One Thing To Look At With Dividend Investing
Growth! Oops, did I spoil the surprise?
Who doesn’t love growth in dividend companies?
I love growth…
But there’s a huge question in the world of investing. What kind of growth.
Are you looking for Revenue Growth? EPS Growth? Dividend Growth? What about Growth related valuations like PEG Ratios?
This all can get confusing.
So, Let’s grab a basket of stocks and take a look at the different growth rates… and figure out what’s important.
Here are the Company’s we’re going to look at:
Herman Miller Inc. (MLHR)
Lions Gate Entertainment Corp. (LGF)
Lockheed Martin Corporation (LMT)
ONEOK Inc. (OKE)
Steelcase Inc. (SCS)
Visa Inc. (V)
The Wendy’s Company (WEN)
Now, I’m not going to get into the businesses of each of these companies… if you want that detail, jump online and visit their websites.
But let’s look at some of the numbers
Rev Growth (5Y)
EPS Growth (5Y)
Dividend Growth (5Y)
Rev Growth (5Y) 10%
EPS Growth (5Y) 30%
Dividend Yield 1.95%
Dividend Growth (5Y) 572%
Peg Ratio 0.90
Rev Growth (5Y) 10%
EPS Growth (5Y) 46%
Dividend Yield 1.73%
Dividend Growth (5Y) 80%**
Peg Ratio 2.32
** 2.5 year dividend payout record.
Rev Growth (5Y) 0.2%
EPS Growth (5Y) (-4.1%)
Dividend Yield 2.73%
Dividend Growth (5Y) 120%
Peg Ratio 2.20
Rev Growth (5Y) (-9.3%)
EPS Growth (5Y) (-5.1%)
Dividend Yield 6.14%
Dividend Growth (5Y) 170%
Peg Ratio 2.79
Rev Growth (5Y) 4.7%
EPS Growth (5Y) 54%
Dividend Yield 3.22%
Dividend Growth (5Y) 100%
Peg Ratio 0.61
Rev Growth (5Y) 11%
EPS Growth (5Y) 30%
Dividend Yield 0.72%
Dividend Growth (5Y) 273%
Peg Ratio 1.81
Rev Growth (5Y) (-4.7%)
EPS Growth (5Y) 58%
Dividend Yield 2.36%
Dividend Growth (5Y) 200%
Peg Ratio 1.45
As most growth rates are pretty straight forward, I’m going to jump right into the one growth metric many people might not know – the PEG ratio.
The peg ratio is simply a way of looking at the value of a company and factoring in the company growth rate.
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For example… you might have two companies trading at a Price / Earnings ratio (P/E ratio) of 15x. But that doesn’t mean they are valued the same… if one company shows EPS growing at 10% and the other is growing at 40% the PEG ratio shows the difference.
15 P/E / 10% Growth = 15/10= 1.5 PEG
15 P/E / 40% Growth = 15/40= 0.37 PEG
Like in golf, the lower the number the better, the 40% grower is undervalued here despite having the same P/E Ratio.
So a couple observations…
When you look at growth rates in stocks, you want to look at data over time. That’s why I’m showing you 5 year rates on Revenue and EPS.
A record year can push a company one direction or the other… and make numbers look really good for a short time period.
And while I like to see revenue growing over time, it’s not a 100% absolute for a dividend stock – IF, and only IF you understand why the revenue numbers are down and how they might rebound.
Now growth in EPS is a little more sticky.
With Dividend stocks, when it comes to EPS, consistency is critical. You see, The EPS is a number that can be managed. What do I mean by that?
If management teams see revenue numbers sliding, they can take action and cut costs… thereby preserving EPS numbers. A well managed company will continue to work on maximizing profits and keeping costs in check.
You already know how to think about dividend yield…
So, when you start looking at this group of companies, one really jumps out at me.
A stock with great business growth… great dividend growth… and the potential for great stock price growth.
To find out which one I picked, download my free report “The Ultimate Guide to Dividend Investing.”
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