My new granddaughter just got her social security number. It is time to start her college fund. Since her time horizon for holding the stock is 18 years, I thought I would get her a dividend growth stock with a low yield, but high dividend growth rate. After looking at David Fish's CCC charts, I determined that Comcast (NASDAQ:CMCSA) would be the first addition to her portfolio. (Data from David Fish's CCC charts and Yahoo!Finance)
Back in June 2012, I wrote my last analysis on Comcast from the standpoint that it is a dividend growth stock. At the time, my oldest granddaughter had just graduated from high school and was looking forward to her first year in college. At the time, I noted the stock's resilience to pullbacks, but considered it to be a cyclical stock. Since that time, Comcast has become more of a growth stock with a high dividend growth rate.
As can be seen from the chart, 2012 to the present showed 80% growth versus 35% growth for the S&P500 (NYSEARCA:SPY). So far this year, CMCSA has increased 20.05%. It may be the fact that the economy is getting better or that industry consolidation rumors are causing demand for it. However, there are a few metrics that have improved from a dividend growth standpoint. First of all, it is a Dividend Challenger with 6 years of increasing dividends. The PEG ratio is 1. The dividend was raised 41% this year, and the 5yr dividend growth rate is 22.7%. Although the yield is low at 1.74%, the P/E ratio is only 17.7. My Tweed factor shows a (yield + 5yr dividend growth rate) of 24.44. After subtracting the current P/E of 17.7 the factor is +6.74; a buy.
I have a small position myself which I have held and dripped since 2009. I thought I would update my dividend reinvestment study to see if it would be a good stock for my granddaughter's college fund.
As can be seen from the above chart, this stock has tripled since 2009. It seems to have what it takes to grow during a cyclical bear market or a bull market. The following spreadsheet shows the growth and yield of a $10,000 investment dating from 5 years ago.
|Stock||Date of reinvest||Div Rate||# Shares||Dividend||Drip price||# Shares pur||Total Value||Current Yield|
As can be seen from the chart, this stock was able to double, even when investing at the beginning of the Great Recession. The yield grew to around 2% which it has maintained with high dividend growth, more than tripling the dividend rate over the period. A graph of these results is shown below:
From the above analysis, I conclude that it is an acceptable addition to my granddaughter's college fund portfolio.
Conclusion: Comcast is a large capitalization stock ($117.82B) with a forward P/E of 15.9. I find it a little pricey with a margin of safety fair price of $38. However, with the rapid growth rate, it should be acceptable for someone with a time horizon of 18 years. One should perform their own due diligence on any investment. We may be at an inflection point in the market with the long-term treasury bond interest rate rising rapidly. When I take this into account, I find that a high growth rate dividend growth stock, like CMCSA is a preferred investment for me.
Disclosure: I am long CMCSA. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.