Should You Continue To Avoid WD-40 And Its 1% Dividend?
Back in January I showed you 3 Reasons To Buy WD-40’s 0.9% Dividend – And 1 Not To so you can protect and grow your retirement portfolio.
Today, I give an update after it released its latest quarterly earnings and answer – Should You Continue To Avoid WD-40 And Its 1% Dividend?
You can read the full article above.
But if you don’t want to; here’s a quick recap of why I said to avoid it previously…
WD-40 (WDFC) manufacturers and sells one of the worlds most recognized lubricants’ WD-40. And it also sells cleaning products.
It’s based in San Diego California. It has a $4.1 billion market cap. And it pays a 0.9% dividend… Which is reason #1 to consider buying its stock.
WD-40’s 0.9% Dividend
In the last decade, WD-40’s paid out a total of $16.88 per share in dividends.
At today’s share count of 14 million shares that’s equal to $236.32 million paid out to shareholders in that time.
Plus, it grew its dividend 141% from $1.08 per share in 2010 to $2.68 per share now. This is an annual dividend growth rate on average of 16% per year.
These dividend payments help you 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 large profits. Which is reason #2 to consider buying Constellation Brands stock.
WD-40 Earns Huge Profits
Over the last decade it earned an average operating income margin of 17.7% per year.
I look for anything above 10% consistently.
Another way to show this is with its free cash flow to sales ratio (FCF/Sales). Over the last decade its 11.3% 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.
And WD-40 earns far higher margins than my minimum thresholds.
These profits also allow it to have ultra-low debt numbers as well.
WD-40 Has Low Debt
As of this writing it has $65.8 million in cash compared to $124.5 million in debt.
As a percentage of its balance sheet total liabilities make up 54.8%.
And its debt-to-equity ratio is 0.71.
These are all well below what I look for in an investment, which adds a huge margin of safety to potentially buying WD-40 stock.
But what about its valuation? Is it cheap enough to buy?
WD-40 IS NOT Cheap
With the markets at or near all-time highs you’d expect a good stock like WD-40 to be selling at an enormous valuation.
Unfortunately, it is.
As of this writing its P/E is 57.3.
Its P/CF is 50.6.
Its forward P/E is unavailable.
And its enterprise value to operating income – EV/EBIT is 45.4.
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.
WD-40 is massively overvalued right now.
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 WD-40’s enormous valuation, this makes it riskier. Even with the other wonderful things above.
This thesis to avoid buying WD-40 due to its crazy high valuation continued to play out after it released its most up to date quarterly earnings on April 8th. Sort of.
- 2nd fiscal quarter net sales jumped 12% to $11.9 million.
- Six-month fiscal year sales are up 19% to $236.5 million.
- Net income for the 2nd fiscal quarter rose 20% to $17.2 million.
- And six-month fiscal year 2021 sales are up a whopping 54% to $40.8 million.
These great results led it to announce a 7% increase to its quarterly dividend to $0.72 per share. Which increased its yield to 1.03% as of this writing.
This fantastic news led its stock to rise 8.3% so far this year.
So, was I wrong to tell you to avoid buying its stock in January?
I know WD-40 is a great stock. It has been for decades.
And it will continue being great if people continue to use WD-40 products to lubricate their hinges.
The market knows this too which is why it was massively overvalued back in January. And why it remains massively overvalued now.
Its P/E is now 51.5.
Its P/CF is 41.8.
Its forward P/E is unreadable.
And its EV/EBIT is 41.1.
These show that its still massively overvalued.
And this means you need to continue to be patient and wait to buy its stock. Yes, even though its great and will continue being great.
I want an enormous margin of safety for you because this eliminates risk AND gives you higher investment returns.
I don’t want you to have just one or the other of these things. I want you to have both.
And that will still require some patience when it comes to WD-40 because it’s still too overvalued to buy.
Remain patient and wait to buy WD-40 stock in your retirement portfolio.
Until then, check out some of our recent buy recommendations below so you can protect your portfolio.
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Disclosure – Jason Rivera is a 14+ 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.