Monday, October 14, 2013

Dividend Compass Match 6- McCormick Spice vs Wal-mart

In Match 5 is TIm Horton's squeaked by McDonald's. In Match 6, we have to answer the question - is it better to invest in a company with products sold at Wal-mart or invest in Wal-mart directly? The answer will determine who goes on to the next round in the Dividend Compass Cup.

The Dividend Compass Cup rules are straightforward, we run the two quality, wide moat companies through the Dividend Compass to analyze which is the more interesting investing candidate. Todd Wenning's Dividend Compass scores them 1-5.

McCormick Spice is world's leading spice maker, selling in grocery stores, Wal-mart and to restaurant operators like YUM Brands. They have also paid a dividend since 1925. As you might expect, margins and Return on Equity for spice are reasonably good.

McCormick Spice metrics
McCormick Spice does better on Earnings cover than on FCF cover, its Return on Equity is consistent, and dividend growth is plugging away as well. Overall a plowhorse not a show horse, the main caution flag is the Net Debt/EBITDA ratio.

McCormick Spice score:

Wal-mart's turn - they have really turned in an impressive dividend growth track record. Better yet, there is room to run for more dividend growth, Wal-mart easily covers its dividend on an Earnings and FCF basis.

Wal-mart metrics:
Wal-mart easily gets over most of  the Dividend Compass' hurdles except for one - Operating Margins. Its margins are paper thin, but guess what? That's its business model and competitive advantage.

Wal-mart score

McCormick Spice versus Wal-mart is another close call, but this match goes to Wal-mart by a nose with its superior 5 year average, dividend growth and FCF cover. Wal-mart will move to the next round to match up with Exxon Mobil.

The next match is Unilever versus Procter & Gamble.

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