discount to highs, and a dividend north of 4% helped Seagate.  Freeport-McMorRan is an opportunistic call now that global growth has brought down shares of metals companies drastically.  It has a 2.5% yield, which is not bad for a metals company, and at $39.00 the Thomson Reuters consensus price target is actually 30% higher than the current share price.

Perhaps the ADRs and European plays of Daimler (DDAIF), Royal Dutch Shell (NYSE: RDS.A), Sanofi (NYSE: SNY) and Vodafone Group PLC (NYSE: VOD) are opportunistic around the weakness of Europe today.  After all, if the Euro Zone continues its downward trajectory and with the Euro currency at an 11-month low it would seem that the article could blame a worsening effect if these positions do not work out.

24/7 Wall St. has recently announced a couple of key lists with predictions and expected upside.  Our DJIA Stocks Soon To Raise Dividends has already seen some come to fruition even sooner than expected, and we have released to our free email subscribers the 24/7 Wall St. 2012 Model Dividend Portfolio.

If you want to receive the full 24/7 Wall St. 2012 Model Dividend Portfolio you can sign up in the email submission below.  Each morning we send our free email list subscribers a snapshot of the key feature stories, the top daily analyst upgrades and downgrades, previews for key events, and many other aspects governing your finances.

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Barron’s noted a 6.9% drop so far in 2011 for its Favorite Stocks for 2011 versus a 1.9% drop in the S&P 500 Index.

JON C. OGG

24/7 Wall St. has been calling for higher and higher prices in the dollar store sector and we have discussed consolidation in the other discount store and close-out stores.  Dollar stores will be a secular winner over the years ahead unless we get a sudden return to a booming economy.  We have even gone as far as to showing that dollar store chains are now where Wal-Mart Stores Inc. (NYSE: WMT) was back in the early 1990s.  Private equity and other savvy investors like Warren Buffett’s Berkshire Hathaway Inc. (NYSE: BRK-A) have been active in this space. 

Dollar General Corporation (NYSE: DG) remains a Stock to Own for the Next Decade, but we are growing to accept the math here: shares hit a new all-time high of $39.22 today and the consensus price target is only $39.94.  We have chatted this one up over and over since the stock was well into the $20 stock handles.  Kohlberg Kravis Roberts & Co. (NYSE: KKR) continues to sell stock that it still owns and we would just expect that the firm will continue to sell shares.  It is when those price drops occur that you get your chance to enter the stock on the cheap.  Please be advised, we expect that Warren Buffett will have added to this position.

There has also been buyout interest in Family Dollar Stores Inc. (NYSE: FDO), up only marginally at $54.05 versus a 52-week range of $41.31 to $56.92.  Dollar Tree, Inc. (NASDAQ: DLTR) has also been under private equity interest and its shares are up 2% at $80.92 and its stock hit a new high of $80.99 this morning.  Analysts have consensus price targets of $56.87 for Family Dollar and $77.67 for Dollar Tree.

Big Lots Inc. (NYSE: BIG) is a close-out store with many low-priced items but is no dollar store.  There was a while where it was also considered takeover bait but that failed to materialize.  At $34.33, the 52-week range is $27.82 to $44.44.  Tuesday Morning Corp. (NASDAQ: TUES) is another close-out store and it is often overlooked because it has a mere $158 million market capitalization rate.  At $3.71 after a 2.6% drop today, its 52-week range is $3.22 to $5.93.

99 Cents only is up 4.2% at $21.36 this morning. The news and the reaction may seem anti-climactic, but this brings an end to what was a long and arduous buyout process that has been going on since at least March of this year.

The growth of discounters and the growth of dollar stores says something awful about America.  If these trends continue, it simply means we have more and more of the population at the lower-end of the spectrum seeking deals wherever they can be found.  Still, business is business.  If Warren Buffett and private equity giants have so much interest in this sector, ask yourself if there is money to be made. Again: Dollar Stores Are The Next Wal-Mart!

The sad thing is that there is now a market premium in the sector.  Our favorite remains Dollar General, but it now trades at 15-times 2012 (actually January 2013) fiscal earnings estimates from Thomson Reuters.  Another premium is there for Dollar Tree with a forward 2012 ratio of 17.5-times expected earnings.  Family Dollar has a different fiscal year-end (august) but if we blend the estimates we get a stock trading at close to 14-times the same earnings estimate periods of the peers.   

We will start to grow a bit more cautious on the sector of dollar stores if the price appreciates too much more.  The fact that we and others are excited about the dollar store and close-out store sector does not bode for much growth and does not bode well for the middle class.  These stocks now trade at richer multiples than many normal retailers: Macy’s Inc. (NYSE: M) trades at 9-times expected 2012 (January 2013) earnings estimates and Target Corporation (NYSE: TGT) trades at 12-times the same period’s estimates.  Wal-Mart Stores Inc. (NYSE: WMT) trades closer to 11-times next year’s expected earnings and that is after the stock enjoyed a significant pop of late.

For a comparison, 99 Cents Only at $22.00 per share values the company at about 17.5-times what was the expected 2012 (March 2013) fiscal earnings expectations.  This still leaves some room higher for dollar stores, but this is a premium to peers and to the broad market.  The secular trend is what is driving the value of dollar stores and investors are willing to pay a premium for that.  The questions will start to arise if these premiums grow much further.  How much of a premium can a discount sector command?

JON C. OGG

Low (or no) interest rates are here to stay for at least another two years and investors are being pushed out of the safe debt markets to go find investment income elsewhere.  You are being forced to take on risks for income.  We just showed how the high-yield bond funds and ETFs may have finally hit a floor as spreads reached astronomic levels.

24/7 Wall St. tracks a myriad of dividend stocks and on August 11, 2011 our “Great Dividend Portfolio” was released.  At the time, the 10-Year Treasury yield was about 2.14% and our average dividend yield in the ten-company portfolio was a whopping 5.5%.  That yield is now about 5.3% due to price appreciation and the DJIA has risen about 4% since then.

The high-yield dividend winners are as follows: Altria Group Inc. (NYSE: MO); American Electric Power Co., Inc. (NYSE: AEP); American Water Works Company, Inc. (NYSE: AWK); AT&T, Inc. (NYSE: T); Digital Realty Trust Inc. (NYSE: DLR); Enterprise Products Partners LP (NYSE: EPD) or Kinder Morgan Energy Partners LP (NYSE: KMP); General Electric Co. (NYSE: GE); Government Properties Income Trust (NYSE: GOV); Kimberly-Clark Corporation (NYSE: KMB); Senior Housing Properties Trust (NYSE: SNH); and Wal-Mart Stores Inc. (NYSE: WMT).

All of these ten dividend leaders are trading higher than they were in August, and some are up well over 10% and still offer high implied dividend yields.  We are actually approaching levels now where some of these portfolio positions may need to be reviewed.  Our aim is to find dividends which are safe, but we have to also adjust for issues around projected upside to price targets, market performance, and the ability to continue dividend growth even in choppy times.  If we have grown less enthusiastic or more cautious on these names, we have noted at the end of each summary.

The most attractive stock investments for periods when GDP growth stalls are those of corporations that proved they could improve sales during the 2007-2009 recession. Many of these corporations have additional attractions. They often generate so much cash they can afford to pay large dividends. This gives investors yields when the value of many equities fall due to concerns about the economy and in a period that interest rates on bonds are near all-time lows.

Recession-resistant companies are also often part of recession-resistant industries. Many of these industries’ sales come from a number of countries around the world. Their sales may slow in the U.S. and Europe, but remain strong in emerging nations. Coke and P&G are examples of corporations in such industries. Other companies are in sectors whose products are used in almost any economic environment. Tobacco companies like Altria and Reynolds American are examples of these. Still other industries have companies that have appeal in an economic downturn. McDonald’s, which offers many meals for a few dollars, often prospers when people cannot afford fresh groceries or more expensive restaurants.

24/7 Wall St. picked its recession proof companies by choosing: 1) corporations with revenue that grew during the last recession or where sales dropped slightly and profits rose, 2) companies in industries that are not usually sensitive to changes in the economy, 3) corporation that have demonstrated they have the balance sheet to pay large cash dividends, 4) corporations that are large enough to be among the most dominant companies by sales or market share within their sectors, and 5) stocks that trade within 10% of their 52-week highs. With the S&P 500 near a one year low, these are obviously companies that Wall St. thinks will do well over the next several quarters.

This is the 24/7 Wall St. “America’s Recession-Proof Companies”

While many investors are opting for safety at any cost, there is an army of retirees and near-retirees that are depending upon income from their life savings in order to live, and these investors are being forced to look elsewhere in predictable dividend stocks and other instruments that they feel are low in risk. Utility stocks have accidentally become the new CDs and bonds for investors due to their safety, suitability and high dividends.

Generally speaking, utilities have fairly predictable earnings and they pay out a substantial portion of their income as dividends. Some utilities now pay dividends that yield more than 4% to investors. The power companies often have local competition in their local markets now due to deregulation and the ongoing regulatory pressure of carbon emissions is actually keeping a lid on some of the upside that might otherwise be there. The trick is for investors to find the utilities where the dividend is safe even if these companies are forced to spend the collective billions due to new environmental areas.

Utilities have not been immune to the market pressure this week, but the reality is that the sector was within about 2% or 3% of the yearly highs as recently as last Friday. A 5% sell-off in the past two days may be an opportunity for those investors with long-term outlooks. The utility sector appeals to many investors looking for income, value, predictable growth, and they also classify as defensive stocks. Investors used to look for the highest yielding CDs from insured banks and savings & loans, but now that opportunity is only found in utilities.

We have compiled a list of the key liquid exchange-traded funds and a closed-end funds for investors who want diversification. We have also screened out three of the top electric utility stocks for retail investors that offer the following minimum criteria: $5 billion in market value, a 4% or higher yield, not trading at a 52-week high but also not down more than 10% from the highs (avoiding the troubled players) and which also have 10% or more upside to the consensus analyst price targets from Thomson Reuters. Lastly, we have our top water utility in America that is slightly outside of the normal utility parameters for the power generation and electric utility companies.

In ETFs and Funds, we have highlighted the Utilities Select Sector SPDR (NYSE: XLU), iShares Dow Jones US Utilities (NYSE: IDU) and the Reaves Utility Income Fund (AMEX: UTG). In utility and generation companies we have identified American Electric Power Company (NYSE: AEP), FirstEnergy Corporation (NYSE: FE) and PP&L Corporation (NYSE: PPL). In the water utility sector, we have discussed American Water Works Company, Inc. (NNYSE: AWK). What matters most here is the current situation and opportunity on each. As we always stress: understand what you are investing in!

All you have to do is look at the exchange-traded funds and closed-end which track the emerging markets and the BRIC nations (and those surrounding the BRICs).  Ugly is not quite the right description and we will explain more after showing just how bad the carnage is.  Greece is no emerging market, but it is on the path to default faster than emerging markets used to default.

The ETFs for the broad emerging markets is not a good signal for their equity markets.  The revolutions of early 2011 did not help, nor did the food inflation, but the economic slowing is taking a hit here left and right.  iShares MSCI Emerging Markets Index (NYSE: EEM) closed down 2.1% at $34.36 and the 52-week trading range is $34.29 to $50.43 (52-week low was Monday).  Vanguard Emerging Markets Stock ETF (NYSE: VWO) closed down 1.75% at $35.20 and the 52-week trading range is $35.13 to $50.92 (52-week low was Monday). 

We have included the most active ETF chart on each from Stockcharts.com at the end of this report.  The data on the BRICs is almost shocking…

BRAZIL

Brazil may have energy independence and the Olympics headed its way, but the implosion there has been massive.  The BOVESPA lost 2.9% of its value on Monday and let’s just say that its high-flyers are now grounded due to more than just weather.  It seems that minerals and forestry are not going to generate cash, just like it missed out on royalties from the term “Brazilian” in personal grooming. 

iShares MSCI Brazil Index (NYSE: EWZ) closed down 2.1% at $50.89 and the 52-week trading range is $50.71 to $81.77 (52-week low was Monday).  Market Vectors Brazil Small-Cap ETF (NYSE: BRF) closed down 3.15% at $37.96 and the 52-week trading range is $37.73 to $63.78 (52-week low was Monday).  iShares MSCI Chile Investable Market Index (NYSE: ECH) closed down 3.8% at $51.16 and the 52-week trading range is $50.92 to $80.38 (52-week low was Monday).  Aberdeen Chile Fund, Inc. (NYSE: CH) closed down 4.9%  at $13.45 and the 52-week trading range is $13.37 to $26.56 (52-week low was Monday).