EL Stock: Dividend Investors Bullish on Estee Lauder
November 8, 2016
EL Stock Should Be Taken Seriously by Dividend Investors
When dividend investors look at a new investment opportunity, the most important information is if the dividend is safe and if sales growing to maintain the payout. Estee Lauder Companies Inc (NYSE:EL) has been one company doing exactly that, continuing to reward longtime shareholders.
A manufacturer and marketer of cosmetic products. Estee Lauder is part of the consumer staples index, which means it is in the defensive sector. Therefore, no matter how the economy is doing, Estee Lauder products will always be on shopping lists. This means the company’s earnings grow at a steady rate over time. Let me explain three reasons why I am bullish on EL stock.
Strong Brands and Online Presence
For some companies, there is no need for much marketing because of the power of the brand sells itself. This is the case with Estee Lauder, with a portfolio that includes such brands as “Tom Ford,” “MAC,” and “DKNY.” Due to the strong brands and customers trusting the company, Estee Lauder has seen double-digit online sales growth, both through the Estee Lauder web site and specialty multi-channels.
The decision to move to the online retail space has paid off tremendously, asthe retail side of the business saw a decline in sales. However, the online sales more than offset the decline. (Source: “The Estee Lauder Companies Fiscal 2017 First Quarter Net Sales Rose In Line With Expectations, EPS Exceeds Guidance,” Estee Lauder Companies Inc, November 2, 2016.)
Rather than using traditional retail wholesale distribution, this strengthens the relationship between the customer and Estee Lauder. Another key advantage is that Estee Lauder can market specific products or sales to its customers based on their prior transactions. Further, new products or improvements can be made to the product lines based on direct feedback.
Fundamentals
EL stock is for long-term investors looking for steady income and growth to the top and bottom line of the balance sheet. One of the most important pieces of information for long-term investors is the volatility of the daily stock price. The beta for EL stock is 0.87; this means that when the market has a one-percent move, then the price movement for EL stock will be 0.87%.
The company’s track record has been noticed by analysts. Based on the current trading price of $79.10, analysts believe the shares have a 20% upside. The current target price is $95.76. (Source: “Estee Lauder Cos. Inc.,” MarketWatch, last accessed November 07, 2016.)
Dividend
For the past 15 years, long-term shareholders of Estee Lauder have been rewarded. The current dividend paid out is $0.34 on a quarterly basis. Based on the current trading price of $79.10, the current yield is 1.72%. The current dividend is not the highest when looking at investment opportunities, but the real story is the growth that the dividend has seen. Looking over the past 15 years, the dividend growth has been 1,360%.
A reason for the increase is because the company has a global presence and has seen sales growth. EL stock recently reported the first-quarter earnings for fiscal 2017. Net sales came in one percent higher compared to the previous year’s first quarter. For 2017, Estee Lauder sees sales growth of between six percent and seven percent. (Source: Estee Lauder Companies Inc, November 2, 2016, op cit.)
Another contribution to earnings is the future currency gains. Estee Lauder operates around the globe, but reports its earnings in the U.S. dollar. When products are sold to customers in Europe, Asia, or the Middle East, the transactions are completed in the local currency. If or when the company decides the time is right to convert those profits to U.S. dollars, a capital gain could be calculated, which adds to the bottom line. When the move is unfavorable, then the funds can be left as is, with interest being earned in savings accounts in the meantime.
Final Word on EL Stock
Currently, shares of EL stock are trading towards the low end of the 52-week range. Before the market realizes that the shares of EL stock are off their highs, patient dividend investors may want to consider owning this company.
