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Shares of Nu Skin Enterprises Inc. (NUS) have dropped 14.18% over the past 3 months, primarily attributable to the negativity coming from Herbalife Ltd. (HLF), which has no grounds and thus is overblown in my opinion. Nu Skin's financial position, business operations, and growth prospects remain strong, and hence the recent plunge has created an excellent buying opportunity for this fast-growing company with significant emerging market exposure. In my view, Nu Skin is by far one of the best dividend plays in the personal care and nutrition product sector. The bullish view is well supported by the following six reasons:

1. Nu Skin has a solid emerging market exposure with around 76.3% of the FY2011 revenues generated from Asia (see below). The fast-growing middle class in the region serves as an engine to continue driving the company's product demand, and Nu Skin's direct sales model has proven to be very successful in Asia.

2. Nu Skin is substantially undervalued relative to its peers. Compared with other major personal care and nutrition product providers, the company significantly outperforms the group averages in almost all of the growth, profitability, and liquidity measures (see below). Thus, it is completely reasonable for the company to trade at premium valuations. However, the current price of $48.74 per share implies a 13.5% valuation discount on both the peer average P/E and EV/EBITDA multiples (see below), which does not make any sense and suggests that the negative HLF sentiment is still hovering around.

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3. The estimated revenues, EBITDA, and EPS for FY2012 and FY2013 have experienced sizable upward revisions over the past 12-18 months (see below), implying the market is increasingly confident in the firm's growth potential.

4. Dividend per share has never been reduced historically (see below). The past steady growth reflects management's commitment to return capital to shareholders.

5. The robust FCF margin has helped Nu Skin continue paying dividends and buyback shares (see below). Total funds of dividend paid and share repurchase have never exceeded the total free cash flows since FY2008, indicating there is ample room for a potential increase in the scale of current dividend payout and share buyback down the road. Additionally, as the current dividend yield of 1.6% is approaching the 10-year low (see below), management may have an incentive to boost the yield so as to better market the stock to institutional investors.

6. Analysts are also very bullish on Nu Skin. Of the 8 performance ratings, there are 6 strong buys and 2 buys. The mean target price of $61.38 represents a solid 26% upside.

Thus, in light of cheap valuations, strong growth potential, and sustainable shareholder-friendly policies, I recommend acquiring Nu Skin shares in anticipation of dividend increase and capital appreciation.

Comparable analysis table and free cash flow chart are created by author, all other tables and charts are sourced from Capital IQ, and all financial data is sourced from Morningstar, Yahoo Finance, Capital IQ, and Thomson One.

Source: A Solid Dividend Investment In The Personal Care And Nutrition Sector