Whole Foods (WFM) Dividend Stock Analysis
Friday, June 16, 2017
Amazon (AMZN) agreed to buy Whole Foods for $42 per share (13.7 billion). A Dividend Value Builder Analyzer top 3 ranked stock, WFM soared 30% on the announcement.
Whole Foods Dividend
The Whole Foods dividend has been paid continuously since 2004 and increased for 5 consecutive years. WFM is included in the Arbor Dividend Growth/Producers List.
Current Dividend: $0.72
Dividend Yield: 1.7%
Cash Dividend Payout Ratio: 19%
Market Capitalization: 13.4 B
Enterprise Value: 13.5 B
Sector: Consumer Defensive
Industry: Grocery Stores
Whole Foods Market is the 5th largest public food retailer in the United States and the largest natural and organic foods supermarket. The company offers over 30,000 unique SKU’s (stock keeping units) in all areas of the store including: produce, packaged goods, bulk, frozen, dairy, meat, bakery, prepared foods, coffee, tea, beer, wine, cheese, nutritional supplements, vitamins, body care, pet foods, and household goods.
Whole Foods has successfully differentiated itself in food retailing by banning hundreds of ingredients sold by the major grocery retailers. The company does not sell foods with artificial flavors, colors, preservatives or sweeteners, and no hydrogenated fats or high-fructose corn syrup.
The company has employed leading-edge quality standards in how their products are made and grown. Manufacturing, farming, fishing, and ranching methods are strictly monitored including: fresh meat from animals never given hormones and monitored for animal welfare, seafood that is sourced from responsibly-managed fish farms and sustainable fisheries, and eggs from cage-free hens.
WFM only sells eco-friendly cleaning products and requires full ingredient disclosure labeling. Each store offers a wide variety of non-GMO, vegan, gluten-free, dairy-free and other special diet foods.
“Whole Foods Market is a mission-driven company that aims to set the standards of excellence in food retailing. Our motto – Whole Foods, Whole People, Whole Planet – emphasizes that our vision reaches far beyond food retailing.”
Whole Foods is the undisputed leader in a mega trend towards healthier eating and wellness. Growth in natural and organic living is being driven by increased public awareness of the role food plays in long term health, a better educated and affluent society with a rising average age, and a younger generation with a propensity to value companies with high environmental and healthy eating standards.
Competition has contributed to a deflationary environment that keeps margins razor thin. Many of Whole Foods customers have a growing number of natural and organic choices at conventional grocers. Some customers are finding the disadvantage of having to be discerning at a conventional grocer outweighed by the overwhelming availability in most neighborhoods. With only a little over 450 stores there are many communities where Whole Foods is not assessable.
Whole Foods believes they can triple their store base to 1200 units in the United States. That is is a lot of growth for many years to come. Expanding online delivery is another means of adding value and broadening their reach to current and potential customers.
Their new store concept called “365 by Whole Food Market” will allow the company to expand with small stores. The concept is a streamlined operating model but use the current company infrastructure to expand to more communities.
Another opportunity the company is capitalizing on is increased private-label penetration. This can buoy margins and help WFM be competitive with conventional grocers.
Natural and organic products can create unique problems or surprises as demonstrated in the Chipotle food poisoning fiasco. In addition, the availability of quality natural and organic products can create continuous challenges.
Dividend Analyzer Checklist
(updated August 2017)
Dividend Safety Score (25/33 points)
Dividend Per Share (ttm): $0.55
Dividend Payout Ratio (ttm): 44%
Dividend Per Share (10 Year Growth): 6.5%
Cash From Operations (CFO) Per Share (ttm): $3.64
CFO Dividend Coverage (CFO / DPS): 6.6 (6/6 points)
Free Cash Flow (FCF) Per Share (ttm): $2.61
FCF Dividend Coverage (FCF / DPS): 4.7 (6/6 points)
Net Financial Debt: $206M
Total Assets: $6513 M
Net Financial Debt / Total Assets: 3% (10/12 points)
Net Financial Debt to EBITDA (ttm): 71%
Total Liabilities to Assets Ratio (Qtr.): 48%
Piotroski Score (1-9) (TTM): (3/9 points)
Profitability & Growth Score (28/33 points)
Revenue (10 Year Growth) *CAGR > 4.14%: 10.9% (4/4 points)
EPS Basic Cont. Operations (10 Year Growth) CAGR > 4.14%: 7.8% (4/4 points)
Cash From Operations (10 Year Growth) CAGR > 4.14%: 9.4% (6/6 points)
Operating Earnings Yield (ttm): 5.3% (2/7 points)
Net Income (ttm): $507 M
Gross Profit (ttm): $5411 M
Total Assets: $6341 M
Gross Profitability Ratio = GP / Total Assets: 83% (12/12 points)
Cash Return On Invested Capital (CROIC)(tttm): 20%
Return on Invested Capital (ROIC): 10%
Return on Invested Capital (ROIC) (5 Year Median): 14%
Return on Invested Capital (ROIC) (10 Year Median): 12%
Valuation Score (15/34 points)
Free Cash Flow Yield (ttm): 6.2% (7/9 points)
EV to EBIT (ttm): 19.1 (3/9 points)
EV to EBITDA (ttm): 10.8 (5/9 points)
PE10: 39.6 (0/7 points)
Price to Sales Ratio (ttm): 0.8
Price to Book Value (ttm): 4.0
Price to Earnings Ratio (P/E) (ttm): 33.2
TOTAL POINTS – (68/100) (50 is an average score)
*Compound Annual Growth Rate (CAGR)
**A Compound Annual Growth Rate of 4.14% = a 50% gain over 10 years.
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(updated August 2017)
Whole Foods (WFM) is ranked #23 (out of 286) overall and #7 (out of 39) in the Consumer Defensive Sector by the Dividend Analyzer.
WFM is currently priced about 30% above its pre-offer price. The probability of another offer competing offer is low at this point. I would sell WFM.
Type of Investor / Recommendation
Large Diversified Dividend Portfolios / Should Be Included (Avoid now because of acquisition)
Looking For Exposure to Consumer Defensive Sector / Should Be Included (Avoid now because of acquisition)
Deep Value Investors / Can Be Included or Watchlist (Avoid now because of acquisition)
Portfolio Position Disclosures:
DVB Foundation Portfolio: None
DVB Dividend Growth: None
DVB High Income: None
Arbor Asset Allocation Model Portfolio (AAAMP): None
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