Newell Brands’ Shares Retreat 60%, Dividend Distribution Continues to Advance: Sell Signal or Buying Opportunity? (NWL)
By: Ned Piplovic,
While its share price declined nearly 60% over the past year, Newell Brands, Inc. (NYSE:NWL) continues to enhance its annual dividend distribution payouts. Investors may consider these moves as a signal to close positions and look for asset appreciation elsewhere or as a buying opportunity to take a position at a discounted price in an equity with rising dividends and potential long-term capital gain.
One of the reasons for the sharp share price decline is a pending litigation in which Newell Brands and some of the company’s executives are charged with violating federal securities laws because the executives failed to disclose material information between February 2017 and January 2018. The lawsuit claims that:
“(1) Newell Brands’ retail channel was loaded with extremely high levels of unsold Newell Brands product;----ADVERTISEMENT----
(2) contrary to defendants’ representations, the build-up of Newell Brands inventory in the retail channel was due to Newell Brands-specific rather than macroeconomic reasons;
(3) as a result of the unusually high levels of unsold inventory in the retail channel, Newell Brands was exposed to a heightened risk that it would experience slower sales growth in future periods; and
(4) undisclosed managerial and cultural differences in the legacy Newell Brands and Jarden businesses had created significant internal discord that was having a material adverse effect on the Newell Brands’ operating performance. When the true details entered the market, the lawsuit claims that investors suffered damages.”
Another reason for the share price fall is the potential impact of new tariffs, which the company estimates could have an annual impact of more than $100 million.
The share price reached its 52-week high of $50.74 on the second day of the trailing 12 months and the 52-week low occurred on the next to last of the trailing 12-month period as of this writing. The share price closed on August 14, 2018, at $20.65, which was 59% lower than it was one year earlier and just 1% above the 52-week low from the day before.
However, the dividend distribution payouts have been rising steadily since the company cut its annual dividend payout nearly 70% in the first two quarters of 2009. The company also missed a dividend hike in 2016. Therefore, the current consecutive hikes streak stands at just two years, with a 21% total annual dividend boost and an average growth rate of 10% per year. However, the company has enhanced its total annual dividend distribution amount 360% since 2010, which corresponds to a much higher average growth rate of 21% per year.
The company’s next round of dividend distributions will occur on September 14, 2018. On that date, the company will distribute its next round of dividends to all shareholders of record before the August 30, 2018, ex-dividend date.
Newell Brands, Inc. (NYSE:NWL)
Headquartered in Hoboken, New Jersey, and founded in 1903, Newell Brands Inc. designs, manufactures and distributes consumer and commercial products. The company’s Live segment offers household products, baby gear, infant care and health products under multiple brands. The Learn segment offers writing instruments, art products, adhesive and cutting products, fine writing instruments, labeling solutions and academic regalia. Additionally, the Work segment offers cleaning products, hygiene systems, material handling solutions, consumer and commercial totes, as well as commercial food service and premium tableware products. The Play segment offers products for outdoor and outdoor-related activities. Finally, the company offers plastic products, such as plastic cutlery and rigid packaging, beauty products, vacuum cleaning systems and gaming products. The company distributes its products under some well-known consumer brands, such as Calphalon, Crock-Pot, Graco, Mr. Coffee, NUK, Oster, Rubbermaid, Sunbeam, Yankee Candle, Dymo, Elmer’s, Expo, Mr. Sketch, Paper Mate, Parker, Sharpie, Waterman, Coleman and X-Acto.
The company’s current $0.23 quarterly dividend distribution is equivalent to a $0.92 annualized payout and a 4.5% dividend yield, which is more than double the company’s 2.2% five-year average. Unfortunately, only a portion of the yield’s growth over the past five years came from the annual dividend increases. A significant contributor to the yield rise was the sharp share price dividend decline over the last year.
The company’s current primary focus is executing its Transformation Plan with the attention on restructuring the company into a more efficient operation with a focus on its core businesses. As part of this program, the company already sold off The Waddington Group and Rawlings Sporting brands. The company also announced a tentative agreement with ACON Investments, L.L.C. private equity investment firm to divest Goody Products, Inc. Additionally, Newell Brands is seeking to divest Jostens and Pure Fishing, as well as exploring alternatives strategies for some of it other business, including U.S. Playing Cards, Process Solutions, Beauty, Consumer & Commercial Solutions and Team Sports.
While the company is in transition, the share price is highly likely to continue its downtrend. Some investors will certainly seek to exit their position and look for higher returns elsewhere. Alternatively, if Newell Brands’ Transformation Plan is successful, the lawsuit outcome is favorable and if the anticipated tariffs do not materialize, the share price could reverse its downtrend and, combined with the rising dividends, offer patient and risk-averse investors an opportunity for significant total returns over an extended time horizon. Investors will have to make their own evaluation and decide which strategy aligns best with their own investment goal and portfolio strategy.
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