Stock Analysis
Jabil Inc. (NYSE:JBL) Should Start Raising the Dividend
While Jabil Inc. (NYSE: JBL) led the broad market on the upside in 2021, rising 66%, it also led to the 2022 decline, correcting as much as 27%.
Yet, on the tailwinds of promising fundamental developments, the stock is now turning around while still trading at a relatively attractive P/E ratio.
Second-quarter 2022 results:
- EPS: US$1.55 (up from US$1.01 in 2Q 2021).
- Revenue: US$7.55b (up 11% from 2Q 2021).
- Net income: US$222.0m (up 46% from 2Q 2021).
- Profit margin: 2.9% (up from 2.2% in 2Q 2021). The increase in margin was driven by higher revenue.
Revenue exceeded analyst estimates by 1.6%. Earnings per share (EPS) also surpassed analyst estimates by 21%. Over the next year, revenue is forecast to grow 8.7%, compared to a 15% growth forecast for the industry in the US.
Over the last 3 years, on average, earnings per share has increased by 67% per year, but the company's share price has only increased by 33% per year, which means it is significantly lagging earnings growth.
Third-quarter guidance:
- Net revenue: US$7.9-8.5b vs. consensus US$7.69b
- EPS: US$1.40-1.80 vs. consensus US$1.46
CEO Mark Mondello announced raising the outlook for FY2022 due to a "strong financial outlook supported by both strong secular tailwinds and momentum in many of the end-markets." New FY22 revenue is now US$32.6b vs. consensus of US$31.85b
The Dividend Outlook
While Jabil's 0.5% dividend yield is not the highest, it does boost a lengthy payment history. The company also bought back stock equivalent to around 6.3% of market capitalization in the recent past.
Some simple analysis can reduce the risk of holding Jabil for its dividend, focusing on the most important aspects below.
Click the interactive chart for our full dividend analysis
Payout ratios
Comparing dividend payments to a company's net profit after tax is a simple way of reality-checking whether a dividend is sustainable. Over the trailing twelve-month period, Jabil paid out 5.8% of its profit as dividends. With a low payout ratio, the dividend is comprehensively covered by earnings.
Another important check is to see if the free cash flow generated is sufficient to pay the dividend. Jabil's cash payout ratio last year was 14%. Cash flows are typically lumpy, but this is an appropriately conservative payout. It's encouraging to see that the dividend is covered by profit and cash flow. This generally suggests the dividend is sustainable.
Consider getting our latest analysis on Jabil's financial position here.
Dividend Volatility and Growth Potential
One of the significant risks of relying on dividend income is the potential for a company to struggle financially and cut its dividend. Jabil has been paying dividends for a long time, but we only examine the past 10 years of payments for this analysis. During the past 10-year period, the first annual payment was US$0.3 in 2012, compared to US$0.3 last year. Surprisingly, the dividend didn't grow at all.
Furthermore, it's also essential to assess if earnings per share (EPS) are growing. Over the long term, dividends need to grow at or above the inflation rate to maintain the recipient's purchasing power. It's good to see Jabil has been increasing its earnings per share at 47% a year over the past five years. Earnings per share have grown rapidly, and the company is retaining a majority of its earnings. We think this is ideal from an investment perspective if the company can reinvest these earnings effectively.
Conclusion
Jabil's dividend offers an exciting mix of affordable payout ratios and growth prospects. Yet. its dividend growth has been nonexistent. On the other hand, the company has been buying back its stock which is weird because it is the least good use of cash when all other options are exhausted.
Given Jabil's improved outlook, relatively low P/E ratio, and a rather low dividend payout ratio, we believe it is time for the management to come out with a dividend growth timeline. That could be just the right catalyst to push the stock higher.
Despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For instance, we've picked out 2 warning signs for Jabil that investors should consider.
We have also put together a list of global stocks with a market capitalization above $1bn and yielding more than 3%.
What are the risks and opportunities for Jabil?
Rewards
Trading at 15.2% below our estimate of its fair value
Earnings are forecast to grow 7.93% per year
Earnings grew by 19.3% over the past year
Risks
Significant insider selling over the past 3 months
Has a high level of debt
Further research on
Jabil
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Simply Wall St analyst Stjepan Kalinic and Simply Wall St have no position in any of the companies mentioned. This article is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
Stjepan Kalinic
Stjepan is a writer and an analyst covering equity markets. As a former multi-asset analyst, he prefers to look beyond the surface and uncover ideas that might not be on retail investors' radar. You can find his research all over the internet, including Simply Wall St News, Yahoo Finance, Benzinga, Vincent, and Barron's.
About NYSE:JBL
Jabil
Jabil Inc. provides manufacturing services and solutions worldwide.
Good value with proven track record.
