Excessive Dividend 50: Newell Manufacturers Inc.

Up to date on January twentieth, 2023 by Quinn Mohammed

Newell Manufacturers presents a excessive dividend yield above 6% right this moment, which is almost 4 instances the yield of the S&P 500 Index. That is a beautiful yield for revenue traders, nonetheless Newell Manufacturers stopped growing its dividend in 2018, however has stored it regular since.

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On this article, we’ll analyze the patron manufacturers powerhouse Newell Manufacturers Inc. (NWL).

Enterprise Overview

Newell Manufacturers traces its roots again to 1903, when Edgar Newell bought a struggling curtain rod producer. Right now, Newell Manufacturers is an American international client items firm.

The enterprise actions of the group operate by 5 segments, particularly, Business Options, House Home equipment, House Options, Studying & Improvement, and Outside & Recreation.

The training and Improvement section generates many of the income for the corporate, which presents child gear and toddler care merchandise; writing devices, together with markers and highlighters, pens, and pencils; artwork merchandise; activity-based adhesive and chopping merchandise, and labeling options.

Supply: Investor Presentation

On October twenty eighth, 2022, Newell Manufacturers reported third quarter outcomes, which got here in forward of expectations. Internet gross sales for the quarter decreased by 19.2% year-over-year to $2.3 billion, partly on account of the sale of the Linked House & Safety enterprise on the finish of Q1 2022. Core gross sales declined by 10.8% in comparison with the prior 12 months interval. Just one (Business Options) out of the corporate’s seven enterprise models noticed rising core gross sales in comparison with Q3 2021.

The corporate reported adjusted earnings per share for the quarter equaled $0.53, which was one penny decrease than the prior 12 months quarter’s outcomes and beat expectations by $0.06.

Newell ended the quarter with its leverage ratio at 3.9X, up from 3.1X in the identical prior 12 months interval and three.0X on the finish of 2021.

Newell Manufacturers expects full 12 months internet gross sales of $9.35 to $9.43 billion and $1.56 to $1.61 in earnings-per-share.

Supply: Investor Presentation

We count on the corporate to make $1.60 per share for FY2022. This is able to signify a 12% year-over-year lower in comparison with FY2021.

Development Prospects

The corporate has divested lots of its decrease revenue margin manufacturers. This can assist the corporate administration crew to concentrate on the core and most essential manufacturers, in addition to cut back complexity, finally driving free money circulate. Following a collection of divestitures, Newell’s income seems to be stabilizing at about $9 billion to $10 billion yearly.

One other progress driver for the corporate can be to develop its eCommerce. This may be accomplished with a greater advertising marketing campaign. This can even assist the corporate to develop internationally, which in flip will increase income.

The corporate anticipated to make working margin positive aspects in 2022, nonetheless this didn’t materialize. Within the first three quarter of fiscal 2022, Newell’s adjusted working margin was flat at 11.5% year-over-year, however reported working margin was 7.9%, down from 10.0% within the prior 12 months. Newell anticipated to extend margins by gross productiveness, SKU complexity discount, pricing/combine, and class administration, in addition to growing automation.

Supply: Investor Presentation

We forecast no annual EPS progress over the intermediate time period, largely on account of deteriorating income and margins.

Newell Manufacturers itself expects low single digit progress in core gross sales over the long-term, in addition to working revenue margin enhancements, and a leverage ratio of two.5x.

Aggressive Benefits & Recession Efficiency

Newell’s aggressive benefit is its place in a number of area of interest client markets which can be small however mandatory and worthwhile. Its willingness to purchase and promote belongings has helped it put together for future recessions as properly, constructing upon important earnings progress that occurred in the course of the Nice Recession, illustrating the endurance of the mannequin.

The corporate carried out decently in the course of the Nice Recession of 2008-2010. Nonetheless, the inventory value noticed a lower of over 80.7% from the excessive of 2007 to the low in 2009, however earnings didn’t lower at that very same degree.

NWL’s earnings-per-share all through the Nice Recession:

2007 earnings-per-share of $1.82
2008 earnings-per-share of $1.22 (33% lower)
2009 earnings-per-share of $1.31 (7% enhance)
2010 earnings-per-share of $1.52 (16% enhance)

As you see, the corporate didn’t achieve this terribly throughout this era. Nonetheless, the corporate lower the dividend by 69.6% in 2009 and once more in 2010 by 21.5%. This was unlucky as a result of the corporate earnings coated the dividend very properly throughout these years.

Dividend Evaluation

Newell Manufacturers pays a beautiful dividend yield of 6.1%, which is almost 4 instances greater than the dividend yield of the broader market. Nonetheless, the corporate has not elevated its dividend since 2018. And we don’t count on any dividend enhance within the foreseeable future. Nonetheless, if we have a look at the dividend payout ratio, the corporate has room to develop its dividend.

For instance, based mostly on the $1.82 per share the corporate earned in FY2021, the corporate paid out a dividend of $0.92 per share for the 12 months. This represented a dividend payout ratio of fifty.5%. Even in the course of the COVID-19 pandemic, the corporate’s earnings elevated by 5%. The corporate paid out the identical $0.92 per share for the 12 months, a dividend payout ratio of 51.4%.

For FY2022, we count on the corporate to make $1.60 per share, which is able to present a dividend payout ratio of 58%. As you’ll be able to see, the dividend is properly coated, and the corporate may theoretically present token will increase to the dividend whereas paying down debt.

The freeze of the dividend at $0.92 per share over the previous three years is the results of the corporate’s concentrate on lowering leverage.

Given we count on no progress in earnings per share and no progress in dividends per share, the payout ratio ought to stay as is all through the interval at round 58%, which is simply considerably elevated for the corporate.

Supply: Investor Presentation

The corporate additionally has a good stability sheet. The corporate has a debt-to-equity ratio of 1.5X, which is in-line with the corporate’s 5-year common of 1.4X. The corporate’s monetary leverage ratio is 3.9X, nonetheless, which is a good bit above its goal of two.5X. The corporate’s long-term debt stood at $4.7 billion as of September thirtieth, 2022.

Closing Ideas

Total, Newell Manufacturers is an organization within the means of turning it round. The corporate is doing the best factor by divesting non-core manufacturers and by specializing in lowering its leverage. Due to this, the dividend is secure and will have the ability to stand up to a recession higher than it did in the course of the Nice Recession. Nonetheless, we don’t count on a lot progress in earnings or the dividend over the intermediate time period, as the corporate works on paying down debt.

Within the meantime, the present dividend is enticing, and the corporate seems to be undervalued at right this moment’s value.

If you’re curious about discovering extra high-quality dividend progress shares appropriate for long-term funding, the next Positive Dividend databases will likely be helpful:

The foremost home inventory market indices are one other strong useful resource for locating funding concepts. Positive Dividend compiles the next inventory market databases and updates them month-to-month: