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:
1. Avg. High Yield Price
2. 20-Year DCF Price
3. Avg. P/E Price
4. 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:
1. Free Cash Flow Payout
2. Debt To Total Capital
3. Key Metrics
4. Dividend Growth Rate
5. Years of Div. Growth
6. 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:
1. NPV MMA Diff.
2. 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.
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 my Disclaimer for more information.
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.
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Tags: [BRC] [ALU] [BDC] [BGC]