Sunday, 27 April 2014

A Look at Covidien


Covidien is a manufacturer of medical devices and medical supplies. It is based in Ireland, which means no dividend withholding tax for Canadians and Americans.

Average Dividend Yield Analysis*

COV PLC
Year
High Price
Low Price
1Q
div.
2Q
div.
3Q
div.
4Q
div.
Annual Dividend
High Yield
Low Yield
2007
$49.70
$36.90



$0.16
$0.16
0.43%
0.32%
2008
$57.00
$32.27
$0.16
$0.16
$0.16
$0.16
$0.64
1.98%
1.12%
2009
$49.13
$27.27
$0.16
$0.16
$0.16
$0.18
$0.66
2.42%
1.34%
2010
$52.48
$35.12
$0.18
$0.18
$0.18
$0.20
$0.74
2.11%
1.41%
2011
$57.65
$41.35
$0.200
$0.200
$0.200
$0.225
$0.83
2.00%
1.43%
2012
$60.81
$44.52
$0.225
$0.225
$0.225
$0.260
$0.94
2.10%
1.54%
2013
$68.88
$56.79
$0.260
$0.260
$0.260
$0.320
$1.10
1.94%
1.60%
2014


$0.320
$0.320
$0.320
$0.320
$1.28



7y ave
1.85%
1.25%

5y ave
2.11%
1.46%







3y ave
2.01%
1.52%







5y
$60.61
$87.44







3y
$63.66
$84.11






Super Cheap
$52.89



The table shows the 3 year average dividend yield to be 2.01% ((2.00% + 2.10% + 1.94%)/3). I use the numbers in the “High Yield” column for obvious reasons.

Using the current annual dividend of $1.28, one would have to pay $63.66 for a 2.01% dividend yield.

Buying the stock at its low in 2009 would have earned you an initial yield of 2.42%. Using the current annual dividend, that corresponds to a stock price of $52.89 today (see “super cheap” price in the table above).

Graham Price

COV’s 2011, 2012 and 2013 EPS were $3.79, $3.92 and $3.40. 3Y Ave EPS = $3.70.
COV’s BV is $20.87.
Graham Price = SQRT (3Y Ave EPS * BV * 22.5) = $41.70

Cyclically Adjusted Price to Earnings Ratio

COV’s 8Y Ave EPS = $2.59
CAPE = Stock Price / 8Y Ave EPS = $69.38 / $2.59 = 26.8
A CAPE below 20 is good.

Conclusion

COV’s current share price of $69.38 seems fairly valued based on average dividend yield but over valued compared to Graham price and CAPE. Given that EPS are forecasted to grow at a healthy pace over the next two years, I would consider initiating a position if shares fall to $65.

2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
$2.57
-$0.68
$2.86
$1.79
$3.10
$3.79
$3.92
$3.40
$4.10
$4.55


*My method is not perfect as the stocks low price may have occurred before the annual dividend increase.

No comments:

Post a Comment