Published Fri, 11 Sep 2015 09:00 CET by DividendYields.orgUnderstanding how to estimate dividend-paying companies can provide investors with an insight into how dividends can lead to return growth. Most investors believe that high dividend yields suggest a good return on investment. However, if a dividend yield is considerably higher than the industry average, it may simply mean that the stock is underpriced. Therefore, more important than the dividend yield is a consistent dividend growth.
Below is a summary of three small-cap stocks that trade in the consumer goods sector of the auto parts industry. All three stocks have a market cap of less than $1 billion, they operate in the U.S. and internationally and they generate a consistent dividend.
Remy International (Nasdaq: REMY) is an Indiana-based company engaging in the design, manufacturing, re-manufacturing, and distribution of automotive and commercial vehicle alternators, starters, multi-line products and hybrid motors to original equipment manufacturers (OEMs) and the automotive aftermarket both in the U.S and internationally. REMY’s payout ratio is high as a result of a low EPS of $0.37. In Q2 2015, the company reported net losses of $1.0 million due to worse volume/mix, currency conversion, restructuring costs and $1.2 million expenses related to the Maval acquisition and the pending acquisition by BorgWarner, which is expected to close during the Q4 2015. On the upside, the company has a low D/E ratio and a P/E 79.51 that significantly outperforms the industry average 15.69, suggesting high investor confidence. After the announcement of the BorgWarner transaction on July 17, the stock performance has hit new levels reaching almost 40%, so the market is expecting big things, going forward. A beta of 1.03 suggests a safe investment, with a 3-year beta estimate of 0.82.
Standard Motor Products (NYSE: SMP), a New-York based company, is a leader in the manufacturing and distribution of replacement parts for motor vehicles in the automotive aftermarket industry in the U.S and internationally. In Q2 2015 results, SMP used its cash to fund its $19 million debt, a strategic decision reflected on its low D/E ratio. Additionally, it has raised the level of annual allowance for cash dividends and share repurchases up to $20 million each and has also increased the share repurchase program of the Board of Directors from $10 million to $20 million. These decisions indicate the company’s willingness to improve shareholder value and cash dividends, going forward. The low payout ratio is the result of an EPS of $1.86, whereas consensus EPS is $2.71 up to 2016. A beta of 1.13 indicates a relatively a safe investment, whereas leveraged beta is estimated at 1.23 for the next three years. Analysts forecast an average growth rate of 10% annually.
|Name||Price ($)||52 wk low||52 wk high||52 wk low %||52 wk high %||Market Cap ($ b)||P/E||D/E||Beta||Payout Ratio|
|Standard Motor Products||35.09||30.30||43.72||15.81%||-19.74%||0.80||18.86||0.13||1.13||32%|
Strattec Security (Nasdaq: STRT), the Milwaukee-based company, designs, develops, manufactures and markets automotive access control products primarily in the U.S., but also internationally, through the VAST Alliance. VAST is an alliance of WITTE Automotive from Velbert (Germany), Strattec Security from Milwaukee and ADAC Automotive from Grand Rapids and is directed by a single management team in order to effectively serve global customers.
STRT’s low D/E ratio is the result of a decrease in accounts payable by 22.8%, suggesting the company’s strength to achieve large-scale strategic goals. In Q4 2105 results (the company’s FY is in June) the company reported a net income growth of 28.3%, leading to a high EPS of $5.66 and a low payout ratio. Although there is no estimate for EPS going forward, STRT’s current EPS indicates the company’s ability to generate a steady stream of dividend for investors. A beta of 0.90 implies a safe investment, with a 3-year estimate of 0.77, although the stock’s YoY performance has experienced fluctuations.
|Stock name||Dividend Yield|
|Standard Motor Products||2.05|
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