Which High Do You Prefer?

Do you prefer a company with high profitability, high revenue, high income, high dividends, high market share, high cash flow, etc. Aren’t all these highs depicting a good picture about any given company’s state of business? We can find an answer to this in the concept of value investing i.e. wide moat and under pricing. These are the two key ingredients for value investing. Here, the concept of wide moat and under pricing is in the context of its business environment or competition. It is a relative term. Similarly, when we think about any given company’s financial metric, we need to look at it in relative terms. High profitability or high income, or high EPS growth rate as a standalone does not provide a true picture.

We can get a true picture by looking for consistency. Two simple statistical measures of average and standard deviation can help us measure consistency. A standard deviation that is narrow and lower than average is a good observation. The table below shows some examples of randomly selected financial metric for few companies. continue reading rest of the article….

WMI – Stock Analysis for Dividend Growth Portfolio

Waste Management, Inc. provides integrated waste management services in North America. The company is engaged in collection, transfer, recycling, disposal, and waste-to-energy services. WMI is neither a dividend aristocrat nor a dividend achiever. In fact, WMI has started showing some dividend growth trends in last five years. While I am presenting and showing data from last 10 years, I am only using last five years of data. My objective here is to understand if WMI has any potential to be a dividend champion.

Trend Analysis

This section I look at trends for past 10 years of corporation’s revenue and profitability.  The parameters should show consistently growth trends. The trend charts and data summary are shows in images below. continue reading rest of the article….

Potential Dividend Growth Opportunities

History shows that it is normal for corporations to change (increase, decrease, or suspend) the dividends paid to the common share holders. These changes take place irrespective of which stage of economic cycle we are in. In last one year, i.e. between March 2008 and February 2009, within S&P500 index, there were 205 corporations that increased their dividends, 63, have decreased their dividends, and 25 have suspended their dividends. I could be argued that all 205 may not have good quality sustainable dividends. However, this list is deep enough for mining potential gems. In general, a typically dividend growth investor will look for a corporation that has increase its dividend consistently for at least last 10 years. It is always good to wait for 10 years worth of dividend history. However, I would like to evaluate corporations that have started showing signs of dividend growth early on, and see how it stands in my analysis.

In this context, I have shortlisted nine corporations (from S&P500) that for the last five years have (1) consistently increased their dividends; and/or (2) demonstrated their inclination to consistently pay dividends. The attached table shows the dividends for last 5 years and corresponding growth in last five years. Note: Year 2003 growth is with respect to Year 2002. continue reading rest of the article….

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