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Tickers in this Article: PBI, XRX, IRM, BNE, AVY
Its operations aren't growing like they used to, but Pitney Bowes (NYSE:PBI) is a leader in the postage metering industry and sports a hefty dividend yield. Combined with a low valuation, the stock is a very appealing income play - especially for investors chasing riskier high-yield options in the fixed income asset class. IN PICTURES: What Is Your Risk Tolerance?

Most Recent Quarter Review
Pitney Bowes release second quarter results in August and reported a 6% sales decline as the top line fell to $1.3 billion. It reports results in two primary business segments. The first serves small and medium businesses and reported a 6% sales decline as U.S. mailing fell 8% and the international portion logged a 1% sales decline. This segment accounted for just over half of total quarterly sales. The Enterprise Business Solutions segment also reported a 6% sales decrease on weak sales for services, software and marketing it sells as part of its overall mail solutions.

Total quarterly costs were about flat and included a one-time asset impairment charge. (To learn more, see Impairment Charges: The Good, The Bad and The Ugly.) As a result, operating income fell more than 42% to $103.8 million. Net income fell nearly 48% to $61.4 million, or 30 cents per diluted share.

Outlook
Management lowered its guidance during the quarterly press release and said to expect sales to fall as much as 3% for the full year. Reported earnings are expected to be between $1.49 and $1.85 per share and include a number of charges. Backing out the charges, earnings will range between $2.10 and $2.30 per share.

The Dividend
Despite the challenging operating trends, Pitney Bowes boosted its cash flow expectations and now expects free cash flow between $700 and $800 million. This would equate to free cash flow per share of $3.84 if it can hit the high end of guidance and would represent year-over-year growth of more than 21%.

The company's annual dividend is currently $1.46 per share, meaning the anticipated free cash flow amounts significantly exceed the current dividend yield of 6.8% and imply the payout is unlikely to be cut or reduced. Growth in the payout is also unlikely as Pitney Bowes has anemic annual sales growth of 2.3% over the past decade and about 1.4% earnings declines each year over this period.

Bottom Line
The second quarter was indicative of the firm's growth challenges, but it has been in existence for more than 90 years and remains a leader in most of its businesses. Its mail metering devices and its related services compete with the likes of Xerox (NYSE:XRX), Iron Mountain (NYSE:IRM), Bowne & Co (NYSE:BNE) and Avery Dennison (NYSE:AVY). For investors, the appeal stems from a low forward P/E of about 10 and dividend yield that is easily covered by cash flow production and qualifies as one of the highest payouts out there.

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