Dividend Stock Analysis – Newell Brands, Inc. (NWL)

There is nothing like having a discussion about stocks and having one that the two of us hang up our phone, fire up our laptops, and begin intensely researching.   Today, we both discussed a consumer staple stock with a brand portfolio that is matched by few.  In our quest for finding undervalued dividend growth stocks, we wanted to take a deeper look at Newell Brands, Inc. (NWL) today and run the company through the Dividend Diplomats’ stock screener.

Why is Newell Brands (NWL) on our radar?

If you have followed along here, it shouldn’t be a surprise that a diversified consumer staples brand has found its way to our radar.  Newell has some of the top brands in nearly corner of your house.  This includes cookware (Calphalon and Mr. Coffee), storage (Rubbermaid), Writing/Crafts (Sharpie, Elmer’s glue, Mr. Sketch), outdoor (Contigo), Baby products (Graco), Candles (Yankee Candle), and Sports (Rawlings).  See what we are talking about? How many of you can find those brands throughout your house?

In addition to the fact that we love the strong brand portfolio discussed above, the company’s stock price has had a rough couple of months. The company is down 23% and 95% quarter and year to date, respectively.  Obviously when a stock price realizes such a large decrease in a short period of time, it is going to jump on our radar.  Further, one comment from Captutando Dividendos on Lanny’s Hormel (HRL) purchase, stated that we should check out.  We though, why the heck not?  We scoured the investor relations page to see what is going on with the company.

In a recent press release, management lowered their earnings guidance for the year due to the impact of Hurricane Harvey.   The hurricane has negatively impacted many of the company’s resin suppliers, increasing the cost of a key material in the company’s manufacturing process.  In the release, management lowered the company’s normalized earnings guidance to $2.95 to $3.05 from $3.00 to $3.20.   In addition, management highlighted that they are going to continue to increase investment in products, despite increased costs.  The earnings release started the downward trend and despite a short positive swing at the end of September, the company’s stock price has not been able to recover.

Dividend Diplomats stock screener – Newell (nWL)

Time to run NWL through the Dividend Diplomats’ Stock Screener .  For the purposes of our stock screener, we will use the low-end of management’s revised earnings range of $2.95 to $3.05 to calculate the metrics below.   Using $2.95 will provide a conservative estimate for each of the metrics compared to the high-end of the range and the average analyst estimates that exceed this mark.

Metric #1 – P/E Ratio Less than S&P 500 –  ~13.6X  – PASS –  With an average market multiple in the mid 20s based on the source used for the S&P 500’s P/E ratio, NWL is currently trading at a very nice discount compared to the market.  This is less than what our top end range typically is and shows nice signs of undervaluation here.  Further, analysts are predicting $3.29 for 2018, which is higher than the earnings estimates used in our calculation and would result in an even multiple.

Metric #2 – Payout Ratio Less than 60% – 31% Payout Ratio – PASS – NWL is not the highest yielding dividend stock, so this isn’t a shock to us since most companies with a low yield maintain a low payout ratio.  In fact, we would be very concerned in NWL was close to our threshold or was well in excess of the amount!  There is plenty of room for management to continue growing their dividend (if they choose to do so).  Also, see why we think this is the most important metric during difficult economic times.  HRL’s dividend yield of 2.28%, is higher than the average S&P 500 yield of 1.89% as well.  Very similar to Hormel (HRL), at this point.

Metric #3 – History of Increasing Dividends – FAIL – In May the company announced a 21% dividend increase to $0.23 per share per quarter from $0.19.  Now that’s what we are talking about.   Despite the awesome dividend increase, the company does not have a consistent track record of annually increasing their dividend.  NWL has paid a dividend annually since 1972 (per the company’s investor relations page); however, they haven’t maintained a long dividend increase streak since before 2001. From 2001 to their eventual dividend cut in 2009, management maintained a $0.21/share quarterly dividend.  After the dividend cut in 2009, the company maintained a solid annual increase streak until 2016 (when management did not increase their dividend). Therefore, the increase announced in May begins a new streak, starting at 1!  This obviously differs from Hormel (HRL), Lanny’s recent purchase, where they had > 51 years of consecutive dividend growth.  This is the one downside to Newell (NWL).

Metric #4 – 5-year Average Dividend Growth Rate – 20.44%  – Despite not increasing their dividend in 2016, the company still has an average five year dividend growth rate of 20.44%!  This is incredible given the fact that management did not increase their dividend for one of the five years in this calculation.  Looks like management was aggressively trying to rebuild their dividend after the 2009 dividend cut.  Very solid, with a low payout ratio, management can keep a steady dividend increase going forward in 2018.

Metric #5 – 5-year Average Dividend Yield  – Their 5 year average dividend yield stands at 1.80%!  Therefore, Newell currently trades with a yield that is 48 basis points higher than their average historical yield.  This is yet another sign of an undervalued dividend paying stock, no doubt.

Bonus Metric – Share Repurchase Program –  We will choose a dividend any day over a share repurchase.  However, as we have discussed in the past, share buyback (repurchase) programs can provide a huge benefit to dividend investors by reducing the company’s share count, increasing EPS, and ultimately reducing the company’s payout ratio.   Why did we bring this up?  Well, because at the tail end of September, NWL announced the company is going to resume their share repurchase program.  At NWL’s current price, management is authorized to purchase approximately 6.3m shares.  As of July 31, management had 490.1m shares outstanding per the 10-Q, so the share repurchase program could have a nice impact on their share count if management elects to maximize their repurchases (a little over 1% of shares outstanding). 

Newell (NWL) stock analysis conclusion

So what do you think?  Do you love the brands of Mr. Coffee, Crock Pot, Yankee Candle, Rawlings, etc. as much as we do?  Did you know that one company owned this endless list of consumer staple brands?  Consumer staple always equals safety, and with those dividend metrics above (outside of the dividend history), it will be hard to not pick up some.

What do you think of the company?  Do you have any Newell products in your cupboard, on your counter or even in your closet?  You open up Lanny’s cupboard and he has a Crock Pot, Mr. Coffee, a few Yankee Candles, and his girlfriend has a Contigo.  While Bert possesses the same brands and was cooking dinner the other night on his Calphalon set that him and his wife received as a wedding gift.  It’s insane.

Do you like these metrics above?  Are you nervous about the industries they have products in at all?  What is the one positive and one negative you see in them we are not seeing or haven’t pointed out yet?  Thanks for stopping by and looking at this dividend stock, as the goal is to always make every single dollar count when it is deployed!  Talk soon, good luck and happy investing!

-Lanny and Bert, The Dividend Diplomats

DISCLOSURE: WE DO NOT RECOMMEND ANY DECISION TO THE READER or ANY USER, PLEASE CONSULT YOUR OWN RESEARCH. THIS IS ACTUAL DATA, ANALYSIS, HOWEVER I BASE NO INVESTOR RECOMMENDATION.  THANK YOU FOR YOUR UNDERSTANDING.

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18 thoughts on “Dividend Stock Analysis – Newell Brands, Inc. (NWL)

  1. Lanny and Bert,

    I’ve never heard of Newell Brands, Inc., but i do have and do purchase their products and they are in the homes of everyone I know, so they seem to be a strong company. Thanks for introducing them. It’ll be interesting to see how they do for you.

    Brian

    • Brian

      Glad we could bring a new company to your attention. Isn’t it crazy that they have so many strong brands under their portfolio? It blew my mind as I sorted through the page. Let us know if you decide to make move and buy some shares.

      Bert

  2. Customer discretionary is in a tough spot right now in my opinion. I’ve had Newell and Tupperware on my list for a while but both are going to have the same issues going forward.

    Newell as an example has like 11% of their revenue going through a place like Walmart which is going to put pressure on these brand names if they want to cut costs. You’re going to see the same thing with Target, Amazon, etc as pricing wars expand.

    Newell also recently bought Jarden and took on a whole lot of debt to do that and who knows how that’ll pan out. I’m going to listen to the earnings call in a few weeks and see how that’s looking as integration of that business and cost savings will be a good part of how well the stock will perform in the next few years.

    I think both are decent companies with a good brand name but there’s a lot of question marks out there right now on both.

    • Thanks for the great comment TITM. I agree that the customer discretionary stocks will face some pricing pressure down the road. Heck, looked what just happened to Whirlpool after a major supplier stopped selling their appliances. I get it.
      But honestly, that’s where having a diverse portfolio of strong, reliable brands that consumers are always looking to buy and have strong brand loyalty benefits NWL in my opinion. If they only had Rubbermaid or Contigo, I would be much more concerned about their future outlook. Anyway, that’s just my opinion on the topic.

      I performed a quick screen comparing debt to equity with some other consumer stocks. Their debt to equity per this source was close to 1 and that wasn’t the highest or the lowest in the consumer discretionary industry. I would be much more concerned with a higher debt level, but the amount is manageable to me and there have been a lot worse debt loads. I would be interested to see what they have to say about everything, the future outlook, etc. on this earnings call. Feel free to share in the comment section what you find out.

      Bert

  3. Newell is new to me. However, consumer staples have historically done well. Amazon or Walmart, sale is a sale (It does not matter how). Based on the metrics it looks like a good buy. Dividend payout based on free cash flow is slightly higher (around 58%).

    • Happy to introduce you to a new stock Geek! That is exactly why I love consumer staples and Newell’s brand portfolio stacks up against the best of them. Even with the FCF payout ratio, there is still plenty of room to grow their payout. Great metric.

      Bert

  4. Excellent review guys. I have been aware of NWL, but never considered them for my portfolio for no particular reason. Looking at them and your analysis now, the one thing that bothers me is the 2009 dividend cut. If you look at compound annual dividend growth over the last 10 years it is less than 1%. If management was willing to cut the dividend in the past when times got tough, they may be willing to do it again in the future. I’m hyper sensitive to this right now. It’s probably not a comparable situation, but I own GE who cut their dividend in 2009, and now I’m staring down the potential for another dividend cut by GE. My mistake there, live and learn I guess. I think your point to TimeintheMarket is right on…NWL may be an acceptable holding as part of a diversified portfolio. Thanks again for the stock analysis. Much appreciated. Tom

    • Tom,

      Thank you very much for the comment. Understand the hesitation about the company after a dividend cut. Heck, we love seeing Dividend Aristocrats for that reason. Times were tough and the company still maintained their dividend. If your preference is to only hold stocks that have histories longer than 10 years or so, then I don’t think I can convince you otherwise haha The company has some other great metrics and the strong brands ,which is why we wanted to perform an analysis. After today’s pullback, I may be looking for a discounted company that has a longer dividend streak as well.

      Take care,

      Bert

  5. Good review. I like the breadth of their brands but dislike their lack of an economic moat. Yes their dividend record has been spotty but so has TUP’s. So my analogy would be that every team needs a Freddie Patek. Won’t be a home run hitter but a rather lackluster .242 but did make a few all-star games as a pretty good shortstop. The question is: Is NWL your Freddie Patek candidate?

    • Charlie,

      Thanks for the comment. I love that analogy and it made me laugh. Just the other day, my friend and I were talking about all of the Freddie Patek equivalents that the Cleveland Indians employed in the 2000s. Trust me, there are way more Freddies than there are Babes. I hate to say this, but won’t time have to be the judge about whether or not these brands can build the sustained moat of the Procter and Gamble’s and Unilever’s of the world? Wha’ts interesting is that I look at the name of their brands and they have a diversified portfolio of some of the best/longest brands in their industry. The diversification is key to me. Names such as Rubbermaid, Rawlings, Bicycle, FirstAlert, Yankee Candle, Calphalon and so on aren’t just players in their respective markets, they are the leaders. Anyway, I don’t know if that answers your final question, but I think it is a great company!

      Bert

  6. Okay, one positive and one negative?

    The Price/Book ratio is also far below the 5 year average (1.6 current vs 4.6 historical), so there’s that.

    But…

    As already mentioned by dividendgeek, the payout ratio as a percentage of free cash flow is 58%. Dividends come out of the cash flow statement not the income statement, so I strongly feel that this is a more appropriate way to look at dividend safety. And in NWL’s case, I disagree that “there is still plenty of room to grow the payout.”

    Compounding the free cash flow tightness is a balance sheet that is totally bloated with debt. Their TTM cash from operations ($1.25B) barely covers their short-term debt obligations ($1.22B), and their long term debt of $10.2B is an awful lot for a company of this size.

    So there isn’t really 42% of their FCF “available” to pay growing dividends. Remember: bondholders always get paid before shareholders.

    If it were just a 58% FCF payout ratio but with a healthy balance sheet I would agree that the dividend growth prospects are probably fairly bright. But the debt tips it to a point where I actually don’t trust the current dividend, much less expect to see a continuation of the recent growth.

    Thanks for bringing up this stock and sharing your analysis. So often we get fixated on the same set of names, it’s good to branch out and look at something new every now and then.

    • Catfish,

      Thanks for the very detailed comment. I reviewed the debt, but that is a nice analysis on their current debt situation. Fair point and I understand the emphasis on cash flow for some. But I am a fan of the GAAP earnings metric. I”ll absolutely consider FCF, but also believe that there is not possible way dividend payments can exceed earnings in the long run regardless of how well their FFO are. This sounds like a longer discussion to have than in a comment section haha

      Bert

  7. I looked at this a few months ago, and ended up buying Unilever instead. I did not like NWL’s dividend history, and I preferred a company with a more stable business over NWL’s strategy of doing major M&A deals. NWL has come down a lot since then so it’s looking like a better buy now.

  8. Love NWL! I am also excited at how low the share price dropped recently due Hurricane Harvey’s impacts on their resin suppliers. I believe the market overreacted and that the stock is quite undervalued. I already own 25 shares and I am looking to add onto that! Payday is Tuesday so that might just happen!

    -CD

    • CD,

      Glad you are on the NWL train! In the short term, I understand the concern by some traders/shareholders. However, if you are a buy and hold investor, the impact of the price of resin post hurricanes may not have that large of an impact on your decision making. Let us know if you decide to buy!

      Bert

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