National Presto's Understated Dividend Income Capacity

By Ryan C. Fuhrmann | July 04, 2011 AAA

Wisconsin-based National Presto Industries (NYSE:NPK) is a mini-conglomerate that operates three unrelated but successful operating units. Sales and profit generation have grown steadily over the past few years, and a special dividend awarded each year to shareholders may be of interest to income-minded investors. (To learn more about growth stocks, check out Steady Growth Stocks Win The Race.)

TUTORIAL: Investing 101

Business Overview
National Presto operates three disparate business segments. The first consists of selling housewares and electrical appliances, including skillets, deep fryers, pizza ovens, slicers, shredders and corn poppers. Ten percent of the sales from this unit stem from Wal-Mart (NYSE:WMT), as consumers are the primary end users for its products. The housewares unit accounted for one-third of sales for 2010.

The second segment sells ammunition and related equipment to the U.S. Department of Defense. The U.S. Army is a primary end customer and has signed several contracts with Presto at fixed prices. The unit accounted for 50.3% of last year's sales and back in April the unit received a $69.8 million order from the Army, with scheduled delivery in 2012. The third unit sells private label diapers that serve incontinent adults and dogs. The company's primary customer is medical supply firm MedLine and it accounted for 11% of total sales in 2010. The entire unit made up just less than 17% of sales last year.

Financial Results and Outlook
Despite having to compete with much larger divisional rivals that include firms General Electric (NYSE:GE) in appliances, Northrop Grumman (NYSE:NOC) in defense, and Kimberly-Clark (NYSE:KMB) in diapers, sales have grown steadily over the past four years, rising from $304.6 million in 2006 to $479 million in 2010. The sole analyst currently covering National Presto projects the top line will grow more than 11% this year and reach almost $533 million.

Profit growth has been more impressive, as earnings have increased from $4.09 in 2006 to $9.26 last year. The company reported full-year earnings results back in February and its fiscal first quarter release is scheduled for late July. (To help you make your way through the maze of financial statements, check out Understanding The Income Statement.)

Bottom Line
National Presto's stated dividend yield is only 1% as it pays a regular quarterly dividend of 25 cents, for an annual payout of $1.00. However, for at least the past five years it has also paid out an extra dividend, and it has grown from $1.20 per share in 2006 to an impressive $7.15 in 2010. For last year, that works out to a dividend yield in excess of 7%, based on where the stock is currently trading.

Being an extra dividend, there is clearly less assurance that it will be paid out consistently, but given the company's steady profit and cash flow generation, there should continue to be a generous payout. Generally, a large proportion of operating cash flow is paid out in the form of dividends as management generates more capital than it needs to run its three successful divisions. (To learn more about dividends, read The Power Of Dividend Growth.)

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

comments powered by Disqus
Related Analysis
  1. India Remains An Emerging Market Bright Spot
    Stock Analysis

    India Remains An Emerging Market Bright Spot

  2. Still More Gains Ahead For Semiconductor Makers
    Stock Analysis

    Still More Gains Ahead For Semiconductor Makers

  3. 3 Nuclear Energy Projects That Could Begin Soon
    Stock Analysis

    3 Nuclear Energy Projects That Could Begin Soon

  4. Q2 Earnings Season in Rearview Mirror - Earnings Trends
    Stock Analysis

    Q2 Earnings Season in Rearview Mirror - Earnings Trends

  5. This Food Stock Is Primed For A 30% Spike

    This Food Stock Is Primed For A 30% Spike

Trading Center