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By Mark Bern, CPA CFA

Tupperware Brands (NYSE:TUP) is currently trading near $61 per share (at 3 p.m. on Thursday, February 23, 2012). That represents a discount of about 15.5% from the 52-week high. The dividend is $1.44 per share providing a yield of 2.4%. The dividend has increased an average of only 4.5% annually over the past five years. However, since the change in the company's dividend policy in 2009, I believe we can look forward to a dividend growth rate exceeding 12% over the next five years.

Tupperware increased its earnings per share, cash flow per share, sales per share (you name it) right on through the great recession. How did the company do it? Think back to when TUP was founded. The year was 1946 and all the men were coming home from WWII. They needed jobs and the factories of America welcomed them. But the other side of the picture was while the men fought the war overseas women had been fighting the war here by working in those factories, keeping war machine running with equipment and supplies for the efforts in Europe and the Pacific. The women were being displaced from their jobs by the thousands by their returning male counterparts. Some of the women welcomed the opportunity to go back to being homemakers and raising a family. Others didn't.

Enter Tupperware. The company has its roots stemming back to the early times of women entering the workforce in the U.S. Most jobs offered for women at the time were of the school teacher and secretary sort. Neither had much upward mobility and neither paid extremely well compared to those who lost factory jobs. What TUP offered was an opportunity to make as much as you wanted if you were willing to work hard and be persistent. It was appealing. One could recruit and train others and build an enormous organization if that was their dream, and many did.

Today, TUP has found that same opportunity for the company to grow by providing the same opportunities to women in emerging markets. In many developing countries there are still very few job opportunities for women. Once again, enter Tupperware. The majority of the growth being experienced by the company today and in the years to come is being generated by women in foreign markets, especially the emerging markets. There are a lot more women in those countries today eager to earn a living than there ever were in the U.S. Those countries aren't far behind where the U.S. was when TUP began back in 1946 and its economies are improving at a much more rapid pace. The opportunity for TUP is enormous and as living standards improve for billions of people around the globe it only gets better.

Let's take a look at the report card for Tupperware.

Ratio/ Measure

TUP

Industry Ave.

Pass / Fail

Ave. Annual 5-Yr. Earnings Growth

18%

2.6%

Pass

Net Profit Margin

8.3%

11.8%

Neutral

Debt to Total Capital

43%

27%

Fail

Return on Total Capital

18.5%

12.5%

Pass

Dividend Yield

2.4%

2.7%

Neutral

Payout Ratio

34%

45%

Pass

Price-to-earnings

17.1

16

Neutral

I might normally fail a company for having a P/E more than a full point above the industry average, but in TUP's case I decided that because of the earnings growth the premium is warranted. The dividend yield isn't what I would like to see, but my expected growth in dividends make up for being slightly below average. Again, the net profit margin is lower than I'd like but still healthy and, because of the earnings growth rate, I rated it at neutral rather than fail.

The debt to capital ratio is higher than the average so I failed the company here, but because of the great return on capital ratio I feel that we can overlook this one discrepancy since the capital appears to be utilized efficiently. In making this determination I always look also at the company's return on equity ratio (ROE) relative to the return on capital ratio (ROC). If the ROE is significantly greater than the ROC, then shareholders are usually getting a good return on the additional debt. The ROC is better than ROE in gauging how efficiently a company deploys assets. However, taking the two together tells us a little more. Neither, on its own, tells the whole story.

Other companies in the industry, such as Colgate-Palmolive (NYSE:CL), Kimberly-Clark (NYSE:KMB) and Procter & Gamble (NYSE:PG), are facing a much more difficult economic environment. Many shoppers in developed countries of North America and Europe, where the bulk of their products are sold, are switching to generic products to save money due to budget constraints. Tupperware customers are generally loyal and many of them also sell the products. While overseas growth in emerging markets holds a great deal of promise for the other companies in the industry, I believe TUP's business model lends itself better to those environments.

I believe that TUP is a solid, long-term buy and hold candidate for dividend/growth investors. As many of my regular readers will know I like to buy quality companies, such as TUP, at a discount. While I believe that the company is fairly priced at current levels, I would prefer to pick up shares closer to the 52-week low. The market, overall, seems be taking a breather and trending a bit lower, which may give us an opportunity sometime this year. But I also don't like to have money sitting in my account collecting little more than dust while I wait for the right buying opportunity.

Here's my strategy for TUP. I recommend selling the July put option with a $60 strike price and a premium of $3.80. That gives us an immediate return of about 6.1% (after commissions) over a 4 ½ month period. If the price doesn't fall below the $60 strike price and hold there through the option expiration date of July 20, 2012, we simply keep the premium and have earned an annualized return of well over 12%. If the option does get exercised, we will be obligated to buy 100 TUP shares (per contract sold) at $60 per share. But including the premium we've already pocketed, our cost basis drops to $56.20 ($60-$3.80). That's the bargain I'd be happy with.

As with any investment decision, please do some due diligence of your own to ensure that this or any other investment you are considering meets your investment needs.

Disclosure: I am long PG.

Source: The Tupperware Advantage In Emerging Markets