Over the past decade, this dividend stock has delivered an annual total return of 11.40%.
At the same time earnings per share have increased only by 1.40% per year since 2000. For 2010 analysts expect an increase in EPS by 12.80% to $2.82. For FY 2011 analysts expect the company to earn $3.15/share, which would represent an increase of 11.70% in comparison with the results in FY 2010.
The growth in EPS was helped by stock buybacks, where the company repurchased about 1% of their outstanding stock each year over the past decade. The company’s near term prospects should be aided by sales growth, triggered by the expansion in the US economy. Margins should also be higher on cost cutting and higher volumes. Longer term the company could benefit from increased complexity of vehicles and the rising number of automobiles. The company seems to be very conservative in its finances and has a low level of debt coupled with strong cash flow from operations to fund future dividend increases.
Dividends per share increased by 4.20% on average since the year 2000. A 4% growth in dividends translates into dividend payments doubling every 18 years. Since 1987 the company has manage to double its quarterly dividend every eleven and a half years on average.
The dividend payout ratio has remained above 50% in six of the past ten years. A lower payout is always a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings.
The return on equity has remained above 16% with the exception of 2001. Rather than focus on absolute values for this indicator, I generally want to see at least a stable return on equity over time.
Currently the company trades at a P/E of 16, yields 3.80% and has a dividend payout ratio of 60%. Given the low growth in dividends and earnings over the past decade, I would have to require a higher current yield and a lower dividend payout ratio before initiating a position in the stock. I would initiate a small position in the stock provided that it trades below $41, and the payout ratio is lower than 60%.
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