Follow the dividend investment decisions of a person who has no background in financial investment and wishes to take control of their financial future.

Steris Corporation (STE) - 30 Oct 2013 00:25

Tags: healthcare ste steris stock_review_2013

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One of the more difficult challenges with Dividend Growth Investing (DGI) is finding the next Dividend Aristocrat (stocks growing dividends 25 or more years in a row) before they become an Aristocrat.

The reward for finding a future dividend grower early are large consecutive growth periods (greater than 10%) over a long period of time. The only down side is a low starting yield but the growth rate over a long period of time compensates (exceedingly).

In my attempt to find a future aristocrat I decided to search in the low end of mid-cap stocks (stocks with a market cap of $2B to $3B) often an area overlooked when it comes to DGI. In my search I came across Steris Corporation.

Steris Corporation (STE) specializes in the manufacture a sale of sterilization equipment, supplies and lab services. They primarily serve the healthcare industry but they also provide decontamination equipment to the defense industry.

STE has been growing its dividend payout since 2005. My normal criterion is at least 10 years of dividend history but with 8 years of growth we need to run the numbers to see if it has what it takes for the long haul.

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Dividend Growth Rates
1-Yr 3-Yr 5-Yr 10-Yr
12.5% 20.6% 26.8% n/a

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Looking at some of my screening criteria for a DG stock we see some solid numbers:

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Dividend Growth Rate Debt/Equity Ratio
Criteria STE Criteria STE
>= 7.2% 12.5% < 1 0.53
Dividend Yield Payout Ratio
Criteria STE Criteria STE
> 3% 1.8% < 70% 30.66%

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The only weakness on the initial screen is that the current dividend rate of 1.8% is significantly below the 3% criteria. Depending on your time horizon this may be an obstacle but if your timeline is 15 to 20 years and you could be looking at a 14% dividend on cost.

Looking at earnings over the last 6 years we have positive earnings growth since 2008 with the exception of 2011. In 2011 there was a $110M liability related to its product SYSTEM 1 rebate program.

2013 EPS 2012 EPS 2011 EPS 2010 EPS 2009 EPS 2008 EPS
2.72 2.31 .85 2.16 1.86 1.2

The balance sheet is fairly strong as reflected with a debt/equity ratio of .529 and a current ratio of 3.19. The only area of risk was the jump in long term debt from $210M in 2012 to $492M in 2013 but further investigation identified that the additional debt was incurred to close on 4 acquisitions.

Digging into the company’s assets is where you will find the real hidden treasure in this company. In 2012 patents were valued at $43.2M but in 2013 patent value jumped to $169.5M. The large increase was a combination of aggressive R&D spending (12% of operating costs) and key acquisitions over the last few years.

Research & Development Spending
2013 2012 2011
$41.3M $36M $34.3M

As of the 2013 annual report, the company held 328 United States patents and 823 foreign patents and had 82 United States patent applications and 282 foreign patent applications pending. STE has been quietly becoming an Intellectual Property juggernaut allowing it to compete with companies 5 times its size.

Looking at the recent stock price of approximately $46 per share it is currently trading at its 52 week high and carries a trailing P/E of 17.3 and a forward P/E of 16.68. The 5 year average P/E has been 19.86 so the current stock price looks to be appropriately undervalued to what the market has historically valued. On the growth front, anticipate significant increases from lab services and sterilization supplies in mature markets such as the U.S. and Europe while sterilization equipment should experience growth in developing healthcare markets.

In summary, the company has tremendous strengths in their intellectual capital and strong balance sheet. For weaknesses there is lack of communication from the CEO to a vision or strategy on capturing growth in Latin America and Asia. In regards to risk there is the danger of the company not translating its intellectual property into future revenue growth. I would consider this a worthy investment in lieu of the risks and if they continue their aggressive R&D investments and key acquisitions we could be seeing a dividend aristocrat in the making. Even though the stock price is trading at its 52 week high I see a great long term value in both equity & dividend growth and would be a buyer at current price levels.

Note: I do not own this stock at time of this writing. - Comments: 0

Meredith Corporation (MDP) - 16 Sep 2013 23:23

Tags: mdp meredith stock_review_2013

Meredith Corporation (MDP) is one of the leading publishing media companies in the U.S. and of course I wouldn’t be writing about it if it did not have Dividend Growth characteristics.

MDP has been increasing its annual dividend payout for 20 straight years with some impressive growth rates and meets all of my basic search criteria.

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Dividend Growth Rates
1-Yr 3-Yr 5-Yr 10-Yr
13.4% 11.9% 13.9% 28.4%

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Dividend Growth Rate Debt/Equity Ratio
Criteria MDP Criteria MDP
>= 7.2% 13.4% < 1 0.41
Dividend Yield Payout Ratio
Criteria MDP Criteria MDP
> 3% 3.67% < 70% 57.6%

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Over the last 3 years MDP has been increasing dividends faster than earnings growth. The company moved from a 34.8% payout rdatio in 2011 to a 57.6% payout ratio in 2013. Looking at the last 4 years of EPS reporting, earnings appear erratic and adds confusion if future dividend increases are sustainable.

2013 EPS 2012 EPS 2011 EPS 2010 EPS
2.74 2.31 2.84 2.78

If we take the numbers as face value MDP has a very limited upside for dividend growth but before we throw in the towel we should dig a little deeper.

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MDP is most famous for its magazine publications Better Homes & Gardens, Ladies' Home Journal and Family Circle. They have been reading staples for almost every Mom over the decades.

MDP’s publication business consists of 18 National & 6 Latino brand magazines and nearly 100 special interest publications. But MDP is much more than just publications; it also has 13 broadcast stations, websites, mobile & tablet apps, and videos. The combination of all these elements position MDP more as a content provider than a publisher

The company’s primary objective is to remain the leading media & marketing company serving American women. This is a pretty tall order considering their largest competitor is the Hearst Corporation who is one of the largest media companies in North America. To stay relevant, beat the competition and maintain the American Woman’s interest the company has been laser focused over the last three years with strategic acquisitions.

Key Acquisitions
. 2013 – Parenting and Baby Talk magazines
. 2012 – web app AllRecipes.com and FamilyFun magazine
. 2011 – EatingWell Media Group and EveryDay with Rachel Ray

The number of acquisitions and cost of folding them into the MDP family does explain some of the erratic earnings over the last few years. Going forward, the additional products should add to revenue growth. Yet, I would be cautious and want to see 2014 earnings to determine if revenue is truly growing again and can support dividend growth rates that exceed 7%.

Looking at the recent stock price of approximately $44 per share it carries a trailing P/E of 16.19 and a forward P/E of 13.54. The 5 year average P/E has been 12.92 so the current stock price looks to be slightly over-valued.

In summary, MDP is currently paying a nice dividend yield with a long history of growth but has weakness with an increasing payout ratio and weak EPS growth. The real strength of the company lies in its ability to create content and deliver it on any media format.

Investing now is a small gamble that they can execute web and electronic media delivery to grow their business. If they provide mediocre execution during that time then you are probably looking at a few good years of dividend growth (7 to 10%) and then a slower growth rate (2 to 4%). If they provide strong execution then they will be able to maintain their aggressive dividend growth for many years to come.

Note: I do not own this stock at time of this writing. - Comments: 0

Helmerich & Payne (HP) - 12 Sep 2013 23:06

Tags: drilling helmerich&payne hp oil&gas stock_review_2013

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Are you interested in investing into the shale oil boom but nervous about the risk? A safer alternative could be investing in companies that service the industry such as Helmerich & Payne (HP). HP is the leading U.S. provider for land contract drilling services. Their drilling techniques use directional and horizontal drilling, critical for shale fields.

HP has long been a dividend growth player with 41 consecutive years of growth with the most recent annual increase coming in at 7.7%.

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Dividend Growth Rates
1-Yr 3-Yr 5-Yr 10-Yr
7.7% 11.9% 9.2% 6.1%

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Looking at some of my screening criteria for a DG stock we see some solid numbers:

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Dividend Growth Rate Debt/Equity Ratio
Criteria HP Criteria HP
>= 7.2% 7.7% < 1 0.05
Dividend Yield Payout Ratio
Criteria HP Criteria HP
> 3% 3.01% < 70% 30%

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2013 earnings have been strong with HP already reporting $5.33 per share and they still have one quarter left to report which should place EPS in the $7+ range. Compared to 2012 earnings of $5.34 EPS this represents a 40% improvement year over year.

HP rig assets consisted primarily of U.S. based land rigs and year over year increases average about 13%.
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2012 Rigs 2011 Rigs 2010 Rigs
U.S. Land 282 248 220
Offshore 9 9 9
International Land 29 24 28
Total Rigs 320 281 257

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Looking at the balance sheet, HP’s efforts to dramatically decrease long term debt has been successful as the debt to equity ratio is down to an all-time low of .05.

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HP also has maintained a backlog of services of $3.6B in 2012 and $3.8B. Combined with the decrease in debt liabilities it becomes easier to see how solid their earnings have become.

One item in the 2012 annual financial statement that jumped out at me was a large increase in accounts receivable $460M in 2011 to $620M in 2012. But there was also a dramatic increase in annual revenue from 2011 to 2012 and when you create an “AR/Revenue” ratio both years are 18% so no cause for alarms.

The one area of weakness I found with HP was their source of earnings. 59% of HP's annual earnings come from only 10 major oil & gas exploration companies. If just one of these companies cancels a drilling contract it would greatly impact earnings.

In summary, HP is currently operating in a boom U.S. shale market with strong a balance sheet and backlog of orders. Their dividend rate looks to be secure and their long history of dividend growth should continue.

Note: I do not own this stock at time of this writing. - Comments: 0

Sturm, Ruger & Company (RGR) - 02 Sep 2013 13:11

Tags: gun rgr stock_review_2013

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Sturm, Ruger & Company (RGR) has been making a bang lately on the market. A gun manufacturer since 1949, RGR is blowing away analysts EPS forecasts quarter after quarter. In fact, RGR has beaten the high end EPS estimates for 9 straight quarters with the last exceeding estimates by 35% reporting Q2 2013 of $1.63 per share vs. an estimate of $1.18 per share. With next Q3 2013 estimates at $1.46 per share it looks like it will become 10 quarters in a row.

Considering the amount of institutional & mutual fund investor stock ownership (79%) I do find it astounding how many misses there have been. Some of the problem is that RGR provides no financial guidance and even points it out as item #3 in their Investment Community Communications (http://www.ruger.com/corporate/PDF/InvestorCommunicationPolicy.pdf). But one could argue that without the guidance analysts just aren’t doing their homework and are doing a disservice to both their companies and clients.

On the dividend front RGR has been growing at just as a rapid pace as their earnings and the only downside is the limited history of consecutive years of growth which stands at just under 5 years. My normal criterion is at least 10 years of dividend history but for the potential of a high dividend growth it may be a risk worth taking.

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Dividend Growth Rates
1-Yr 3-Yr 5-Yr 10-Yr
201% 61% n/a n/a

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Looking at some of my screening criteria for a DG stock we see some solid numbers:

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Dividend Growth Rate Debt/Equity Ratio
Criteria RGR Criteria RGR
>= 7.2% 201% < 1 0
Dividend Yield Payout Ratio
Criteria RGR Criteria RGR
> 3% 5.0% < 70% 40%

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The 1 year dividend growth listed at 201% is actually deceiving. At the end of 2012 there was the high probability of the Bush Tax Cuts expiring sending taxable qualified dividends shooting up from a tax rate of 15% to as high as 39%. In response many companies issued special dividend to reward shareholders before the tax expired of which RGR issued a special dividend of $4.50 per share in Q4 2012. Luckily the 15% tax rate (for the most part) was retained.

A deeper look in RGR’s dividend growth yielded something odd. RGR does not declare a fixed annual dividend rate payable each quarter and each quarter pays a different dividend amount. Instead it looks as though RGR has been trying to find a reasonable payout ratio and seems to have settled at ratio of around 40% for the last two years. By basing each quarterly dividend on a payout ratio of earnings would explain the fluctuations seen in dividend rates from quarter to quarter. What this translates into is that dividend payments are directly attributable to earnings growth so the better the company performs the better your dividend and vice-versa. To determine if the dividend growth is sustainable we need to analyze earnings growth.

Earnings from 2009 to 2012 have seen noticeable earning jumps but there is caution to 2012 earnings. In the last quarter of 2012 the terrible massacre of children occurred in Newton, Connecticut. This event spurred a national debate on tightening gun control laws and in turn caused a rush of existing gun owners to purchase guns before new laws were enacted. Even the CEO of RGR attributed the large bump in Q4 sales to this phenomenon in their 2012 annual report.

2012 EPS 2011 EPS 2010 EPS 2009 EPS
3.60 2.09 1.46 1.42

Looking further into the 2012 annual report there was another figure that was quite interesting, $427.1M in order backlogs and for the year they only processed $369.6M in orders. Going into 2013 the rush for gun orders continued to over flow into Q1 and Q2 numbers further expanding their backlog to $590M.

The National Instant Check System (NICS) used for background checks has become a good leading indicator into gun sales. In July the FBI reported 1.284 million NICS checks, a decrease year over year as July 2012 had 1.301 million and is a good signal that gun demand is starting to wane.

Sifting through 2013 Q1 & Q2 sales numbers an interesting statistic that jumps out is that 31% of sales is for brand new models. RGR has been aggressively increasing R&D spending at a rate that almost doubled in three years and is starting to see a payoff in sales.

Research & Development Spending
2012 2011 2009
$5.9M $4M $3.2M

In August 2013, the company announced its plans to expand manufacturing capacity by opening a new facility in Mayodan, North Carolina. Interestingly this new facility will not be used to help reduce the existing order backlog but will only produce new products not yet announced and the company expects the new facility to begin producing in early 2014. This is actually a very smart and conservative approach as the company will only be investing in new machinery & tooling in one facility instead of duplicating machinery & tooling used for existing product lines at their New Hampshire and Arizona facilities allowing then to work down the backlog while the NC plant handles new incoming orders.

There will be some cost deferred with the opening of the NC facility. The state of North Carolina is providing $9M in incentives and the town of Mayodan & Rockingham County are currently considering another $1.7M in local tax incentives over a period of 14 years.

Looking at the balance sheet RGR has maintained one impressive number over the years, zero long term debt. With zero long term debt I expected to see solid financials and the only area of concern was the Current Ratio which dipped to 1.6 in 2012

Current Ratio
2012 2011 2009
1.6 3 3.2

With no debt and high gross profit margins I expected a current ratio greater than 2.5. I credit the significant drop in 2012 to the Q4 2012 special dividend of $4.50 a share which siphoned off cash from the books thus lowering the ratio. With the NC facility investment I see this as a slight drag on the 2013 current ratio but still higher than 2012 and a slow and steady return to a normal ratio for a company with no long term debt.

Looking at the recent stock price of approximately $52 per share it carries a trailing P/E of 11.09 and a forward P/E of 14.96. The 5 year average P/E has been 12.78 so the current stock price looks to be appropriately valued but it looks like it is underestimated for 2014 as analysts do not seem to be taking into account the significant backlog of orders. I’d expect 2014 earnings to be in line with 2013 keeping the dividend yield at 5% but because of the nature of the earnings growth I would discount it and treat it more like 3.5% and plan year over year growth from the discount which I would expect the yield to return to in 2015.

In summary, I consider the 5% yield a temporary anomaly and for future growth I’m using a base 3.5% rate with a 10% per year growth. The company has strengths in gross profit margins and no long term debt. For weaknesses there is lack of long term consistent dividend growth and significant drop in current ratio. As long as the company continues to aggressively increase R&D funding and increases its cash position I would consider this a worthy investment in lieu of the risks and would be a buyer at current price levels and an aggressive buyer if share price drops below $49 per share.

Note: I do not own this stock at time of this writing. - Comments: 0

Owens & Minor (OMI) - 24 Aug 2013 14:36

Tags: omi stock_review_2013

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Owens & Minor (OMI) isn’t exactly a household name that you easily recognize but more than likely you have seen the services they provide and didn’t even know it.

When you visit a hospital look around the room and OMI is all around. The examining table, cotton swabs, tongue depressors, pillows, stools, the tissue paper on the exam table, end even the stethoscope around the doctor’s neck, all supplied by OMI. OMI does not make these products but is the U.S. leading supplier for healthcare facilities.

From a dividend growth investor (DGI) perspective is also just as surprising. For the last 16 years they have been increasing their dividend payout at a wonderful pace and current yield of 2.7%.

Dividend Growth Rates
1-Yr 3-Yr 5-Yr 10-Yr
10% 12.8% 14.2% 15.6%

Looking at some basic numbers OMI meets most of my screening criteria for a DG stock:

Dividend Growth Rate Debt/Equity Ratio
Criteria OMI Criteria OMI
>= 7.2% 10% < 1 .22
Dividend Yield Payout Ratio
Criteria OMI Criteria OMI
> 3% 2.7% < 70% 57.5%

Though the dividend yield is slightly lower than my criteria the growth rate was more than enough to compensate. But dividend growth has been decreasing over the years so it is vital to dig deeper to determine future growth potential and sustainment.

Earnings from 2011 to 2012 actually decreased by 4.9% and was a reflection of the overall U.S. economy and availability of affordable healthcare for 2012:
2012 EPS 2011 EPS 2010 EPS
1.72 1.81 1.75

Looking deeper into the company, OMI has 55 distribution centers in the U.S. offering more than 220,000 products from more than 1400 suppliers and has access to more than 50% of U.S. Healthcare facilities. That is a far reaching network giving it a lot of leverage with OEM suppliers, especially young or small OEMs that cannot afford the overhead costs of large scale suppliers. But more mature and established suppliers have complained over the years of the limited market. Looking at some of the more major suppliers we see Covidien and Avid, both with recent declining earnings.

In response, OMI has expanded into Europe after they acquired Movianto from Celesio AG in 2012. The Movianto acquisition provided an additional 22 distribution centers in 11 countries and provides the additional large growth markets their suppliers were looking for and makes them even more attractive for enlisting additional suppliers.

OMI has been in the healthcare distribution and logistics supply chain for more 128 years and has honed the business model as sharp as the scalpels they sell. As OMI integrates Movianto they will incorporate what they have learned and greatly reduce Movianto’s overhead expenses while increasing effectiveness and providing organic growth. Once the improvements are incorporated they can then focus on expanding throughout Europe.

Europe is not the only significant investment OMI has recently made. Domestically the company has invested $50 million in technology over the last two years further improving their distribution, supply chain management, and consulting capabilities. The most notable is how strategic OMI's investments have been without impacting their long term debt during this time period:

2012 Long Term Debt 2011 Long Term Debt 2010 Long Term Debt
$217M $214.6M $210.9

These critical investments should begin to yield earning growth in 2013 and forward but much depends on how quickly their European operations expand.

Looking at dividend payouts OMI has been increasing payouts faster than earnings growth. In 2010 OMI’s payout ratio sat at 40% and three years later is sitting at 57%. In the short term this is not sustainable and needs to drop into the single digits (possibly as low as 4%). OMI is so conservative managing their financials I cannot foresee them doing otherwise.

Looking at the recent stock price of approximately $35 per share it carries a trailing P/E of 21.4 and a forward P/E of 17.5. The 5 year average P/E has been 16.74 so the current stock price looks to be overvalued to what the market has traditionally valued the company at.

With the potential decrease in dividend growth and current share price it just does not fit my investment goals. Though I do like their long term potential, I’d rather wait on the sidelines to see what happens with their European operations and dividend growth and would only consider if there was a significant drop in share price (less than $29 per share).

Note: I do not own this stock at time of this writing. - Comments: 0

Norfolk Southern Corp (NSC) - 13 Aug 2013 22:47

Tags: norfolk nsc southern stock_review_2013

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No matter how old we get there is always a kid in all of us and I am no exception. As a kid I was fascinated with model trains and when a childhood fascination collides with another favorite hobby (investing) I just cannot help myself.

Norfolk Southern (symbol NSC) is a railroad company operating on the East Coast. For the last 12 years they have been increasing their dividend payout at a significant pace and with a current yield of 2.84% one cannot help but take notice.

Dividend Growth Rates
1-Yr 3-Yr 5-Yr 10-Yr
16.9% 12.6% 15.1% 22.3%

The kid in me cannot stop being giddy as what is better than big trains and rising dividends. But the adult in me has to step in and ruin the fun. Looking at some basic numbers NSC meets most of my screening criteria for a DG stock:

Dividend Growth Rate Debt/Equity Ratio
Criteria NSC Criteria NSC
>= 7.2% 16.9% < 1 .83
Dividend Yield Payout Ratio
Criteria NSC Criteria NSC
> 3% 2.84% < 70% 38%

Though dividend was slightly lower than my criteria the growth rate was more than enough to compensate. The big question left was if the dividend growth rate was sustainable and for how long which required a deeper dive.

Earnings from 2011 to 2012 actually decreased by 1% sending the first warning signal something might be amiss. After further research the decline was attributable to a decrease in demand for coal which makes up 26% of NSC revenue which was -16.7%. NSC revenue is classified into three main revenue streams:
2012 Revenue M$ 2011 Revenue M$
Coal 2879 3458
General Merchandise 5920 5584
Intermodal 2241 2130

Luckily increased revenue from General Merchandise & Intermodal helped offset some of the loss for 2012. Looking at the first six months of 2013 NSC saw another 17% decline in coal revenue and is on pace to see annual revenues decrease by an additional 2% (pushing the payout ratio up from 38 to 39%).

During 2012 & 2013 NSC has been investing in intermodal deliveries as an alternative and have yielded a 6% increase in 2012 and is on pace for a 7% increase for 2013.

Unfortunately, competitor CSX, which operates in the same area, also has revenue based on a similar structure and allocation as NSC so CSX has also seen steady declines in coal revenue. Like NSC they are also pursuing growth in intermodal business.

Assuming coal demand levels off by the end of 2013 and natural gas remains affordable then revenue growth will primarily come from general merchandise and intermodal shipping. Add to the issue that NSC and CSX are pursuing growth in the same intermodal business that minimizes overall future growth to approximately to 4-5% annually.

With a payout ratio of only 38% and combining it with a 4-5% EPS growth rate, dividend growth could continue at a 10% pace annually for the next 9 years before it hits my limit of a 70% payout. Considering how well NSC manages its financials it does question if they would increase dividends at that rate or hold at a certain payout ratio. Last month NSC announced a 4% dividend increase (well below its average) so my inclination is that they will hold at a payout ratio of 50% or lower.

As much as I would love to buy into a railroad for diversification, and to satisfy the kid in me, I believe now is the wrong time to buy NSC. For now keep watching and see how management reacts to revenue and dividend growth.

Note: I do not own this stock at time of this writing. - Comments: 0

McDonald's Corp (MCD) - 09 Aug 2013 19:52

Tags: mcd mcdonalds stock_review_2013

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McDonald's (symbol MCD) has long been a staple in many Dividend Growth Investor (DGI) portfolios. When you look at its historical dividend growth MCD rewarded shareholders extremely well over the years. The fact that they have increased dividends for 36 straight years it is no surprise as to why it is a dividend favorite among investors.

Dividend Growth Rates
1-Yr 3-Yr 5-Yr 10-Yr
13.4% 11.9% 13.9% 28.4%

A more detailed look at some numbers and ratios MCD meets many of the criteria I look for in a Dividend Growth stock:

Dividend Growth Rate Debt/Equity Ratio
Criteria MCD Criteria MCD
>= 7.2% 13.4% < 1 .84
Dividend Yield Payout Ratio
Criteria MCD Criteria MCD
> 3% 3.1% < 70% 56%

The main competitors are Burger King (BKW) and Wendys (WEN). Looking at BKW & WEN they currently have P/E Ratios of 45.98 and 214 versus 17.87 for MCD making it look like the value of the three. But the average P/E for MCD over the last five years has been 16.5 so it is slightly over-valued at its current price of $97.90 per share.

An area of concern has been the surge of small specialty hamburger chains such as Five Guys Burger, In-N-Out Burgers, and Jake’s Wayback. But I see this more of a problem with WEN and to some extent BKW. What is insulating MCD from the specialty burger onslaught is its virtual size. MCD currently has 34,480 restaurants in over 118 countries and when we compare to BKW with 12,997 and WEN with 6,560 restaurants it is easy to see how massive of a scale MCD’s operations are in comparison.

Additionally, 58% of MCDs restaurant are in foreign countries where they do not have to compete with the recent U.S. surge of specialty burger joints. Growth has primarily been in the Asia-Pacific area where it has increased 6.6% from 2011 to 2012 going from 8,865 to 9,454 restaurants and is seven times more penetrated than its closest competitor (BKW has 1,010 restaurants in Asia). Of course as the U.S. dollar strengthens this can turn into a weakness due to currency exchanges.

On the earnings front, earnings per share growth slowed to 5% in 2012 and estimates for 2013 range from 4-5% growth. A fear going forward is if the 13.4% dividend growth rate is sustainable. With a payout ratio of only 56% and combining it with a 4-5% EPS growth rate, dividend growth should continue at a decent pace (7-10% annually) for the next 7 years before it hits my limit of a 70% payout. Personally I do not see MCD management being content with such a slow growth rate over an extended period of time. Their focus on keeping a modern fresh menu and increasing franchise fees should increase growth rates as early as 2014.

Overall, though slightly overvalued, I would not hesitate initiating a small position of MCD in my portfolio and if the stock price drops back to its average P/E of 16.5 (approximately $90 per share) I would increase my investment amount.

Note: I do not own this stock at time of this writing but do have a buy interest. - Comments: 0


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