Profits Plunge at Imperial Tobacco Group

LONDON -- Imperial Tobacco  (LSE: IMT  ) (NASDAQOTH: ITYBY  ) released half-year results for the six months to March 31, 2013 this morning, in which pretty much everything had declined, compared with 2012. Adjusted operating profit plunged 6.7%, to 1,359 million pounds, on tobacco net revenues that were down 3.1%, at 3,284 million pounds. Stick equivalents (a measure that reflects combined cigarette and fine-cut tobacco volumes) fell 5.9% to 149.7 billion, and adjusted earnings per share dropped 3.1%, to 90.2 pence.

The poor results -- which were anticipated in an interim management statement in Jan. 2013 and seem to have already been priced in by the market -- were blamed on difficult trading conditions in the EU, particularly in Spain and the company's "rest of EU" region, which undercut better performances in the U.K. and Germany. Similarly, good results from the "rest of world" region -- especially Asia-Pacific, Africa, and the Middle East -- were undermined by declines in the U.S. and Russia.

Despite a disappointing set of figures, the board has increased the interim dividend by 11%, to 35.2 pence per share, and says it intends to grow dividends by a minimum of 10% every year in the medium term.

Commenting on the results, Imperial Tobacco's chief executive Alison Cooper said

Our focus on quality growth has delivered further volume and revenue gains from our key strategic brands and fine cut tobaccos and good results in a number of markets across our footprint.

The resilience we're showing in a deteriorating EU environment demonstrates the strength and versatility of our unique total tobacco portfolio. Further afield, excise-driven market dynamics in Russia and our transition to a new pricing strategy in the USA slowed our revenue and profit momentum in non-EU territories, masking the good growth we're generating in Asia-Pacific and Africa and the Middle East.

In January we said these headwinds would affect our first half results and in line with our strategy we've been implementing portfolio and cost initiatives to strengthen delivery in the second half and into 2014. Leveraging our total tobacco brands and optimizing costs will drive this stronger performance, supported by effective cash management, enabling us to continue to create sustainable value for our shareholders.

Imperial's share price is now down nearly 7% on this time last year, but at least shareholders have the comfort of a dividend that currently stands at a little more than 5% and which is forecast to rise more than 5.5% in 2014.

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Were Caterpillar's Earnings Really That Bad?

It wasn't exactly an encouraging earnings report last week for Caterpillar (NYSE: CAT  ) , as the company both missed expectations and cut its full-year 2013 forecast. Caterpillar now expects revenue for the full year to come in between $57 million and $61 million, down from the previous range of $60 billion to $68 billion. Caterpillar also lowered its full-year 2013 earnings per share guidance to $7 from the previous midpoint of $8 per share.

Here are Caterpillar's first quarter results compared with last year's first quarter and analyst expectations for this quarter.

 

Revenue

Earnings

Earnings per share

Q1 2012	$15.98 billion	$1.59 billion	$2.37
Q1 2013 Estimates	$13.7 billion	$0.926 billion	$1.38
Q1 2013 Actual	$13.21 billion	$0.880 billion	$1.31

Source: S&P Capital IQ. Analyst estimates from Bloomberg.

Despite the disappointing results, Caterpillar's stock actually ended the day up solidly after its earnings were released. So what gives?

Part of the reason is a lot of bad news was already baked in to Caterpillar's stock price. Investors simply haven't been expecting much from the company lately, with the stock trading for a P/E of around 10 before the earnings release. Caterpillar also resumed its shareholder-friendly stock buyback plan, announcing that it will repurchase $1 billion in common stock from Citi. The company initially started a repurchase plan in 2007 with plans of buying back $7.5 billion in stock, but the plan was put on hold at the end of 2008 after $3.8 billion in repurchases. Caterpillar paused the buybacks to focus on strengthening its balance sheet and improving cash flow.

Inventory reductions
One of the reasons for Caterpillar's disappointing first-quarter results was the continued reduction in both dealer and company inventory. Caterpillar inventory was reduced by $500 million in this year's first quarter versus year-end 2012, an encouraging result especially when compared with a $2 billion increase in inventory in 2012's first quarter.

Similarly, dealer inventory also decreased in the first quarter of 2013. Dealers bought less equipment than they sold to customers, decreasing inventory by about $700 million in 2013's first quarter versus year-end 2012. That compares with an increase of $875 million in dealer inventory in the first quarter of 2012. Net those out, and you're looking at a negative $1.6 billion impact just based on the trimming of dealer inventories quarter-over-quarter.

Mining problems
Going forward, investors need to keep an eye specifically on Caterpillar's most important segment in the long term: resource industries. Mining accounts for about 80% of the resources industries segment's revenue, and it's an area where Caterpillar continues to face some serious headwinds. While CEO Doug Oberhelman recently told CNBC that "we're close to a floor in mining," management also stated on the conference call that the mining backlog declined in the first quarter and that mining is the primary reason for the company's reduced full-year 2013 outlook. Management also said it now expects the march down of dealer inventory in mining to continue at least to some degree throughout much of 2013. Most of Caterpillar's first-quarter sales declines year-over-year from last year was due to the resource industries segment.

30,000-foot view
While resource industries will continue to be the big drag on revenue this year for Caterpillar, this is probably more short-term in nature, and investors should remember that mining is a highly cyclical segment.

There is still a ton of opportunity in mining when looking years and decades out. That's why General Electric (NYSE: GE  ) launched a new business unit, GE Mining, last September. GE expects the unit will reach $5 billion in sales "within a few years," building on recent acquisitions of Fairchild International and Industrea Limited.

For Caterpillar, its construction and power systems segments will perform better on a sequential basis than its slumping resource industries segment this year, but the company continues to be in a promising position as the world's largest mining equipment maker, which still looks to be its key long-term growth driver.

Fact is, Caterpillar remains the market share leader in an industry in which size matters, and its quality products, extensive service network, and unparalleled brand strength combine to give it solid competitive advantages. Read all about Caterpillar's strengths and weaknesses in The Motley Fool's brand-new report. Just click here to access it now.

4 Cheap and Easy Ways to Buy the Stock Market

Millions of investors around the world rely on the stock market to help them grow their wealth and meet their long-term financial goals. But many investors steer clear of stocks because they're not sure how to pick the best ones to invest in or how to avoid problem stocks that can cost them their entire life savings.

Fortunately, if you want a cheap and easy way to add stock market exposure to your investment portfolio, then your smartest move could be to buy one of many exchange-traded funds that seek to mirror the returns of the S&P 500 (SNPINDEX: ^GSPC  ) or other benchmarks covering similarly large swaths of the stock market. To give you a sense of the variety of such funds that are available, let's take a look at four ETFs that invest primarily in S&P 500 stocks to compare their good and bad points.

SPDR S&P 500 (NYSEMKT: SPY  )
The granddaddy of the ETF world, the fund known as the Spiders takes a brute-force approach to index investing, owning shares of all 500 stocks in the S&P 500 in roughly the same proportion as their weightings in the index. With identical holdings to the S&P, the SPDR ETF essentially guarantees that you'll match the index's return, less minimal net expenses of less than 0.10% annually.

Vanguard Total Stock Market (NYSEMKT: VTI  )
In addition to having its own separate S&P 500-tracking ETF that uses the same approach as the SPDR ETF yet charges just half the expenses, Vanguard also offers its Total Stock Market ETF, which owns not just the 500 stocks in the S&P but also 2,700 more stocks that make up the MSCI US Broad Market index. The result is a small amount of exposure to small- and mid-cap stocks in addition to its core large-cap holdings. When smaller companies perform better, that gives the Vanguard ETF an advantage over SPDRs and other S&P-tracking funds, and its rock-bottom 0.05% expense ratio is about as cheap as you can get.

Guggenheim S&P 500 Equal-Weight (NYSEMKT: RSP  )
Equal-weight ETFs own the same stocks as regular S&P 500-tracking funds, but with a catch: rather than weighting the amount it invests in each stock by market capitalization, the Guggenheim ETF has roughly equal dollar amounts invested in all 500 of its holdings. Lately, that has produced better returns than the overall S&P, because of weak performance from the S&P's largest companies. With an expense ratio of 0.40%, the Guggenheim offering isn't the cheapest ETF available, but if you like simplicity and think that smaller companies are poised to outperform their larger counterparts, then the equal-weight ETF may be the right pick for you.

ProShares Ultra S&P 500 (NYSEMKT: SSO  )
The ProShares ETF uses leverage to provide double the daily return of the S&P 500. In addition to holding individual stocks, the ETF also uses derivatives like swaps and futures contracts to get its leveraged return. Yet as the company's website notes, returns over periods longer than a day won't necessarily be double the S&P's return, and in some cases, the fund's long-term returns can move in the opposite direction from the stock market. With an expense ratio of 0.91%, this ETF is cheap only in comparison to trying to implement a similar derivative-based strategy yourself, but it's most appropriate for those with short time horizons trying to maximize their short-run returns, or those who believe that the market will move sharply upward for an extended period without many pullbacks.

Keep it simple
Expert investors get a whole lot more complicated with their investing strategies, seeking out stocks that will outperform the S&P 500 and similar benchmarks. But if you're more comfortable spending the bulk of your time on things other than investing, then choosing one or more of these simple ETFs could be just the answer you've been waiting for.

To learn more about a few ETFs that have great promise for delivering profits to shareholders, check out The Motley Fool's special free report "3 ETFs Set to Soar." Just click here to access it now.

"He Wasn't Keeping Money in the Cayman Islands Because Sunshine Was Making It Grow Faster"

I interviewed Nobel Prize-winning economist Joseph Stiglitz earlier this month.

In this clip, Stiglitz discusses how our tax code and regulatory structure provide an unfair advantage to some, but not others, exacerbating inequality in America. Have a look. (A transcript follows.)

Joseph Stiglitz: Well, there are a whole set of things that help explain what's happened to increase the inequality. Some of this has to do with tax laws. The fact is that the people at the top can take advantage of a whole set of special provisions, exceptions, exemptions.

Mitt Romney, when he was running for the president, openly said that he was paying only 14% of his reported income, and that he was keeping his income, his wealth, in the Cayman Islands. Now, it's very difficult for most of us to keep our income in the Cayman Islands, and he wasn't keeping the money in the Cayman Islands because the sunshine there was making the money grow faster. It was something else. It was the lack of sunshine that allows for people to avoid taxes, not necessarily illegally, but to take advantage of the loopholes that they have succeeded in putting into the tax law.

The most egregious example of this is the carried interest provision that allows those working Wall Street to treat their income, ordinary income, as if it were capital gains. So rather than paying 35 or now 39.6, they get paid the capital gains, takes the tax rate 15 to 20%. So that's one example.

Second important example is the way our financial system works, that the underregulated financial system, provides more opportunity for money to move toward the top. There's a more general point -- when markets are competitive, incomes get driven down. When markets are not competitive, there are locks of rents, and the financial sector has been very successful in weakening competition. One example is provided by the way the secretive LIBOR market worked that allowed them to manipulate the LIBOR rate to take advantage of the rest of the society.

Another example is more broadly the CDSes, over the counter, non-transparent. I understand fully why they want those markets to be non-transparent. When markets get transparent, they get competitive. When they get competitive, profits get eroded, and so as an economist, let me say I totally understand what they're trying to do, but from a public policy point of view, it's outrageous.

The Text Message Is Dying. Who Will Rule the Future?

Researcher Informa published a report which estimates an astounding 17.6 billion SMS texts are sent each day. Yet, in spite of those eye-popping figures that follow a decade of tremendous growth, SMS texting's best days are probably behind it. In 2012, chat apps such as as iMessage and WhatsApp sent over 19 billion messages per day, besting SMS for the first time. By next year, chat app use is expected to rise to 50 billion messages per day while SMS budges forward to 21 billion messages a day, supported by mobile users without data plans.

In the video below, senior technology analyst Eric Bleeker discusses how smartphones are liberating wireless users from costly SMS text plans. Mobile companies see over $115 billion per year in high-margin fees from SMS messages. But texts taking up almost no data and smartphones with apps capable of sending messages now in ubiquitous use, the future of SMS was bound to diminish once chat apps established critical mass. With Apple (NASDAQ: AAPL  ) unveiling iMessage for Apple products, Facebook (NASDAQ: FB  ) putting more resources behind Messenger, and the emergence of WhatsApp, plenty of messaging platforms have gained in popularity across the past year.

SMS is facing a classic case of technological disruption, and the winners of the next generation have a different way of profiting from the messages: Instead of making money per each message sent, they view messaging apps as a way to keep users engaged on their platforms. To see Eric's full thoughts, watch the video below.

There's no doubt that Apple is at the center of technology's largest revolution ever, and that longtime shareholders have been handsomely rewarded with over 1,000% gains. However, there is a debate raging as to whether Apple remains a buy. The Motley Fool's senior technology analyst and managing bureau chief, Eric Bleeker, is prepared to fill you in on both reasons to buy and reasons to sell Apple, and what opportunities are left for the company (and your portfolio) going forward. To get instant access to his latest thinking on Apple, simply click here now.

The FDA Issues a Stunning Rejection

Why SINA Shares Skyrocketed

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of SINA (NASDAQ: SINA  ) have skyrocketed today by as much as 21% after Alibaba acquired an 18% stake in its Weibo subsidiary.

So what: Weibo, the "Twitter of China," and Alibaba will partner to develop monetization strategies for Weibo's user base. The two will combine Alibaba's e-commerce specialties with Weibo's social reach to deliver new marketing solutions to merchants. The companies will also share data and explore new business models.

Now what: As part of the deal, Alibaba is investing $586 million in Weibo, giving it an 18% stake, and SINA has also given Alibaba an option to boost its ownership up to 30% at a mutually agreed valuation within a certain period of time. The partnership is expected to translate into $380 million in advertising and social commerce revenues over the next three years. Combined, Weibo and Alibaba currently have hundreds of millions of users.

Interested in more info on SINA? Add it to your watchlist by clicking here.

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Has Centene Made You Any Real Money?

Although business headlines still tout earnings numbers, many investors have moved past net earnings as a measure of a company's economic output. That's because earnings are very often less trustworthy than cash flow, since earnings are more open to manipulation based on dubious judgment calls.

Earnings' unreliability is one of the reasons Foolish investors often flip straight past the income statement to check the cash flow statement. In general, by taking a close look at the cash moving in and out of the business, you can better understand whether the last batch of earnings brought money into the company, or merely disguised a cash gusher with a pretty headline.

Calling all cash flows
When you are trying to buy the market's best stocks, it's worth checking up on your companies' free cash flow once a quarter or so, to see whether it bears any relationship to the net income in the headlines. That's what we do with this series. Today, we're checking in on Centene (NYSE: CNC  ) , whose recent revenue and earnings are plotted below.

Source: S&P Capital IQ. Data is current as of last fully reported fiscal quarter. Dollar values in millions. FCF = free cash flow. FY = fiscal year. TTM = trailing 12 months.

Over the past 12 months, Centene generated $296.9 million cash while it booked net income of $0.9 million. That means it turned 3.1% of its revenue into FCF. That sounds OK.

All cash is not equal
Unfortunately, the cash flow statement isn't immune from nonsense, either. That's why it pays to take a close look at the components of cash flow from operations, to make sure that the cash flows are of high quality. What does that mean? To me, it means they need to be real and replicable in the upcoming quarters, rather than being offset by continual cash outflows that don't appear on the income statement (such as major capital expenditures).

For instance, cash flow based on cash net income and adjustments for non-cash income-statement expenses (like depreciation) is generally favorable. An increase in cash flow based on stiffing your suppliers (by increasing accounts payable for the short term) or shortchanging Uncle Sam on taxes will come back to bite investors later. The same goes for decreasing accounts receivable; this is good to see, but it's ordinary in recessionary times, and you can only increase collections so much. Finally, adding stock-based compensation expense back to cash flows is questionable when a company hands out a lot of equity to employees and uses cash in later periods to buy back those shares.

So how does the cash flow at Centene look? Take a peek at the chart below, which flags questionable cash flow sources with a red bar.

Source: S&P Capital IQ. Data is current as of last fully reported fiscal quarter. Dollar values in millions. TTM = trailing 12 months.

When I say "questionable cash flow sources," I mean items such as changes in taxes payable, tax benefits from stock options, and asset sales, among others. That's not to say that companies booking these as sources of cash flow are weak, or are engaging in any sort of wrongdoing, or that everything that comes up questionable in my graph is automatically bad news. But whenever a company is getting more than, say, 10% of its cash from operations from these dubious sources, investors ought to make sure to refer to the filings and dig in.

With questionable cash flows amounting to only 6.0% of operating cash flow, Centene's cash flows look clean. Within the questionable cash flow figure plotted in the TTM period above, stock-based compensation and related tax benefits provided the biggest boost, at 7.7% of cash flow from operations. Overall, the biggest drag on FCF came from capital expenditures, which consumed 16.1% of cash from operations.

A Foolish final thought
Most investors don't keep tabs on their companies' cash flow. I think that's a mistake. If you take the time to read past the headlines and crack a filing now and then, you're in a much better position to spot potential trouble early. Better yet, you'll improve your odds of finding the underappreciated home-run stocks that provide the market's best returns.

Is Centene the best health care stock for you? Learn how to maximize your investment income and "Secure Your Future With 9 Rock-Solid Dividend Stocks," including one above-average health care logistics company. Click here for instant access to this free report.

We can help you keep tabs on your companies with My Watchlist, our free, personalized stock tracking service.

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Hong Kong Stocks Fall Most in Week on China Economic Data

Hong Kong stocks fell, with an index of Chinese companies headed for its biggest drop in a week, as slower growth in Chinese industrial companies' profits added to signs the world's No. 2 economy is losing steam.

Jiangxi Copper Co. (358), the country's biggest producer of the metal, fell 4.1 percent and China Coal Energy Co., the second- largest coal producer, slumped 5.9 percent after saying it expects a drop in first-half profit. China Resources Power Holdings Co., a utility that owns wind farms, rose 0.8 percent after China Electricity Council said the nation's power use may rise.

The Hang Seng China Enterprises Index of mainland companies traded in the city declined 1.1 percent to 10,717.37 as of 1:44 p.m. in Hong Kong, headed for its biggest drop since April 23. The benchmark Hang Seng Index slid 0.2 percent, with trading volume 22 percent less than the 30-day intraday average. Mainland equity markets are closed through May 1 for public holidays.

"There's definitely some weakness in the Chinese economy," Adrian Mowat, chief Asia and emerging-market strategist at JPMorgan Chase & Co., said on Bloomberg Television today. Stimulus measures by the government aren't generating the growth he would expect. "It sounds like the central bank governor wants to take away the stimulus before the economy's got going. The Chinese stock market's in a very difficult position at the moment," he said.

Volume Slips

The Hang Seng Index declined 5.4 percent from a Jan. 30 high through April 26 amid disappointing economic data from China, the outbreak of a new bird-flu virus and renewed concern about Europe's debt crisis. Year-to-date, Hong Kong's benchmark index is the second-worst performer among developed markets.

The measure traded April 26 at 10.8 times estimated earnings on April 26, compared with a five-year average of 12.7 and the Standard & Poor's 500 Index's multiple of 14.4, data compiled by Bloomberg show.

Growth in Chinese industrial company profits slowed in March. Net income increased 5.3 percent from a year earlier, down from a 17.2 percent pace in the first two months, the National Bureau of Statistics said on its website on April 27. Profit in the first quarter rose 12.1 percent, it said.

Measures of industry goods, energy and materials companies had the three biggest declines among the Hang Seng Composite Index's 11 industry groups. Tianneng Power International Ltd. (819), a maker of storage batteries, tumbled 7.9 percent to HK$4.81. Zoomlion Heavy Industry Science & Technology Co., China's second-biggest construction equipment maker, sank 5.1 percent to HK$7.66.

Energy, Materials Drop

PetroChina Co., the nation's largest energy producer, retreated 1.4 percent to HK$9.74. Jiangxi Copper fell 4.1 percent to HK$14.94 after saying it expects its first-half profit will slump by more than 50 percent on current or lower copper prices. United Co. Rusal (486), the world's biggest aluminum producer, dropped 3.6 percent to HK$3.77.

West Texas Intermediate crude oil for June delivery declined 0.7 percent in New York on April 26, while the London Metal Exchange Index of industrial metals slid 2.3 percent.

China Coal Energy slumped 5.9 percent to HK$5.93, the steepest drop in the Hang Seng Index (HSI), after saying it expects a decline in first-half profit on low coal prices.

"Right now the sentiment is not too poor, but people will still be cautious," said Alex Wong, a Hong Kong-based director at Ample Capital Ltd. "Overall, the resources sector in China is very weak as commodity prices remain weak."

Electricity Producers Gain

Futures on the Standard & Poor's 500 Index were little changed today. Most shares in the U.S. dropped on April 26, paring a weekly gain, after data showed the world's largest economy grew less than economists forecast in the first quarter and amid disappointing earnings reports. Gross domestic product expanded at a 2.5 percent annual rate in the first quarter, trailing the 3 percent estimate of 86 economists surveyed by Bloomberg.

Utilities gained. China Resources Power increased 0.8 percent to HK$25.15, while Huaneng Power International Inc. (902), the publicly traded unit of China's largest electricity producer, climbed 2.4 percent to HK$8.92.

China's power consumption is expected to rise by 2.51 trillion kilowatt hours to 2.53 trillion in the first half of this year, China Electricity Council said in a statement on its website.

Hang Seng Index futures declined 0.1 percent to 22,542. The HSI Volatility Index gained 2.3 percent to 16.94, indicating traders expect a swing of 4.9 percent for the equity benchmark in the next 30 days.

Johnson & Johnson Lifts Dividend

Johnson & Johnson (NYSE: JNJ  ) is continuing its long tradition of boosting the money it returns to shareholders. The company has declared a quarterly dividend of $0.66 per share of its stock, to be paid on June 11 to shareholders of record as of May 28. This represents an increase of 8% over the previous payout of $0.61, which was dispensed in February.

The company is a steady dividend payer, and it typically raises that distribution once per year. This is the 51st consecutive year it has done so.

The new dividend annualizes to $2.64 per share. That yields 3.1% at Johnson & Johnson's current stock price of $85.21.

More Expert Advice from The Motley Fool

In the world of health care, companies simply don't come any bigger than Johnson & Johnson. Many own the stock, but few understand its story. Offering everything from baby powder to biologics, critics think the company has spread itself too thin, becoming nothing more than a bloated corporate whale. Is this true, or is J&J a well-diversified giant that's perfect for your portfolio? Make sure you understand the full story behind the stock, along with its key opportunities and risks, by checking out our brand new premium report on Johnson & Johnson. To claim your copy simply click here now for instant access.

Coach Beats Analyst Estimates on EPS

Coach (NYSE: COH  ) reported earnings on April 23. Here are the numbers you need to know.

The 10-second takeaway
For the quarter ended March 30 (Q3), Coach met expectations on revenues and beat expectations on earnings per share.

Compared to the prior-year quarter, revenue expanded. GAAP earnings per share expanded.

Gross margins grew, operating margins dropped, net margins shrank.

Revenue details
Coach chalked up revenue of $1.19 billion. The 27 analysts polled by S&P Capital IQ expected revenue of $1.18 billion on the same basis. GAAP reported sales were 7.1% higher than the prior-year quarter's $1.11 billion.

Source: S&P Capital IQ. Quarterly periods. Dollar amounts in millions. Non-GAAP figures may vary to maintain comparability with estimates.

EPS details
EPS came in at $0.84. The 29 earnings estimates compiled by S&P Capital IQ forecast $0.80 per share. GAAP EPS of $0.84 for Q3 were 9.1% higher than the prior-year quarter's $0.77 per share.

Source: S&P Capital IQ. Quarterly periods. Non-GAAP figures may vary to maintain comparability with estimates.

Margin details
For the quarter, gross margin was 74.1%, 30 basis points better than the prior-year quarter. Operating margin was 29.3%, 110 basis points worse than the prior-year quarter. Net margin was 20.1%, 20 basis points worse than the prior-year quarter. (Margins calculated in GAAP terms.)

Looking ahead
Next quarter's average estimate for revenue is $1.24 billion. On the bottom line, the average EPS estimate is $0.89.

Next year's average estimate for revenue is $5.09 billion. The average EPS estimate is $3.70.

Investor sentiment
The stock has a four-star rating (out of five) at Motley Fool CAPS, with 2,938 members out of 3,119 rating the stock outperform, and 181 members rating it underperform. Among 866 CAPS All-Star picks (recommendations by the highest-ranked CAPS members), 839 give Coach a green thumbs-up, and 27 give it a red thumbs-down.

Of Wall Street recommendations tracked by S&P Capital IQ, the average opinion on Coach is outperform, with an average price target of $60.30.

Can your portfolio provide you with enough income to last through retirement? You'll need more than Coach. Learn how to maximize your investment income and "Secure Your Future With 9 Rock-Solid Dividend Stocks." Click here for instant access to this free report.

Add Coach to My Watchlist.

WPP to Consider New Dividend Policy

LONDON: The shares of WPP  (LSE: WPP  ) slipped 1% to 1,064 pence this morning after the advertising giant reported first-quarter sales rising 6% to 2.5 billion pounds. However, those sales increased only 2.1% when stripping out acquisitions and currency fluctuations.

The company also announced it would consider "increasing the dividend pay-out target ratio from its current level" to as high as 50% of group annual profits, from its current target of 40%.

WPP -- the world's largest advertising group, whose clients include Microsoft, Proctor & Gamble and McDonald's -- revealed emerging market sales had improved 8%, offset by 1% sales declines in Europe and North America.

The company generates almost 34% of its revenues from its "Direct, Digital and Interactive" divisions, where sales increased 3% from last year, partly due to an impressive 16% boost to Digital sales.

Giving its outlook for the year, WPP commented:

Following the Group's record year in 2012, 2013 has started similarly to the final quarter of 2012, with all geographies and sectors, except public relations and public affairs, growing revenues on a constant currency basis.

The pattern of 2013 looks similar to 2012 and equally demanding, perhaps with slightly increased client confidence balancing the lack of maxi- or mini-quadrennial events. 2014 looks a better prospect, however, with the World Cup in Brazil, the Winter Olympics in Sochi and, would you believe, another United States election-the mid-term Congressionals.

The Group continues to lead the industry, in co-ordinating investment geographically and functionally through parent company initiatives and winning Group pitches.

Reflecting the "timing of acquisition payments," WPP's net debt expanded by a further 331 million pounds to reach 3 billion pounds in the first-quarter.

With a market cap of 13.5 billion pounds, the company is valued at 13 times expected earnings, and offers a prospective dividend yield of 3%.

However, if you're looking for a higher-yielding investment opportunity, there aren't many global companies whose dividend can match the long-term stability or visibility laid out by "The Motley Fool's Top Income Stock For 2013."

In fact, the Fool's choice recently revealed its dividend would increase "at least in line with the rate of U.K. inflation for the foreseeable future," and provides a market-beating 5.1% yield.

Just click here to download the free exclusive report!.

Why Theravance Shares Popped

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of biopharmaceutical company Theravance (NASDAQ: THRX  ) climbed as high as 13% today after announcing plans to split into two companies, separating its drugs under development with GlaxoSmithKline from its other operations.

So what: The stock has been stagnant over the past couple of years on sluggish sales and royalties, but the separation should unlock some hidden value from two very different sets of assets. The move also increases the likelihood that Glaxo will eventually buy out Theravance's franchise lung disease drugs Breo and Anoro.

Now what: Theravance expects that the separation will be completed by late 2013 or early 2014. "After the separation, Theravance Biopharma will focus on Theravance's multivalent discovery capabilities and pipeline of programs," wrote the company in a statement. "Royalty Management Co will continue to focus on managing the rights to the significant potential royalty streams from certain products developed under the LABA collaboration with GSK." So while the stock is still too speculative for average Fools, Theravance might be a special situation for biotech-savvy investors to consider.

Interested in more info Theravance? Add it to your watchlist.

USANA Health Sciences's Earnings Beat Last Year's by 42%

USANA Health Sciences (NYSE: USNA  ) reported earnings on April 23. Here are the numbers you need to know.

The 10-second takeaway
For the quarter ended March 30 (Q1), USANA Health Sciences met expectations on revenues and beat expectations on earnings per share.

Compared to the prior-year quarter, revenue expanded. GAAP earnings per share increased significantly.

Gross margins contracted, operating margins grew, net margins grew.

Revenue details
USANA Health Sciences notched revenue of $169.1 million. The four analysts polled by S&P Capital IQ wanted to see sales of $170.4 million on the same basis. GAAP reported sales were 9.7% higher than the prior-year quarter's $154.1 million.

Source: S&P Capital IQ. Quarterly periods. Dollar amounts in millions. Non-GAAP figures may vary to maintain comparability with estimates.

EPS details
EPS came in at $1.28. The five earnings estimates compiled by S&P Capital IQ averaged $1.16 per share. GAAP EPS of $1.28 for Q1 were 42% higher than the prior-year quarter's $0.90 per share.

Source: S&P Capital IQ. Quarterly periods. Non-GAAP figures may vary to maintain comparability with estimates.

Margin details
For the quarter, gross margin was 82.1%, 20 basis points worse than the prior-year quarter. Operating margin was 15.7%, 220 basis points better than the prior-year quarter. Net margin was 10.5%, 160 basis points better than the prior-year quarter. (Margins calculated in GAAP terms.)

Looking ahead
Next quarter's average estimate for revenue is $176.1 million. On the bottom line, the average EPS estimate is $1.30.

Next year's average estimate for revenue is $712.2 million. The average EPS estimate is $5.18.

Investor sentiment
The stock has a two-star rating (out of five) at Motley Fool CAPS, with 225 members out of 407 rating the stock outperform, and 182 members rating it underperform. Among 119 CAPS All-Star picks (recommendations by the highest-ranked CAPS members), 53 give USANA Health Sciences a green thumbs-up, and 66 give it a red thumbs-down.

Of Wall Street recommendations tracked by S&P Capital IQ, the average opinion on USANA Health Sciences is outperform, with an average price target of $57.00.

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Add USANA Health Sciences to My Watchlist.

Asian Gold Demand Could Trigger Strong Rebound for Randgold Resources

LONDON -- Last week's gold price slump convinced many investors to sell their shares in gold funds and miners.

However, the fall seems to have triggered a rebound in demand in Asia, where buyers have been stocking up on gold bars and coins. According to Aram Shishmanian, CEO of gold's trade body the World Gold Council, demand has been strong since the gold price fell: "We are already seeing shortages for bars and coins in Dubai, while premiums in Mumbai are at $26/oz. and $6 in Shanghai, indicating that buyers are willing to pay more than current spot prices for the metal."

Should you buy gold?
The two leading physical gold ETFs -- Gold Bullion Securities  (LSE: GBS  ) and SPDR Gold Trust  (NYSEMKT: GLD  ) -- are both down by around 15% so far this year.

Like gold, they have rebounded by around 2.5% over the last week, but I'm not sure that investing directly in gold is the best way to profit from rising demand for gold. I reckon there are better opportunities in gold-mining shares.

A rare opportunity?
The share price of FTSE 100 gold miner Randgold Resources  (LSE: RRS  ) (NASDAQ: GOLD  ) has fallen by nearly 20% so far this year. I've long admired Randgold's progress but have never felt that the stock has been cheap enough to consider buying before.

Although Randgold's forecast price-to-earnings (P/E) ratio of 14 still looks expensive compared to its peers, the firm has several key advantages.

Randgold has $400 million in net cash, and its cash cost per ounce of $790 is lower than many of its peers. The firm's Kibali gold mine is expected to start producing gold by the end of 2013, and should eventually produce 600,000 ounces of gold per year, providing a potential 75% increase on Randgold's 2012 gold production.

Gold's 6% yield
A smaller alternative to Randgold is FTSE 250-listed African Barrick Gold  (LSE: ABG  ) . The firm's share price has fallen by 58% so far this year, thanks to the failure of a potential sale to Chinese investors and the recent fall in the price of gold.

As a result, African Barrick -- which is profitable and has net cash of $401 million -- offers a forecast dividend yield of almost 6%. It's a very tempting opportunity, but you should remember that if the price of gold falls further, African Barrick's cash costs of $931 per ounce may leave very little room for profit.

A golden million
If you had invested in Randgold Resources six years ago, you would now be sitting on a profit of nearly 300%. Identifying success stories such as Randgold before they take off -- and then sticking with them for the long term -- is one of the best ways to build up a million-pound share portfolio.

The Motley Fool's Millionaire Report is completely free and lists ten steps you can take to help you on your way to the magic million. This report is free, but availability is strictly limited, so click here to download your copy now.

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How Dividends Change the Game for Owners of United Technologies Stock

The wealth-building power of compound interest will never cease to amaze me. It's a story of patience and attention to detail, where small, short-term differences add up to massive divergence over decades. And in the end, the biggest winners don't always deliver the fattest share-price returns.

United Technologies (NYSE: UTX  ) is one of those extremely boring businesses that can rake up untold billions in shareholder value without turning heads on Wall Street. There's nothing sexy about building elevators or fire safety systems, but these products are at the very bedrock of modern society. United Technologies runs a cash machine that is unlikely to ever run out of fuel.

And the company isn't shy about returning that cash directly to shareholders -- by the bucketload. This is why United Technologies is such an attractive income stock:

UTX data by YCharts.

Sure, United Technologies shares have outperformed their peers on the Dow Jones Industrial Average (DJINDICES: ^DJI  ) over the last decade, with or without reinvested dividends. But the relentlessly rising payouts add up to another 70% gain on top of a triple in basic share prices.

The stock pays out a 2.4% dividend yield right now, which is in line with the Dow average. But even in this elite club, it's hard to find companies that boost their payouts with such mechanical consistency. Even so, United Technologies has plenty of headroom to accelerate its cash-sharing even further: The company never dips very deeply into those rich cash flows to power the dividend policy.

UTX Free Cash Flow TTM data by YCharts.

This is the stuff that dividend dreams are made of.

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Too Bad Netflix Doesn't Charge by the Hour

Earlier this month, Netflix (NASDAQ: NFLX  ) CEO Reed Hastings announced on his Facebook (NASDAQ: FB  ) page that viewers had streamed more than 4 billion hours of video on Netflix in Q1. That averages out to at least 1.33 billion hours per month; in contrast, Netflix first surpassed 1 billion hours of streaming video in a month in June 2012. Investors cheered the new usage information, on the premise that higher usage means more subscribers. Indeed, Netflix announced last week that it added 2.03 million domestic streaming subscribers and 1.02 million international subscribers in Q1.

However, the "hours watched" metric doesn't actually have much bearing on what Netflix is worth. If Netflix charged by the hour, then higher usage would be a proxy for sales growth. Instead, under Netflix's "unlimited viewing" policy, while total usage is correlated with revenue, the relationship is not one-to-one. Indeed, the impact of higher usage on Netflix's profitability is not at all straightforward. Netflix investors should therefore be careful of relying too heavily on non-financial metrics like "hours watched."

Usage and revenue: a divergence
Based on the data Netflix has provided, it appears that most of the increase in usage since last June is due to subscriber growth, but 5% to 10% of the increase can be attributed to Netflix customers using the service more. Netflix management has stated that customers who watch more content are less likely to cancel. Bulls would therefore argue that higher usage will improve revenue growth because fewer people will cancel their service in the future.

On the other hand, increasing usage per account could be the result of account-sharing. One analyst recently estimated that 10 million people use Netflix without paying, by sharing a Netflix customer's password. While these individuals are getting a lot of value out of their shared accounts, their high usage actually represents a revenue loss for Netflix (compared with paid accounts for both people). Some analysts had speculated that Netflix would crack down on account-sharing. Instead, the company's new $11.99 plan allows four simultaneous streams and could actually encourage more account sharing.

Higher usage in each account could also theoretically benefit Netflix by creating pricing power. If users value Netflix very highly, then the company could raise prices without losing too many subscribers. However, management has been adamant that it isn't interested in raising prices for the foreseeable future -- excluding the new $11.99 plan that allows up to four people to use an account at once. Given the level of customer outrage that followed the last price increase, Netflix is likely to remain extremely cautious on pricing. Overall, it's unclear whether Netflix benefits significantly from subscribers using the service more often.

Can usage drive costs?
On the flip side, heavy usage may actually be a longtime driver of cost increases for Netflix. While Netflix's content costs are fixed in the short term -- Netflix pays content owners a flat fee rather than paying based on usage or the number of subscribers -- everything is negotiable in the long run. According to the company's 10-K, almost 90% of Netflix's streaming obligations are due within three years or less. If content providers see that Netflix users want to consume a lot of their content, they will raise their prices as the contracts come up for renewal.

Netflix may already be seeing this occur. On the company's recent earnings call, management noted that Amazon.com (NASDAQ: AMZN  ) and Hulu have been more active in bidding for content in the past year, and this competition has driven up prices. One result is that Netflix is allowing a broad licensing deal with Viacom (NASDAQ: VIAB  ) to expire in May. Netflix hopes to license a few shows separately, but the rest will be removed. While Netflix can try to manage costs in this manner for a little while, it risks turning the virtuous cycle -- more content draws more users, driving higher revenue, which pays for more content -- into a vicious cycle.

Foolish conclusion
Unlike some companies that are very tight-lipped, Netflix provides investors a vast amount of information in its quarterly investor letters, blog posts, and other announcements. Investors need to sift through this information and figure out what is actually relevant. "Hours watched" does not seem like a particularly good metric for investors to follow. In the long run, higher usage probably increases both revenue and costs, but there is simply not enough data yet to know which factor will outweigh the other.

Netflix's long-term value will ultimately be driven by its ability to generate pricing power, so that it can pass through price increases from content owners like Viacom, rather than losing content or sacrificing margins. If investors chase "canards" like usage statistics in evaluating Netflix's business model, they may end up overlooking the most important information about the company's health.

The tumultuous performance of Netflix shares since the summer of 2011 has caused headaches for many devoted shareholders. While the company's first-mover status is often viewed as a competitive advantage, the opportunities in streaming media have brought some new, deep-pocketed rivals looking for their piece of a growing pie. Can Netflix fend off this burgeoning competition, and will its international growth aspirations really pay off? These are must-know issues for investors, which is why The Motley Fool has released a premium report on Netflix. Inside, you'll learn about the key opportunities and risks facing the company, as well as reasons to buy or sell the stock. The report includes a full year of updates to cover critical new developments, so make sure to click here and claim a copy today.

Can Verizon Take Control Over Its Own Destiny After All?

Verizon (NYSE: VZ  ) may have figured out how to take full control of Verizon Wireless without paying $20 billion in extra taxes. The seemingly everlasting partnership with Vodafone (NASDAQ: VOD  ) could end in short order -- a willing buyer is looking at a willing seller, and they just have to make the economics of the deal work for everybody.

Making a move quickly would help Verizon defend its leading stature as smaller rivals consolidate around its feet. In this video, Fool contributor Anders Bylund walks you through the new Vodafone development and what it means to investors in the wireless industry.

The mobile revolution is still in its infancy, but with so many different companies it can be daunting to know how to profit in the space. Fortunately, The Motley Fool has released a free report on mobile named "The Next Trillion-Dollar Revolution" that tells you how. The report describes why this seismic shift will dwarf any other technology revolution seen before it and also names the company at the forefront of the trend. You can access this report today by clicking here -- it's free.

Dow Aims High as Ford and Proctor & Gamble Beat the Street

LONDON -- Stock index futures at 7 a.m. EDT indicate that the Dow Jones Industrial Average (DJINDICES: ^DJI  ) may open up by 0.23% this morning, while the S&P 500 (SNPINDEX: ^GSPC  ) may open 0.11% higher. After posting sharp falls recently, CNN's Fear & Greed Index closed up four points at 46 yesterday, returning to "neutral" territory.

This morning's main European news story was that Italy will soon have a new prime minister: The appointment of Enrico Letta, who is a member of the center-left Democratic Party, is expected to be confirmed later today. European markets stayed firm this morning despite a second monthly fall for Germany's Ifo business confidence index suggesting that Europe's largest economy is slowing. Many commentators now believe the current stock market gains are being driven by hopes that the European Central Bank will cut interest rates at its monthly meeting in May.

In the U.S., today sees the publication of the durable-goods orders report for March at 8:30 a.m. EDT. Analysts' consensus forecasts suggest that orders may have fallen by 3.2% during March after rising by 5.6% during the previous month. Other data due today includes the EIA Petroleum Status Report at 10:30 a.m. EDT, which could influence oil prices after recent falls.

Kicking off a big day for earnings, Proctor & Gamble reported adjusted earnings per share of $0.99, up 5% from $0.94 in the same period last year. Other companies that reported early this morning include Eli Lilly, which beat forecasts with earnings of $1.42 per share, and Ford, which beat expectations as well with reported earnings of $0.40 per share, up 14% from the same period last year. Whirlpool, Thermo Fisher Scientific, EMC Corp, and Wyndham Worldwide also reported earnings growth this morning, while Boeing, Sprint Nextel, Motorola Solutions, Northrop Grumman, General Dynamics, and Praxair are also due to report before the opening bell.

Yum! Brands may be actively traded when markets open. KFC's parent company beat expectations when it reported earnings last night, leaving the shares 4.8% higher in premarket trading this morning. AT&T may head lower, however: Its shares were down 4% in premarket trading after the company reported last night that it had lost cell phone market share to Verizon Wireless during the first quarter.

Finally, let's not forget that the Dow's daily movements can add up to serious long-term gains. Indeed, Warren Buffett recently wrote, "The Dow advanced from 66 to 11,497 in the 20th Century, a staggering 17,320% increase that materialized despite four costly wars, a Great Depression and many recessions." If you, like Buffett, are convinced of the long-term power of the Dow, you should read "5 Stocks To Retire On." Your long-term wealth could be transformed, even in this uncertain economy. Simply click here now to download this free, no-obligation report.

CONSOL Energy Goes Red

CONSOL Energy (NYSE: CNX  ) reported earnings on April 25. Here are the numbers you need to know.

The 10-second takeaway
For the quarter ended March 31 (Q1), CONSOL Energy met expectations on revenues and missed estimates on earnings per share.

Compared to the prior-year quarter, revenue dropped. Non-GAAP earnings per share dropped significantly. GAAP earnings per share contracted to a loss.

Margins dropped across the board.

Revenue details
CONSOL Energy reported revenue of $1.29 billion. The 11 analysts polled by S&P Capital IQ anticipated revenue of $1.28 billion on the same basis. GAAP reported sales were 6.1% lower than the prior-year quarter's $1.37 billion.

Source: S&P Capital IQ. Quarterly periods. Dollar amounts in millions. Non-GAAP figures may vary to maintain comparability with estimates.

EPS details
EPS came in at $0.19. The 24 earnings estimates compiled by S&P Capital IQ averaged $0.20 per share. Non-GAAP EPS of $0.19 for Q1 were 55% lower than the prior-year quarter's $0.42 per share. GAAP EPS were -$0.01 for Q1 against $0.42 per share for the prior-year quarter.

Source: S&P Capital IQ. Quarterly periods. Non-GAAP figures may vary to maintain comparability with estimates.

Margin details
For the quarter, gross margin was 25.6%, 420 basis points worse than the prior-year quarter. Operating margin was 4.0%, 500 basis points worse than the prior-year quarter. Net margin was -0.1%, 720 basis points worse than the prior-year quarter. (Margins calculated in GAAP terms.)

Looking ahead
Next quarter's average estimate for revenue is $1.21 billion. On the bottom line, the average EPS estimate is $0.15.

Next year's average estimate for revenue is $4.98 billion. The average EPS estimate is $0.87.

Investor sentiment
The stock has a three-star rating (out of five) at Motley Fool CAPS, with 629 members out of 678 rating the stock outperform, and 49 members rating it underperform. Among 121 CAPS All-Star picks (recommendations by the highest-ranked CAPS members), 107 give CONSOL Energy a green thumbs-up, and 14 give it a red thumbs-down.

Of Wall Street recommendations tracked by S&P Capital IQ, the average opinion on CONSOL Energy is outperform, with an average price target of $40.32.

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Add CONSOL Energy to My Watchlist.

Why Amkor Shares Took Off

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Amkor Technology (NASDAQ: AMKR  ) are up by over 10% today after beating expectations on both top and bottom lines in its first-quarter earnings report.

So what: Amkor's revenue rose 5% year over year, to $688 million, which easily beat the $672.4 million consensus. Earnings of $0.07 per share also came in well ahead of the $0.03 consensus. Guidance also appears favorable, as Amkor now expects between $730 million and $780 million on the top line, and between $0.09 and $0.19 in EPS, against consensus estimates of $719.4 million and $0.11 per share, respectively.

Now what: Even after the pop, Amkor's valuation seems reasonable, and its growth prospects are such that the forward P/E is under five at the moment. The only real area of concern is Amkor's wide margin of error in its second-quarter guidance, which, despite representing a solid advance on even the low ends, could indicate a bit of uncertainty. It's certainly worth a second look, and this good news might even start to reverse a long-term downtrend that's plagued Amkor shareholders for years.

Want more news and updates? Add Amkor to your Watchlist now.

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Sell Home Depot Stock, Buy Trex and Lumber Liquidators

Shares of Lumber Liquidators (NYSE: LL  ) soared 12% yesterday -- and have continued to hit new all-time highs this morning -- after posting blowout quarterly results.

The hardwood flooring retailer saw net sales soar 22.5%, to $230.4 million during the first quarter, fueled by a 15.2% spike in comps. Margins expanded, and profitability nearly doubled, to $0.57 a share. Wall Street didn't have a clue. The pros were projecting a profit of $0.42 a share on $215.5 million in revenue.

The market should be used to this by now: Lumber Liquidators has beaten Wall Street's bottom-line targets by 16% or better every quarter for the past year. The chain of nearly 300 stores that specializes in hardwood planks and other flooring options raised its guidance, but we know the drill. Lumber Liquidators is going to make analysts look silly again in three months.

The report naturally bodes well for Trex (NYSE: TREX  ) . The leading provider of wood-alternative decking posts next week, and what's good for one has been good for the other. Trex has also blasted through Wall Street estimates, beating quarterly profit targets by a double-digit percentage margin every single period over the past year.

It's easy to see the appeal to Lumber Liquidators and Trex. They are thinking-investor plays on the housing market's recovery. As real estate prices rise, and homeowners discover that they finally have equity in their homes, it's easy to take on the dream to upgrade a property's flooring, or extend a home's living space by building an outdoor patio with weather-resistant materials.

Most investors will ignore Trex and Lumber Liquidators. They'll turn to Home Depot (NYSE: HD  ) and Lowe's (NYSE: LOW  ) as the big plays on home improvement, and that could be a mistake. Even in this market recovery, analysts see Home Depot and Lowe's growing revenue at a 3% to 4% clip this year and next year. Lumber Liquidators and Trex are expected to expand their sales three to four times faster.

It's true that Lumber Liquidators and Trex aren't as cheap as they used to be, but their near-term prospects are brighter than the superstore chains that aren't exactly bargains, either.

Home Depot stock is trading for 21 times this year's earnings. Faster-growing Trex is fetching just 18 times this year's projected profitability, and that's in line with the multiple at Lowe's. Lumber Liquidators commands the richest premium at nearly 40 times the midpoint of its new bottom-line guidance for this year.

The valuations are lofty across all four players, but at a time when the market is dishing out healthy premiums, the smarter bet has to be the companies that are growing faster. Trex and Lumber Liquidators are the ones to watch here.

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ATK Wins DARPA Micro-Satellite Contract

ATK (NYSE: ATK  ) -- the company also known as Alliant Techsystems -- announced Monday that it's just received an award from the U.S. Defense Advanced Research Projects Agency, or DARPA, to perform work on the Space Enabled Effects for Military Engagements program, also known as SeeMe.

DARPA describes SeeMe as a program that will "give mobile individual U.S. warfighters access to on-demand, space-based tactical information in remote and beyond-line-of-sight conditions," and more clearly still, to let soldiers access "timely imagery of their specific overseas location directly from a small satellite with the press of a button."

How? By developing -- and launching into space cheaply -- a constellation of satellites so small, and so cheap to build and deploy, that they're considered essentially "disposable." Once aloft in Earth orbit, these satellites would keep an eye on things back on the ground, where soldiers requiring a quick bird's eye view of the tactical situation would be able to instantly access their imagery by hitting a "see me" button on their handheld device.

ATK's role in all of this would be to transition the advanced imagery-processing algorithms it's developed for use on unmanned aerial vehicles, for use on such disposable satellites. Key to this will be using ATK's expertise in miniaturized tech to minimize the size, weight, and power requirements of equipment so that they can effectively be installed on the envisioned small sats.

ATK did not disclose the value of the DARPA contract, or its duration -- only that it had won.

More Expert Advice from The Motley Fool

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Apple Just Dropped a Clue on Jony Ive's iOS Overhaul

Whenever Apple (NASDAQ: AAPL  ) sends out media invites to its official events -- such as for its iPhone 5 event -- it likes to drop subtle hints as to what it has up its iSleeve. Consumers are currently in one of Apple's longest dry spells, with no notable events or product introductions.

Business Insider notes just how long it's been since any official event, particularly since this year has had no iPad event in the spring like in previous years. Apple has now set the official dates for its Worldwide Developers Conference, or WWDC, which will take place from June 10 to June 14.

WWDC is frequently a staging ground for product introductions or unveilings, both hardware and software. Last year's WWDC opening keynote introduced the Retina MacBook Pro and previews of iOS 6 and OS X Mountain Lion. Prior years frequently saw new iPhones unveiled.

Hardware aside, the guaranteed software news will headline the event. This version of iOS is arguably one of Apple's most important in years, as it will mark a dramatic shift for the platform that drives more than 70% of sales. iOS 7 will be the first version under design chief Jony Ive's influence, following Scott Forstall's ouster in October, and it's set for an aesthetic overhaul.

WWDC 2013. Source: Apple.

The teaser is striking on a number of levels and much more interesting than in previous years. Even the font that Apple's using here is a departure from its normal corporate typeface, and looks clean and modern (MMXIII is the roman numeral for 2013).

There's been talk that Ive is pursuing a "flat design" that's more minimalist, which would better match Apple's hardware designs. Ive is also said to be ditching skeuomorphism. Farewell, faux leather.

Interface design is an area where even I believe iOS has fallen behind Android, and is exactly a department where Ive can flex his British muscles. Even Yahoo! is demonstrating a shockingly attractive design philosophy under Marissa Mayer.

WWDC is now less than 2 months away, and a revamped iOS interface could prove to be an underappreciated catalyst that most investors aren't considering.

There is a debate raging as to whether Apple remains a buy. Eric Bleeker, The Motley Fool's senior technology analyst and managing bureau chief, is prepared to fill you in on both reasons to buy and sell Apple and the opportunities left for the company (and your portfolio) going forward. To get instant access to his latest thinking on Apple, simply click here now.

Expectations Ride High for This Warren Buffett Darling

Many oil and natural gas service companies called the fourth quarter of 2012 a trough in the North American market. By all accounts so far during this reporting period, that appears to be especially prescient. International heavyweights Halliburton (NYSE: HAL  ) and Schlumberger (NYSE: SLB  ) both witnessed signs that a second half turnaround us likely upon them and the industry as a whole.

What does that mean to Warren Buffett?
Well, a lot, really. For the last couple of quarters, Buffett has been adding stock in National Oilwell Varco (NYSE: NOV  ) to his portfolio and for what appears to be good reason. The company is modestly priced compared to peers and has its hand in both on-land and offshore drilling markets. Replacing parts on rigs and upgrading global fleets is Varco's business, and there are no shortage of customers. 

With a great management team in place, tack-on acquisitions have created a full-service company that counts the majority of the drilling world as customers. If the conference call on Friday isn't full of positive news, I would be highly skeptical as to why after following the activity during the past week.  

What is it exactly that makes NOV tick?
National Oilwell Varco is perhaps the safest investment in the energy sector due to its industry-dominating market share. This company is poised to profit in a big way; its customers are both increasing the number of new drilling rigs and updating aging fleets of offshore rigs. To help determine if it could be a good fit for your portfolio, you're invited to check out The Motley Fool's premium research report featuring in-depth analysis on whether National Oilwell Varco is a buy today. For instant access to this valuable investor's resource, simply click here now to claim your copy.

Pentagon Awards 25 Contracts Worth $621 Million

After a slow start to the week Monday, Department of Defense contracts are rolling out with increasing speed as the week progresses. Worth a combined $621 million, 13 contracts were awarded Tuesday and 25 more on Wednesday.

Notable winners (among publicly traded companies) included:

Alliant Techsystems (NYSE: ATK  ) , which was awarded a maximum $31.4 million firm-fixed-price contract modification extending the period for its providing logistic support services for Iraqi Air Force Cessna 208s through April 2014. Northrop Grumman (NYSE: NOC  ) , which won a $23 million firm-fixed-price delivery order against a previously issued basic order agreement to supply "software sustainment support" for U.S. Navy E-2D Advanced Hawkeye airborne early warning aircraft. Work on this contract is expected to be complete by Oct. 2014.  Caterpillar (NYSE: CAT  )  was awarded $19.8 million as a modification to a previously awarded firm-fixed-price contract to attach machine-powered mowing systems to U.S. Army Caterpillar 966H wheel loaders. This contract brings the cumulative face value of Caterpillar's underlying contract up to $184.7 million in total.

More Expert Advice from The Motley Fool

Caterpillar is the market share leader in an industry in which size matters, and its quality products, extensive service network, and unparalleled brand strength combine to give it solid competitive advantages. Read all about Caterpillar's strengths and weaknesses in our brand new report. Just click here to access it now.

Monolith Servers Are Destined for Failure

iRobot Doesn't Know Its Own Strength: Is That a Good Thing?

The Little-Known Dividend Payers That Crush The Market

This could well be one of the simplest traits to look for in a company. It could also be one of the most important to your investing success.

It's one of the oldest practices a business can use to make more and more money every year. It's probably been used since the days of the Roman Empire, but one businessman in more recent times mastered the art better than anyone.

Here's his story... 

In the 1950s, a traveling salesman from Illinois faced a major problem. 

 

Over the years, it had become harder and harder to sell his Prince Castle Multi-Mixers used to make milkshakes at restaurants. While his brand of mixers was once a market leader, lower-priced Hamilton Beach Corp. blenders had begun to gain market share and were putting him out of business.

But one customer stood out: the McDonald brothers in California had ordered eight of his restaurant-scale Multi-Mixers.

Many salesmen would probably have just been happy to pocket that order, one of his best in years.

But, Ray Kroc was no ordinary salesman. An entrepreneur by nature, he visited McDonald's San Bernardino location and saw the potential to sell even more high-end mixers to a growing chain of McDonald's restaurants.

When the McDonald brothers balked at more aggressive store expansion, Kroc offered to buy them out. In what's arguably one of the most profitable acquisitions of the 20th century, Kroc purchased the company for the sum of $2.7 million in 1961, enough to give each brother $1 million after taxes.

It was Kroc who turned a small but successful California burger joint into the $100 billion global behemoth that McDonald's (NYSE: MCD) is today. 

He also made countless McDonald's shareholders rich along the way as he pushed his company to focus on one main objective -- to gain customer loyalty.

First, Kroc knew that convenience was key. Rapid growth of the chain's store footprint all but guaranteed that there would be a McDonald's location convenient to virtually any consumer in the United States, whether they live in a major urban area or a small town.

Kroc also understood the important role branding and advertising played in gaining customer loyalty. His aggressive marketing campaigns ensured that McDonald's was always at the top of consumers' minds.

This helped make McDonald's one of the best Wall Street stories ever...

If you had purchased 100 shares of McDonald's stock for $2,250 when it went public on April 21, 1965, you would now be the proud owner of 74,360 shares of the stock worth nearly $7.5 million. The same investment in the S&P 500 would now be worth just $181,000.

While a good branding strategy worked for McDonald's, it's just one of many ways a company can establish customer loyalty and ensure repeat business...

Take Enterprise Product Partners (NYSE: EPD), which I've profiled before, as another example. This energy MLP locks in business by signing long-term contracts with its customers to guarantee demand and cash flows. This is common among midstream energy businesses.

Back in February, we also mentioned Starbucks (Nasdaq: SBUX) as another great example of a company that commands customer loyalty.

It's simple. The ability to retain a loyal customer base and keep them buying products for years is a hallmark of some of the world's most successful businesses and best performing stocks. 

But don't take my word for it. Let's put some concrete numbers behind this concept.

Earlier this month, I shared with my Top 10 Stocks readers an interesting piece of research. I found 10 publicly-traded companies that operate in industries as diverse as food service, energy transportation and business services. They all share a common trait -- an established history of retaining customers over the long haul.

To create what I call my "StreetAuthority Customer Retention Index," I weighted these 10 stocks by market capitalization and tracked their performance over the past decade.

Here's a look at how those companies did...

Over the past decade, the StreetAuthority Customer Retention Index trounced the S&P 500 by a more than 3-to-1 margin, returning nearly 276% compared with a gain of just 80% for the S&P.

It gets even better if you reinvest dividends: The group's total return is a remarkable 541% over the past 10 years, blowing the S&P's 126% gain out of the water.

One of the most impressive stats about these 10 companies is that they have collectively boosted their dividend payments by an average of 43.9% in the past three years. I fully expect these stocks to continue increasing payouts and posting impressive gains down the road.

Action to Take --> I can't tell you the names every stock in the index -- it wouldn't be fair to my Top 10 Stocks readers. (I have already mentioned three of them -- McDonald's, Enterprise and Starbucks.) 

I can tell you, however, exactly why these stocks do so well.

Companies that can lock in a loyal customer base tend to generate strong cash flows and superior profit margins. This puts them in a better position to reward shareholders with dividend raises and value-boosting share buybacks.

P.S. -- As I've said, some of the best-performing stocks in the world also have some of the most loyal customers in the world. But the ones most likely to reward you with the fastest-growing dividends, highest yields and most aggressive share buybacks are the ones flush with multi-billion dollar cash reserves. To see our latest research on customer-friendly companies like these, click here.

Why Cardiovascular Systems Will Keep Pulling Back

Based on the aggregated intelligence of 180,000-plus investors participating in Motley Fool CAPS, the Fool's free investing community, medical device company Cardiovascular Systems (NASDAQ: CSII  ) has received a distressing two-star ranking.

With that in mind, let's take a closer look at Cardiovascular Systems and see what CAPS investors are saying about the stock right now.

Cardiovascular Systems facts

Headquarters (founded)	St. Paul, Minn. (1989)
Market Cap	$359.2 million
Industry	Health care equipment
Trailing-12-Month Revenue	$92.7 million
Management	CEO David Martin (since 2007) CFO Laurence Betterley (since 2008)
Return on Equity (average, past 3 years)	(76.2%)
Cash/Debt	$29.2 million / $15.1 million
Competitors	Covidien Medtronic Boston Scientific

Sources: S&P Capital IQ and Motley Fool CAPS.

On CAPS, 25% of the 16 members who have rated Cardiovascular Systems believe the stock will underperform the S&P 500 going forward.

Just last week, one of those Fools, jed71, succinctly summed up the bear case for our community:

My personal opinion is [Cardiovascular Systems] just got the better end of the deal on the recent share dilution. Over the past few months, there has been big run up in price, which the company was able to take advantage of by issuing new shares at $17.60 per share (further diluting current shareholders by approx 10%).

It also looks like insiders have been selling shares and not really accumulating any further shares at this level. While some of these sales might be "scheduled events", it does not offer much confidence toward the current share valuation.

I am betting those who participated in this new offering are going to be vastly disappointed in a few months when gravity sets in.

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Webster Financial Raises Quarterly Dividend 50%

Business and consumer banking concern Webster Financial  (NYSE: WBS  )  announced yesterday that its board of directors has approved increasing its quarterly dividend by 50%, from $0.10 per share to $0.15 per share. The new, higher payment will be made on May 20 to stockholders of record as of May 6.

Webster also declared a regular quarterly cash dividend of $21.25 per share on its Series A Convertible Preferred Stock, payable on June 17 to shareholders of record on June 1. On its Series E preferred stock, Webster declared a quarterly cash dividend of $400.00 per share, or $0.40 per each depositary share, 1,000 of which represent one share of Series E preferred stock. It will also be payable on June 17 to shareholders of record on June 1.

Webster Financial CEO James C. Smith cited "growth and quality of earnings and Webster's strong capital base."

Webster provides business and consumer banking, mortgages, financial planning, trust and investment services through 168 banking offices and has $20 billion in assets. The chart below does not include this week's dividend announcement.

WBSPRE Dividend data by YCharts.

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Why II-VI Shares Plunged

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of laser optics technologist II-VI (NASDAQ: IIVI  ) sank 12% today after its full-year guidance missed Wall Street expectations.

So what: II-VI's third-quarter results -- EPS of $0.25 on revenue of $145.2 million -- were just slightly below estimates, but downbeat guidance for the rest of the year reinforces concerns over slowing growth going forward. In fact, management blamed the weak outlook on softening demand across several of its business segments, giving investors little hope for a near-term turnaround. 

Now what: Management now sees full-year EPS of $0.84-0.89 on revenue of $550 million-$555 million, well below the consensus of $0.93 and $563.7 million. "We have experienced some cyclical softening in the optical communication market addressed primarily by our Near-Infrared Optics segment," CEO Francis Kramer cautioned. "In the Military and Materials segment, PRM continues to be affected by the start-up of its new rare earth product line. ... Demand for selenium and tellurium products continues to be low and, therefore, the pricing environment is a challenge." Of course, with the stock hitting a new 52-week low today and trading at a forward P/E of about 12, much of those headwinds might already be baked into the price.

Interested in more info on II-VI? Add it to your watchlist.

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MSC Industrial Completes Barnes Distribution Acquisition

Citing the benefits of providing high-margin, low-cost consumables with a broad distribution footprint throughout the U.S. and Canada, industrial supplier MSC Industrial Direct (NYSE: MSM  ) announced today that it has completed the acquisition of Barnes Group's (NYSE: B  )  North American distribution business for $550 million.

The acquisition announced in February extends MSC's inventory management solutions and product offerings in fasteners and other consumables, while also giving it a significant Canadian presence. With the addition of Barnes' 800 or so field sales reps, the deal also almost doubles the size of MSC's existing sales force.

MSC president and CEO Erik Gershwind said in the press release, "The acquisition of BDNA enables us to provide our mutual customers a deeper inventory management solution, a broader product offering and a larger geographic footprint to help them grow their businesses, increase productivity and reduce their [maintenance, repair and operations] inventory costs."

The purchase was financed with a new credit facility that includes a fully drawn $250 million term loan and a $400 million revolver, of which $120 million was drawn at closing. The transaction is expected to be accretive to cash flow and earnings per share by contributing an expected incremental EPS of $0.15 to $0.20 per share in 2014 and $0.30 to $0.40 per share in 2015. Run-rate cost synergies are expected to reach $15 million to $20 million by 2015.

The Barnes distribution business services roughly 31,000 customers with nearly 1,400 associates and offers more than 55,000 product SKUs. BDNA generated sales of roughly $300 million in 2012.

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3 Apple Plays That Tanked Last Week

With Blackstone Out, It's Icahn Vs. Dell

A couple of weeks ago, up-for-sale PC purveyor Dell (NASDAQ: DELL  ) offered Carl Icahn and Icahn Enterprises (NASDAQ: IEP  ) $25 million to play nice in its bid for the company. The move was an olive branch from Dell's board, wisely trying to avoid a proxy battle involving the company's already frustrated shareholders and other potential suitors, including founder Michael Dell. Though he didn't take the bribe, Icahn and Dell reached an agreement -- a sort of Rules of Engagement for the buyout procedure. The deal should protect investors, while still enabling the board to shop the company to the best bidder. Here's what you need to know.

Say uncle
Carl Icahn is well known for pushing corporate board buttons to get what he wants -- it's kind of how he built his empire. The investor builds formidable stakes in his target companies to influence other shareholders and, ultimately, the company decision makers.

While many companies pride themselves on not catering to activist demands, and subsequently subjecting shareholders to costly litigation, Dell seems adamant on keeping things peaceful. It started two weeks ago, when it offered its suitors a form of reimbursement for due diligence in exchange for a good, clean fight. Icahn had little interest in the measly $25 million, but he was willing to come to some terms with the board.

Under the recent agreement, Icahn Enterprises agrees to keep its stake under 10% of the outstanding shares (the investor already has a $1 billion position), and will not partner with other shareholders to represent more than 15% of the company. This keeps Icahn firmly in minority stakeholder territory and prevents a hostile takeover -- sort of. While his stake cannot grow much beyond its position today, Icahn can still wage a proxy battle if he determines Dell's board is acting against the best interest of shareholders. Keeping this right was the ultimate reason the investor refused Dell's bribe, which the other suitors, Blackstone (NYSE: BX  )   and Silver Lake Partners, agreed to. As of last Friday, Blackstone had backed out of the deal after being disappointed with the company's revenue outlook.

In good company
While Icahn is often looked at as a bully, he's far from alone in his view that Silver Lake Partners' (in cahoots with Michael Dell) bid was inferior and undervalues the company.

Another activist investor, Southeastern Asset Management, owns 8.4% of Dell and has publicly stated that the outstanding offer is no good and cheats shareholders. Blackstone had made a higher bid for the company, as well as Icahn. Both offers involve keeping a portion of Dell as a public entity.

For the investors
Dell shareholders should feel some degree of comfort that these power investors are taking a strong stance -- even if it's more in their interest than they are willing to admit. By most measures, Michael Dell/Silver Lake's bid really isn't a great deal for shareholders. The board was initially in Michael Dell's corner, but it looks like the playing field is more even at this point.

Who do you think offers the best deal to Dell shareholders? Sound off below.

 

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Stock Markets Bounce Back From Weak Open

Stocks rallied into positive territory this afternoon after starting the week in the red. The Dow Jones Industrial Average (DJINDICES: ^DJI  ) is up 0.17% with 45 minutes left in trading, and the S&P 500 (SNPINDEX: ^GSPC  ) has risen 0.54%.

The opening drop was driven by a weaker-than-expected housing report. The National Association of Realtors said existing-home sales declined 0.6% in March to a seasonally adjusted rate of 4.92 million. This fell below the 5.03 million estimate and shows at least a small slowing in the housing market. The Chicago Fed also released a reading of market activity that showed a swing into negative territory from a positive reading in February. 

Caterpillar (NYSE: CAT  ) is one of the big winners today, climbing 2.3% after reporting a pretty terrible first quarter. The company's net income fell 45% as the sale of mining equipment dropped, and management now expects full-year revenue to be between $57 billion and $61 billion from a previous guidance of $60 billion to $68 billion. The only positive item was a $1 billion stock buyback announced today, and investors are clinging to the only good news available right now. 

Microsoft (NASDAQ: MSFT  ) is leading the Dow, jumping 3.9% today. There are reports that ValueAct Capital Management has acquired a $2 billion stake in the company. Option volume skyrocketed in trading today as investors bet on which way the stock will head after today's pop. Most of this move is speculation, so I wouldn't buy on ValueAct's reported position alone. With that said, Microsoft did have a good Q1, and I'm still bullish on the stock. 

It's been a frustrating path for Microsoft investors, who have watched the company fail to capitalize on the incredible growth in mobile over the past decade. However, the company is looking to make a splash in this booming market. In this brand-new premium report on Microsoft, our analyst explains that while the opportunity is huge, the challenges are many. He's also providing regular updates as key events occur, so be sure to claim a copy of this report by clicking here.

General Electric (NYSE: GE  ) is having a rough go of it today, dropping 2% after analysts at JPMorgan said the stock is "dead money." The analysts downgraded the stock from overweight to neutral and lowered their price target from $24 to $22. Analyst upgrades and downgrades can impact stocks in the short term, but by the time the market opens tomorrow this will be old news, and markets will have forgotten about the downgrade.

Elan Rejects Royalty Pharma's Acquisition Offer

After confirming an unsolicited takeover bid from privately held investment firm Royalty Pharma in late February, Ireland-based Elan (NYSE: ELN  ) announced today that its board has unanimously rejected the offer.

According to Elan, Royalty Pharma's offer, via its subsidiary Echo Pharma Acquisitions, was for "$11.25 or less" for each outstanding share of Elan stock. The deal valued Elan at approximately $6.7 billion.

Elan is advising its shareholders to "take no action in relation to the Echo Pharma Acquisition Limited [Royalty Pharma] offer" until Elan communicates with shareholders after the publication of Royalty Pharma's formal "offer document."

"The offer from Royalty Pharma grossly undervalues Elan's current business platform and our future prospects. As a result the Board unanimously and without reservation rejected the offer," Elan Chairman Robert Ingram was quoted as saying.

Last week, Elan concluded a Dutch auction to buy back some of its own shares, ending up accepting for repurchase 88.9 million shares, representing 14.8% of its existing issued shares, at a price of $11.25 per share, for an aggregate purchase price of $1 billion.

Royalty Pharma had originally offered $11 per share and said it might increase that after the Dutch auction. It confirmed Thursday that its offer price was $11.25 per share.

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Psst: Tax Deadline Not Much of a Deadline for Most

WASHINGTON (AP) -- Here's a little secret for all you procrastinators on Tax Day: The Internal Revenue Service doesn't like to talk about it, but as long as you don't owe any additional taxes, there is no penalty for filing a few days late.

The late filing penalty is usually 5 percent of the unpaid taxes for each month -- or part of a month -- a return is late. That can add up quickly if you owe additional taxes. But what if the unpaid taxes are zero? Five percent of zero is ... zero!

However, if you wait more than three years to file, you forfeit your refund. So maybe it's better to file by Monday, after all. Besides, if you're getting a refund, why wait?

The IRS got a late start on tax season this year, thanks to a last-minute tax law passed by Congress on Jan. 1. But the deadline for filing returns didn't change, so if you owe money, it's time to settle up with the government.

In all, the IRS expects to process 149 million returns from individuals this year, including returns from people who file for 6-month extensions. About a quarter of returns are usually filed in the last three weeks before Tax Day. This year the IRS received more than 10 million electronically filed returns from Friday through Sunday.

A look at this year's filing season, through April 5:

Returns filed so far: 96.6 million. Share of taxpayers getting a refund: 81 percent. Total amount of refunds issued so far: $214 billion. Average refund: $2,755. Average refund in 2012: $2,794. The rise of computers: 89 percent of returns have been filed electronically. Clinging to the past: That leaves 11 percent still filing paper returns. These people are getting a refund: 34 percent of Americans in a Pew Research Center poll said they like doing their taxes. These people are getting a big refund: 5 percent said they love doing their taxes. These people are not getting a refund: 26 percent said they hate doing their taxes. As of March 9, the IRS detected 220,821 fraudulent returns. Number of fraudulent returns involving identity theft: 85,385. Amount of fraudulent refunds stopped by the IRS: $1.8 billion. Ever wonder why tax laws are so complicated? Number of lobbyists registered to lobby Congress on taxes: 6,503. Number of organizations that pay lobbyists to lobby Congress on taxes: 2,221.

Sources: IRS; Pew Research Center; Treasury inspector general for tax administration; Sunlight Foundation.

Should You Believe GE or McDonald's?

Having suffered losses on three of four days this week, U.S. stocks are mixed this morning. As of 10:05 a.m. EDT, the S&P 500 (SNPINDEX: ^GSPC  ) is up 0.4% and the NASDAQ is up 0.8%. However, the narrower, price-weighted Dow Jones Industrial Average (DJINDICES: ^DJI  ) is being dragged under by its heaviest component, IBM, which has dropped a whopping 6.5% to shave more than 100 points off the index's value.

Follow-up: Dell
Private-equity heavyweight Blackstone is walking away from its preliminary offer for Dell (NASDAQ: DELL  ) , leaving Carl Icahn as the only alternative to Silver Lake Partners' and Michael Dell's $13.65 per-share buyout offer. This is bad news for Dell shareholders, as it raises the odds that the latter group will "steal" the company from under shareholders' noses.

GE vs. McDonald's on growth
Two Dow bellwethers, General Electric (NYSE: GE  ) and McDonald's (NYSE: MCD  ) , have reported results for the first quarter, producing contrary data points with regard to global growth.

On the one hand, industrial and financial conglomerate GE said its revenue rose to $35 billion, surpassing analysts' expectations of $34.5 billion. The company said European sales were weaker than anticipated (surprise, surprise), but this was partially offset by growth in emerging markets.

Meanwhile, McDonald's first-quarter revenue of $6.6 billion was in line with the consensus forecast. However, global revenue for McDonald's locations open at least 13 months fell 1% in the first quarter, led by a 1.2% drop in the U.S.

According to Thomson Reuters, as of April 12, 59% of the companies in the S&P 500 had reported Q1 2013 revenue that beat the consensus forecast. That's lower than the long-term average of 62% but higher than the average over the past four quarters of 52%. Note that the sample of companies having reported results for the first quarter as of that date -- 29 companies -- is small.

The recent financial crisis dealt GE major a blow, but management took advantage of the market's dip to make strategic bets in energy. If you're a GE investor, you need to understand how these bets could drive this company to become the world's infrastructure leader. At the same time, you need to be aware of the threats to GE's portfolio. To help, we're offering comprehensive coverage for investors in a premium report on General Electric, in which our industrials analyst breaks down GE's multiple businesses. You'll find reasons to buy or sell GE today. To get started, click here now.

With the most recent reading of the Financial Times/Brookings Institution Tiger index now suggesting that global growth is at risk of stalling, investors would do well to focus on valuations and identifying businesses with good secular growth prospects.

An Early Look at Reynolds American's Earnings

On Tuesday, Reynolds American (NYSE: RAI  ) will release its latest quarterly results. The key to making smart investment decisions on stocks reporting earnings is to anticipate how they'll do before they announce results, leaving you fully prepared to respond quickly to whatever inevitable surprises arise. That way, you'll be less likely to make an uninformed knee-jerk reaction to news that turns out to be exactly the wrong move.

Cigarette demand has been in a long-term decline for decades, and as a major domestic tobacco producer, Reynolds American hasn't benefited from that trend. Can the company find a way to keep generating the impressive cash flows that have financed its lucrative dividends for so long? Let's take an early look at what's been happening with Reynolds American over the past quarter and what we're likely to see in its quarterly report.

Stats on Reynolds American

Analyst EPS Estimate	$0.69
Change From Year-Ago EPS	9.5%
Revenue Estimate	$1.92 billion
Change From Year-Ago Revenue	(0.5%)
Earnings Beats in Past 4 Quarters	2

Source: Yahoo! Finance.

Can Reynolds American light up its report this quarter?
Recently, analysts have gotten somewhat more optimistic in their predictions of Reynolds American's earnings. They've raised their estimates for the just-finished quarter by a penny per share, but they've boosted their full-year 2013 projections by a much larger $0.08 per share. The stock has responded somewhat favorably to that news, rising 8% since mid-January.

Reynolds American has been under attack from regulators, health agencies, and other government bodies for a long time, but tobacco opponents have redoubled their efforts. After Reynolds and peer Lorillard (NYSE: LO  ) fought back against an FDA attempt to force them to modify their cigarette packaging to include warnings with graphic images, the Centers for Disease Control have launched ad campaigns highlighting the health risks of smoking. New York City Mayor Michael Bloomberg made a proposal last month to force stores to get rid of tobacco displays, as a follow-up with the 10th anniversary of his then-controversial smoking ban.

As if that weren't bad enough, President Obama hit Reynolds American again earlier this month, with a proposed increase of $0.94 per pack on federal cigarette taxes attached as part of his budget proposal. The measure would raise $78 billion over the next decade, but it would inflate the prices that smokers have to pay and thereby put further pressure on sales for Reynolds and its peers.

But investors shouldn't ignore the fact that some tobacco companies may fare better than others. Lorillard expects decent sales growth of 5% to 6% both this year and next, while even the larger Altria (NYSE: MO  ) should manage modest revenue gains. By contrast, Reynolds is seen posting declining revenue throughout 2013 before bouncing back in 2014, suggesting that the company has work to do to preserve its competitive position.

As the first of the major domestic cigarette companies to report, Reynolds American will give you a baseline on which to judge the entire industry. Look closely at sales and profit figures not just as a gauge of Reynolds American's individual success but also as a gauge of the health of tobacco in the U.S. more broadly. In addition, as alternatives to traditional cigarettes become more popular, watch sales of its Vuse electronic cigarette as well as its smokeless tobacco division for signs of potential growth.

Altria has been the best-performing stock of the past 50 years, but as the number of smokers in the U.S. continues to steadily decline, is Altria still a buy today? To find out whether everyone's love-to-hate dividend stock is a savvy investment choice or a hazard to your portfolio, simply click here now for access to The Motley Fool's new premium research report on the company.

Click here to add Reynolds American to My Watchlist, which can find all of our Foolish analysis on it and all your other stocks.