HEROES

Industrial equipment manufacturer IMO INDUSTRIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: IMD)") else Response.Write("(NYSE: IMD)") end if %> jumped $2 1/2 to $5 3/4 after agreeing to be acquired by Canadian industrial company UNITED DOMINION INDUSTRIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: UDI)") else Response.Write("(NYSE: UDI)") end if %> for $6 per share in cash. United Dominion is focusing on industrial equipment companies, having bid for hydraulic, metal, and purification products company COMMERCIAL INTERTECH CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TEC)") else Response.Write("(NYSE: TEC)") end if %> last year and having divested itself of its building products unit earlier this year. In a separate transaction today, United Dominion also announced an agreement to acquire electronics and farm equipment company CORE INDUSTRIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CRI)") else Response.Write("(NYSE: CRI)") end if %>, which gained $1 7/16 to $24 11/16 on the news.

Pharmaceutical company RHONE POULENC RORER <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: RPR)") else Response.Write("(NYSE: RPR)") end if %> jumped $11 11/16 to $91 1/8 after French parent RHONE POULENC S A <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: RP)") else Response.Write("(NYSE: RP)") end if %> announced an offer to buy out minority holders in RPR for $92 per share in cash. Rhone Poulenc also said it aims to grow earnings per share (EPS) by 20% in 1997 and 1998. Furthermore, it is considering forming a separate business unit, which would include its chemicals company (France's largest), polymers, and fibers companies to be listed in 1998 as a separate entity. Rhone Poulenc holders liked what they heard today, driving those shares $6 3/16 higher to $42 5/16.

ALLIANCE CAPITAL MANAGEMENT <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AC)") else Response.Write("(NYSE: AC)") end if %> rose $1 3/4 to $28 5/8 after Smith Barney raised its rating on the money management partnership to "buy" from "neutral." The company said its Q2 per-unit earnings will beat estimates of $0.64 before a write-off for goodwill associated with its investment in Cursitor Holdings LP, which the company viewed as impaired.

QUICK TAKES: Sub-prime mortgage lender NEW CENTURY FINANCIAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: NCEN)") else Response.Write("(Nasdaq: NCEN)") end if %> gained $2 5/8 from its IPO price of $11 to close at $13 5/8... Supply chain software company MANUGISTICS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MANU)") else Response.Write("(Nasdaq: MANU)") end if %> gained $7 1/4 to $45 1/4 on reporting Q1 EPS of $0.09, beating estimates of $0.07, on an 85% increase in revenues... SKYWEST INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SKYW)") else Response.Write("(Nasdaq: SKYW)") end if %> gained $2 5/8 to $16 1/2 and RENO AIR <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: RENO)") else Response.Write("(Nasdaq: RENO)") end if %> rose $1 1/8 to $8 9/16 as investors in the western regional airlines rejoiced as a code-sharing agreement between UNITED AIRLINES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: UAL)") else Response.Write("(NYSE: UAL)") end if %> and MESA AIR GROUP <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MESA)") else Response.Write("(Nasdaq: MESA)") end if %> is running on fumes... Apparel company NAUTICA ENTERPRISES <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: NAUT)") else Response.Write("(Nasdaq: NAUT)") end if %> rose $2 3/4 to $23 after releasing Q1 EPS of $0.18, up 38% on a 25% year-over-year increase in revenues... Insulation, construction products, and tape products maker CHASE CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: CCF)") else Response.Write("(AMEX: CCF)") end if %> rose $1 1/16 to $ 9 1/8 on reporting Q3 EPS of $0.21, up 50% over last year... Freight company CORPORATE EXPRESS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CEXP)") else Response.Write("(Nasdaq: CEXP)") end if %> gained $1 5/8 to $14 3/8 after delivering to shareholders a 40% increase in Q1 revenues and EPS of $0.08, in line with estimates... CELLSTAR CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CLST)") else Response.Write("(Nasdaq: CLST)") end if %> gained $3 5/16 to $30 1/8 on reporting an 81% increase in Q2 revenues and EPS of $0.48, which crushed estimates of $0.32... Firearms manufacturer STURM RUGER & CO. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: RGR)") else Response.Write("(NYSE: RGR)") end if %> added $1 to $18 1/4 after the company announced an agreement to buy CALLAWAY GOLF's <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ELY)") else Response.Write("(NYSE: ELY)") end if %> 50% interest in a metals foundry. Callaway agreed to raise its orders for golfclub heads from Ruger's Investment Casting foundry by a million units... CIBER INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CBR)") else Response.Write("(NYSE: CBR)") end if %> added $1 5/8 to $32 1/8 after the information technology consultant said it is comfortable with the quarterly analyst earnings estimate of $0.26 per share.

GOATS

An earnings warning from thin-film media maker KOMAG <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: KMAG)") else Response.Write("(Nasdaq: KMAG)") end if %> dropped the stock $6 7/8 to $16 11/16 today. The company warned that it would miss not only second quarter earnings estimates, but estimates for the rest of the year. Komag's relationship with SEAGATE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SEG)") else Response.Write("(NYSE: SEG)") end if %> was mentioned as the primary problem since pricing pressures are believed to be greatest in high-end drives, where Seagate dominates the market. WESTERN DIGITAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: WDC)") else Response.Write("(NYSE: WDC)") end if %> is making strides in that segment, and some are having trouble reconciling why Western wouldn't be picking up the slack since Komag supplies that company too. With Western Digital turning over its inventory at a rate of 18.7 times in the trailing 12 months and Seagate turning over inventory 11.4 times, the positive of a pickup in market share by Western Digital is going to be outweighed by the negative of an inventory correction at Seagate, which just doesn't forecast its needs as accurately.

Komag's problems reverberated throughout the disk drive sector, as its number two customer, Western Digital, lost $1 3/4 to $31 1/8. QUANTUM <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: QNTM)") else Response.Write("(Nasdaq: QNTM)") end if %>, which along with its supplier MKE accounts for a little more than a quarter of Komag's revenues, slumped $1 1/16 to $19 15/16. READ-RITE CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: RDRT)") else Response.Write("(Nasdaq: RDRT)") end if %>, which now derives little revenue from Seagate, dropped $2 1/8 to $20 1/16. Meanwhile, HUTCHINSON TECHNOLOGY <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: HTCH)") else Response.Write("(Nasdaq: HTCH)") end if %>, whose 70% market share for head suspension assemblies makes it hard to avoid dealing with Seagate, lost $1 1/2 to $24 13/16. Flexible circuit maker ADFLEX <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AFLX)") else Response.Write("(Nasdaq: AFLX)") end if %>, which derives 35% of its sales from Seagate, lost $1 3/4 to $16 1/4.

RUSSELL CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: RML)") else Response.Write("(NYSE: RML)") end if %> fell $2 to $28 3/8 after the apparel company warned that second quarter earnings will miss the mean analyst expectation of $0.41 per share by as much as 50% because of poor performance in licensed products sales as well as a write-down of obsolete inventory. Another company pre-announcing today was refrigerant reclamation, management, and blending services company HUDSON TECHNOLOGIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: HDSN)") else Response.Write("(Nasdaq: HDSN)") end if %>, which fell $2 3/8 to $6 1/2. Because of unseasonably cool spring weather, the company warned that it "anticipates that it will incur substantial losses for the three and the six months ended June 30, 1997."

QUICK CUTS: ZAG INDUSTRIES LTD. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ZAGIF)") else Response.Write("(Nasdaq: ZAGIF)") end if %> was crushed for a $5 7/8 loss to $8 7/8 after the manufacturer of plastic consumer products warned that it will miss EPS estimates of $0.25 because of product introduction delays and pricing pressures in Europe... WARRANTECH CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: WTEC)") else Response.Write("(Nasdaq: WTEC)") end if %> lost $1 7/16 to $10 1/2 after the warranty marketer reported a Q4 loss of $0.03 per share, which includes charges for settlement of litigation as well as spending on management information systems... In order to finance its purchase of a plant from GLAXO WELLCOME <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GLX)") else Response.Write("(NYSE: GLX)") end if %>, CATALYTICA INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CTAL)") else Response.Write("(Nasdaq: CTAL)") end if %> issued a dividend of one warrant for every three shares, which will allow holders to purchase one share of Catalytica for $4, which sent the shares $2 lower to $11 5/8 today... ROYAL CARIBBEAN CRUISES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: RCL)") else Response.Write("(NYSE: RCL)") end if %> sank $2 3/4 to $34 1/8 after CARNIVAL CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CCL)") else Response.Write("(NYSE: CCL)") end if %> offered to buy Celebrity Cruise Lines, which Royal Caribbean had agreed to buy in mid-June from OVERSEAS SHIPHOLDING GROUP <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: OSG)") else Response.Write("(NYSE: OSG)") end if %>... Though its "A" share stock sank today $5 1/4 to $22, FIRST COMMUNITY BANCSHARES <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: FCBIA)") else Response.Write("(Nasdaq: FCBIA)") end if %> had no comment... CYGNUS INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CYGN)") else Response.Write("(Nasdaq: CYGN)") end if %> lost $1 7/8 to $16 1/4 despite awarding $2.7 billion medical products company BECTON DICKINSON & CO. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BDX)") else Response.Write("(NYSE: BDX)") end if %> with the marketing rights for Cygnus's GlucoWatch glucose monitoring device... Nuclear medicine pharmacy service center company SYNCOR INTERNATIONAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SCOR)") else Response.Write("(Nasdaq: SCOR)") end if %> fell $1 to $9 7/8 after saying a labor dispute at a supplier will hurt this quarter's earnings... Personal care and nutritional products company NU SKIN ASIA PACIFIC <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: NUS)") else Response.Write("(NYSE: NUS)") end if %> lost $2 9/16 to $24 3/8 after the company said its counsel advised that Nu Skin may have violated South Korean foreign exchange laws... Underwater sensing systems and aircraft maintenance company WHITEHALL CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: WHT)") else Response.Write("(NYSE: WHT)") end if %> slid $1 3/8 to $18 after the Air Force canceled a C-130 maintenance contract with the company that could have been worth more than $100 million over five years... Business forms and information technologies company MOORE CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MCL)") else Response.Write("(NYSE: MCL)") end if %> fell $1 7/16 to $20 1/16 after saying it doesn't expect to match analyst EPS estimates of $1.45 for fiscal 1997.

FOOL ON THE HILL
An Investment Opinion by Randy Befumo

M&M Killed the Dividend Star

Dividends are at an all-time low. Although in the past few months pundits have ceased commenting on the extraordinarily low dividend yield on the S&P 500, the low dividend yield has yet to be convincingly explained. A quick glance at the dividend yield since 1928 shows that that while many times this century yields on S&P 500 companies have danced around the three percent mark, yields broke below two percent for the first time in history this year. Why are yields so low? What has happened that could possibly explain what appears to be a rather dramatic change in corporate dividend policy?

The reason why the dividend yield of the S&P 500 is even calculated on a regular basis is that it has historically been an excellent leading indicator of market valuation. Until the dividend yield on the S&P 500 dropped below three percent in the early 1990s, it had never been below the three percent mark for more than a few months. In fact, the only time it was below three percent for a sustained period was in 1972, right before the biggest, baddest period of negative performance for stocks since the Great Depression. However, the rules were apparently tossed out the window sometime in 1992 as the yield has been below the three percent mark ever since then.

Investors trying to explain the perplexingly low dividend yield of the S&P 500 may need to look no further than the nearest business school. Specifically, an investor would look at the work of Nobel-prize winning work of economists Franco Modigliani and Merton Miller for answers as to why dividends have become less and less important over the past forty years. The two economists theorized in 1958 that "neither the volume nor the structure of the debts affects the value of the firm" given certain conditions. Based on this work, the two further concluded that "the value of a firm is also independent of its dividend policy." The resulting work has come be known as M&M theory or MM theory.

Essentially, Modigliani and Miller argued that increases in dividends do not affect the value of a company. Any increase in a shareholder's income would result in the value of the company being diminished by an equal amount, a neutral transaction. Since the theory was originally proposed and began to be popularized in the late 1960s, its influence has grown over time. Although it has been around for decades, Modigliani was only awarded the Nobel prize for this work as well as his Life-Cycle Hypothesis in 1985, while Miller only snagged a joint prize with William Sharpe and Harry Markowitz in 1990. If one assumes it takes a few decades for fresh business school graduates to ascend to the pinnacles of corporate power, students who learned M&M theory in the 1960s and 1970s would have only begun to control major corporations in the late '80s or early in the '90s.

Although certainly not the only viable explanation for the dramatic decrease of dividend payouts over the last five years, the fact that the intellectual climate regarding dividends may have been changed by this seminal work is rarely if ever considered. As companies have examined M&M theory and concluded that the stock price does seem to be independent of a company's dividend policy, counter to the prior set of corporate assumptions, it appears the urge to splurge on dividends has diminished considerably. This is clearly indicated by the number of S&P 500 companies that pay no dividend at all, a number that has increased as more companies like MICROSOFT <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MSFT)") else Response.Write("(Nasdaq: MSFT)") end if %>, APPLIED MATERIALS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AMAT)") else Response.Write("(Nasdaq: AMAT)") end if %>, WORLDCOM <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: WCOM)") else Response.Write("(Nasdaq: WCOM)") end if %>, and TELECOMMUNICATIONS INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: TCOMA)") else Response.Write("(Nasdaq: TCOMA)") end if %> have entered the S&P 500.

CONFERENCE CALLS

3COM <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: COMS)") else Response.Write("(Nasdaq: COMS)") end if %>
Available though 7:00 p.m. EDT on 6/26
(800) 696-1563 (code: 204860) -- replay

ECHLIN INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ECH)") else Response.Write("(NYSE: ECH)") end if %>
(800) 683-1535 (password: McCurdy) -- replay through 6/27

CABLETRON SYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CS)") else Response.Write("(NYSE: CS)") end if %>
(402) 220-5185 -- replay available through 6/30

COGNOS INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: COGNF)") else Response.Write("(Nasdaq: COGNF)") end if %>
(800) 997-6910 -- replay available from 1:15 p.m. EDT to midnight 6/30

THIS WEEK'S CONFERENCE CALL SYNOPSES

JABIL CIRCUIT <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: JBIL)") else Response.Write("(Nasdaq: JBIL)") end if %> Q3 Call
ST. JOHN KNITS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SJK)") else Response.Write("(NYSE: SJK)") end if %> Q2 Call
MICRON ELECTRONICS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MUEI)") else Response.Write("(Nasdaq: MUEI)") end if %> Q3 Call
MICRON TECHNOLOGY <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MU)") else Response.Write("(NYSE: MU)") end if %> Q3 Call
BRODERBUND <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: BROD)") else Response.Write("(Nasdaq: BROD)") end if %> Q3 Call
COMPAQ <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CPQ)") else Response.Write("(NYSE: CPQ)") end if %> / TANDEM <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TDM)") else Response.Write("(NYSE: TDM)") end if %> Merger
3COM <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: COMS)") else Response.Write("(Nasdaq: COMS)") end if %> Q4 Call

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Randy Befumo (TMF Templr), a Fool
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