Dividend Analysis: Anheuser-Busch Companies Inc (NYSE:BUD)
15 June 2007Let’s have a look at the King of Beers - Anheuser-Busch Companies Inc which is listed on the NYSE under the most appropriate symbol of BUD. This is an S&P Dividend Aristocrat which means that BUD has been increasing its dividend for the last 25 consecutive years! Not to mention that Mr. Warren Buffett himself owns stock in BUD.
Company Profile:
From Yahoo Finance
Anheuser-Busch Companies, Inc., through its subsidiaries, engages in the production and distribution of beer. The company operates in four segments: Domestic Beer, International Beer, Packaging, and Entertainment. The Domestic Beer segment offers beer under the Budweiser, Michelob, Busch, and Natural brand names. The segment also offers specialty beers, non-alcohol brews, malt liquors, specialty malt beverages, energy drinks, ale, and malt-based products, such as caffeine, gingseng, and guarana.
This is a large cap stock with a market capitalization of $40.05B.
Company Fundamentals:
These are the best return on equity numbers I have ever seen! Management has been able to produce a 10 year average ROE of 49.09%! And the 5 year number is not too bad either at 64.31%! Those are incredibly impressive numbers. Normally, when I see consistent ROE of 30% I am extremely pleased. These numbers are just phenomenal.
These numbers almost look to good. And I do see that BUD has a lot of debt on the books. This can throw off the ROE. So I want to have a look at the Return on Invested Capital (ROIC). For the last 5 years, the ROCI has been 20.0%, 20.8%, 20.5%, 16.3% and 17.0%. Still great numbers, but it definitely brings the ROE back down to earth.
Looking at the equity growth rate, I see some pretty abysmal numbers for the first 8 years! You think that has anything to do with their debt load? Their 10 year and 5 year averages are both under 4%. However, the last two years have been fabulous at 26.48% and 19.59%.
Earnings per share growth rate has been pretty decent over the 10 year period with a 9 year growth rate of 10.04%. The growth rate has been pretty consistent for the first eight years and drops off during the last 2 years. Strange that the equity growth rate has moved in the opposite direction of the earnings per share growth rate! When the earnings per share growth rate was doing well, the equity growth rate was terrible and vice versa.
Sales growth rate has been pretty steady in the 5% range. When you are selling as much beer as BUD, it is pretty tough to get those sales numbers in the double digits.
Debt seems to be the name of the game. Total debt as a percentage of capital is a whopping 68.4%.
Dividend Fundamentals:
Current dividend yield on BUD is 2.23%. That exceeds the dividend yield on the S&P 500 index and compares well with the Dow Jones Industrial Average dividend yield.
The dividend growth rate has been very steady over the whole 10 year period at close to 10%. Through thick and thin, BUD has consistently raised their dividends almost 10% every year for this 10 year period. I love to see that in a dividend payer.
And to pay those nice dividends, BUD has been able to keep their cash flow growth rate at just under 9% a year. Although the last 2 years have not been as productive, BUD continued to increase their dividends at the 10% growth. Nice to see management dedicated to increasing those dividends for their shareholders.
And the dividend payout ratio has remained relatively flat at 42%. By increasing their cash flows in step with their dividends, they have not had to increase their payout ratio.
Historical Dividend Yields:
The 10 year average high dividend yield is 2.21% . However, that seems a tad low considering that last year’s low dividend yield was 2.26%! So I am definitely going to demand a higher yield. Last year’s high dividend yield was 2.81% and the year before it was 2.57%. So I am going to choose a dividend yield of 2.60%.
In order to get a dividend yield of 2.60%, I can pay no more than $45.38. At close of Tuesday, BUD was trading at $52.91. That would be a premium of 16.58%. However, if I had used the 10 year average high dividend yield, BUD would in fact be trading at a slight discount (less than 1%).
See my calculations here.
Conclusion:
The amount of debt that BUD is carrying is pretty scary. However, management has been able to leverage this debt into some great returns for the company and the shareholders. And BUD has shown their dedication to increasing their dividend through thick and thin.
BUD looks like a good bet to produce income in your dividend portfolio. But I would wait and buy it on a dip.
Disclosure: I do not own any shares in BUD.
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