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Should You Buy Winnebago And Its 0.8% Dividend?

Over the last couple months, I’ve shown you stocks to avoid…

Stocks to consider buying…

And some of the best stocks related to the coming Internet of Things…  Which you can find linked further below.

All these recommendations are to help you either avoid pain and terrible stocks.  Or to help you find potentially great stocks to invest in during this pandemic.

If you do both well, it helps you earn higher than average investment returns and build wealth.

Because the fewer investment losses you have the more capital you keep. And the more capital you keep the faster you compound your money.

To help you figure this out, today I answer the question – Should You Buy Winnebago And Its 0.8% Dividend? 

Winnebago (WGO) is a leader in the United States motor home and recreational vehicle (RV) manufacturing, repair, and sales industry.

Its been around for 58 years now. Is based in Forest City Iowa.  It has a $2.11 billion market cap. And it pays a 0.8% dividend… Which is reason #1 to consider buying its stock.

Winnebago’s 0.8% Dividend

Since 2015 when it began paying a dividend, Winnebago’s paid out a total of $2.43 per share in dividends.

At today’s share count of 34 million shares that’s equal to $82.62 million paid out to shareholders in that time.

It also grew its dividend 25% from $0.36 per share in 2015 to $0.45 per share now.  This is an annual dividend growth rate on average of 2.5% per year.

These dividend payments will help you in normal times earn cash if you take the money out.  Or allow you to buy more shares over time if you reinvest the dividends.

These regular payments will help you earn more money for your retirement.  And the solid, stable, and growing dividends will help in any kind of prolonged economic issues like we’re dealing with today.

It can do this because it earns solid profits.  Which is reason #2 to buy Winnebago to Depression Proof Your Portfolio.

Winnebago Earns Decent Profits

Over the last decade it earned an average operating income margin of 4.4% per year.

I look for anything above 10%. 

Another way to show this is with its free cash flow to sales ratio (FCF/Sales). Over the last decade its 2.8% per year on average.

I call this the “Cash Machine” metric.

I look for anything above 5% on a consistent basis for the same reasons as I look for high operating profit margins above.  If a company surpasses both thresholds it makes it a great operating business that is safe and potentially valuable.

These both fall below my normal thresholds… But they also don’t show the full story either.

The numbers are way down largely due to the recovery after the financial crash from 2011 to 2013.

After that both margins recovered – but still not enough to surpass my thresholds.

So far, we’ve got one good reason to consider buying Winnebago and one not too… Lets keep going.

Winnebago Has Low Debt

As of this writing Winnebago has $270 million in cash compared to $540 million in debt.

As a percentage of its balance sheet total liabilities make up 51.1%.

And its debt-to-equity ratio is 0.62.

These are all below my normal thresholds for what I look for in an investment, which adds a margin of safety to potentially investing in Winnebago stock.

But what about its valuation?  Is it cheap? 

Winnebago IS Cheap

With the markets at or near all-time highs you’d expect a good stock like Winnebago to be selling at an enormous valuation.

But it isn’t.

As of this writing its P/E is 20.6.

Its P/CF is 11.4.

Its forward P/E is 11.1.

And its enterprise value to operating income – EV/EBIT is 13.7.

On all three metrics at the top, I look to buy investments below 20 to consider them undervalued.

And on EV/EBIT I look to buy stocks below 8.

This means, Winnebago is right on the edge of undervalued and fairly valued.

And this means owning its stock gives you no margin of safety in investing terminology.

When you invest in stocks that have a margin of safety it makes the investment safer.  And it also means you should expect to earn higher returns owning it in the coming years.

The inverse of this is also true…

When you invest in a stock without a margin of safety it makes the investment riskier.  And it also means you should expect to earn less owning it going forward.

With Winnebago being on this edge it makes the investment riskier.  Even with the other wonderful things above.

Conclusion

If you’re looking for a solid, safe, stable, and enormously profitable investment to buy – consider investing in Winnebago. But only when its cheaper and its profit margins are higher.

Winnebago is a good stock to invest in right now… But not a great one.  And because I’ve already found and recommended other great stocks to invest in – you should stay away from Winnebago stock for the time being.

Until then, use the following links to some of our recent articles to learn other ways to protect yourself and your investments in these uncertain times. 

Disclosure – Jason Rivera is a 13+ year veteran value investor who now spends much of his time helping other investors earn higher than average investment returns safely. He does not have any holdings in any securities mentioned above and the article expresses his own opinions. He has no business relationship with any company mentioned above

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