Casey’s General Stores Stock Analysis

Casey’s General Stores, Inc. (CASY), together with its subsidiaries, operates convenience stores under the Casey’s General Store, HandiMart, and Just Diesel names in 11 Midwestern states, primarily Iowa, Missouri, and Illinois. This dividend achiever has paid dividends since 1990 and increased distributions on its common stock for 12 years in a row.

The company’s last dividend increase was in February 2012 when the Board of Directors approved a 11.10% increase to 15 cents/share. The company’s largest competitors include Weis Markets (WEIS), Supervalu (SVU) and Fresh Market (TFM).

Over the past decade this dividend growth stock has delivered an annualized total return of 18% to its shareholders.

The company has managed to deliver a 14.80% in annual EPS growth since 2002. Analysts expect Casey’s to earn $3.11 per share in 2012 and $3.54 per share in 2013. In comparison Casey’s earned $2.22/share in 2011.

Casey’s has managed to earn a higher return on equity over the past decade. In fact, this indicator increased from 9% in 2002 to 15.40% in 2011. Rather than focus on absolute values for this indicator, I generally want to see at least a stable return on equity over time.

The annual dividend payment has increased by 21.70% per year over the past decade, which is higher than to the growth in EPS. This has led to an expansion in the dividend payout ratio for the company.

A 22% growth in distributions translates into the dividend payment doubling almost every three and a half years. If we look at historical data, going as far back as 1990 we see that Casey’s has actually managed to double its dividend every four and a half years on average. The dividend payout ratio has increased over the past decade, rising from a low of 12.50% in 2002 to almost 23% in 2011. This explains the fact that dividend growth has been faster than earnings growth over the past decade. A lower payout is always a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings.

Currently, Casey’s is attractively valued at 18.70 times earnings, and has an adequately covered dividend. It only yields 1.10%, which is too low per my entry criteria. I would consider adding a quarter position in this stock on weakness and see how it plays out.

 Full Disclosure: Long CASY

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