Dividend Stock Analysis: Whirlpool

| About: Whirlpool Corporation (WHR)


WHR has a double-digit five-year average dividend growth rate.

WHR is the leading worldwide appliance manufacturer.

WHR's payout ratios is below our 60% threshold but towards the top end of management's target payout ratio range.

The Stock – Whirlpool Corporation (NYSE:WHR)

Over the last four years, I have slowly (but surely) worked to build a diversified portfolio of dividend growth stock. I’ve achieved some diversification; however, I recognize that I still have a long, long way to go. Thus, today, I wanted to take a look at a company in an industry that is not represented in my portfolio. Let’s take a deeper look at Whirlpool Corporation.

Whirlpool Corporation is the leading appliance manufacturer in the world. The company’s brand portfolio includes high-profile names such as Whirlpool, Kitchen-aid, and Maytag along with several other lower profile names. In fact, seven of the companies brands top over $1b in annual sales (per investor relations website).

At the end of October, the company’s stock price declined from the mid-$180-per-share range to the $160-per-share range. What happened during this period? First the company reported their quarterly earnings. Even though there was a mix of positive and negative news in the release (noting sales and EPS growth and a decrease in the operating margin in the press release), the company missed their earnings estimates. The company’s stock price realized a sharp decrease as a result of the earnings miss in October. The second announcement was a little more surprising. Whirlpool and Sears announced the companies were ending a 100 year relationship and will stop selling Whirlpool Corporation products at their stores. Overall, this represents 3% of the company’s annual sales, which isn’t a significant amount. But this announcement, coupled with the earnings release, caused the company to have a bad month of October.

About Our Dividend Stock Screener

For those of you who are new followers, we run the Dividend Diplomat stock screener to identify potentially undervalued dividend growth stocks to analyze and potentially purchase. The Dividend Diplomats like to stick to 3 metrics when evaluating dividend stocks for considerations of a purchase. In our comparison, we will also compare the company we are analyzing to a competitor to gauge how the company performs in their respective industry, in addition to comparing them to the broader market. Here are the 3 metrics:

  1. Price to Earnings (P/E) Ratio: We like to look for a P/E ratio that is below the S&P 500. The reason why we look for this is to show signs of undervaluation.

  2. Payout Ratio: We further like to look for a company with a payout ratio of less than 60%. We choose 60% so the company has plenty of room to further expand their dividend in future years - it's that simple.

  3. Dividend Increase History: Additionally, we analyze companies that have a proven track record of increasing their dividend. We don't go straight for the Dividend Aristocrats, but you have to have recent history, including the prior period, of increasing that yield.

With these dividend stock screening metrics, we may include additional items for consideration; however, these companies must break through the 3 barriers above. Typically, we also compare the company we are analyzing against competitors in the industry. However, for the purposes of this stock analysis, we will simply be assessing WHR. Let’s take a look at the metrics:

1.) Dividend Yield: We don’t set a specific floor for dividend yield when analyzing a company in our stock screener. As a rule of thumb, we typically look for a company that has a dividend yield above the S&P 500. Otherwise, we would most likely opt for investing in an index fund instead. WHR’s current dividend yield is above the overall market’s. Great news here.

2.) Payout Ratio: Typically, we use a 60% payout ratio threshold for stocks to pass our screener. WHR’s payout ratio is currently 32%, well below our payout ratio. So WHR passes this metric of our stock screener. Interestingly, though, per the company’s investor relations page, management has a target dividend payout ratio of 25%-30% of trailing 12 month earnings. In their third-quarter earnings release, management reported diluted EPS of $3.72 for the three-month period. If this amount is annualized, the company’s payout ratio is calculated as approximately 30%. This is at the higher end of management’s target payout range, which could potentially indicate that the company is going to slow down their dividend growth rate if earnings remain at their current level. However, I still rate this metric as a pass since their payout ratio is below our current threshold.

3.) Dividend Growth Rate and History: In April, the company increased their quarterly dividend by 10%, which is lower than their five-year average dividend growth rate of 17.22%. The double-digit increase is very nice, especially given some of the dividend increase realized in 2017; however, I am interested to see if a double-digit dividend increase is feasible given the target payout ratio discussed in the previous point. However, for this metric, we do not just look at the recent dividend growth rate. We also consider how long a company has increased their dividend. The company has increased their dividend for seven consecutive years. Due to the fact that the company has not increased their dividend for an extended period of time and still has a while to go before earning the title “Dividend Aristocrat,” I will rate this metric as neutral. Neither a pass nor a fail.

4.) Price to Earnings (P/E) Ratio: For this metric, we look for the company’s P/E ratio to be lower than the broader market’s ratio to assess the current valuation of the company. Currently, the S&P 500’s P/E ratio is in the mid-20s area. WHR’s P/E ratio is well below the broader market’s ratio. Another metric that passes our stock screener!

Dividend Stock Analysis Conclusion

Once again, another interesting stock analysis. Overall, the company is trading at a multiple well below the broader market, has demonstrated strong dividend growth over the last five years, and possess a strong brand portfolio. However, I am hesitating to purchase the stock at the moment based on the company’s most recent earnings miss, their potential dividend growth going forward based on management’s announced target payout ratio, and the fact they have not increased their dividend annually for an extended period of time. For now, I will pass on adding WHR to my portfolio and will seek other investment opportunities.

-The Dividend Diplomats

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.

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