Diebold (NYSE:DBD) is a dividend aristocrat that has been providing self service financial and security services with the most visible of their products being ATMs, since it was founded all the way back in 1859. DBD has been raising its dividend consistently since 1954 and continues to do so. With a scary market like we have going into 2016, stable businesses like DBD that pay a nice yield that can be relied on year in and year out become attractive investments.
With a forward P/E of only 12, which is far lower than the overall market average P/E of only 19, even after the recent and ongoing sell off, DBD is trading at a conservative valuation. One of the reasons the great investors like Warren Buffett have done so well over the long term is that many of them outperform the market during downturns which allows them to continue growing their portfolio's from a larger base. While it's not as sexy as owning high flying tech stocks that show huge growth figures during bull markets, the reality is that over the long run these more "boring" stocks tend to outperform their more exciting counterparts by plugging away year in and year out.
There are other benefits to preserving capital during bear markets other than the obvious one that nobody likes losing money. Namely, investors with this approach can sleep well at night knowing that pretty much no matter what happens, their capital will be safe over the long-term and they can pretty much just forget about their investment until sometime in the future when it is time to start harvesting it. Charlie Munger calls this, "Sit on my ass investing". As eloquent as Mr. Munger's witticism is, he makes a really good point.
By investing passively in products that have inelastic demand, meaning they will be purchased in similar quantities almost no matter what is happening in the macro economy, the investor simply has to wait. For many people this is actually more difficult than being active but research has shown that most investors will get better results by being more passive because it is time in the market that is your friend in the end. This approach has the added benefit of allowing you to not follow the market every day which is the cause of most investor's anxiety and stress, and who needs that?
DBD has a price to book of only 4, which is another indication of the stock's relatively low valuation. And the business is efficient, with an annual ROE of 20% and ROA of 3.32%. In addition, DBD has a current ratio of 1.66, which shows that it can easily meet its short term liability obligations. With 6.77% annual revenue growth and 2.97% earnings growth, the company is performing well. And while it is nice to see any company whose stock we own growing both the top and bottom lines, mostly what we like in this business is consistency that will allow the company to continue raising the dividend and preserve our capital. DBD is clearly a company that fits the bill for these goals.
For a conservative dividend payer we don't exactly expect run away growth but it is still nice to see this performance. More important is cash flow and the ability of the company to both continue raising the dividend and performing in such a way that the shares slowly gain value over time. For example, if the stock appreciates at a modest rate of 5% annually over the long term, but also produces an average dividend of 4.14%, the investor will enjoy an 9.14% return on investment if he reinvests all of the dividends.
And while the average return of the major indexes over the last 100 years or so has been around 9%, experts expect this average return to decline in the 21st century. So buying dividend paying stocks that provide some cash flow no matter what is happening to the broader market increases your chances of achieving an adequate return when you reinvest all dividends back into the stock. This is a smart long-term strategy for today's market and with DBD you have a high probability of achieving the intelligent investor's goal of safety of principle and an adequate return.
Disclosure: I/we 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.