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Is This 2.53% Dividend Stock A Buy?
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 out how to protect your retirement portfolio in these uncertain times, today I want to answer – Is This 2.53% Dividend Stock A Buy
Bridgestone Tires (BRDCY) is one of the world’s largest developers and sellers of tires for vehicle use.
Due to its large competitive advantages its stock is up 29.92% in the last year.
This is great… But its also in the past and doesn’t help you figure out whether you should buy its stock now.
That’s what I want to help you figure out today.
It’s based in Tokyo Japan. It has a $28.2 billion market cap. And it pays you a 2.53% dividend. Which is reason #1 to consider buying its stock.
Bridgestone’s 2.53% Dividend
In the last decade, Bridgestone’s paid out a total of $4.72 per share in dividends.
Editor’s Note – all numbers in this article are converted to USD based on the prevailing conversion rate from Japanese Yen to United States Dollars.
At today’s share count of 1,408 million shares that’s equal to $6.65 billion paid out to shareholders in that time.
Plus, it grew its dividend 921% from $0.048 per share in 2011 to $0.49 per share now. This is an annual dividend growth rate on average of 92.1% 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 Bridgestone stock.
Bridgestone Earns Large Profits – Before Covid
Between 2011 and 2019 Bridgestone earned an average operating income margin of 11.9% per year.
I look for anything above 10% on a consistent basis so this is great.
However, due to Covid closures and people not driving, flying, or moving around as much in vehicles using tires, Bridgestone’s operating profits plummeted to 2.1%.
Another way to show this is with its free cash flow to sales ratio (FCF/Sales). Between 2011 and 2019 this averaged 5.9% per year.
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 ultra-valuable.
This metric stayed elevated at 10.3% last year during Covid due to debt issuances.
Bridgestone achieved greatness before Covid… Since. Not so much.
I expect the company to recover, so this isn’t a major red flag here. So let’s keep moving on.
What about its debt levels?
Bridgestone Has Low Debt Levels
As of this writing Bridgestone has $7.5 billion in cash compared to $9.2 billion in debt.
As a percentage of its balance sheet total liabilities make up only 48.1%.
Debt makes up only 32.6% of its market cap.
And its debt-to-equity ratio is an ultra-low 0.31.
These are all well below the thresholds I look for… As one example, I look for debt to equity ratios to be below 1.
Meaning, these low debt levels add a large margin of safety to potentially buying its stock.
But before we get to that is it even cheap enough to buy?
Bridgestone IS NOT Cheap…
With the markets at or near all-time highs you’d expect like Bridgestone to be selling at an enormous valuation.
Unfortunately, it is.
As of this writing its P/E is 40.3.
Its P/CF is 5.9.
Its forward P/E is 11.2.
And its enterprise value to operating income – EV/EBIT is 62.1.
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.
These metrics combined show that Bridgestone is massively overvalued right now.
And this means owning its stock does not give you a large 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 its stock going forward.
With Bridgestone being massively overvalued right now, its stock does not offer you a large margin of safety.
Because of this, you need to wait to buy Bridgestone stock.
If you’re looking for a solid, safe, dividend paying, stable, and enormously profitable investment to buy to earn high and safe returns for your portfolio – consider investing in Bridgestone… But only when its cheaper.
In the meantime, consider investing in one of the great stocks below.
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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.