Stock Analysis Pollie-style – DSM – 2018.
One of my goals for 2018 for my Vrijheid Fonds, is to diversify more (for all my goals for 2018, read my Goals 2018 post). Diversification is what saves my Vrijheid Fonds when the markets will hit a financial storm. I want to position myself appropriately to protect my Vrijheid Fonds and decrease my risk factor. In order to do this, I want to diversify geographically by investing more in European companies.
So I’ve been looking in Europe for possible additions for my Vrijheid Fonds. Of course the first stock market I looked at, is the oldest stock market in the world, The Euronext Amsterdam (maybe I’ll write a post about the origin of the stock market). I have selected a number of stocks on which I do some more research. Today is my first post on this search.
It is almost Kings day here in The Netherlands; therefore I set one of my filters on Royal 🙂 . I found Royal DSM; a global science-based company active in health, nutrition and materials.
So this analysis is on DSM (DSM.AS).
From Wikipedia: Royal DSM N.V. (Royal DSM, commonly known as DSM) is a Dutch multinational active in the fields of health, nutrition and materials. Headquartered in Heerlen, at the end of 2016 DSM employed 20,786 people in around 50 countries and posted net sales of €7,920 billion.
Can I explain this to a 10-year old? What Does This Company Do?
This company produces a lot of different ingredients for the food, pharmaceutical and personal care industry. And they also make plastics that are used electronics and automotive industry.
Dividend Aristocrat: DSM has paid a steady or rising dividend since 1995. As you, frequent readers of my site knows, most European companies prefer to keep its dividend stable and wait to do a big raise every two to three years. So a stable and every two to three years a rising dividend is a good sign for a European company. Furthermore DSM is a Morningstar 2 star company. DSM has paid (more) dividends for 22 consecutive years, but because it hasn’t raised its dividend for more than 25 years, it is a Fail!
Dividend Yield > 2.5%:The dividend Yield of DSM is 2.14%. This is below the industry average of 2.44%, and below its 5 years average (2.9%). The Yield is below the requirements of the Pollie-Code, and therefore it is a Fail.
Dividend payout <70%:The dividend payout is roughly 13%. This is below the maximum ratio, and that is what a DGI wants. DSM passes on this point.
DGR 1 year > 0%: The dividend growth rate for 1, 3, 5 and 10 years are 1.8, 6.1, 10.0 and 20.0. With a 3-years average around 6% this looks very good! And it is above the requirements of the Pollie-Code, so it is a Pass.
P/E-ratio < 15:This is an easy metric that is well documented. It can be used as a quick metric to identify stocks that may potentially be undervalued. I use this to identify stocks that may be discounted compared to the overall stock market. DSM has a current P/E ratio of 9.04. The industry average is 17.3. The P/E ratio is below the industry average and also way below its own 5-years average (19.2). The P/E-ratio is below the requirement of the Pollie-Code. So this is a Pass.
EPS > 0: The EPS is 3.92 Therefore DSM passed the sixth Pollie-Code
ROE > 10%:Return on equity measures a corporation’s profitability by revealing how much profit a company generates with the money shareholders have invested.The current ROE is 26.42%. This is another Pass.
Market Cap. > 100M:No problem at this point. The Market cap. Is more than $ 15.053 Mil. You guested it already: Another pass.
Chowder Rule > 12:Named after “Seeking Alpha” member Chowder. This is a method of identifying candidates for purchase based on a combination of yield and (5-year) dividend growth rate. When the sum of these elements is above 12%, the company presents an attractive entry point (8% for utilities). When the figure is above 8%, an existing holding is still considered worthy of being retained. The current Chowder rule is 12.14. So it is another Pass for DSM.
Stock price 52wk high-25%:The 52 wk. high and low are: 86.90 and 62.01. This means that DSM will be in my buying zone when the stock price is below 80.60 ((86.9-62.01)*0.75 + 62.02). At this moment DSM is trading for €87.16. Therefore it is a fail on the Pollie-Code.
Beta:I think it’s important to have low Beta stocks in my portfolio. This helps to have a stable income all the time, even when the market has a rapid decline. The Beta for DSM is 1.03.
Debt/Equity ratio: The Debt/Equity ratio of DSM is around 0.49. This is the kind of ratios I like to see for a company. 🙂
When I look at my analysis, DSM passed 7 out of 10 metrics of the Pollie-Code!! DSM isn’t a Dividend Aristocrat yet, the Dividend Yield isn’t high enough and at this moment it is trading a little bit to high for me.
For a European company, DSM has an impressive dividend record. They have a stable to progressive dividend policy. The dividend has remained at least the same in recent years and increased if possible. With the low payout ratio, DSM will be able to keep paying these dividends. And if we look at the current balance sheet, you can see that they can easily carry the dividend. Although the results are volatile, DSM Nutrition in particular is a company with a future.
If we take a look at their R&D, DSM writes:
“DSM is using its unique Bright Science – developed over the past 110 years – to create new solutions that enable brighter living for mankind”
They are pumping a lot of money every year in R&D, which in my humble opinion is the fuel for future dividends. I have read on the Internet, because DSM is a well-diversified company, the only real risk is a too large acquisition.
All this information together I certainly will put DSM on my watch list for my Vrijheid Fonds and when the price will drop, I will look even more attractive to me 😉 .
What are you – the readers, thoughts on DSM? Is it a buy, do you own it?
Please comment on my analysis and thanks for stopping by!
Disclaimer: I’m not a registered investment adviser, investment professional, brokerage firm or investment company. Readers are advised that information on the website is issued solely for information purposes and not to be construed as an offer or recommendation to buy, hold, or sell any securities. All information, opinions, and analyses included are based on sources believed to be reliable, but no representation or warranty is made concerning accuracy, correctness, timeliness, or appropriateness. Please consult with an investment professional before investing any of your money.