Sunday, February 20, 2011

Lance Dividend Analysis

Lance, Inc. (LNCE) is in the consumer industry, food staple manufacturer.  They make food snacks like the peanutbutter and honey crackers that I am eating right now, in fact.  They are working with over a $1B in market capitalization and go up against the big guns such as J&J Snack foods, Kraft, Kellogg and that sort.  Smuckers may also be a huge competitor.  During difficult times, this company would be a very good company to own, in my opinion due to the demand for cheaper snack foods and a solid dividend.  Let us begin the simple analysis.

P/E Ratio: Lance's earnings per share is $1.01 according to Google Finance.  To describe how this is derived, you take the Net Income and divide it by the number of shares outstanding.  The current share price of Lance, as of February 20, 2011, is $18.31.  Therefore, the P/E is - 18.31/1.01 = 18.13.  This is higher than what I like, typically under 15.  This shows that they are not undervalued when compared to the overall market as a whole.  If the share price came down and/or the earnings increased, the P/E would decrease, making this a more attractive stock.  Also, Morning star shows the Industry Average to be 17.4 P/E, therefore Lance is a tad higher than that as well; appearing that there may be more attractive companies/stocks within that industry.

Dividend Yield: Lance's Dividend per quarter stands at 16 cents per quarter or 64 cents for the year.  Thus, 0.64/18.31 = roughly 3.5%.  This is pretty good and much higher than the S&P 500 on average. What's good with stocks, is that they usually increase with inflation, therefore they tend to be more attractive than bonds given their fairly comparable yields.  Lance also paid a special cash distribution in December of 2010 for $3.75!

Dividend Payout Ratio and Growth Rates:  Since their dividend per year is 64 cents and their earnings per share is 1.01, this gives us .64/1.01 = 63.36% payout ratio.  This is just a smidge higher than my usual range of 40-60%, but doesn't alarm me too much as it is just a small amount.  According to my analysis and sources, their dividend growth rate is in negative terms of (1.3%); they used to pay a higher dividend in the pre-2000's but cut it down to 16 cents a share from 24.  This obviously doesn't attract investors.  They have paid dividends for roughly 21 years, which is a good sign.

Conclusion: Lance is a strong company, but there are red flags based on the analysis TODAY.  They have a higher P/E than their industry average and S&P 500 average, and they haven't increased their dividend in over 10 years.  They do, however, provide a solid 3.5% yield currently; higher than most companies.  As of now, I will not add or recommend a position.  If Lance drops in price, and/or increases dividend, and has a solid 2011 year - I will further evaluate.

-Lanny B.

Disclosure: I do not hold nor recommend anything. This is actual data, analysis, however I base no investor recommendation. Thank you for your understanding.

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