Back in May, I told you Americans are, well, fat. Not all, but too many. So you'd think the companies helping people lose weight would be making lots of money. Well, the weight loss company I profiled in May was on the rise back then, and has since risen more than 45%. And it pays a dividend.
But the question that now begs to be answered is this: Has the price gotten a little too (ahem) big for its britches? The dividend amount is steady, but the yield, because of the price rise, has lost a little weight.
Slim Figures Compared
Based solely on information culled from their commercials, one might think Weight Watchers and Nutrisystem are interchangeable within a portfolio. But they aren't -especially for dividend investors.
You see, Nutrisystem has been beating the proverbial fat pants off of Weight Watchers for a while, and this year's performance of each stock has been so different that it would appear easy to decide which one to own. Nutrisystem is up more than 60% in 2013, trough to peak, while Weight Watchers is down some 30%.
Nutrisystem's revenue for the second quarter of 2013 was $97.5 million with operating income of $9.8 million, both of which were in line with the company's expectations. Net income for the quarter was $6.4 million, with net income per diluted share at $0.22, which was greater than the company's projected range of $0.15 to $0.20 per share.
According to Dawn Zier, President and Chief Executive Officer, "Year-to-date adjusted earnings increased $0.08 from the prior year… up 57%."
In contrast, Weight Watchers has seen little improvement. Quite the opposite. Weight Watchers generated second-quarter revenue of $465.1 million, down 4% versus 2012. Net earnings fell by 16.2% to $64.9 million. Diluted earnings per share fell by 15% to $1.15 per share.
The good news hidden in those numbers is that if you exclude a $13.3-million charge related to early extinguishment of debt, earnings per share have increased by a fraction. Adjusted earnings, excluding the debt charge, came in at $1.39 per share, beating consensus estimates of $1.11 per share. However, Weight Watchers had to lower guidance to beat that number.
With Dividends, the Fatter the Better
Both companies have decent dividend track records and, interestingly, both have been paying the same $0.175 per share, per quarter, for years. But, because of share price, the resulting yields are very different.
When I first wrote about Nutrisystem back in May, its yield clocked in around 8%. Fast forward a few months, and the yield has fallen to about 5.4%, with the stock price trading up $13.
Weight Watchers, on the other hand, sports a share price of $36 and a yield of just under 2%. Clearly, on yield alone, Nutrisystem is still the more attractive play. But like any good stock that's recently gathered a whole bunch of gains, you have to be concerned about a pullback.
Bottom line: Given the poor yield from Weight Watchers, on the one hand, and the possibility of a pullback from Nutrisystem, the final verdict is that neither poses long-term advantages for income investors.
I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. 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.