Full Disclosure: At the time of this writing, I held no position in WEYS (0.0% of my Income Portfolio). See a list of all my income holdings here.
Company Description: Weyco Group, Inc. distributes, wholesale & retail, men's branded footwear in the U.S., Canada, Europe; offers casual footwear, dress shoes and accessories under Florsheim, other brands.
Fair Value: I consider four calculations of fair value, see page 2 of the linked PDF for a detailed description:
1. Avg. High Yield Price
2. 20-Year DCF Price
3. Avg. P/E Price
4. Graham Number
WEYS is trading at a discount to only 1.) above. The stock is trading at a 7.8% discount to its calculated fair value of $24.88. WEYS earned a Star in this section since it is trading at a fair value.
Dividend Analytical Data: In this section there are three possible Stars and three key metrics, see page 2 of the linked PDF for a detailed description:
1. Free Cash Flow Payout
2. Debt To Total Capital
3. Key Metrics
4. Dividend Growth Rate
5. Years of Div. Growth
6. Rolling 4-yr Div. > 15%
WEYS earned three Stars in this section for 1.), 2.) and 3.) above. A Star was earned since the Free Cash Flow payout ratio was less than 60% and there were no negative Free Cash Flows over the last 10 years. The stock earned a Star as a result of its most recent Debt to Total Capital being less than 45%. WEYS earned a Star for having an acceptable score in at least two of the four Key Metrics measured. Rolling 4-yr Div. > 15% means that dividends grew on average in excess of 15% for each consecutive 4 year period over the last 10 years (2000-2003, 2001-2004, 2002-2005, etc.) I consider this a key metric since dividends will double every 5 years if they grow by 15%. The company has paid a cash dividend to shareholders every year since 1973 and has increased its dividend payments for 29 consecutive years.
Dividend Income vs. MMA: Why would you assume the equity risk and invest in a dividend stock if you could earn a better return in a much less risky money market account (MMA)? This section compares the earning ability of this stock with a high yield MMA. Two items are considered in this section, see page 2 of the linked PDF for a detailed description:
1. NPV MMA Diff.
2. Years to > MMA
WEYS earned a Star in this section for its NPV MMA Diff. of the $5,378. This amount is in excess of the $600 target I look for in a stock that has increased dividends as long as WEYS has. If WEYS grows its dividend at 15.0% per year, it will take 3 years to equal a MMA yielding an estimated 20-year average rate of 3.71%. WEYS earned a check for the Key Metric 'Years to >MMA' since its 3 years is less than the 5 year target.
Other: WEYS is a Dividend Champion.
Conclusion: WEYS earned one Star in the Fair Value section, earned three Stars in the Dividend Analytical Data section and earned one Star in the Dividend Income vs. MMA section for a total of five Stars. This quantitatively ranks WEYS as a 5 Star-Strong Buy.
Using my D4L-PreScreen.xls model, I determined the share price would need to increase to $50.40 before WEYS's NPV MMA Differential decreased to the $600 minimum that I look for in a stock with 29 years of consecutive dividend increases. At that price the stock would yield 1.23%.
Resetting the D4L-PreScreen.xls model and solving for the dividend growth rate needed to generate the target $600 NPV MMA Differential, the calculated rate is 7.7%. This dividend growth rate is well below the 15.0% used in this analysis, thus providing a significant margin of safety. WEYS has a risk rating of 1.00 which classifies it as a medium risk stock.
During the first half of 2010, WEYS generated $7.9 million in cash from operating activities this was down from the $20.8 million in the same period one year ago. Cash from operations in 2010 was used mainly to pay dividends and to fund the $2.5 million Umi acquisition, a children’s footwear company, that closed on April 28, 2010. With no debt and a free cash flow payout of 22%, the company is well-positioned to weather the current downturn. WEYS is currently trading below my fair value price of $24.88. For additional information, including the stock's dividend history, please refer to its data page.
Disclaimer: Material presented here is for informational purposes only. The above quantitative stock analysis, including the Star rating, is mechanically calculated and is based on historical information. The analysis assumes the stock will perform in the future as it has in the past. This is generally never true. Before buying or selling any stock you should do your own research and reach your own conclusion. See my Disclaimer for more information.
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