By
Dividends4Life
:
Linked here is a detailed quantitative analysis of
Brady Corp
(
BRC
). Below are some highlights from the above linked analysis:
Company Description:
Brady Corp. operates as an international manufacturer and marketer
of identification solutions and specialty products which identify
and protect premises, products and people.
Fair Value:
In calculating fair value, I consider the NPV MMA Differential Fair
Value along with these four calculations of fair value, see page 2
of the linked PDF for a detailed description:
-
Avg. High Yield Price
-
20-Year DCF Price
-
Avg. P/E Price
-
Graham Number
BRC is trading at a discount to only 2.) above. The stock is
trading at a 77.4% premium to its calculated fair value of $14.72.
BRC did not earn any Stars in this section.
Dividend Analytical Data:
In this section there are three possible Stars and three key
metrics, see page 2 of the linked PDF for a detailed
description:
-
Free Cash Flow Payout
-
Debt To Total Capital
-
Key Metrics
-
Dividend Growth Rate
-
Years of Div. Growth
-
Rolling 4-yr Div. > 15%
BRC earned three Stars in this section for 1.), 2.) and 3.)
above. A Star was earned since the Free Cash Flow payout ratio was
less than 60% and there were no negative Free Cash Flows over the
last 10 years. The stock earned a Star as a result of its most
recent Debt to Total Capital being less than 45%. BRC earned a Star
for having an acceptable score in at least two of the four Key
Metrics measured. The company has paid a cash dividend to
shareholders every year since 1984 and has increased its dividend
payments for 27 consecutive years.
Dividend Income vs. MMA:
Why would you assume the equity risk and invest in a dividend stock
if you could earn a better return in a much less risky money market
account ((MMA)) or Treasury bond? This section compares the earning
ability of this stock with a high yield MMA. Two items are
considered in this section, see page 2 of the linked PDF for a
detailed description:
-
NPV MMA Diff.
-
Years to > MMA
The NPV MMA Diff. of the $281 is below the $800 target I look for
in a stock that has increased dividends as long as BRC has. The
stock's current yield of 2.84% exceeds the 2.6% estimated 20-year
average MMA rate.
Memberships and Peers:
BRC is, a member of the Broad Dividend Achievers Index and a
Dividend Champion. The company's peer group includes:
Alcatel-Lucent, S.A.
(
ALU
) with a 0.0% yield,
Belden Inc.
(
BDC
) with a 0.6% yield and
General Cable Corp.
(
BGC
) with a 0.0% yield.
Conclusion:
BRC did not earn any Stars in the Fair Value section, earned three
Stars in the Dividend Analytical Data section and did not earn any
Stars in the Dividend Income vs. MMA section for a total of three
Stars. This quantitatively ranks BRC as a
3-Star Hold
stock.
Using my
D4L-PreScreen.xls
model, I determined the share price would need to decrease to
$18.34 before BRC's NPV MMA Differential increased to the $800
minimum that I look for in a stock with 27 years of consecutive
dividend increases. At that price the stock would yield 4.0%.
Resetting the D4L-PreScreen.xls model and solving for the dividend
growth rate needed to generate the target $800 NPV MMA
Differential, the calculated rate is 6.3%. This dividend growth
rate is higher than the 2.8% used in this analysis, thus providing
no margin of safety. BRC has a risk rating of 1.50 which classifies
it as a Low risk stock.
BRC is appealing in several aspects. It offers a low free cash flow
payout with minimal debt. In addition, its yield is above my
minimum and the company has a long track record of increasing
dividends. However, the dividend increases have been relatively
small and it is currently trading well in excess of my calculated
fair value of $14.72, so for now I will continue to wait and watch.
Full Disclosure:
At the time of this writing, I held no position in BRC (0.0% of my
Dividend Growth Portfolio). See a list of all
my dividend growth holdings
here.
Disclaimer:
Material presented here is for informational purposes only. The
above quantitative stock analysis, including the Star rating, is
mechanically calculated and is based on historical information. The
analysis assumes the stock will perform in the future as it has in
the past. This is generally never true. Before buying or selling
any stock
you
should do your own research and reach your own conclusion.
See also
5 Dividend Stocks Lingering Around 52-Week Lows
on seekingalpha.com