2022 Week 16: Polaris Inc (NYSE: PII)

Portfolio Update

The FiveTwenty portfolio received $151.80 dividends in the past week. BEN and LEG paid their quarterly dividend. We also received a small cash distribution from the T transaction that created WBD.

Past Week Dividend$151.80
Current Quarter Dividend (Q2 2022)$151.80
Estimated Annual Dividend$4,940.30
LifeTime Dividend$3,436.47
Dividend Scorecard

The capital allocation for the week of 04/17/2022 to 04/23/2022 will be used to establish a position in Polaris Inc. (NYSE: PII)

PII – Company Profile

Polaris Inc. (PII) designs, builds, and markets power sports vehicles worldwide. The company operates through six segments: OVR, Snowmobiles, Motorcycles, Global Adjacent Markets, Aftermarket, and Boats. Official Site | Wikipedia

Dividend Streak27 years
Yield2.36%
Payout Ratio27.68%1
P/E11.731
Entry Criteria Scorecard

1 computed using TTM adjusted EPS of $9.14 as of Q4 2021

Financials

Does PII have the financial means to sustain and raise its dividend going forward?

Over the last decade, PII has steadily grown its revenue from $3.2 billion in 2012 to $8.2 billion in 2021. While net income on a GAAP basis has been inconsistent, adjusted net income has grown more steadily during the period. In 2016 product quality issues and 2 recalls combined to push revenues and net income down compared to previous year. However, PII was back to growing revenue and net income by 2017.

EPS and adjusted EPS showed similar trends to their net earnings equivalents. In addition, adjusted EPS growth has outpaced adjusted net earnings growth in the last 10 years.

The average dividend per share growth rate was 8.40% per year in the past 10 years and 1.60% per year in the past 3 years. (per GuruFocus) PII has grown its quarterly dividend much slower in recent years, which has resulted in the payout ratio on adjusted EPS decreasing to 27.5% in 2021 from a high of 63.2% in 20216.

PII in 2021 and beyond

PII posted record sales in 2021. Overall revenue grew 16.7%, adjusted net earnings increased 18.2%, and adjusted EPS were 18% higher than in 2020.

Looking ahead, for 2022 the company anticipates between $9.215 to $9.455 in sales and adjusted EPS of $10.10 to $10.40.

Valuation

Are we paying too much for PII at the current share price?

In the last 10 years, PII’s P/E ratio saw a low of 9.01 and a high of 302.67, with a median value of 20.69. (per GuruFocus) The current TTM P/E ratio of 13.61 on GAAP EPS and 11.73 on adjusted EPS is materially below the median value. This suggests that PII is currently selling at a discount to its historical valuation.

The current share price of $107.24 is 4.8% below the 50-day moving average and 9.9% below the 200-day moving average. Additionally, the share price is near the 20th percentile of the 52-week trading range.

Yield

How does the current dividend yield for PII compare to historical values?

In the last 10 years, the dividend yield for PII has been in a range of 1.16% to 6.28%, with a median of 1.96%. The current TTM yield of 2.36% is materially above the historical median. Following the latest increase in the quarterly dividend the MRD yield for PII is 2.39%.

Even though the current yield for PII is below our desired target yield of 2.5%, it is materially above the historical median for the company. Therefore, we are content to initiate our position at the current yield.

Thesis

Why are we adding PII to the FiveTwenty portfolio?

PII has a track record of 27 years of growing its dividend. It currently sports a payout ratio of 27.68% which should keep the dividend payment safe and allow for further growth. In addition, the company managed to continue growing revenue and net earnings through the COVID-19 pandemic, proving its resilience.

Finally, we regard the recent decline in the share price as an opportunity to initiate our position in the company at a good valuation.

Additional Research


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