Most of us should be familiar with consumer-products company WD-40
The company reported a 17% increase in net sales for the second quarter, good for $71.5 million. Operating income jumped 29% to just more than $12 million. Net income appreciated 37% to $7.2 million, or $0.43 per diluted share. Not bad at all.
Net cash provided by operating activities for the six-month time frame increased slightly less than 10% to $13.6 million. Although the intrayear cash flow comparison can be tough, free cash flow (operating cash minus fixed costs related to property, plant, and equipment outlays) increased 5% to $11.7 million. That's not huge growth, to be sure, but it's more than enough to cover the $7.3 million of dividends paid to shareholders.
Let's see how WD-40 fared as far as margins are concerned. The gross profit margin came in at 48%, the operating margin was 16.9%, and the net profit margin was 10.1%. If we check this data against Rich Smith's Foolish Forecast tool, we observe that the margins are in decline, both on a rolling basis and a year-over-year basis. This isn't too much of a surprise, because input prices are increasing. In fact, CEO Garry O. Ridge believes that price increases will be necessary.
Margin trends are very important; they obviously define how profitable a company can be. But I want to take a look now at WD-40's dividend history.
Although the dividend has risen as of late, it can be seen from the link that this is a tale of stagnation and decline. This doesn't mean that the company won't ever become an unambiguous dividend blue chip from this point on (in other words, don't let the past completely dictate your decisions), but my own personal bias for long-term dollar-cost-averaging plays with companies like these is to find those that have been able to raise the payouts year after year. WD-40 just doesn't inspire confidence in this area.
WD-40 hasn't been a bad investment over the years, but I personally prefer companies like Clorox
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Fool contributor Steven Mallas owns shares of none of the companies mentioned. The Fool has a disclosure policy.
