When it comes to developing an income-driven strategy, there are a number of things one should consider. For example, the three primary criteria I look for are a stock's annualized yield, its recent dividend behavior (no more than five years), and its forward P/E ratio.
For this particular article, I actually wanted to focus on more of a conservative play and set my criteria to include a dividend yield between 1% and 1.5%, a forward P/E ratio between 9 and 10 and steady dividend behavior over the last six to twelve months. In today's article, I wanted to venture into the Wholesale Electronics sector and highlight several reasons why I'm staying bullish on shares of Avnet, Inc. (AVT) as a fairly conservative income-driven play.
#1: Recent Performance & Trend Behavior Signals a Longer-Term Buying Mode
On Monday, shares of AVT, which currently possess a market cap of $5.97 billion, a forward P/E ratio of 9.38, and a dividend yield of 1.38% ($0.60), settled at a price of $43.82/share. Based on their closing price of $43.82/share, shares of AVT are trading 5.63% above their 20-day simple moving average, 7.08% above their 50-day simple moving average and 16.76% above their 200-day simple moving average. These numbers indicate a short-term, mid-term, and long-term uptrend for the stock which generally signals a moderate buying mode for most long-term investors.
#2: Avnet Initiates Quarterly Dividend
On September 6, 2013 Avnet initiated a first-time quarterly distribution when it paid shareholders a dividend of $0.15/share. The company subsequently went on to pay its investors a second quarterly dividend on November 29 which was in-line with its previous distribution. As long as the company can maintain or even experience a slight increase in its enterprise revenue (which was up 8.1% during FQ1) and its operating income (which grew five times faster than its revenue during FQ1), I see no reason why the company can't maintain or even slightly increase its dividend over the next 12-24 months.
#3: Acquisition of Remaining Minority Stake in MSC Investoren
On Monday, December 30, Avnet announced that it had acquired the remaining minority interest in electronics distributor MSC Investoren. This acquisition completed a two part transaction in which the majority interest was acquired on October 1, 2013. MSC is a recognized value-add distributor focused on electronic component distribution, embedded computing technology, and display solutions as well as design and manufacturing. Avnet intends on rolling the acquisition into a broader plan to "create a focused 'embedded and display solutions' business unit in EMEA" and "accelerate profitable growth in the region."
Risk Factors (Most Recent 10-K)
According to Avnet's most recent 10-K, there are a number of risk factors investors should consider before establishing a position in it. These risk factors include but are not limited to:
#1 - The electronics component and computer industries are highly competitive and if the Company fails to compete effectively, its revenues, gross profit margins and prospects may experience significant declines.
#2 - The company's acquisition strategy may not produce the expected benefits, which may adversely affect the Company's results of operations.
#3 - Certain types of disruptions to the Company's logistics capability could have a material adverse impact on the Company's operations.
For those of you who may be considering a position in Avnet Inc., I strongly recommend keeping a close eye on the company's earnings growth, its dividend behavior, and its ability to enhance shareholder value over the next 12-24 as each of these factors could play a role in the company's long-term performance.