Altria Treats Its Dividend Investors Right – MO

The Altria Group (MO) is one of the largest tobacco companies in the world. The company has been around for 25 years and operated under its former name Phillip Morris USA. The company was founded by Phillip Morris, Kraft, and Nabisco back in 1985. Altria currently owns John Middleton Company, UST Inc, and a 28% interest in SABMiller PLC. The company has recently branched out into the smokeless tobacco market and wine industry.

Altria manufactures and markets several different brands of cigarettes. The company spends marketing and lobbying to create a favorable environment for its products. Altria has long been a favorite of CNBC Mad Money host Jim Cramer. He considers the stock best of breed and has owned the stock for its impressive dividend.

The tobacco industry is an extremely competitive marketplace. The biggest competitors to Altria are Lorillard and Reynolds American. Altria is the industry king as the company is much lower than its two biggest competitors combined. Tobacco companies are always the subject of civil lawsuits and in the crosshairs of federal regulators. Tobacco companies also face rising taxes from city and state governments to meet revenue shortfalls. These tax increases do affect sales volume.

The last few years have been rough for the Altria Group. The company has seen its revenue decline 26% over the past five years. Sales are on pace to grow 8% this year and 6% the next. Altria’s revenue will be just over $17 billion dollars for this year. Altria has a terrible balance sheet with under $1 billion dollars in cash and over $12 billion dollars in debt. Fortunately, the company has $3.6 billion dollars in cash flow to service its debts and return cash to shareholders.

Shares of Altria are not cheap on a fundamental basis. The company’s stock trades at 13 times earnings which is right in line with the industry average. The company’s 6.7% growth rate is nearly half the industry average of 11%. This means that Altria’s shares trade at nearly 2 times the company’s earning growth. Shares trade at 11 times book value. That’s a high valuation even for a company of Altria’s size.

The primary reason to invest in Altria is its big fat dividend. Altria’s stock is currently yielding over 6%. This is actually lower than the 5 year dividend yield of 12%. My concern would be Altria’s dividend rate. The dividend payout rate is alarmingly high at 83% of earnings. The company’s management team is committed to maintaining the dividend despite its high payout. Altria has increased its dividend 43 consecutive times.

Dividend investors looking for a stock with a great dividend yield can do much worse than Altria.

Clorox Dividend Investors Are Cleaning Up – CLX

Everyone has heard of Clorox (CLX) products. You can find the company’s products at Walmart, Target, or your local grocery store. The company has been manufacturing chemical and cleaning products since 1913. Clorox is famous for its best selling bleach that can whiten everything from clothes to floors.

Clorox also makes cleaning wipes, spray cleaners, stain removers, mopping pads, and cleaning tools. Clorox owns numerous brands including Brita’s, Burt’s Bees, Glad, Formula 409, Hidden Valley Ranch, Kingsford, and Liquid Plumr. The company recently divested itself of it STP and Armor All brands.

All of these brands help to add value to the common stock. The company is on pace to earn nearly $5.7 billion dollars which gives the company four straight years of revenue increases. The top line growth numbers are very impressive especially considering the difficult macro environment of the past few years. Net income has increased each year as well. Clorox now has a market cap of $9.5 billion dollars.

Clorox competes in the competitive consumer goods sector against Proctor & Gamble, Colgate Palmolive, and Kimberly Clark. Proctor & Gamble is the industry giant with a $175 billion dollar market cap and nearly $80 billion dollars in revenue. Proctor & Gamble has the best revenue growth, profit margin, and operating margin. Clorox has been able to compete in the sector because the company has successfully carved out a nice niche for itself due to name recognition.

Clorox’s common stock has a market price of $68.15. The stock trades at 14.6 times this year’s earnings and 13.5 times next year’s earnings. Earnings have grown at an 8% clip which is excellent for a company of Clorox’s size. Margins are respectable and revenue increased 1.1% last quarter. Shares are selling for 1.5 times projected earnings growth and 1.7 times sales. Book value is not a useful metric for measuring Clorox’s value since the firm’s book value is 60 cents per share.

Clorox has a high debt load on its balance sheet at $2.8 billion dollars. The company only has $87 million dollars in cash on hand. Clorox earns $819 million in free cash flow which helps service the massive debt load. The STP and Armor All sales should help the company raise needed cash. The deal will net Clorox $780 million dollars in cash.

Clorox currently sports a 3.2% yield. The current yield is slightly higher than the historical yield of 2.7%. Clorox has a long history of paying dividends to investors. The company has increased its dividend for 35 consecutive years. The current dividend payout is just 47% of earnings which means that the company will be able to keep dividend increases coming for years to come. Clorox should be able to continually grow earnings since the company’s products are necessities for everyday life.

The stock is selling at a bit of a premium currently. Investors should feel comfortable buying shares at $62.

WD-40 Bumps Up It’s Dividend Yield

Everyone is probably familiar with WD-40. The product comes in a variety of forms including Smart Straw, Big Blast Can, Trigger Pro, No Mess Pen, Handy Can, and Gallon size. WD-40 is very helpful for loosening rusted parts. The product is useful for everything from cleaning tools to silencing squeaky hinges. WD-40 has over 2,000 different uses.

The company behind WD-40 started out as Rocket Chemical Corporation. The company changed its name in 1969 to WD-40 Company (WDFC). That’s pretty easy to remember. The name comes from Water Displacement – 40th try. The company has been around for over 50 years and is still a small cap stock. The company has a market value of $630 million dollars.

WD-40 is more than just its namesake product. The WD-40 Company is responsible for Carpet Fresh, Blue Works, 3 In One, Lava, X14, 2000 Flushes, and Spot Shot. All of these brands have turned WD-40 into a company that generates over $300 million dollars a year. Sales are up 8% for the current year and are expected to grow in the double figures over the next few years. Revenue was up 20% last quarter and earnings were up 32%.

The balance sheet is great at WD-40. The company has just $21 million dollars in long term debt and $59 million dollars in cash. That’s nearly three times the amount of cash to debt. WD-40 has $51.2 million dollars in free cash flow. Shares currently trade just under $38 per share. The company is on pace to earn $2.13 for the current year. That means that shares are trading at 17.7 times earnings. That’s higher than the industry average of 12. The company’s earnings are growing at a faster rate than competitors.

WD-40’s chief competitors are Clorox, Church & Dwight, and Dupont. These companies are some of the largest heavyweights in the industry. Despite their size, WD-40 has higher margins and revenue growth than its larger competitors. WD-40 is an attractive company. There have been rumors that Clorox and other competitors should acquire WD-40.

Should you buy the stock now? The stock is a bit more expensive than its peers. WD-40 is trading at 1.4 times earnings growth and 3 times book value. Dividend Investors should feel comfortable buying shares around $30. The P/E ratio would be more in line with the growth rate.

Dividend stocks will like WD-40 for its nice dividend. The company’s dividend payout is 47% of earnings. This is clearly sustainable considering that WD-40 just increased its dividend this past week. The company’s dividend is increasing 8% to $1.08 per year. That bumps the stock up to a 2.85% yield.