It's graduation time again. My granddaughter just graduated high school and went to the beach. Those of us who stayed behind have been treated to a very choppy market, with large swings and surprises over the last 2 months, like China's rate cut and infrastructure project onslaught. Remembering last summer's market swoon, I thought I'd illuminate another defensive growth stock. (Data from David Fish's CCC charts and Yahoo Finance)
Comcast (CMCSA): Comcast Corporation provides entertainment, information, and communications products and services in the United States and internationally. The company's Cable Communications segment offers video, high-speed Internet, and voice services to residential and business customers. As of December 31, 2011, it served 22.3 million video customers, 18.1 million high-speed Internet customers, and 9.3 million voice customers in 39 states and the District of Columbia. This Dividend Challenger has 5 years of consecutive dividend increases. The current yield is 2.27%. The 5-year annual average dividend growth rate is 32.1%. The current P/E is 17.8. The projected earnings per share growth rate for next year is 15.3% and 15.7% for the next five years.
As can be seen from the chart above, Comcast followed the market (SPY) during the Great Recession and only recently pulled away to positive territory. I believe this recent exceptional performance, +26.7% so far this year, reflects several factors, including sector rotation as well as digital content demand by consumers. There is a restructuring of the media and communications industries going on today and resolution will take several years. Even communications spectrum is being redistributed from analog television to digital sources, such as wireless smart phones and digital television. Some winners in the current consolidation are beginning to surface and I believe that Comcast is one of them. However, I'm looking at this company from an investment standpoint, especially dividend growth. Let's look at the last 4 years of dividend reinvestment and total value, based on an initial $10,000 investment:
|Stock||Date of reinvest||Div Rate||# Shares||Dividend||Drip price||# Shares pur||Total Value||Current Yield|
Note that the total value of the investment grows from the $10,000 initial investment to $16798.74 in 4 years for an annual growth of 13.8%. The yield varied between 1.3% and 2.22%, ending at 2.17%--showing a significant dividend growth rate to correspond with the high earnings per share growth rate. No taxes are included in these calculations, simulating shares held in an IRA. I have graphed the results on the chart below:
The second quarter of 2012 reflects the new character of Comcast with investment in NBCUniversal beginning to add to the bottom line. This puts me in a quandary. Will this stock continue to be cyclical as shown in the price chart vs or will it become a more stable growth stock, like McDonald's (MCD)? I have taken the cyclical path and place my limit order at the 4% yield point. However, I am still light in the Consumer Cyclical Sector and want more of this stock to balance out the sector. If during the summer pullback, it acts like a growth stock and holds up, I may change my entry point to 3% yield.
Conclusion: In the current secular bear market, with global turmoil, especially in Europe one must remain flexible. I have 27% cash ready to allocate to stocks that will hold up during the coming downturn. Most of my acquisitions will be cyclical stocks, like miners and oil. Comcast had a cyclical pattern in the past and I will play it that way, until proven wrong.
Additional disclosure: I have an open limit order for CMCSA.