Linked here is a detailed quantitative analysis of Cardinal Health Inc. (CAH). Below are some highlights from the above linked analysis:
Company Description: Cardinal Health Inc. is one of the leading wholesale distributors of pharmaceuticals, medical/surgical supplies and related products to a broad range of health care customers.
Fair Value: I consider four calculations of fair value, see page 2 of the linked PDF for a detailed description:
- Avg. High Yield Price
- 20-Year DCF Price
- Avg. P/E Price
- Graham Number
CAH is trading at a discount to 1.) and 3.) above. The stock is trading at a slight premium to its calculated fair value of $32.22. CAH did not earn any Stars in this section.
Dividend Analytical Data: In this section there are three possible Stars and three key metrics, see page 2 of the linked PDF for a detailed description:
- Free Cash Flow Payout
- Debt To Total Capital
- Key Metrics
- Dividend Growth Rate
- Years of Div. Growth
- Rolling 4-yr Div. > 15%
CAH earned three Stars in this section for 1.), 2.) and 3.) above. A Star was earned since the Free Cash Flow payout ratio was less than 60% and there were no negative Free Cash Flows over the last 10 years. The stock earned a Star as a result of its most recent Debt to Total Capital being less than 45%. CAH earned a Star for having an acceptable score in at least two of the four Key Metrics measured. Rolling 4-yr Div. > 15% means that dividends grew on average in excess of 15% for each consecutive 4 year period over the last 10 years (2000-2003, 2001-2004, 2002-2005, etc.) I consider this a key metric since dividends will double every 5 years if they grow by 15%. The company has paid a cash dividend to shareholders every year since 1983 and has increased its dividend payments for 14 consecutive years.
Dividend Income vs. MMA: Why would you assume the equity risk and invest in a dividend stock if you could earn a better return in a much less risky money market account (MMA)? This section compares the earning ability of this stock with a high yield MMA. Two items are considered in this section, see page 2 of the linked PDF for a detailed description:
- NPV MMA Diff.
- Years to > MMA
CAH earned a Star in this section for its NPV MMA Diff. of the $6,254. This amount is in excess of the $2,100 target I look for in a stock that has increased dividends as long as CAH has. If CAH grows its dividend at 17.6% per year, it will take 5 years to equal a MMA yielding an estimated 20-year average rate of 3.98%.
Other: CAH is a member of the S&P 500 and a member of the Broad Dividend Achievers™ Index.
Conclusion: CAH did not earn any Stars in the Fair Value section, earned three Stars in the Dividend Analytical Data section and earned one Star in the Dividend Income vs. MMA section for a total of four Stars. This quantitatively ranks CAH as a 4 Star-Buy.
Using my D4L-PreScreen.xls model, I determined the share price would need to increase to $48.44 before CAH's NPV MMA Differential decreased to the $2,100 minimum that I look for in a stock with 14 years of consecutive dividend increases. At that price the stock would yield 1.44%.
Resetting the D4L-PreScreen.xls model and solving for the dividend growth rate needed to generate the target $2,100 NPV MMA Differential, the calculated rate is 14.1%. This dividend growth rate is less than the 17.6% used in this analysis, thus providing only a margin of safety. CAH has a risk rating of 1.50 which classifies it as a low risk stock.
CAH's customer relationships and established distribution infrastructure provide notable scale advantages. Its diversified line of products and services provide good growth prospects for its contract drugmaking and its drug dispensing systems. The company is making steady progress in its performance initiatives by reducing the number of its generic drug suppliers, expanding its retail business and focusing on cost control. The stock is trading near my fair value price of $32.22. However, I am hesitate to buy with its yield at 2.19%. For additional information, including the stock's dividend history, please refer to its data page.
Disclaimer: Material presented here is for informational purposes only. The above quantitative stock analysis, including the Star rating, is mechanically calculated and is based on historical information. The analysis assumes the stock will perform in the future as it has in the past. This is generally never true. Before buying or selling any stock you should do your own research and reach your own conclusion. See my Disclaimer for more information.
Full Disclosure: At the time of this writing, I held no position in CAH (0.0% of my Income Portfolio). See a list of all my income holdings here.
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For your weekend reading pleasure, the articles listed below contain some of the best dividend and value investing insights found on the web. They were written by various members of the Dividend Investing and Value Network over the past week:
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There are some really good articles here, please take time and read a few of them.
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Before any investment in a company I try to do business as a consumer with that company. Balance sheets can only tell you so much about the "true" story of a business. When the option came up to buy a new laptop for my wife I thought, Dell stock has been interesting to me for some time, let's give them a go.
Let me tell you, it wasn't pretty. After going through far too many pages and a number of strange web errors on the dell site my order was lodged. Content to write off these bizarre website errors I went over to the track order page. To my surprise I discovered my estimated delivery date for an off the shelf, uncustomized, mass manufactured, laptop was over a month away. I couldn't believe it, I could walk 5 mins from my office to a local computer store and pay the same price for a laptop and walk out that day.
I set about to cancel my order right away. Sent an email, no response. Phoned, and finally after sitting on hold for more time than I would like to admit I was put through to a call center where I was able to cancel my order. I did a bit of reading around the web to see if I was the only one who had encountered this, nope.
I am left wondering, what is dell's sustainable competitive advantage?
- Easy order- nope.
- Great service- nope.
- Great selection- nope.
- Fast Delivery - nope.
- Great prices - nope.
Sorry Dell, not going to buy a laptop from you again, and not going to be buying your stock either.
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Diageo plc (DEO) engages in producing, distilling, brewing, bottling, packaging, distributing, developing, and marketing spirits, beer, and wine. The company offers a range of premium brands comprising Smirnoff vodka, Johnnie Walker scotch whiskies, Captain Morgan rum, Baileys Original Irish Cream liqueur, J&B scotch whisky, Tanqueray gin, and Guinness stout. Diageo is an international dividend achiever, which has raised distributions for over a decade.
The company has delivered annualized total returns of 12.4% on average.
Earnings per share have increased by 10% on average since 2000. EPS growth has been aided by a decade of share buybacks, which shrank the number of outstanding stock by a quarter. Emerging markets account for one third of company’s revenues. This is where many brand name consumer companies are currently experiencing growth. In 2009 Diageo earned $4.14/share. Analysts expect the company to earn $4.62 and $5.04 per share in 2010 and 2011 respectively.
The annual dividend payment has been increased by 6.80% on average, which is lower than the growth in EPS.
Return on equity has increased from 22.30% at the beginning of the study period to a very impressive 42% in 2009.
The dividend payout ratio has been volatile, and largely remaining above 50% during our study period. Currently this indicator sits at 55%.
Diageo currently trades at a P/E of 16, yields 4.20% but has a dividend payout ratio of 55%, which is a little bit higher for my taste. Other than that I like the company, the strong brand names it owns and its ability to raise dividends through thick and thin. I never really pulled the trigger on Diageo (DEO) since I
analyzed it in 2008. I would try to initiate a position in the company on dips as soon as I have funds available.
Full Disclosure: None
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American Metal & Technology (AMGY) is rather undervalued on an asset basis: the company trades for under $5 million, but has cash of $7 million and receivables and inventory of $3 million against total liabilities of just $2 million. Whether shareholders can realize value out of this situation is very much in the air, however, as a result of some questionable management decisions.
As sales dropped amidst the recession, the company began an aggressive capacity expansion program. During 2008 and 2009, the company added tens of thousands of square feet of manufacturing capacity along with several million dollars worth of equipment. However, whereas the company used to run three shifts a day, it is now down to one shift a day, as quarterly sales have dropped 80% year-over-year. The larger capacity means larger fixed overhead at a time when demand is suffering, which explains why the company's margins continue to fall despite layoffs.
If this were the only problem, and management was taking steps to remedy it, perhaps the company would still warrant consideration. Unfortunately, this seems like a company bent on continuing to expand when there appears to be a lack of demand for its products. Furthermore, a slew of questionable smaller transactions appear to be taking place as well.
An account labeled "other receivables" has increased $500K in the last two quarters, without much of an explanation. For most companies, this would be a drop in the bucket; for a company this size, however, this jump is significant and particularly worrisome considering the huge drop in sales.
Additionally, two of the company's customers account for the majority of its sales, which adds risk as discussed
here. Complicating this matter is the fact that the company's CEO and a director are shareholders in these two customers.
Multi-ownership situations such as these make it difficult to determine management incentives. Further exacerbating this question is the fact that management loans were recently forgiven, and a payment due to another company in which the CEO has a significant stake was increased as a result of depreciation in the US dollar!
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Linked here is a detailed quantitative analysis of Becton, Dickinson and Co. (BDX). Below are some highlights from the above linked analysis:
Company Description: Becton, Dickinson and Co. provides a wide range of medical devices and diagnostic products used in hospitals, doctors' offices, research labs, and other settings.
Fair Value: I consider four calculations of fair value, see page 2 of the linked PDF for a detailed description:- Avg. High Yield Price
- 20-Year DCF Price
- Avg. P/E Price
- Graham Number
BDX is trading at a discount to 1.), 2.) and 3.) above. The stock is trading at a 9.6% discount to its calculated fair value of $83.39. BDX earned a Star in this section since it is trading at a fair value.
Dividend Analytical Data: In this section there are three possible Stars and three key metrics, see page 2 of the linked PDF for a detailed description:- Free Cash Flow Payout
- Debt To Total Capital
- Key Metrics
- Dividend Growth Rate
- Years of Div. Growth
- Rolling 4-yr Div. > 15%
BDX earned three Stars in this section for 1.), 2.) and 3.) above. A Star was earned since the Free Cash Flow payout ratio was less than 60% and there were no negative Free Cash Flows over the last 10 years. The stock earned a Star as a result of its most recent Debt to Total Capital being less than 45%. BDX earned a Star for having an acceptable score in at least two of the four Key Metrics measured. Rolling 4-yr Div. > 15% means that dividends grew on average in excess of 15% for each consecutive 4 year period over the last 10 years (2000-2003, 2001-2004, 2002-2005, etc.) I consider this a key metric since dividends will double every 5 years if they grow by 15%. The company has paid a cash dividend to shareholders every year since 1926 and has increased its dividend payments for 37 consecutive years.
Dividend Income vs. MMA: Why would you assume the equity risk and invest in a dividend stock if you could earn a better return in a much less risky money market account (MMA)? This section compares the earning ability of this stock with a high yield MMA. Two items are considered in this section, see page 2 of the linked PDF for a detailed description:- NPV MMA Diff.
- Years to > MMA
BDX earned a Star in this section for its NPV MMA Diff. of the $2,133. This amount is in excess of the $500 target I look for in a stock that has increased dividends as long as BDX has. If BDX grows its dividend at 15.0% per year, it will take 6 years to equal a MMA yielding an estimated 20-year average rate of 3.98%.
Other: BDX is a member of the S&P 500, a Dividend Aristocrat and a member of the Broad Dividend Achievers™ Index.
Conclusion: BDX earned one Star in the Fair Value section, earned three Stars in the Dividend Analytical Data section and earned one Star in the Dividend Income vs. MMA section for a total of five Stars. This quantitatively ranks BDX as a 5 Star-Strong Buy.
Using my D4L-PreScreen.xls model, I determined the share price would need to increase to $120.24 before BDX's NPV MMA Differential decreased to the $500 minimum that I look for in a stock with 37 years of consecutive dividend increases. At that price the stock would yield 1.23%.
Resetting the D4L-PreScreen.xls model and solving for the dividend growth rate needed to generate the target $500 NPV MMA Differential, the calculated rate is 10.8%. This dividend growth rate is less than the 15.0% used in this analysis, thus providing only a margin of safety. BDX has a risk rating of 1.00 which classifies it as a low risk stock.
In spite of the competitive landscape in the medical equipment market and reduced customer spending, BDX has seen product demand and favorable pricing in excess of industry averages. The company's needle and surgical business has provided investors with robust returns for years. As a result of BDX's innovation and judicial deployment of capital, its business continued to prosper during the economic downturn. The stock is favorably priced below my buy price of $83.39. However, I hesitate to buy with its yield below 2.0%. For additional information, including the stock's dividend history, please refer to its data page.
Disclaimer: Material presented here is for informational purposes only. The above quantitative stock analysis, including the Star rating, is mechanically calculated and is based on historical information. The analysis assumes the stock will perform in the future as it has in the past. This is generally never true. Before buying or selling any stock you should do your own research and reach your own conclusion. See my Disclaimer for more information.
Full Disclosure: At the time of this writing, I held no position in BDX (0.0% of my Income Portfolio). See a list of all my income holdings here.
Recent Stock Analyses:
This article was written by Dividends4Life. If you enjoyed this article, please vote for it by clicking the Buzz Up! button below. [RSS] [Email] [Twitter]
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For your weekend reading pleasure, the articles listed below contain some of the best dividend and value investing insights found on the web. They were written by various members of the Dividend Investing and Value Network over the past week:
Articles From DIV-Net Members
There are some really good articles here, please take time and read a few of them.
If you enjoyed this article, please vote for it by clicking the Buzz Up! button below.
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A recent mass layoff at my company has given me a fresh perspective on layoffs. Normally, as an investor, we see layoffs as a courageous way to drive profits forward by shaking off some areas of weakness. I have personally invested in companies shortly after a mass layoff if I believe that such changes will benefit the profitability of the business. From a purely financial perspective viewing a company as a machine is an easy thing to catch one’s self doing. However there are some soft costs involved in layoffs to a company culture that I wasn’t really aware of until the week after I witnessed fellow employees walking out the door for the last time:
- The Straw that breaks the Camels back. Employees remaining after a layoff will fear that this is the first of many layoffs- this is only to be expected. This fear will most assuredly drive them to explore other opportunities and possibly accept them. Everyone would rather leave on their terms rather than finding a box on their desk in the morning. The intent of a layoff is to keep your best; unfortunately it can have the opposite effect of driving your best into the arms of a competitor.
- Showing a company’s financial health. If you work at a private company getting a gauge on the overall health of a business is a difficult task. There is no clearer message about health than to see a layoff in action. If employees are already feeling under appreciated or under paid the message “no pay raises in the foreseeable future” will come through loud and clear during a layoff, again driving your best talent to explore other options outside the company.
- The belt tightening turns into a corset. No one really likes to work in a company doing belt tightening- belt tightening usually means there is a better way to do things and we are going to choose the cheaper way. Anyone with pride in their work will not thrive under this environment and innovation is often stunted.
- Dad kicks your sibling out of the house. Creating a family atmosphere is critical in getting people to go above and beyond. If you expect employees to take a panicked call from you at 2AM when your servers crash then family is key. When a company does a layoff it shows how that the family dynamic is vulnerable and the trust that both parties share for one another can be broken.
What makes a company successful in the long term is its service, innovation, management, and products. All of these do not happen without good people. From a short term perspective layoffs make the company more viable but from a long term perspective it can seriously damage the culture and effect the good people who you need to run the business in the future.
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