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Dividend Investing Stocks (Archived)

MWE - MarkWest Energy Partners LP

Dividend investing is a popular strategy with investors seeking an income stream. Dividend investors can be placed into two broad categories.

  1. The growth approach - buy dividend paying stocks with emphasis on the company's ability to grow and increase its future dividend payments (to maximize the future yield).
  2. The yield approach - buy dividend paying stocks at cheap prices (to maximize the current yield).

Dividend investors using the growth approach tend to look for the same basic growth characteristics as found with growth investing, but the stock must also pay a reasonably reliable dividend.

Dividend investors using the yield approach tend to be more concerned with the stock price and the companies ability and willingness to pay a regular dividend rather than its ability to expand.

Sometimes a company will satisfy the requirements for both approaches.

In the April 2015 issue a fundamental analysis is conducted on a selected sample of stocks. The analysis is based on fundamental data from one year ago. This allows financial students and investors to see how the stock price performed over the next 12 months after the hypothetical purchase.

MarkWest Energy Partners LP

MarkWest Energy Partners LP NYSE:MWE is a large-cap pipelines company and its stock trades around $58 million per day. MWE was organized in 1988 and has an established history of paying dividends and has a dividend yield of around 6%.

The key fundamentals for MWE are shown below.

Growth fundamentals for MWE

YearRevenueEPS ROEDividendBook ValueEmployees
20043000.47 4%1.4911.30350
20054900.10 1%1.6214.40350
20065702.09 15%1.8813.50350
20076000.45 3%2.1615.50350
200813303.68 17%2.5121.30470
2009730-1.78 -11%2.5616.50520
201011800.02 0%2.5715.00590
201115300.54 4%2.8612.50680
201214503.00 21%3.2214.50880
201316600.25 1%3.3827.301130

The fundamental data above shows that MWE has broadly increased its revenue, earnings, book value and employees over the last decade. The earnings are quite volatile but do show a general upwards trend. MWE still qualifies as a growth stock. Since MWE pays a dividend this gives investors the best of both worlds - a stock with growth potential that pays a dividend. Also MWEs dividend yield is quite good - which is currently about 6%.

Fundamental Analysis for MWE:

The return on equity varies considerably and can be up to 20%. The profit margin (profit to revenue ratio) also varies considerably and can be as high as 30% but more typically is well below 10%.

The current ratio (current assets to current liabilities) ranges from 0.9 to 1.3 which indicates that MWE just has enough working capital.

The debt ratio (long-term debt to tangible assets) averages around 0.8 which means that MWE carries a moderate amount of long-term debt. Intangible assets and goodwill are not included in the ratio calculation. The tangible assets are used for the ratio calculation because these are hard physical assets that can be sold off in the event of bankruptcy liquidation whereas intangibles and goodwill cannot be sold.

The total ratio (total liabilities to total assets) averages around 60% which means that MWEs total debt is 60% of its total assets.

The revenue for the 2014 fiscal year is projected to grow at 12% (based on the five year revenue growth trend). The earnings growth for the 2014 fiscal year is projected to grow at 30% (based on the five year earnings growth trend).

The forward PE ratio is around 26 (calculated from the five year earnings growth trend rather than from forecast earnings). The Forward PEG is around 0.7 but this is not a good valuation method to use since MWEs earnings are too volatile.

MWEs book value is around $27 and the current business valuation is around $20 (with a 2.7% ten year Treasury bond yield). This means that MWEs earnings based on its assets is worth more than its ability to growth its earnings. This is not unusual for a mature dividend paying company.

The bankruptcy risk can be calculated using the Z-score. MWEs Z-score is 1.5 which means MWE is a moderate bankruptcy risk stock.

The sample analysis uses data that is one year old. The hypothetical purchase date for the stock is 19-Mar-2014 and this allows the reader to see how the stock performed over the next year.

Overall the fundamentals are reasonable with this large-cap stock which has a reliable history of paying a regular dividend but its earnings are volatile. Additional information such as consensus forecast earnings, broker recommendations and insider transactions are not considered for this sample analysis. A hypothetical position taken in MWE on the 19-Mar-2014 would give a purchase price of around $65.

The stock price performance is shown below in Chart 2. along with the annual earnings year to year growth. The stock chart is adjusted for splits and dividends.

Chart 2. Stock chart with earnings for MWE

weekly Chart MWE

As shown in Chart 2. above, MWEs gained around 1% over the next year including dividends. MWEs 2014 annual earnings increased by 180% over the 2013 fiscal year. MWEs 2014 dividends were $3.54 which is a 7% increase over the 2013 fiscal year

Stock Analysis for Finance Students and Investors