Linked here is a detailed quantitative analysis of Diebold Inc. (NYSE:DBD). Below are some highlights from the above linked analysis:
Company Description: Diebold Inc. provides ATMs and other self-service transaction systems and security products to the financial, commercial, government and retail markets.
Fair Value: In calculating fair value, I consider the NPV MMA Differential Fair Value along with these four calculations of fair value (see page two of the linked PDF for a detailed description):
1. Avg. High Yield Price
2. 20-Year DCF Price
3. Avg. P/E Price
4. Graham Number
DBD is trading at a premium to all four valuations above. The stock is trading at a 12.2% premium to its calculated fair value of $24.04. DBD did not earn any Stars in this section.
Dividend Analytical Data: In this section there are three possible Stars and three key metrics (see page two of the linked PDF for a detailed description):
1. Free Cash Flow Payout
2. Debt To Total Capital
3. Key Metrics
4. Dividend Growth Rate
5. Years of Div. Growth
6. Rolling 4-yr Div. > 15%
DBD earned three Stars in this section for 1.), 2.) and 3.) above. A Star was earned since the Free Cash Flow payout ratio was less than 60% and there were no negative Free Cash Flows over the last 10 years. The stock earned a Star as a result of its most recent Debt to Total Capital being less than 45%.
DBD earned a Star for having an acceptable score in at least two of the four Key Metrics measured. The company has paid a cash dividend to shareholders every year since 1954 and has increased its dividend payments for 58 consecutive years.
Dividend Income vs. MMA: Why would you assume the equity risk and invest in a dividend stock if you could earn a better return in a much less risky money market account (MMA) or Treasury bond? This section compares the earning ability of this stock with a high yield MMA. Two items are considered in this section (see page two of the linked PDF for a detailed description):
1. NPV MMA Diff.
2. Years to > MMA
DBD earned a Star in this section for its NPV MMA Diff. of the $523. This amount is in excess of the $500 target I look for in a stock that has increased dividends as long as DBD has. The stock's current yield of 4.15% exceeds the 4.1% estimated 20-year average MMA rate.
Memberships and Peers: DBD is and a member of the Broad Dividend Achievers™ Index and a Dividend Champion. The company's peer group includes: The NCR Corp. (NYSE:NCR) with a 0.0% yield, Stratasys Inc. (NASDAQ:SSYS) with a 0.0% yield and Avid Technology Inc. (NASDAQ:AVID) with a 0.0% yield.
Conclusion: DBD did not earn any Stars in the Fair Value section, earned three Stars in the Dividend Analytical Data section and earned one Star in the Dividend Income vs. MMA section for a total of four Stars. This quantitatively ranks DBD as a 4 Star-Strong stock.
Using my D4L-PreScreen.xls model, I determined the share price would need to increase to $27.27 before DBD's NPV MMA Differential decreased to the $500 minimum that I look for in a stock with 58 years of consecutive dividend increases. At that price the stock would yield 4.1%.
Resetting the D4L-PreScreen.xls model and solving for the dividend growth rate needed to generate the target $500 NPV MMA Differential, the calculated rate is 3.6%. This dividend growth rate is slightly below the 3.7% used in this analysis, thus providing virtually no margin of safety. DBD has a risk rating of 1.25 which classifies it as a low risk stock.
At 58 years, DBD is the current reigning champion of consecutive dividend increases. In spite of the company's cyclical business, it has been able to maintain relatively stable financial metrics over time.
DBD's 4% yield and favorable current rating is enticing. However, not enough to overcome my concerns of declining earnings and free cash flow. In addition it is trading at a 12% premium to my calculated fair value price of $24.04. I will wait for a more opportune time before buying.
Disclaimer: Material presented here is for informational purposes only. The above quantitative stock analysis, including the Star rating, is mechanically calculated and is based on historical information. The analysis assumes the stock will perform in the future as it has in the past. This is generally never true. Before buying or selling any stock you should do your own research and reach your own conclusion. See my Disclaimer for more information.
Full Disclosure: At the time of this writing, I held no position in DBD (0.0% of my Dividend Growth Portfolio). See a list of all my dividend growth holdings here.
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