E Newell Brands: High Dividend Stock Paying Investors To Be Patient

In early May (5/3/19) Newell reported first-quarter financial results. Net sales totaled $1.7 billion, a decline of 5.5% from the same quarter last year. Excluding currency impacts, core operating sales declined 2.4% for the period. Excluding impairments and other nonrecurring factors, Newell’s adjusted EPS fell 50% from the same quarter last year. Still, management guides for $1.50 to $1.65 in earnings-per-share for 2019.

Compelling Turnaround Stock

Newell’s dividend payout appears to be secure. The company’s anticipated payout ratio for 2019 is 58%, which indicates a sustainable dividend. The current yield of 5.9% is very attractive for income seekers. In addition, the stock is undervalued. Based on average EPS estimates of approximately $1.60 for 2019, Newell shares trade for a low price-to-earnings ratio of 9. This is well below our fair value estimate, which is a price-to-earnings ratio of 14 for a fair value price of $22 per share.

A price to earnings ratio of 14 is a reasonable valuation multiple for a profitable company with strong brands, particularly if Newell can return to top-line growth in the near future. If Newell’s turnaround proves successful, shareholders could generate strong returns, comprised of EPS growth, expansion of the P/E ratio, and the dividend.

Overall, it is not unreasonable to expect annual returns well above 10% going forward. The dividend yield will comprise nearly a 6% annual return, while Newell could easily grow adjusted EPS in the low-digit range. A higher P/E ratio will make up the remainder of annual returns to shareholders, making Newell one of the best high dividend stocks for 2019.

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