Bill Miller seems befuddled. In his July 2010 commentary, he wonders why investors keep purchasing 10-year treasuries yielding about 3%, when companies like ExxonMobil offer much higher potential returns.
His formula for Exxon is straightforward: "A sum of the dividend yield, growth rate and share shrink could represent an attractive annual return even if the valuation stays the same, and the valuation is among the lowest the company has traded at in years." When you add up the components, Exxon could offer 16.4% returns per year in a low-return environment.
I'm no less baffled than Miller by investors' preference for bonds, but I do think he's on to something. To see whether more Miller-like opportunities like Exxon were out there, I looked for companies with:
- A dividend yield greater than the 3% 10-year treasury yield
- A five-year track record of dividend growth
- A history of repurchasing shares
- A P/E less than 25
Here's what I found:
|
Company |
Yield |
5-Yr Div. Growth |
Share Shrink |
P/E |
|---|---|---|---|---|
|
Courier Corporation |
5.3% |
23.8% |
0% |
17.0 |
|
John Wiley & Sons Inc. |
1.6% |
13.3% |
0% |
16.3 |
|
The McGraw-Hill Companies, Inc. |
3% |
7.9% |
0% |
12.3 |
Source: Capital IQ, a division of Standard & Poor's.
From the table above, Courier Corporation fits most of Miller's criteria. It pays a 5.3% dividend that has been growing 23.8%, on average, for the past five years. The company also trades at just more than 17 times earnings, and although it's only repurchased shares once in the past 5 years, it produces enough cash flow to do so in the future. John Wiley certainly looks good, but its dividend yield trails Courier Corporation's. McGraw-Hill brings up the rear in term of dividend growth.
Foolish bottom line
Would Bill Miller consider investing in Courier Corporation? It meets the majority of criteria above, and it could offer a 29.1% return over time -- although it will be hard for the company to maintain such a dividend growth rate. In today's low-return environment, that's pretty attractive. I don't know why the market is offering up this opportunity, but as long as it is, Courier Corporation could be worth pursuing further.
