Forget ‘Earnings’ — Declining Revenue and Dividends the Real Story in Q3

Too many companies are cutting their way to growth

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Well, how about financial stocks — not the dogs like BofA or Citi, but the “good” ones like Wells Fargo (NYSE:WFC) or JPMorgan Chase (NYSE:JPM)? Despite Wells controlling 1 in 3 residential mortgages and the roll-in of Wachovia during the panic of the financial crisis, revenue is tracking just $85.2 billion in fiscal 2012 — the lowest level since 2009, and the top line has been declining each year (and practically every single quarter) since the financial crisis. JPM is in the same boat.

Maybe you want to blame that on the unique problem of banks. OK, fine.

OK, then how about Procter & Gamble (NYSE:PG) that owns huge brands from Oral-B to Mr. Clean to Gillette? It has a five-year revenue growth rate of barely better than 3%. Kimberly Clark (NYSE:KMB), the maker of Huggies and Kleenex, is barely 1%.

No no, you say. Those don’t count because they’re sleepy consumer giants and aren’t supposed to see big growth.

Telecoms like AT&T (NYSE:T) and Sprint (NYSE:S), then. Both are on pace to barely top their 2009 revenue totals this fiscal year.

Same thing. Telecoms aren’t supposed to grow, you say.

What about Johnson & Johnson (NYSE:JNJ) or Merck (NYSE:MRK)? Those are both Dow components, and both have a negative five-year annual growth rate for revenue.

Patent expirations, you say!

OK … so then except for blue chips in tech, banking, telecom, consumer goods and health care, then the stock market is doing just fine. Is that your argument?

What to Do?

There are exceptions, of course. A company like McDonald’s (NYSE:MCD) has proven its power through big revenue growth (a five-year annual rate of about 19% on average) and big dividend increases (MCD has doubled its dividend payments in less than a decade). Another recent example would be Apple (NASDAQ:AAPL), which has seen huge revenue growth along with a recently instated dividend payment.

I would encourage investors to seek out blue chips like this to build a stable foundation for your portfolio. If you are banking on a company just because it pays a dividend and has a big name, you could be in for a rude awakening. Given the chart shared earlier, dividends are not bulletproof — just ask General Electric (NYSE:GE) shareholders, or folks who were holding bad banks in 2009.

There are profits to be made by seeking out pockets of strength. But clearly, many companies — in a wide variety of sectors — are struggling to improve their top line.

That doesn’t bode well for the market, or for the economy in general since no businesses will be hiring if they are focused solely on cutting their way to growth.

Jeff Reeves is the editor of InvestorPlace.com and the author of “The Frugal Investor’s Guide to Finding Great Stocks.” Write him at editor@investorplace.com or follow him on Twitter via @JeffReevesIP. He held a long position in Apple as of this writing, but no other positions in any of the stocks named here.


Article printed from InvestorPlace Media, http://investorplace.com/2012/08/forget-earnings-declining-revenue-and-dividends-the-real-story-in-q3/.

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