Today’s recommendation was chosen by Todd Johnson of Dividend Lab for its robust growth and sustained dividend payments. The company has managed to expand at a very strong annual rate over the last 10 years, and has been paying dividends since 2007.
Herbalife Ltd. (HLF)
from Dividend Lab
Herbalife Ltd (HLF) was founded in 1980 by Mark Hughes, who sold his original Formula 1 protein shake and other health and wellness formulations out of the trunk of his car and through network marketing in Los Angeles. Today, Formula 1 is the world’s top-selling diet replacement product.
Over the past three years, the company’s revenue has increased at a 20% CAGR and profits are up 33%. The company’s go-to-market strategy involves city-by-city expansion with on-the-ground sales and marketing, events and sponsorships, buttressed by technology-based infrastructure for global expansion.
Over the past 10 years, Herbalife has delivered total annualized returns of 29% (inclusive of dividends, not reinvested) versus 5.1% returns on the S&P 500 index. I own Herbalife as a dividend growth stock. The earnings continue to grow.
Herbalife initiated dividends in 2007 and has since returned $2.1 billion to shareholders (as of June 30, 2013), with $70.3 million paid in the first half of 2013. The company currently pays a quarterly dividend of $0.30 per share ($1.20 annualized), unchanged over the prior year quarter, with a 1.7% current yield that is slightly above the 1.1% to 1.2% yields of its publicly traded competitors Avon Products (AVP), Nu Skin (NUS), Nature’s Sunshine (NATR) and GNC Holdings (GNC) but still lags the 10-y Treasury yield of 2.6%.
In 1Q13, the company spent $162.4 million to repurchase four million common shares in the open market at an average cost of $40.61 per share. The company held off on buybacks in 2Q13 as it switched auditors. On July 30, 2013, the company announced a new leveraged $1 billion share repurchase program (through June 30, 2017) that adds to its earlier authorization, and could significantly reduce float.
Herbalife (HLF) shares are up 116% year-to-date but could still double from current levels to reach $147 by 2018. Based on 15.1% consensus EPS growth estimates, FAST Graphs has a share price target of about $147 by 2018 with 16.5% total annualized returns including dividend growth that is projected to yield 3.4% in five years. ...
For FY 2013, the company expects volume growth in the range of 11.5% to 13.5% and adjusted EPS of $4.83 to $4.95. Adjusted EPS for the third quarter is expected to be between $1.09 and $1.13. ...
Herbalife management has done an excellent job of growing revenues and profits over the 33 years since its founding in 1980. The company has built up strong cash reserves and is committed to raising dividends. It also ramped up borrowings to buyback shares, with a large purchase imminent. ...
Data such as its strong financials for the 15th consecutive quarter, low debt, high commitment to returning investor capital, global growth opportunities and share price upside make this an attractive long-term buy.
Todd Johnson, Dividend Lab, www.dividendlab.com, 505-514-0036, September 29, 2013