Diebold (DBD) Dividend Stock Analysis

Diebold (DBD) is a maker of security systems for financial, commercial, government, and retail customers. Diebold’s products include automated teller machines, electronic and physical security systems.  DBD is also branching out into newer product areas like self-service check out stations and electronic voting machines.  54% of sales in 2012 came from services provided by the company and the remaining 46% of sales came from products.  North American Sales represented 53% of total sales.

 

DBD Basic Company Stats

• Ticker Symbol: DBD
• PE Ratio: N/A
• Yield: 3.8%
• % above 52 week low: 37.9%
• Beta: 1.24
• Market cap: $1.49 B
• Website: www.diebold.com
  

 

DBD vs the S&P500 over 10 years

DBD has been underperforming the S&P500 over the last 10 years.  An investment in DBD would have lost 28% of its value over the last 10 years, while a comparable investment in the S&P500 would have appreciated by about 75%.

 

DBD Earnings Per Share (EPS) & Dividend Growth

• 1 year EPS growth: -42.6%
• 5 year EPS growth: -4.2%
• 10 year EPS growth: -6.7%

 

EPS growth for DBD over the last 10 years has been generally downwards, despite a few bumper years (eg. 2003, 2004, 2011)

 

• 1 year dividend growth: 1.8%
• 3 year dividend growth: 2.7%
• 5 year dividend growth: 3.3%
• 10 year dividend growth: 5.9%

 

DBD’s dividend growth has been anemic over the last 10 years or so and appears to be decelerating as well.

With a starting yield of 3.8% and a growth rate of about 2.0%, DBD’s yield on cost will grow to well in excess of 4.8% in 10 years.  In order to double the dividend, using the rule of 72, it will take about 32 years.

 

DBD Payout Ratio

DBD’s payout ratio has been erratic to say the least.  But that’s to be expected given the inconsistent earnings.  The payout ratio has generally been over 60% for the last 8 years.  The 2010 bar is missing since 2010 earnings were negative, making the ratio nonsensical to calculate.

 

DBD Cash Flow & Revenue Growth

• 1 year revenue growth: 5.5%
• 3 year revenue growth: 2.9%
• 5 year revenue growth: -1.4%
• 10 year revenue growth: 4.0%

 

Cash flow for DBD has generally mirrored EPS, which has been inconsistent at best.  The good part about DBD so far are the respectable levels of revenue growth.

 

DBD Balance Sheet

The current debt to equity ratio for DBD is 73%.  Overall it appears that DBD’s debt load has been steadily increasing over time.

 

DBD Risks

There are a couple of risks surrounding DBD that are worth mentioning.  First, as described above, DBD makes a large number of products and services for the financial services industry.  The financial industry was hit very hard in the Great Recession and has not yet fully recovered.  As you might expect, DBD’s sales also took a hit in the recession and haven’t recovered yet either.

Speaking of sales, that brings me to point number two.  Namely, that DBD’s sales are struggling and may continue to struggle for some time.  Not only because of the recession, but also because DBD doesn’t have much in terms of an economic moat.  Security services and ATMs aren’t exactly difficult industries for competitors to enter and thrive in.

 

DBD Valuation Panel

Graham Number

The Graham number represents one very simple way to value a stock. DBD’s current forward earnings are negative making the Graham number impossible to compute.

If we use last year’s earnings, the Graham number for DBD is $16.81.  The stock price is higher than the Graham number, suggesting that DBD may be overvalued valued at the moment.

Two Stage Dividend Discount Model

This model isn’t worth using as DBD’s dividend growth is so slow that a one stage model is quite sufficient.

One Stage (Gordon Growth) Dividend Discount Model

Using a risk free rate of 2%, an expected return of 10% and the beta of 1.24, the CAPM model provides a discount rate of 19.9%.  Using a growth rate of 2.5%, the one stage model returns a value of$16.71, suggesting that DBD is overvalued.  Using a 10% discount rate, the one stage model returns a value of $38.81, suggesting that DBD is undervalued.

Valuation Conclusion

The valuation models are mixed, with one saying DBD is overvalued and one saying the opposite.

 

DBD Cash Secured Puts

I’m not interested in buying DBD at present, so I probably wouldn’t sell puts against it.

 

Conclusions

After doing this valuation, I don’t feel that DBD is a solid investment at this time.  While I like the yield and feel encouraged by their steady revenue growth, nothing else about the company really excites me.

 

Disclosure: Nothing to disclose.

Readers:  What are your opinions about Diebold?