Company Description: Flowers Foods, Inc. is a producer and marketer of bakery products. It operates in two segments, Direct Store Delivery and Warehouse Delivery.
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
FLO is trading at a discount to only 1.) above. The stock is trading at a slight premium to its calculated fair value of $19.06. FLO 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%
FLO earned two Stars in this section for 2.) and 3.) above. The stock earned a Star as a result of its most recent Debt to Total Capital being less than 45%. FLO earned a Star for having an acceptable score in at least two of the four Key Metrics measured.
Rolling 4-yr Div. > 15% means that dividends grew on average in excess of 15% for each consecutive 4 year period over the last 10 years (2002-2005, 2003-2006, 2004-2007, etc.) I consider this a key metric since dividends will double every 5 years if they grow by 15%. The company has paid a cash dividend to shareholders every year since 2002 and has increased its dividend payments for 10 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
FLO earned a Star in this section for its NPV MMA Diff. of the $12,057. This amount is in excess of the $2,500 target I look for in a stock that has increased dividends as long as FLO has. The stock's current yield of 3.28% exceeds the 2.42% estimated 20-year average MMA rate.
Memberships and Peers: The company's peer group includes: The Campbell Soup Co. (CPB) with a 3.3% yield, Lancaster Colony Corporation (LANC) with a 2.0% yield and Snyder's-Lance, Inc. (LNCE) with a 2.5% yield.
Conclusion: FLO did not earn any Stars in the Fair Value section, earned two Stars in the Dividend Analytical Data section and earned one Star in the Dividend Income vs. MMA section for a total of three Stars. This quantitatively ranks FLO as a 3-Star Hold stock.
Using my D4L-PreScreen.xls model, I determined the share price would need to increase to $35.88 before FLO's NPV MMA Differential decreased to the $2,500 minimum that I look for in a stock with 10 years of consecutive dividend increases. At that price the stock would yield 1.8%.
Resetting the D4L-PreScreen.xls model and solving for the dividend growth rate needed to generate the target $2,500 NPV MMA Differential, the calculated rate is 9.4%. This dividend growth rate is below the 15.0% used in this analysis, thus providing a margin of safety. FLO has a risk rating of 1.75 which classifies it as a Medium risk stock.
FLO offers many desirable metrics for the dividend growth investor. In addition to a very low level of debt the company has grown its dividend 25% on average since 2004 and currently offers an attractive yield over 3%. With a calculated fair value of $19.06, it is fairly valued. At 60% its Free Cash Flow Payout is at my upper range, but not concerning given the low level of debt. This stock is on my watch list and i will continue to do due diligence on it before initiating a position.
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 FLO (0.0% of my Dividend Growth Portfolio). See a list of all my dividend growth holdings here.
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Tags: [FLO] [CPB] [LANC] [LNCE]