Marine Products - Healthy Dividend At Current Levels

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About: Marine Products Corporation (MPX)
by: FinanceSwipe
Summary

Marine Products (MPX) offers an interesting opportunity for an income investor, with a 3.25% dividend yield at a 60% payout ratio.

MPX has been able to grow revenue at a solid pace over the past 5 years and has paid 4 special dividends in the past 5 years as a result.

MPX has recently increased its dividend. Although with the income there is growth potential with 20% upside from current levels.

Investment Thesis

Marine Products (MPX) is an interesting pick for a dividend investor with its 3.25% dividend yield. The fiberglass powerboat manufacturer has managed to grow EPS 26% per year over the past 3 years. This is a company with a solid liquidity position, which has allowed it to grow revenue and recently increase its dividend. Furthermore, the company has paid a special dividend in 4 of the 5 past years.

Mispricing

Income Opportunity

MPX recently hit its 52-week high of $24.7 and since then has sold off to $14.62. This is at a time when the company beat its EPS estimates by 0.06 at $0.22 for Q1 2019. Revenue also beat by $10.34 at $83.05. The firm recently increased its regular dividend by 20%. This presents an interesting opportunity for an income investor with MPX now offering a 3.25% dividend yield. We believe at current levels this is an attractive income play. The company has also paid an additional special dividend 4 times in the past 5 years. This is due to the company delivering constant sales and EPS growth over the past 5 years.

Now we will look at the dividend payout ratio to see how sustainable MPX's dividend is. Based on 2018 earnings the ratio is sitting around 60%. This was the same in 2017, with a slight increase from 2016 and 2015 of 50%. Based on the solid cash flow that the company is able to generate yearly and its balance sheet, we believe this to be a healthy figure.

Balance Sheet

We like MPX's healthy balance sheet. The company has almost no debt with a total asset position of 100,880,000, total liabilities of 25,668,00. This gives it a net asset position of 71,439,000. This gives the firm a very healthy liquidity position, which its competitors don't have the luxury of - this allows it to weather any potential downturns better than its competitors. This also supports the dividend that the firm is able to pay, even if it has to weather unexpected bad quarters.

Growth

The healthy balance sheet has resulted in share repurchases over the past few years, dividends and special dividends. It has also allowed the company to expand, which has resulted in increased revenue for the firm. The company has recently added new product line extensions, including lower priced entry models that appeal to the value conscious consumer. Although it is worth noting that unit sales actually decreased 6.8% recently, while the average selling price of its products increased by 14.8%. This shows a preference for more premium models recently. MPX is expecting 2019 retail selling to continue to be strong. The industry is typically seasonal and its best two quarters are ahead of it. We see the expansion by MPX as allowing it to take more market share in its industry and increased revenues have been the result in a macro time frame. The firm is projected to increase revenues by 10% moving forward in the next 5 years. The firm has been able to grow and at the same time keep EBITDA margins around the same. This highlights how the firm will be able to generate increased profits and ensure the stability of its dividend.

Valuation

MPX is currently trading at a P/E of around 17.74. This goes down to a Forward P/E of 16.43 when you take into account the projected EPS 0.89 next year. This is at the lower end of the P/E range the company has traded at over the past 10 years - with the average being a P/E of 27.5. The industry in comparison has a lower medium P/E of 13.25. I believe this premium multiple MPX has is because of its growth, dividend and the very healthy balance sheet that the company has.

The overall market multiple in contrast is 21.54, which is closer to MPX's average multiple. With MPX was growing at EPS 26% per year over the past 3 years so 27.5 made more sense at that level of growth. We believe a multiple of 20 makes sense with 10% growth expected over the next 5 years. Applying a conservative multiple of 20 to 0.89 we get a price target of $17.8. This represents upside of 21% from current levels. This is while you collect dividends from the company.

Risks

The Economy

MPX is heavily reliant on the economy as its purchases are from discretionary income. This is the type of income to decrease dramatically during a recession and that would lead to revenues and earnings to fall dramatically. This does have the potential to put the dividend of the company at risk. The US hasn't had a recession in over 10 years now. Recessions have been prevalent throughout history so another one is long overdue, especially with the ongoing trade wars with China. On the other hand, we could argue that due to MPX's solid balance sheet, it would be able to weather temporary adverse conditions and still maintain a dividend.

Dealers and Competition

MPX is reliant on its dealers to sell its products and also faces tough competition from other manufactures. If dealers were to stop selling MPX's Chaparral and Robalo products then profitability would be affected. This is highly unlikely though with the quality and reputation that MPX has in the market. We don't believe this poses any risk to the dividend.

Overall

We believe that MPX is a stock that every dividend investor should look at, with its current 3.25% dividend yield and frequent special dividends. The firm has shown a track record of increasing revenues over the past 5 years and this is projected to continue. We see 20% upside in the stock, while you continue to collect income from the company.

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.