Estée Lauder (EL); Poor revenue growth and low yield despite 13% dividend increase

Estée Lauder’s (NYSE: EL) dividend was increased by 13% with an overall yield below that of the S&P 500 Index at 1.57%. Estée Lauder markets a variety of consumer products including makeup, fragrances, hair care products, and skin care. It sells by its primary brand name but also under Aveda, Clinique, and Aramis.

Most of the sale for products of EL come department stores. It also sells products in perfume stores, pharmacies, and discount retailers.  Estée Lauder has paid dividends on a consecutive basis for 20 years.  It currently ranks 8th in yield within the large cap consumer goods – personal products category. Estée Lauder has maintained a solid three-year growth rate of dividends of 8 percent. Estée Lauder also issued earnings and revenue for Q3 on Wednesday.  The beauty firm reported $0.84 in earnings per share for the quarter. This was four cents above estimates. However, revenue earned of $2.9 billion did not meet analyst expectations. Its return on equity (ROE) is superb, at 33%.

For future guidance for Q4, Estée Lauder estimated EPS of $1.12, much lower than the $1.31 average analyst estimate. The firm’s guidance for fiscal year 2017 was $3.38-3.44 in EPS.  Analysts surveyed by FactSet were projecting 2017 earnings of $3.47 per share. Due to the revenue miss for Q3 and poor earnings forecasts, Estée Lauder’s stock price dropped to $80.41, a new 52-week low.

The quarterly dividend for the December payment will be $0.34 versus the prior year rate of $0.30 per share. Estée Lauder does not qualify as a member of our Top 100 Dividend Stocks (see below).

The dividend will be paid at the new higher rate on December 15, 2016, to shareholders of record at close of business on November 30, 2016. Estée Lauder is currently priced at $80.41. Listed in the table below are the quarterly dividend payments since 2010.

Date Quarterly Dividend
11/30/2016 0.34
8/29/2016 0.3
5/26/2016 0.3
2/25/2016 0.3
11/25/2015 0.3
8/27/2015 0.24
5/27/2015 0.24
2/25/2015 0.24
11/25/2014 0.24
8/27/2014 0.2
5/28/2014 0.2
2/26/2014 0.2
11/26/2013 0.2
8/28/2013 0.18
5/29/2013 0.18
2/26/2013 0.18
11/23/2011 0.525
11/24/2010 0.375

Analysis of Estée Lauder Companies Inc. is based upon our five key criteria, which include; 

Category Value Score
Dividend Yield 1.57% 330
Dividend Growth (3-6 year avg) 21% 81
Forward P/E 21.23  226
S&P Financial Rating A+ 80
Beta 0.95 125
Total Score   842

Additional Information on P/S ratio and historical yield;

% Yield 3 Year Div. Growth Rate 6 Year Div. Growth Rate SPS 2016 P/S Ratio 10 yr P/S Low 10 yr P/S High 5 yr max Yield % 5 yr lowest Yield %
1.69% 8.1% 33.9% 30.50 2.66 0.93 3.02 1.93% 0.64%

Positives;

  • Estée Lauder maintains a 3 year dividend growth rate of 8.1%.
  • Estée Lauder has paid out a dividend consecutively for the past 20 years.
  • Estée Lauder maintains a credit rating of A+. This is investment grade
  • Estée Lauder’s current dividend yield (1.57%) is above its five-year average historical dividend yield of 1.29%.
  • Estée Lauder maintains a beta of 0.95, lower than the average company.

Negatives;

  • Estée Lauder’s dividend yield is below that of the S&P 500 Index
  • Estée Lauder is trading at a high forward PE ratio and on a price/sales (P/S) basis it is trading at elevated historical levels. From a relative valuation perspective based upon P/S, Estée Lauder is overvalued.

Final Analysis;   

The stock price has fallen from $97.80 to $80.41 today. Despite the price drop, EL trades at a high valuation based upon price/sales analysis. Its dividend yield is also below that of the market and 20% below its max historical yield of nearly 2%. The firm also has negative trends in both revenue and earnings heading into the Christmas season. Although the firm retains an investment grade rating and maintains stellar dividend growth, Estée Lauder does not qualify as one of our Top 100 Dividend Stocks

The Estée Lauder Companies Inc. Dividend Yield Chart (Click to enlarge) el3

Chart Explanation:  Dividend growth stocks may be viewed favorably when the current yield is above historical readings for the past 5 years. Further information on dividend investing and evaluating dividend growth candidates can be found at http://seekingalpha.com/author/timothy-mcintosh/articles

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