Hasbro (HAS):
14.3 P/E / 7.4% Projected Growth / 116% Debt to Equity
3.81% Yield / 17.6% Div Growth / 47% Payout Ratio / 9 Yrs Increases
Most of us are probably already familiar with Hasbro, they sell toys and games. I grew up with popular Hasbro products such as Transformers, Monopoly, and Mr. Potato Head. It's funny how some of these products like My Little Pony go back in style. I was reading about a subset of American males who are infatuated with My Little Pony and call themselves "bronies." There was an article in the Army Times about bronies in the military, it was a hoot. We joke about this all the time at work, who would have thought? All jokes aside Hasbro is a serious company in the business of entertaining people. It is currently under valued and very shareholder friendly. It has a great dividend growth rate with room for additional increases. I would expect that long term the dividend growth would slow down some to be more in line with EPS growth. It does carry quite a bit of debt, which is something to watch out for. A toy company is not my first choice for a core holding, but I could see starting a small to medium sized position with HAS.
Lorillard (LO):
14.6 P/E / 9.2% Projected Growth / -166% Debt to Equity (negative equity)
5.24% Yield / 27.8% Div Growth / 70% Payout Ratio / 5 Yrs Increases
Lorillard is a fine company in the tobacco industry that would compliment my Philip Morris holding. LO is best known for its Newport brand of menthol cigarettes. I have seen Newport making a push into the non mentholated market with its red label. Before I left for Korea I noticed Newport red label was running specials and many smokers were indeed lured in by the low prices. LO sells products mostly in the United States and doesn't seem to focus on international sales. It has a huge stock buyback program which has lead to negative equity and quite a bit of debt. This is pretty common in the tobacco industry. It is something to keep an eye on, but not too concerning. For dividend investors LO could be be a goldmine. It offers a high yield, high dividend growth, and future EPS growth to keep the machine rolling. It's currently trading in the fair value range.
Republic Services (RSG):
15.3 P/E / 6.6% Projected Growth / 93% Debt to Equity
3.37% Yield / 6.7% Div Growth / 48% Payout Ratio / 10 Yrs Increases
RSG is a trash collection service whose biggest competitor is Waste Management. To be honest I'm more familiar with WM since it was our trash collector when I was growing up. RSG is a bit smaller than WM and has a noticeably lower yield. However it also has lower debt, a better payout ratio, and is projected to grow at a slightly higher rate. Republic grows its business through an acquisition strategy; it buys smaller companies and integrates them under the RSG umbrella. In fact if you look at its balance sheet you'll notice it has a huge amount of goodwill from all the past acquisitions. RSG and WM are commonly put in the industrials sector of stocks. To me its more like a utility. I like WM for its yield and RSG because it's more financially sound. RSG is slightly undervalued at this point in time.
What do you guys think? Are you familiar with these companies?
CI,
ReplyDeleteNice list here. I've also had all three stocks on my list for some time now, but have not pulled the trigger for one reason or another.
The most attractive pick, in my opinion, would be LO. I've been looking at it lately. It's got a very nice yield, with some solid growth as they take away market share from MO. The entry into the e-cig business, while insignificant right now, could provide large growth in the future.
My concern mostly lies with the fact that the menthol still dominates their revenue stream, so any FDA action there could cause catastrophic damage to the stock price. Second, they have no international exposure as they operate only here in the U.S. So, one of the most attractive qualities of PM (international exposure) is non-existent with PM.
I look at MO and LO very similarly. MO has the crown jewel in Marlboro and they also, of course, have the SAB Miller holdings along with dominant businesses in chewing tobacco. LO is primarily a menthol cigarette company that is also trying to make inroads with electronic cigarettes. Different companies, but also very similar. High yield, low expected growth going forward as they operate in a mature, and declining, U.S. market. Still, not bag picks as they are very shareholder friendly.
I'm currently considering opening a position with LO; maybe around 15 shares. I also wouldn't mind expanding my MO holdings to 100 shares for the same reasons. Strong yield to propel the dividend totals now to provide a little rocket fuel to the size of reinvested dividends.
Best wishes!
Yeah LO is indeed looking attractive these days. Thanks for bringing the electronic cigarettes to my attention, I didn't realize they were into that. Newport is the dominant brand in menthols and they are gaining market share in regular cigarettes, al though there is a lot of work left to do. It's hard to ignore the dividend, I think this one needs to be in my portfolio. I believe PM and LO are the companies to own in tobacco. LO looks to be fairly valued, which is great because of the yield and expected growth.
DeleteI've never been interested in MO, but it's my loss. I've always looked at the payout ratio and concluded the great run can't last forever. Altria proves me wrong every year! They find ways to grow and increase shareholder payouts even when you think the machine is out of gas. I'll be happy with just LO and PM, but will always understand those who own and have done well with MO.
I'm going to put a limit order in for Lorillard and I still have one active for KMI. We'll see...
HAS: I looked at it earlier this year and even wrote a post about it on my blog. I was impressed by the recent dividend growth, but a bit concerned about the lackluster revenue and earnings growth. The substantial increase in debt over the past few years was also disconcerting. Of course, it turns out that if I had bought it when I wrote that post, I would now be sitting on a 17% capital gain and 4.5% YOC, so perhaps my assessment was too negative.
ReplyDeleteLO: I've also looked at this one closely. I like their entry into the e-cig business and the niche they occupy in menthol cigarettes. However, there is ongoing concern about whether the FDA will ban or restrict menthol-flavored cigarettes, which could become a serious business risk. I'm pretty satisfied with my current exposure to tobacco (PM), but I will keep LO on my radar.
RSG: From time to time I've looked at RSG and WM, but I haven't found either of them to be compelling buys.
Thanks for your thoughts.
DeleteI'm a fan of LO, but it's not going to be a large holding like PM. A few years ago I was looking at LO when it was $80/share and had something like a 7% yield. Then favorable news regarding menthol bans caused the shares to sky rocket. I'm looking to increase tobacco exposure and not willing to pay $90/share for PM. I see LO being a better value right now.
I'm still undecided about Hasbro and RSG. They will sit in my watchlist and I'll monitor the prices and news. I agree. No real compelling reason to buy either other than they are dividend growth stocks paying decent yields.
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