Dividend stocks are everywhere, but many just downright stink. In some cases, the business model is in serious jeopardy, or the dividend itself isn't sustainable. In others, the dividend is so low, it's not even worth the paper your dividend check is printed on. A solid dividend strikes the right balance of growth, value, and sustainability.
Today, and one day each week for the rest of the year, we're going to look at one dividend-paying company that you can put in your portfolio for the long term without too much concern. This isn't to say that these stocks don't share the same macro risks that other companies have, but they are a step above your common grade of dividend stock. Check out last week's selection.
This week, we'll turn our attention to a household brand probably found in your cupboards or fridge: Tupperware Brands (TUP 0.29%).
It's more than just plastic storage bins
Probably the biggest obstacle for Tupperware to overcome is the simple fact that it's a retailer of plastic storage and personal-care products, and investors have a difficult time trying to assess where growth is going to come from. One needs only to look at Avon Products (AVP) for all the reason there's skepticism in representative-led retailing brands. Avon Products has struggled with high representative turnover and slow growth in domestic markets, which has hampered its results. In addition, Avon shareholders were shafted when its management team turned down a very reasonable $10.7 billion offer from privately held Coty. Avon shares haven't traded anywhere near the buyout offer price since its rejection.
Tupperware can share in a few of Avon's concerns – specifically, slower growth in established domestic and European markets. Higher payroll taxes and weakening consumer confidence in the U.S. have caused consumers to be more cost-conscious and even hold off on purchases. Europe's situation is even more dire, with Cyprus' bailout being tacked onto four additional bailouts in the region over the previous three years. As European nations focus on reducing their budgets, spending among consumers in the EU will come at a premium.
In Tupperware's annual report, filed in late January, it reported a 7% decline in European sales and a 12% decline in its North American beauty business. That may not sound too encouraging, but I assure you, there are plenty of factors that make Tupperware a fantastic long-term investment and a great income play.
The Tupperware advantage
First and foremost, Tupperware is focusing its efforts on emerging markets. Emerging markets of all forms offer Tupperware growth that it simply can't get in more established and saturated markets. In addition, emerging markets are often immune to the slowdowns seen in more established markets, giving Tupperware the ability to grow strongly even when U.S. growth is weak. According to CEO Rick Goings, emerging markets make up 60% of Tupperware's total sales, which leaves the company multiple avenues for achieving growth. In the Asia-Pacific region and South America, Tupperware recorded gains of 9% and 16%, respectively, in year-over-year total sales.
Likewise, competitor Newell Rubbermaid (NWL 3.16%) has taken to emerging markets to boost its bottom line. Latin American growth, for instance, nearly hit 17% annually for the maker of Rubbermaid products. But comparatively, Newell Rubbermaid is far less diversified than Tupperware, deriving just 27% of sales outside the U.S. and Canada and exposing it to economic slowdowns in those countries.
Second, it's all about marketing and pricing. There are few companies out there with as long and successful a history of word-of-mouth advertising than Tupperware. Its products, which are priced to appeal to cost-conscious consumers, are sold through a network of enthusiastic sales representatives known, in the past, for throwing parties to get neighbors and family members excited about the product. As The New York Times noted in December, the solar industry is taking a cue from Tupperware's marketing strategy by encouraging solar customers to use word-of-mouth to help sell the benefits of at-home solar. SolarCity (SCTY.DL), which rents and leases solar panels for consumer use, has benefited from this strategy by establishing party-plan programs in key markets.
Popping the dividend lid
What makes Tupperware truly stand out from the crowd is its shareholder-first ethos, which has been marked by steady share repurchases and huge dividend increases in the past couple of years. Since 2007, Tupperware has repurchased 15.5 million shares of its stock for $828 million. Running the math, that works out to $53.42 per share, compared with Thursday's closing price of $81.74. In short, Tupperware's cash usage has been divvied out wisely, and it recently boosted its open-market purchase authorization to $2 billion from $1.2 billion through 2017.
Share-repurchase decisions aren't always a smart move, as representative-based health-products model Herbalife (HLF 1.86%) has shown. In its fourth-quarter report, Herbalife noted that it had repurchased 4 million shares at an average price of $40.61 since Dec. 31, 2012. With the company trading at $37.45 currently, Herbalife is turning more into less.
Tupperware's dividend growth in the past three years has been beyond phenomenal. Improving on its longtime stance of returning approximately one-third of profits to shareholders, Tupperware has bumped that figure up to 50% of its diluted EPS. That bump created the perhaps the most phenomenal dividend boost that we witnessed in the first quarter, with Tupperware ramping its quarterly dividend up to $0.62 from $0.36 -- a 72% increase!
While dividend increases aren't a guarantee for Tupperware shareholders, over the past four years they've seen the dividend increase by a whopping 173%, or an annualized 28.5% per year. Based on Tupperware's adjusted forecast of $5.62-$5.77 in EPS in 2013, combined with the expectation of $400 million in share repurchases, Tupperware is right in line to deliver a bountiful 3.1% yield that's easily sustainable.
Sometimes there's nothing like the sustainability of a brand-name retailer. Tupperware offers investors the chance to own an easily recognizable name that has ample geographic diversity to deliver predictable cash flow and plenty of emerging-market growth. If that's not enough to tip the scales in Tupperware's favor, its consistent share-repurchase program and surging dividend growth with a yield in excess of 3% are bound to turn heads. This is a dividend stock you can set and forget.