Saturday, November 9, 2013

Dividend Compass Cup Final Four - TIm Horton's v Microsoft

We started with sixteen companies competing for the Dividend Compass Cup. We are now down to the Final Four. Expect two competitors to bring their A game to this match between Tim Horton's and Microsoft. Both have faced stiff resistance to make it this far. TIm Horton's beat out two all time greats - McDonald's and Coca Cola. Does Timmy's have what it takes to beat yet another titan?

Microsoft's path has giant-laden as well - IBM in round 1 and Procter & Gamble in round 2 - two of the all time great dividend payers with dividend roots back to the 19th century.

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.

Tim Horton's sports robust dividend growth backed by wide FCF cover. This means that investors can reasonably expect the growth to continue.

Tim Horton's metrics

That all translates into a close to perfect score from the Dividend Compass - a 4.95 five year average.

Tim Horton's scores

TIm Horton's numbers speak for themselves. Of course, this is the Final Four. You  do not get this far by accident and Microsoft on the other side has its own strong statement to make including FCF coverage in the 3x-4x range.

Microsoft metrics

This brings Microsoft in to a 4.99 five year average which shows a business hitting on all cylinders.

Microsoft scores

Its hard to see Tim Horton's score and think they could lose, but Microsoft's 4.99 out of 5, carries the day. On top of that Microsoft has 3% forward yield versus Tim Horton's 1.7% yield. In the past, I felt it was a bit unfair to McDonald's and Coca Cola which have much higher yields than Tim Horton's but ultimately lost out. In the future I may restrist the Cup to yields north of a higher percentage. Still, with Tim Horton's in the Cup at all, I could hardly ignore its near perfect score and just like the NCAA final four, its fun to have an underdog make it this far. Beating Tim Horton's requires a near perfect score and Microsoft managed to pull it off today. 

Microsoft is through to the final to play the winner of Walmart and Baxter.

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