Linked here is a PDF copy of my detailed analysis of Donaldson Company, Inc (DCI). Below are some highlights from the above linked analysis:
Company Description: Donaldson Company operates as a worldwide manufacturer of filtration systems and replacement parts.
Fair Value: I consider four calculations of fair value, see page 2 of the linked PDF for a detailed description:
- Avg. High Yield Price
- 20-Year DCF Price
- Avg. P/E Price
- Graham Number
Dividend Analytical Data: In this section I consider five factors, see page 2 of the linked PDF for a detailed description:
- Rolling 4-yr Div. > 15%
- Dividend Growth Rate
- Years of Div. Growth
- 1-Yr. > 5-Yr Growth
- Payout 15% of avg.
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:
- NPV MMA Diff.
- Years to >MMA
Other: DCI is a member of the Broad Dividend Achievers™ Index. At the end of November, DCI lowered its fiscal 2009 earnings outlook, anticipating a stronger dollar and possibly weaker demand. The company, which has benefited for several years from the weak dollar, adjusted its full-year outlook "due to the combination of exchange rates and weaker customer demand."DCI also reported an 11 percent increase in net income for its fiscal first quarter, outpacing Wall Street expectations on the strength of its aerospace and defense, industrial and gas turbine businesses.
Conclusion: DCI earned one Star in the Fair Value section, earned three Stars in the Dividend Analytical Data section and did not earn any Stars in the Dividend Income vs. MMA section for a net total of four Stars. This quantitatively ranks DCI as a 4 Star-Buy.
Using my D4L-PreScreen.xls model, I determined the share price would need to decrease to $20.00 for DCI's NPV MMA Differential to hit the $7,500 that I like to see. At that price the stock would yield 2.27%.
Resetting the D4L-PreScreen.xls model and solving for the dividend growth rate needed to generate the $7,500 NPV MMA Differential I'm looking for, the calculated rate is 19.6%. This dividend growth rate is significantly above the 15.0% used in this analysis.
DCI is an interesting stock as a potential value investment. However, the numbers don't add up as a dividend investment. For additional information, including DCI’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.
Full Disclosure: At the time of this writing, I held no position in DCI (0.0% of my Income Portfolio) .
What are your thoughts on DCI?