Friday, October 17, 2008

Philips Electronics (PHG) Stock Dividend Analysis

Koninklijke Philips Electronics N.V. operates as an electronics company with activities in healthcare, lighting, and consumer lifestyle markets worldwide. The company’s products include imaging systems, ultrasound and monitoring solutions, and healthcare informatics.

PHG is an international dividend achiever. It has been increasing its dividends for the past six consecutive years. From the end of 1999 up until early September 2008 this dividend stock has delivered an annual average total return of 8.20 % to its shareholders. The stock has lost about 56% of its value so far in 2008.

At the same time company has managed to deliver a no annual increase in its earnings per share since 1999.

The return on equity fluctuated between 0% and 60% over the past decade.

Annual dividend payments have increased over the past 10 years by an average of 14.20% annually, which is much higher than the growth in earnings per share. A 14% growth in dividends translates into the dividend payment doubling almost every five years.

If we invested $100,000 in PHG on December 31, 1998 we would have been able to purchase 5671 shares (Adjusted for a 4:1 Stock Split in April 2000). In March 1999 your annual dividend income would have been $1619. If you kept reinvesting the dividends though instead of spending them, your annual dividend income would have risen to $6927 by March 2008. For a period of 10 years, your annual dividend income would have increased by 273%. If you reinvested it though, your annual dividend income would have increased by 328%.

The dividend payout remained under 50% for the majority of our study period. Currently the dividend payout ratio is at 15%. I consider a lower payout as a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings.

PHG does look attractively valued with its low price/earnings multiple of 5.30, low dividend payout ratio at 15%, as well as attractive yield at 5.10%. The main issue that I have with this stock as a dividend growth investor is that the dividend payments tend to fluctuate a lot. The flat earnings over the past decade are another red flag to consider. The main positive is that the payout ratio is so low that even if earnings were to remain flat for the next decade PHG could still achieve double digit dividend growth.

Disclosure: I do not own shares of PHG
Relevant Articles:

Popular Posts