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Salman Ebrahim is a CFA & FRM Charterholder with 9 years of experience in portfolio management and equity reasearch. He has to his credit a number of timely investment calls (equities, fixed income and commodities) that generated significant outperformance for the clients. He has a firm... More
  • Cheap Valuations With Strong Balance Sheets Supporting Higher Dividends 0 comments
    Jun 11, 2013 7:19 AM | about stocks: CF, MON, MOS

    As part of the regular exercise to identify companies with strong financial position, growth potential and dividend distribution capacity, this article briefly outlines the case for CF Industries (NYSE:CF), Mosaic (NYSE:MOS), and Monsanto (NYSE:MON). With sizeable cash balances, strong liquidity/debt ratios and +20-60% free cashflow growth during 2009-2012, it can be reasonably expected of their management to expand the dividend distribution programs. Although the current dividend yields are in the lower single digits, the cheap valuations also make these stocks even more attractive.

    CF Industries

    - As of last quarter figures, the company reported $2.2 billion in cash and $2.9 billion in current assets while the total assets stood at $10.4 billion.

    - The current liabilities are only $1.29 billion and the total debt is at $4.6 billion with total-debt to equity ratio at 0.80x and current ratio at a healthy 2.26x.

    - The free cashflow has increased from only $446m to $1.85 billion during 2009-2012, growing at a rate of 61% per annum during this period.

    - The total shares outstanding are only 59.29 million and the stock is currently trading at a highly attractive P/E multiple of only 6.59x at TTM EPS of 29.52.

    - The company has re-purchased stocks worth $1.47 billion during 2011-2012 and this could continue in 2013 on the back of strong liquidity position.

    Mosaic

    - The company reported $3.3 billion in cash and $6.34 billion in current assets.

    - The current liabilities are only $1.54 billion and total debt is at $4.2 billion with total-debt to equity ratio at an enviable 0.39x and current ratio at 4.13x.

    - The free cashflow has increased from $462m in 2009 to $1.1 billion in 2012, growing at a rate of 32% per annum during this period.

    - The total shares outstanding are 425.75 million and the stock is trading at a decent P/E multiple of 13.51x with a relatively lower dividend yield at 1.65%.

    - The company has re-purchased stocks worth $1.14 billion during 2012 and the strong current ratio of 3.43x, a quick ratio at 2.79x and a total debt-to-equity at 0.39x all indicate towards a significant potential to increase the dividend distribution.

    Monsanto

    - The company reported $4.44 billion in cash and $11.534 billion in current assets.

    - The current liabilities are only $4.8 billion and the total debt is at $8.8 billion with total-debt to equity ratio at 0.67x and current ratio at a healthy 2.45x.

    - The free cashflow almost doubled from $1.33 billion in 2009 to $2.4 billion in 2012, growing at a rate of 22% per annum during this period.

    - The total shares outstanding are 533.84 million and with current liquidity position, the management can easily increase the dividend yield by 1-2% percentage points from 1.48%.

    - The company has made shareholder distributions of over $1.42 billion during 2009-2012 and the strong liquidity position should help the company expand on its dividend payout plan.

    Disclaimer: The opinion in this document is for informational purposes only and should not be considered as a recommendation to buy or sell the stocks mentioned or to solicit transactions or clients. I do not recommend that anyone act upon any investment information without first consulting an investment professional as to the suitability of such investments for his or her specific situation.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

    Themes: dividend-ideas Stocks: CF, MON, MOS
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