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PulteGroup's (NYSE:PHM) five-year earnings growth trails the 14% YoY shareholder returns

The simplest way to invest in stocks is to buy exchange traded funds. But the truth is, you can make significant gains if you buy good quality businesses at the right price. For example, the PulteGroup, Inc. (NYSE:PHM) share price is up 78% in the last five years, slightly above the market return. Zooming in, the stock is actually down 17% in the last year. After a strong gain in the past week, it's worth seeing if longer term returns have been driven by improving fundamentals. In his essay The Superinvestors of Graham-and-Doddsville Warren Buffett described how share prices do not always rationally reflect the value of a business. One flawed but reasonable way to assess how sentiment around a company has changed is to compare the earnings per share (EPS) with the share price. During five years of share price growth, PulteGroup achieved compound earnings per share (EPS) growth of 40% per year. This EPS growth is higher than the 12% average annual increase in the share price. So it seems the market isn't so enthusiastic about the stock these days. The reasonably low P/E ratio of 4.67 also suggests market apprehension. The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image). We know that PulteGroup has improved its bottom line over the last three years, but what does the future have in store? You can see how its balance sheet has strengthened (or weakened) over time in this free interactive graphic. What About Dividends? As well as measuring the share price return, investors should also consider the total shareholder return (TSR). Whereas the share price return only reflects the change in the share price, the TSR includes the value of dividends (assuming they were reinvested) and the benefit of any discounted capital raising or spin-off. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. We note that for PulteGroup the TSR over the last 5 years was 89%, which is better than the share price return mentioned above. The dividends paid by the company have thusly boosted the total shareholder return. A Different Perspective We regret to report that PulteGroup shareholders are down 16% for the year (even including dividends). Unfortunately, that's worse than the broader market decline of 8.9%. However, it could simply be that the share price has been impacted by broader market jitters. It might be worth keeping an eye on the fundamentals, in case there's a good opportunity. On the bright side, long term shareholders have made money, with a gain of 14% per year over half a decade. It could be that the recent sell-off is an opportunity, so it may be worth checking the fundamental data for signs of a long term growth trend. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. For example, we've discovered 1 warning sign for PulteGroup that you should be aware of before investing here. If you would prefer to check out another company -- one with potentially superior financials -- then do not miss this free list of companies that have proven they can grow earnings. Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges. Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com. This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned. The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc. The board of Stanley Black & Decker, Inc. (NYSE:SWK) has announced that it will be paying its dividend of $0.80 on the 20th of September, an increased payment from last year's comparable dividend. This will take the dividend yield to an attractive 3.3%, providing a nice boost to shareholder returns. Stanley Black & Decker's Payment Has Solid Earnings Coverage If the payments aren't sustainable, a high yield for a few years won't matter that much. Before making this announcement, Stanley Black & Decker was earning enough to cover the dividend, but it wasn't generating any free cash flows. In general, we consider cash flow to be more important than earnings, so we would be cautious about relying on the sustainability of this dividend. Over the next year, EPS is forecast to expand by 94.9%. If the dividend continues on this path, the payout ratio could be 27% by next year, which we think can be pretty sustainable going forward. Stanley Black & Decker Has A Solid Track Record The company has a sustained record of paying dividends with very little fluctuation. Since 2012, the annual payment back then was $1.64, compared to the most recent full-year payment of $3.20. This works out to be a compound annual growth rate (CAGR) of approximately 6.9% a year over that time. Companies like this can be very valuable over the long term, if the decent rate of growth can be maintained. The Dividend's Growth Prospects Are Limited Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. Let's not jump to conclusions as things might not be as good as they appear on the surface. Stanley Black & Decker has seen earnings per share falling at 4.3% per year over the last five years. If earnings continue declining, the company may have to make the difficult choice of reducing the dividend or even stopping it completely - the opposite of dividend growth. However, the next year is actually looking up, with earnings set to rise. We would just wait until it becomes a pattern before getting too excited. In Summary Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. While Stanley Black & Decker is earning enough to cover the payments, the cash flows are lacking. We would probably look elsewhere for an income investment. Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Case in point: We've spotted 4 warning signs for Stanley Black & Decker (of which 1 is potentially serious!) you should know about. Is Stanley Black & Decker not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks. Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com. This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned. The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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