This is the first of what I hope to be a weekly series about stocks to watch going ex-dividend in the next week. My goal is to produce one stock weekly that I believe is currently being undervalued by the market, just in time for you to collect on a dividend payment.
This week's stock isn't what I would call a steal, something well undervalued by the market today, but I do believe that it is currently undervalued by roughly 5-6% which means there is some opportunity.
This week's stock: Anheuser-Busch InBev SA/NV ADR (BUD)
BUD in my opinion is a brand name that is right up there along with Coca-Cola (KO) and will be for a long time to come. It currently sits at $118.20 per share with an astronomical P/E of ~43, which is almost double of what its 5 year average. That being said let's check out a couple of reasons that I believe this is a stock to watch (and possibly buy) next week before it goes ex-dividend.
The revenue growth for BUD since becoming a publicly traded company has been nothing short of outstanding. From $7 billion in total revenue in 2002 to over $45 billion in revenue in 2016 this is an increase of almost 650%! Add to that the fact that BUD is currently pushing growth in the international sector from China to Africa, and you can see that this revenue growth has the potential to continue.
BUD sits currently at just over a 3% dividend yield and a payout ratio above 80%. Yes the payout is a bit higher than I would like to see but here is what is really tremendous, BUD has made it a point since bringing back the dividend to help out shareholders by increasing it. How much love have they shown the shareholders? How about raising the dividend from $1.18 a share to almost $4.00 in just 5 years! Now the payout ratio looks a little skewed this year because the operating cash flow per share has taken a hit with a slight decrease in sales in the US the international market is growing. Add to that the fact that BUD can almost buy anyone they want and I believe that the operating cash flow will right itself one way or another.
The biggest reason to purchase BUD though is the brand. When you think of beer most people still think of BUD. Now that craft beer has gained market share BUD has been swallowing up small craft brewers like minnows. The brand is an ever expanding enigma that ebbs and flows with the market place, picking up small stones along the way. Just like Buffett will never let go of his KO holdings I would reason that you should keep adding to the largest alcohol distributor in the world. By the way the numbers aren't even close either as the latest BUD acquisition of SABMiller means that it now has more than double the revenue of the #2 distributor.
Look I'm not saying that right now is the most opportunistic time to buy BUD, hell I only believe that is is 5% under my 12 month target price. That being said I do believe that it is one of the best options going ex-dividend next week and you should definitely be considering it.
Disclosure: I have no position in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.