Thursday, May 21, 2020

Pitney Bowes - Why Stock-Picking is for Chumps, Part V

My view of Pitney Bowes is tainted by how they treat their customers, namely, ME.

Back in the day - the 1990's, which I guess is when some people were born these days, I had a law practice in Old Town Alexandria.   I was doing pretty well.  I owned the building my practice was in, had a secretary, a couple of associates, and a pile of cases, all with deadlines.  Sometimes I even had clients who would pay on time, too.

Back then we typed up everything and printed it out to file with the USPTO or to report to our clients.  We mailed and faxed everything.  E-mail was around, but just not viewed as reliable enough for "official" communications.   All that has changed since then.

So every day there was a stack of letters to be sent to clients, some in thick envelopes with dozens of documents - usually Patents - attached.  My secretary recommended we get a postage meter, and back then, Pitney-Bowes had the monopoly (pretty much) on postage meters.   Getting one was like getting a merchant account to accept credit cards - they had to do a background check on you and you had to provide bank statements and such.  The Post Office wasn't about to just hand out postage meters to people who could then print their own postage.    Today, you can do it online at

I had to take the meter, or a part of it, down to the post office, with a check, to get it "charged" with postage.  Then, you could run envelopes through it - or stickers - and it would print the postage in red ink as shown above.  I tell you, it made me feel I had made it - I had a postage meter!  My outgoing mail looked professional!  No licking stamps!

But of course, it was not cheap.  There was a monthly fee for the meter which was leased (they aren't going to let those get loose in the general public) plus processing fees, plus the postage - although as I recall there was a discount on the postage.   It worked pretty well at first and actually saved us a few dollars, what with the stack of mail we were generating every day.  But as the years went by - and not many years - more and more communications were e-mails, and less and less were printed, and the postage meter started gathering dust, and we realized the fees involved would have covered our postage costs.

I called to get rid of the meter and the salesman sold me on a new meter for small businesses.  It was more than 20 years ago, as I recall, but it is possible they may have forced us into this new meter because they were phasing out the old ones, raised prices, or claimed we weren't using enough postage.  We actually tried the new meter.  The fees were less and you didn't have to take it to the post office to charge it up.  Maybe it had a modem in it, I don't recall.  I do recall that instead of a simple stamp device with red ink (which you could add) they used ink-jet cartridges instead, which were proprietary and you had to buy from Pitney-Bowes and guess what?  They weren't cheap.  So we cut all ties with Pitney-Bowes and went back to stamps  - or printing our own Priority Mail labels using, for the fewer and fewer items we actually mailed (like issued Patents).

Stamps were obviously a dying business.  But for several decades, Pitney-Bowes had a sweet deal going, as every company in America had one of their postage meters, and each one was a cash machine for Pitney-Bowes.  The company was pretty static and paid a good dividend.   But of course, all that changed.   As I noted in my Dividend Stocks posting, just because a company pays a good dividend, doesn't mean it is a good investment.

Companies circling the drain tend to do weird things like screw their customer base.  Think AoL.  Pitney Bowes left a sour taste in my mouth with their ink-jet postage meter.  Of course, their business model, which was a license to print money for decades and decades, started to evaporate overnight.  The real bulk-mailers today print their own "postage paid" right on their documents, without the need for meters and such.   I suppose there are a few companies out there who still use their meters, but as the use of mail declines - and has declined - it is getting to be a smaller and smaller business.  Many small companies, such as mine, simply gave up and went back to stamps or online postage, for the very few pieces of mail we had to send (I would mention but I have never used their service, so I know nothing about it, other than they keep sending me come-ons in the mail).

Obviously, Pitney-Bowes had to transition to something else, and their wikipedia page mentions their new line of business in incomprehensible terms.  As I noted in Quotable Quotes, (which now has its own Google featured snippet!) if someone can't tell you in ten words or less what they do for a living (in simple English, I might add) they are probably lying to you.   I could not make heads or tails of Pitney Bowes business model, and it never pays to invest in something you don't understand.  They are still doing postage meters, but I suspect that is a business that has an end-game to it.  They are also partnering with the post office and sorting mail (??) and doing some sort of customer engagement software online thingy.  Your guess is as good as mine.

A reader writes:
There is stock called PBI (Pitney Bowes).  I have 6,500 shares for $10.40 each.  Now it's $2.30, so I am losing a lot of money.   Have you ever had this this stock?  Is it still good dividend stock? 
I am enjoying your articles and appreciate your writing!!
Hmm.... I don't do "stock picks" and I don't give advice here.  I noted before that stock picking is for chumps, and I say this as a Class-A Chumpster.  After all, I'm the idiot who bought Martha Stewart Living Omnimedia, which turned out to be a cookbook.  But it made me wonder - what are they up to?  Why has the stock price tanked so badly?

At first blush, they seem to be doing OK.  The P/E ratio is 8.80 - which is low - too low in this day and age.  Usually a P/E ratio of 20 is about "normal" as it represents a 5% rate of return on investment.   When the ratio goes lower than this - for a solvent company - people buy up the stock to get a good bargain.   8.80 means an 11% return on investment and people would be jumping all over this, if it were a fairly risk-free investment.  In 1968 when every company had a postage meter, Pitney Bowes was a no-brainer investment. They lease out the meters, cash the checks, and pay dividends. In that sort of market, you expect a P/E ratio of about 20 or so, as people bid up the price of the stock to reflect a reasonable rate of return.  Remember the "P" in P/E ratio is the price of the stock.

When you see alarmingly low P/E ratios, it usually means something, and the something is that investors have factored in risk to the equation.  It is like junk bonds - they pay high interest rates, but they are risky investments.  I could have made over 200% on a casino bond - or lost every damn penny!  As a novice investor, I would go online and look at bonds or stocks and list them in order from highest yield rate or lowest P/E ratio.  I wanted to make money!  But I quickly realized that a high yield rate on a bond wasn't always a good sign and a low P/E ratio should set off alarm bells, rather than greed.

If you look at the charts on this site, you can see the stock price has steadily declined since about 2014, and as a result, the P/E ratio has sunk as well.  It used to be a healthy 20, but now languishes below ten.

Bear in mind that a super-high P/E ratio isn't anything to write home about.  Many "tech" stocks have P/E ratios in the 200's or above - which means to me that the stocks are wildly overpriced, or that someone knows something I don't.  And since I don't know what that is (mere exuberance, or some inside information) I don't invest in those, generally.

But what about dividends?  I mean, surely if a company is paying out dividends then it must be doing well, right?   Well, yes and no.  As I noted before, a company with a steady business, like the utility companies in the old days, would make electricity, sell it, charge regulated monopoly rates, and then pay out dividends as a "reasonable profit".  Back then it was a steady business, fairly stable, fairly safe, and fairly boring.   You never made big money on dividend stocks and you never went broke, either.  Pitney Bowes was like that back in the day, but like the utility companies is facing new challenges, along with a host of other companies.

And sometimes companies pay out dividends that are higher than their profits - or pay dividends even while losing money.  A host of companies here and abroad are coming under criticism for paying out fat dividends while at the same time demanding bailout money.  Fiat-Chrysler was supposed to pay out $6B in dividends with their merger with PSA - but at the same time asked the Italian government for a bailout of.... $6B.   Some old grandma in Italy is paying for some jerk's dividend check in Davos, Switzerland, and people are righteously pissed.   No wonder kids today think capitalism is dead - but only if we let shit like that happen, and it only happens when people vote for shitheads.

Pitney Bowes has been regularly paying out dividends - on the order of 5% or more.  An 8% dividend is scheduled for May 22 - payable on June 8th.   It would seem like an odd time to increase the dividend, don't it? (actually the dividend is the same, the share price just has gone down).  But according to this site, they are paying out less in dividends than they make in profits - sounds pretty axiomatic, but some companies will keep paying dividends while losing money, to keep the almighty stock price up.  They do note the company is also buying back stock, which I don't think is a healthy thing for any company, but very popular in the Trump era, what with the tax laws changed to allow repatriation of overseas income.

The kicker is, of course, debt - another popular sport with companies in the last decade or so.  Rack up the debt, cash out and make money and screw the shareholders, the employee pension plan, the bondholders, and the employees.  Yank the ripcord on your golden parachute as you bail out of the corporate jet over Rio de Janeiro.  Later, suckers! 

The same article noted above (and updated in April) cites debt as a concern, as well as volatility in the dividend payouts.  They have gone up and down and up and down, and this isn't a sign of a steady cash-machine business like a utility company circa 1970 or IBM or Pitney-Bowes of that era.  And apparently a few people agree - which is why they are pricing risk into the stock, lowering the stock price and the P/E ratio while raising the dividend ratio accordingly.

So it pays a "good" dividend - pretty fantastic in this day and age, in fact.  Why has the stock price gone down?   Well, the joy of fractions.  The dividend yield seems like a good deal as the stock price continues to tank, even with stock buy-backs.  If we look at the dollar amounts of the dividend payments, we see that back in 2011, they were paying 37 cents a share, and today - and for the last year or so - paying only five cents a share.   In other words, the dividend "yield" has stayed pretty much the same, only because the share price has tanked.   The market is pricing in the dividend yield, along with risk from corporate debt, as well as their future business prospects.

My thoughts?   Beats me.   I am out of the stock-picking game - sold it all and am sitting on an IRA with nothing but cash and a few t-bills in it.   Mark is in mutual funds, mostly.  My gut reaction is that we are on the cusp of another sea change, as tired as that old slogan is.  This virus thing has forced us all to work from home - or most of us, anyway - and made us all into cocooning cave-dwellers.   The Post Office is going broke, and should be reorganized (and not just bailed out) to deliver packages more efficiently (the last mile) by normalizing delivery methods (community boxes, for example) and ditching Saturday delivery, except as an extra-charge service.  This will happen, if Nancy Pelosi gets out of the way.  The way the Democrats want to knee-jerk bailout the USPS instead of fixing it, is a bitter disappointment to me.  That is not leadership!

I suspect the core postage metering business may go away as a result.  Why should a private company be involved in this, when the Post Office itself can set up a website to allow customers to print their own postage - as they do now with Priority mail and other services?    This could mean an end to that aspect of Pitney Bowes business.   Whether their new internet customer engagement thingy whatever is going to replace that, remains to be seen.   And maybe that is why profits are edging down and the share price is edging down.

Like with Altria - the cigarette maker - there could be a strategy in "riding this all the way down" - by cashing those dividend checks over time and hoping they add up to more than what you paid in share price. At five cents a share, our reader has 200 years to earn his money back.  Ouch.   Even buying the stock today at $2 a share could be risky, if it goes down fivefold again.

There is, no doubt, some guy on Wall Street whose desk is charge of analyzing this stock.  He's visited the company, inspected their facilities, had lunch with the CEO, and looked over the books with the CFO.  That guy - or guys - knows this company and related businesses like the back of his hand.  And that kind of level of information is really not available to us mere mortals, unless we have a lot of time on our hands.  We little people are just guessing, which is why I say stock picking is for chumps.

Maybe the company has some new product or service to sell - like IBM, once they got out of the computer business - now they sell cloud whatever thingy-things, which again, I don't understand, so I didn't buy any IBM stock.   Maybe Pitney-Bowes is investing heavily in this new technology that is going to pay off big time for the company and its investors.

Maybe.  But the fact they are using available cash to buy back stock shares - to prop up the share price in the short-term - worries me.  That's the money they should be plowing back under to fertilize the soil for the next big thing in the post-postage-meter world.  Trump thinks stock buy-backs are a great thing, but a lot of other folks aren't so sure - including me.  It seems every time a company gets caught up in this malfeasance, bad things happen.   Remember that the SEC once banned it outright, as they thought (correctly) that it was just pure stock price manipulation.

So, what is the small investor to do?  Diversify, Diversify, Diversify. I don't know the financial situation of our reader. He has 6500 shares he bought for $10 each - geezus, that 65 grand! (today, worth 20 grand)  Maybe that's a small investment to him, to me it is enough money to live on for more than a year.   In my personal situation, I would not put so much into one stock.   When I did have a trading account, I tried to keep the amount I bought of any one stock under ten grand - and owned about 100 different stocks.  Today, we are in mutual funds, and things like Fidelity Equity Income is basically doing the same thing for us.

Of course, I am sure the real question in the back of the reader's mind is this:  Should I sell the stock now, get about 20K back and buy something else, cutting my losses?  Or keep riding it and maybe it will bounce back?   I am not touching that question with a ten-foot pole.   Because if I said "sell" you know that the stock price would then spike the day after he sold his stock.  If I say hang onto it, the company would declare bankruptcy the next day.  That's why I am not an advice columnist.

My best advice is to buy a time machine on eBay, and go back to 2011 and say to yourself, "don't buy Pitney Bowes!" and while you're at it, bring some of those winning lottery numbers with you....

But the question illustrates why putting all your eggs in one basket can backfire, if that basket goes South.  The vaunted quote from the "Oracle of Omaha" is that you should put all your eggs in one basket and watch that basket carefully.  That might work for a guy who is buying a controlling interest in a company and thus can reorganize it and make it profitable.   For you and me?  Warren Buffet's advice makes no sense whatsoever.

Sorry to hear of your loss, dear reader!   But that is the nature of risk-taking and investing.