Ennis – A stable dividend stock for the portfolio
Some of the stocks in my portfolio function primarily as cash flow or dividend stocks. Ennis is one I’ve had in my portfolio off and on for a number of years. I’ve bought and held it for awhile, then sold when I felt it got overvalued. A few months back, I bought in again at lower valuations. Today I’m going to do a summary of some metrics on this stock and you can determine whether it’s worthy for your consideration. It is what I would categorize as a low beta small cap value stock. You aren’t going to see huge growth with this stock, think stable dividends.
Breakdown of Ennis Stock
- Dividend Yield
- Dividend Growth
- Earnings and Revenue Growth
- Margins
- Fundamentals
- Concerns
- Closing Thoughts
About the Company
Ennis is a wholesale print manufacturer. Think forms, envelopes, checks, and commercial print materials. They have been around since 1909 and are based out of Texas. They have over 50 locations and serve over 40 thousand distributors.
Dividend Yield
The current dividend yield on Ennis is 4.94%. I believe I got in around an almost 6% yield, somewhere north of 5.6%. The current payout ratio is 77%.
Dividend Growth
- 1 year dividend growth = 11%
- 5 year dividend growth = 7.4%
These numbers aren’t the best; however, given the stability and business model, they aren’t bad either. I mean, right now my General Mills stock has a 5 year dividend growth of less than 3%. I have others that are around the 8% mark. 11% is at least higher than inflation.
Earnings and Revenue Growth
Quarterly Revenue Growth was 10% and Quarterly Earnings Growth was 59%
While these look like great numbers initially, one must keep in mind these are compared to 2021 numbers. Ennis was a hard hit business during the pandemic, so it’s only now getting back on track. Revenues numbers are basically where they were in 2019. Earnings per share is where they were in 2017, so this company has still not recovered to pre-pandemic levels with these metrics.
Margins
Profit margin for the last quarter was 8.11%. Gross margins for Ennis have unfortunately declined since 2018. Operating margins has largely remained flat.
This is one of my main concerns with this business at the moment. It’s not a trend I like to see. It’s been like this for a number of years.
Fundamentals
- P/E = 15.46
- P/Cash Flow = 10.11
- 5 year Cash Flow Growth Rate = 4.12%
- Debt/Equity= 0%!!
I always like to give P/E ratios context (historical values and versus interest rates). At first glance a P/E of 15 doesn’t seem bad. However, historically, the P/E of Ennis trends around 12-13. I only buy this stock when I see it get closer to a P/E of 13. Likewise, the P/CF is actually high at the moment from a historical perspective. It usually tends towards 8 to 8.5. In short, I don’t think the stock is undervalued at the moment and there is a great chance you’ll get better prices.
Concerns
- Digital World
- High Payout Ratio
- Inflation and Supply
The first concern that comes to anyone’s mind is does Ennis have a place in the future world given the growing pace of the Digital World? I think the reality is some things might go away, but there are many others that aren’t going away any time soon. Businesses need a variety of paper products for business conventions; commercial sized posters for instance. Banks still need checks (sorry, but people still DO use checks!). I still get business cards handed to me. There are some things people need a tangible physical object in their hands. Some diversification the company has moved into is T-shirt printing and EOS touchpoint for e-commerce solutions.
Secondly, the payout ratio on Ennis already quite high (higher than I like). 77% provides some room to grow the dividend; however, eventually the pace of the dividend growth will have to slow down.
Lastly, From their most recent earnings report:
CEO, Keith Walters-“North American paper markets remain extraordinarily tight, and further substantial price increases will continue to be a very real possibility until demand declines return in enough force and for long enough to rebalance the short-supplied market.
So, there is some concern how both supply and inflation will affect the business.
Closing Thoughts
I think you have to look at Ennis for what it is-A low beta dividend stock that’s quite stable. If you need cash flow and want dividend income, I think it’s a stock worth consideration. I personally don’t concentrate only on dividend stocks; however, I do find a place in my OVERALL PORTFOLIO for these type of stocks. I see Ennis as a decent risk-off kind of hedge. It is still equity exposure, but it isn’t as volatile and risky as many other stocks.
