Bert’s Recent Stock Purchase – Tyson Foods (TSN)

July was a long month for my portfolio.  With Capital One selling their investment portfolio to Etrade , I was looking for a new trading form.  After many, many talks with Lanny, I finally settled on Ally Investing.  My transfer was initiated at the beginning of July, but my assets were not fully transitioned until the end of the month.   This waiting period was unique and shook up the flow of the first six-months of the year that saw me making a lot of stock purchases.  For the first 30 days of July, I did not make any stock purchases.  However, on the final day of the month, I was able to sneak one purchase in.  Here is why I purchased shares of Tyson Foods (TSN) on July 31!

Why Tyson Foods (TSN)?

It is funny.  So many of my stock purchases start with a simple conversation with Lanny.  Often times, we are joking around, eating Papa Johns pizza, discussing undervalued dividend stocks.  He was running his watch list by me and I was running a stock screener to identify my own listing of stocks.   Lanny likes to talk a lot, so while he was explaining his August dividend stock list to me, I was able to perform my own filter and see that Tyson Foods was looking pretty darn appealing.

This was on July 28th.  Part of what attracted me to TSN was that the company performed well in our stock screener, the stock was down year-to-date, and I liked the company’s portfolio of brands.  Their brand portfolio includes consumer staples/legends such as Tyson, Ball Park, Hillshire Farms, Jimmy Dean, Hillshire Farms, Nature Raised Farms, Sara Lee, and Top/True Chews.  Sure, the company predominately has meat product brands.  However, their brands are diversified within the meat industry (chicken, beef, pork, etc.) and their brands are market leaders in their respective markets.

It was funny that Lanny and I discussed TSN on July 28th. At the time, I was interested in initiating a stake in the company; however, I was looking for the price to fall further and cause the dividend yield to at least exceed 2%.  Well, that Monday, TSN filed a press release that caused the price to tumble.  On Monday, the company’s stock fell over 7% and the price fell another 1.5%-2% the following day.  What caused the price to fall?

That Monday, the company filed a pretty substantial 8-k.  The 8-k indicated that the company was going to be negatively impacted by the announced tariffs and the increasing price of their meat products.  Plus, their tax benefit received from Tax Reform was not as large as expected.  Based on the negative news announced, the company lowered their EPS guidance for the year from a range of $6.55-$6.70 to $5.70-$6.00.   The reduction of earnings is never great news; however, before I wrote off TSN as an investment, I wanted to run the company through our stock screener to see if the lowered guidance would have impacted my potential investment decision.   If the company suddenly didn’t pass our Dividend Stock Screener, I would pass on further consideration of the company.

Dividend Diplomats Stock screener – TSN

Since the company reduced their EPS guidance in the earnings release and average analyst estimates were not updated yet, I am going to use an EPS figure of $5.70/share for the purposes of our stock screener.  This represents the low-end of the range.  I will also use the 7/30/18 closing price of $58.72 for this analysis.  Here is how TSN performed when being run through our Dividend Stock Screener

  1. Price to Earnings Ratio –  We typically look for company’s that have a P/E ratio below the broader market.  TSN’s Payout Ratio was 10.30X,  This is well below the broader market’s P/E ratio, which is typically in the low 20X multiple.  TSN passes this metric
  2. Payout Ratio –  Even with the reduction of earnings, TSN has a low payout ratio.  Their current annual dividend is $1.20/share.  Thus, we calculate a 21% dividend payout ratio.  This is well below our 60% payout ratio.   TSN once again passes this metric.
  3. Dividend Growth History and Dividend Growth Rate –   TSN has a long way to go before they will be classified as a dividend aristocrat.  The company has paid a dividend from 1976, so they have been paying a dividend for a long time.  Their dividend increase streak is much shorter (4 years).  Typically I like to see a longer streak; however, since the company has paid a dividend for a long time, I am willing to still consider investing in the company.   The other aspect of this metric is the company’s DGR.  The company has a five-year average dividend growth rate of 32%.   That growth rate will be pretty hard t maintain and I expect it to decrease over the years.  Luckily, I was reading TSN’s investor presentation from 2017 and noticed that they stated management would like to increase their dividend by at least 10% annually. Oh yeah, did I also mentioned that TSN is expected to announce this dividend increase at the beginning of August! I’ll give TSN a pass for this metric as well!
  4. Five-Year Average Dividend Yield –  Lastly, we like to look at the current dividend yield compared to their 5-year average dividend yield, as this could potentially indicate if the company is overvalued.  TSN’s current yield of 2.04% exceed their 5-year average of 1.1%.  Hmmmm very interesting.

I mentioned earlier that I would place a lot of weight on this dividend stock screener given the company’s earnings release.  Reading about tough times and a reduction of earnings guidance is never a good thing. However, as you can see in our stock analysis, the lowered guidance did not change the results of our stock screener at all!  I felt the same way about TSN before and after the ER and based on the results, I determined I wanted to initiate a position in the company for the long-haul.   I’m willing to ride out the short-term craziness discussed in the 8-k!

The Purchase Summary – TSN

After the stock screener, I made up my mind at it was time to purchase.  Thus, I added 35 shares  of TSN at $57.98/share.  Ally offered 90 days of free trades with the transfer.  So I did not incur a trade fee with this transaction.  So my cost basis is $2,029.45.  In total, I added $42.00 to my forward dividend income.  Not the largest income total, but I’m excited to add a low-yield, high dividend growth rate stock to my portfolio. Plus,  hopefully this will be increasing significantly with their coming dividend increase.

What are your thoughts about my purchase?  Are you buying TSN?  Or would you have held off based on their earnings release and the short-term headwinds?  What do you think their upcoming dividend increase will be?

-Bert

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12 thoughts on “Bert’s Recent Stock Purchase – Tyson Foods (TSN)

  1. Interesting get! I have had tsn and hml on my radar for a while, but I still have no exposure to the food markets. Recently, I just picked up 24 shares of ETN. I really like their business from an ethical and environmental stand point, the metrics were good for me, and it was all right before the ex dividend date as well! This adds 63.36 in future annual dividends which got me over the 750 annual expected!

    Great job on the pick up, it’s a low yield but should be safe for quite a while!

    • Thanks Alex, I appreciate it. Nice add and I love the move to grab it right before the ex-dividend date. That’s awesome you added such a nice chunk of change here and pushed yourself over the $750 mark! ETN’s metrics look great and I’ve never strongly considered adding them. You know it is funny, I drive by their headquarters here in Cleveland but I haven’t invested in my hometown company!

      Bert

  2. Bert,

    Nice find and looks like you picked some up at a great value! After reading your summary above, I am going to have to take a closer look and may just follow your lead – I’m definitely intrigued given the info. you’ve presented.

    PIV

    • Tom,

      Nice memory. You’re right, Lanny is the one that owns them and not me! I did take a look at HRL as well. However, despite the fact they have similar dividend yields, TSN has a lower valuation and payout ratio. HRL is a great company and I will initiate a position if the price falls. However, TSN was the move based on my analysis.

      Bert

  3. I don’t know a lot about this company, but hey if they fit your screener how bad can it be? It’s always lovely to see another amount of money added to your forward income, one of the most rewarding feelings for me personally. Wish you all the best and I’m looking forward to seeing your new buys!

    DI

    • DI,

      It is a very rewarding feeling, isn’t it? Nothing is better than seeing your income continue to grow and the feeling of being able to add another great dividend stock to your portfolio page 🙂

      Bert

  4. It’s always tough to invest when the stock is trending down, but it could certainly lead to some nice rewards over time. I like the purchase, Bert. I already own HRL, so I haven’t been looking at TSN. I bought HRL when it was beaten down last year, and it’s made a nice recovery. I suspect the same might happen with TSN for you.
    Keep building that dividend income!

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