Is National Presto Industries the Perfect Stock?

Every investor would love to stumble upon the perfect stock. But will you ever really find a stock that provides everything you could possibly want?

One thing's for sure: You'll never discover truly great investments unless you actively look for them. Let's discuss the ideal qualities of a perfect stock, then decide if National Presto Industries (NYSE: NPK  ) fits the bill.

The quest for perfection
Stocks that look great based on one factor may prove horrible elsewhere, making due diligence a crucial part of your investing research. The best stocks excel in many different areas, including these important factors:

  • Growth. Expanding businesses show healthy revenue growth. While past growth is no guarantee that revenue will keep rising, it's certainly a better sign than a stagnant top line.
  • Margins. Higher sales mean nothing if a company can't produce profits from them. Strong margins ensure that company can turn revenue into profit.
  • Balance sheet. At debt-laden companies, banks and bondholders compete with shareholders for management's attention. Companies with strong balance sheets don't have to worry about the distraction of debt.
  • Money-making opportunities. Return on equity helps measure how well a company is finding opportunities to turn its resources into profitable business endeavors.
  • Valuation. You can't afford to pay too much for even the best companies. By using normalized figures, you can see how a stock's simple earnings multiple fits into a longer-term context.
  • Dividends. For tangible proof of profits, a check to shareholders every three months can't be beat. Companies with solid dividends and strong commitments to increasing payouts treat shareholders well.

With those factors in mind, let's take a closer look at National Presto Industries.

Factor

What We Want to See

Actual

Pass or Fail?

Growth

5-Year Annual Revenue Growth > 15%

16.3%

Pass

 

1-Year Revenue Growth > 12%

(5.7%)

Fail

Margins

Gross Margin > 35%

22.7%

Fail

 

Net Margin > 15%

12.4%

Fail

Balance Sheet

Debt to Equity < 50%

0%

Pass

 

Current Ratio > 1.3

5.99

Pass

Opportunities

Return on Equity > 15%

18.6%

Pass

Valuation

Normalized P/E < 20

11.44

Pass

Dividends

Current Yield > 2%

8.9%

Pass

 

5-Year Dividend Growth > 10%

1.7%

Fail

       
 

Total Score

 

6 out of 10

Source: S&P Capital IQ. Total score = number of passes.

With a score of 6, National Presto Industries does a good job of reaching toward perfection. The company has a somewhat odd mix of businesses, but together, they produce dividends that escape the notice of many investors.

National Presto combines three businesses in one. As a defense contractor, the company makes ammunition and ordnance for the military. But many consumers know its Presto small appliance line best, including coffeemakers and pressure cookers. Finally, the company also makes adult incontinence products that compete against Kimberly-Clark (NYSE: KMB  ) .

One thing that makes the company stand apart is its unconventional dividend policy. Rather than having a high regular dividend, National Presto routinely declares special dividends that boost its total payout immensely. For instance, its current regular dividend is only about an eighth the size of its total yield including special dividends.

But that doesn't mean National Presto doesn't face challenges. Just like fellow defense contractors Raytheon (NYSE: RTN  ) , General Dynamics (NYSE: GD  ) , and Boeing (NYSE: BA  ) , National Presto is vulnerable to the changing whims of the federal government.

But shareholders have a couple things on their side. First, the company's valuation already reflects those uncertainties. Moreover, CEO Maryjo Cohen owns about 25% of the company -- showing that management has its interests aligned with those of investors.

All in all, National Presto has a lot going for it. It's not perfect, as sales have slipped recently and margins aren't as high as they could be. But if you like dividends, you'll have trouble finding better candidates than National Presto.

Keep searching
No stock is a sure thing, but some stocks are a lot closer to perfect than others. By looking for the perfect stock, you'll go a long way toward improving your investing prowess and learning how to separate out the best investments from the rest.

Click here to add National Presto Industries to My Watchlist, which can find all of our Foolish analysis on it and all your other stocks.

Finding the perfect stock is only one piece of a successful investment strategy. Get the big picture by taking a look at our "13 Steps to Investing Foolishly."

Fool contributor Dan Caplinger doesn't own shares of the companies mentioned. The Motley Fool owns shares of National Presto Industries, Raytheon, and General Dynamics. Motley Fool newsletter services have recommended buying shares of Kimberly-Clark. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool has a disclosure policy.


Read/Post Comments (2) | Recommend This Article (2)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On November 08, 2011, at 11:29 PM, MonsterFluff wrote:

    The dividend has increased 785X over 9 years--a little better than 1.7 over 5 years. Since 2006, it has gone up 284-fold

    Sometimes these articles would do well to actually look at the company rather than relying on CapIQ [as good as it is]. It does not always give reliable info.

    The yield if the $8.15 is used is a rather acceptable 8.8%

    These canned articles are annoying and fewer articles with better research would be much appreciated

    Thanks for making me look it up--looks like a nice one for the list of things to do this weekend

    Dividends Paid per Share

    ====================

    2010 2009 2008 2007 2006 2005

    ========================================

    $8.15 5.55 4.25 3.80 2.12 1.67

    2004 2003 2002

    =======================

    0.92 0.92 0.92

  • Report this Comment On November 20, 2011, at 10:11 AM, purdys wrote:

    The company has a standing $1.00 / share annual dividend payable once a year. On top of that they return Special dividends also once a year.

    I agree the yield is rather acceptable, while adjustable. The 1.00 / year declaration excludes it from being returned on many a dividend search. It also trades very thinly.

    I for one am looking forward to the stock climing to near 125.00+ by the march dividend date, with a 6.50+ dividend paycheck.

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