In the second round of the Dividend Portfolio playoffs we have #7 seeded E.I. Du Pont De Nemours And Co (DD) taking on #2 seeded Hasbro, Inc. (HAS). DuPont is a diversified technology company operating in the segments of Agriculture, Electronics & Communications, Industrial Biosciences, Nutrition & Health, Performance Chemicals, Performance Coatings, Performance Materials, Safety & Protection, and Pharmaceuticals. Hasbro, Inc. is engaged in providing leisure time products with a portfolio of brands and entertainment properties ranging from Transformers to Monopoly and My Little Pony.
The following table depicts the recent earnings reports for each company:
($ in billions)
($ in billions)
DuPont is up 37.32% excluding dividends in the past year (up 39.79% including dividends) while Hasbro is up 42.92% excluding dividends (up 45.37% including dividends), and the S&P 500 has gained 24.87% in the same time frame. This matchup will be played out in a best of seven game series based on the metrics below. For a complete list of all the metrics utilized in the seven game series click here. Not all the metrics will be looked at if a team can win and win early. This matchup will determine the winner which will go on to the next round of the playoffs to face the winner of the matchup between KLA-Tencor (KLAC) and Emerson Electric (EMR).
Forward P/E is the metric of how many times future earnings you are paying up for a particular stock. The earnings portion of the ratio I utilize is the earnings value for the next twelve months or for the next full fiscal year. I like utilizing the forward P/E ratio as opposed to the trailing twelve month P/E ratio because it is an indication of where the stock is going to go in the future. I like to get a glimpse of the future, but will take note of where it was coming from in the past. DuPont carries a 1-year forward-looking P/E ratio of 14.82 which is inexpensively priced for the future right now while Hasbro's 1-year forward-looking P/E ratio of 16.21 is fairly priced. Game 1 goes to DuPont.
This metric is the trailing twelve month P/E ratio divided by the anticipated growth rate for a specific amount of time. This ratio is used to determine how much an individual is paying with respect to the growth prospects of the company. Traditionally the PEG ratio used by analysts is the five year estimated growth rate, however I like to use the one year growth rate. This is because as a capital projects manager that performs strategy planning for the research and development division of a large-cap biotech company I noticed that 100% of people cannot forecast their needs beyond one year. Even within that one year things can change dramatically. I put much more faith in a one year forecast as opposed to a five year forecast. The PEG ratio some say provides a better picture of the value of a company when compared to the P/E ratio alone. The 1-year PEG ratio for DuPont is currently at 1.82 based on a 1-yr earnings growth of 12.26% while Hasbro's 1-yr PEG ratio is 1.93 based on a 1-yr earnings growth rate of 12.65%. DuPont takes Game Two away from Hasbro.
EPS Growth Next Year
This metric is really simple, it is essentially taking the difference of next year's projected earnings and comparing it against the current year's earnings. The higher the value the better prospects the company has. I generally like to see earnings growth rates of greater than 11%. Again, in this situation I like to take a look at the one year earnings growth projection opposed to the five year projection based on what I discussed in the PEG section above. DuPont has a projected EPS growth rate of 12.26% while Hasbro sports a growth rate of 12.65%. Hasbro ekes out a victory to pull within a game.
Dividend yield is a no brainer; it must be had in a dividend portfolio. The dividend yield is the amount of annual dividend paid out by a company in any given year divided by the current share price of the stock. In my dividend portfolio I don't discriminate against low yielding stocks as long as they provide excellent fundamental metrics in the form of the forward P/E, the 1-yr PEG and the 1-yr EPS growth rate. Dividends are a way to measure how much cash flow you're getting for each dollar invested in the stock. Obviously, the higher the yield, the better, as long as it is covered by the trailing twelve month earnings. DuPont pays a dividend of 2.82% with a payout ratio of 63% of trailing 12-month earnings while Hasbro pays a dividend of 3.02% with a payout ratio of 74% of trailing 12-month earnings. Hasbro takes consecutive games to even the series at two games apiece.
Return on Assets
Return on assets is the metric which shows how profitable a company is relative to its total assets, telling us how efficient a management team is at using its assets to generate earnings. It is best to compare ROA values of companies within the same industry as it is industry dependent, but for the purposes of this tournament I will not be utilizing that rule of thumb. The assets of a company are comprised of both debt and equity. The higher the ROA value, the better, because the company is earning more money on less investment. DuPont is showing a 9.4% efficiency rate on their assets while Hasbro is only showing 6.7% efficiency. With this victory DuPont takes one step closer to clinching the series.
Return on Equity
Return on equity is an important financial metric for purposes of comparing the profitability, which is generated with the money shareholders have invested in the company to that of other companies in the same industry. It is best to compare ROE values of companies within the same industry as it is industry dependent, but for the purposes of this tournament I will not be utilizing that rule of thumb. Equity is determined as the net income for the full fiscal year before dividends paid to common stock holders but after dividends to preferred stock, but does not include preferred shares. The higher the ROE value, the better. DuPont proves their efficiency of managing their shareholders equity to be 39.1% while Hasbro sports a value of 19.3%. By winning this game DuPont pulls an upset over Hasbro.
Although DuPont upset Hasbro in the series, Hasbro is still a great company for a dividend portfolio. Because I am a value dividend investor, the first three matches carried the most importance because they were fundamental metrics and DuPont appeared to be the better valuation stock because it has the greater growth potential. After beating Hasbro, DuPont awaits the winner of the battle between KLAC and Emerson.
Disclaimer: This article is meant to serve as a journal for myself as to the rationale of why I bought/sold this stock when I look back on it in the future. These are only my personal opinions and you should do your own homework. Only you are responsible for what you trade and happy investing!