I hadn't looked at DE closely before, for some of the same reasons that you cited, Tom. But I saw some positive articles on it recently, and then your post, so I decided to run it through its paces. I have to say, it scores pretty solidly. In my system, it scores a 72, which puts it right in the same neighborhood as stocks like COP and WFC.
I'm not really sure I have a strong grasp of how "cyclical" stocks like this work, but when I look at its medium and long-term charts, it certainly looks a bit more volatile than the S&P or, say, KO.
DE has a solid 10-year streak of dividend raises going, which seems almost surely to be 11 soon. Earnings have been growing very solidly in recent years. Earnings took a beating in the 2009 recession, but since have grown in pretty linear fashion from $2.06 to an estimated $8.82 in 2013. (Note, however, that earnings were over $4.00 prior to the recession, so I've picked a favorable starting point for comparison.) At today's price of about $84.50, you get a P/E ratio in the 9 to 10 range, which is darned reasonable, in my book, even for a "cyclical."
Dividends have grown steadily also, with a five-year dividend growth rate of 13.6 percent, by my math. DE will have paid out $2.04 per share by the time 2013 is done. That puts DE's payout ratio around 23 percent -- tons of headroom for continued raises, even if earnings do not continue to grow at the same rate as recent years.
The only obvious weak link is the initial yield, which is an unexciting 2.4 percent at today's prices. It is not that bad, but you can do better elsewhere. If it were combined with big dividend growth, I might feel better, but even growing at 10 percent a year, your yield on cost in 2023 will still be under 6.5 percent. The payout ratio suggests they could raise the divvy faster, but -- just guessing here -- a "cyclical" stock might want to hold a little back for the slower years, so I wouldn't count on an accelerating dividend growth rate.
At any rate, DE scores well as a dividend growth stock the way I look at them. I doubt I'll pull the trigger any time soon, but I will certainly be adding it to my "watch closely" list and will start reading more about it to get a better feel for the company and its prospects going forward.
I'm not really sure I have a strong grasp of how "cyclical" stocks like this work, but when I look at its medium and long-term charts, it certainly looks a bit more volatile than the S&P or, say, KO.
DE has a solid 10-year streak of dividend raises going, which seems almost surely to be 11 soon. Earnings have been growing very solidly in recent years. Earnings took a beating in the 2009 recession, but since have grown in pretty linear fashion from $2.06 to an estimated $8.82 in 2013. (Note, however, that earnings were over $4.00 prior to the recession, so I've picked a favorable starting point for comparison.) At today's price of about $84.50, you get a P/E ratio in the 9 to 10 range, which is darned reasonable, in my book, even for a "cyclical."
Dividends have grown steadily also, with a five-year dividend growth rate of 13.6 percent, by my math. DE will have paid out $2.04 per share by the time 2013 is done. That puts DE's payout ratio around 23 percent -- tons of headroom for continued raises, even if earnings do not continue to grow at the same rate as recent years.
The only obvious weak link is the initial yield, which is an unexciting 2.4 percent at today's prices. It is not that bad, but you can do better elsewhere. If it were combined with big dividend growth, I might feel better, but even growing at 10 percent a year, your yield on cost in 2023 will still be under 6.5 percent. The payout ratio suggests they could raise the divvy faster, but -- just guessing here -- a "cyclical" stock might want to hold a little back for the slower years, so I wouldn't count on an accelerating dividend growth rate.
At any rate, DE scores well as a dividend growth stock the way I look at them. I doubt I'll pull the trigger any time soon, but I will certainly be adding it to my "watch closely" list and will start reading more about it to get a better feel for the company and its prospects going forward.