Founded in 1984, Nu Skin Enterprises (NUS) is a distributor in “clean” personal care products. Nu Skin has historically grown earnings at a compounded rate of 6.1% since 1998, resulting in a 2.71 billion dollar market cap. The company’s earnings per share have risen from $1.49 per share in 1998, to current forecast earnings per share of approximately $3.06 for fiscal 2012. The company started paying a dividend about 11 years ago and has raised their dividend every year.
Dividend Contender: Nu Skin Enterprises
This article looks at Nu Skin Enterprises, a Dividend Contender, through the lens of the F.A.S.T. Graphs™ Fundamentals Analyzer Software Tool. Since a picture is worth a thousand words, the reader will be provided the “essential fundamentals at a glance” expressed vividly in pictures.
A Dividend Contender is defined as a company that has increased its dividend for a minimum of 10 – 24 straight years. Nu Skin Enterprises is a Dividend Contender that has raised its dividend every year for 12 consecutive years. The complete Dividend Contenders list is compiled courtesy of David Fish. (Open as an excel spreadsheet and look at the tabs on the bottom to find the Dividend Contender list).
About Nu Skin Enterprises: from their website
“Nu Skin Enterprises, Inc. demonstrates its tradition of innovation through its comprehensive anti-aging product portfolio, independent business opportunity and corporate social responsibility initiatives. The company’s scientific leadership in both skin care and nutrition has established Nu Skin as a premier anti-aging company, evidenced in its unique ageLOC® science that addresses aging at its source. The company’s anti-aging products feature the new ageLOC suite of products including the ageLOC R2 nutritional supplement, ageLOC Galvanic Spa System and ageLOC Galvanic Body Spa™, as well as the ageLOC® Transformation daily skin care system. A global direct selling company, Nu Skin operates in 52 markets worldwide and has more than 860,000 independent distributors. Nu Skin is traded on the New York Stock Exchange at under the symbol “NUS.”
Nu Skin Enterprises: A Dividend Contender with 12 Consecutive Years of Dividend Increases
Learning from the Past – Looking at Earnings Only
Since dividends are paid out of earnings, a clear perspective of a company’s historical earnings growth record is a vital component of a dividend investor’s prudent due diligence process. The following graph plots Nu Skin Enterprises’ earnings per share since 1999. A quick glance to the right of the graph shows that Nu Skin Enterprises has increased earnings at a compounded rate of 6.1% (see purple circle on graph) per annum.
Earnings Determine Market Price and Dividend Income: The following earnings and price correlated F.A.S.T. Graphs™ clearly illustrates the importance of earnings to both price movement and dividend income. The earnings growth rate line or True Worth ™ line (orange line with white triangles) is correlated with the historical stock price line. On graph after graph the lines will move in tandem. If the stock price strays away from the earnings line (over or under), inevitably it will come back to earnings.
Since dividends are paid out of earnings, and therefore represent additional return on top of what the market capitalizes earnings at, they are depicted by the light blue shaded area and stacked on top of the earnings line. Therefore, a quick visual of these two important components is simultaneously revealed:
1. The additional return that dividend paying stocks provide.
2. The percentage of earnings paid to shareholders as dividends (payout ratio).
The value in this article is through carefully analyzing the earnings and price correlated fundamentally based graphs. Notice that one glance tells you how well the company has performed on an operating basis historically and how the market valued that historical performance. Therefore, the reader is free to discover whether or not current valuations make sense based on historical norms coupled with fundamental values. Instead of opinion, this article is designed to produce facts that can be analyzed to the readers investing benefit.
Performance Table: Capital Appreciation and Dividend Income Nu Skin Enterprises
The associated performance results with the earnings and price correlated graph, validates the above discussion regarding the two components of total return: Capital appreciation and dividend income. Dividends are included in the total return calculation and are assumed paid, but not reinvested.
When presented separately like this, the additional rate of return a dividend paying stock produces for shareholders becomes undeniably evident. In addition to the 6.1% capital appreciation (Closing Annualized ROR), long-term shareholders of Nu Skin Enterprises would have received an additional $23,066.59 in dividends that increased their total return from 6.1% to 6.8% per annum.
(Note: Since this is a Dividend Contender it has raised its dividend every year for at least 10-24 years, therefore, negative dividend growth rates shown, if any, will be attributed to special additional dividends paid in excess of the company’s regularly reported dividend rate)
The following graph plots the historically normal PE ratio (the dark blue line) correlated with 10-year Treasury note interest. Notice that the current price earnings ratio on this quality company is as normal as it has been since 1998.
A further indication of valuation can be seen by examining a company’s current price to sales ratio relative to its historical price to sales ratio. The current price to sales ratio for Nu Skin Enterprises is 1.49, which is historically high.
Looking to the Future
Extensive research has provided a preponderance of conclusive evidence that future long-term returns, and the dividend and its growth rate are a function of two critical determinants:
1. The rate of change (growth rate) of the company’s earnings
2. The price or valuation you pay to buy those earnings
Therefore, forecasting future earnings growth, bought at sound valuations, is the key to safe, sound, and profitable performance.
Therefore, it logically follows that measuring performance without simultaneously measuring valuation is a job half done. At its current price, which is attractively aligned with its True Worth™ valuation, Nu Skin Enterprises represents a potential opportunity to invest in a Dividend Contender at a reasonable price. The important factor is that Nu Skin Enterprises has real assets and cash flow underpinning its stock price. This solid economic foundation offers shareholders the potential for both a strong margin of safety and an opportunity for an increasing dividend income stream and potentially attractive future returns.
The Estimated Earnings and Return Calculator Tool is a simple yet powerful resource that empowers the user to calculate and run various investing scenarios that generate precise rate of return potentialities. Thinking the investment through to its logical conclusion is an important component towards making sound and prudent commonsense investing decisions.
The consensus of 7 leading analysts reporting to Capital IQ forecast Nu Skin Enterprises long-term earnings growth at 11.7%. Nu Skin Enterprises has low long-term debt at 16% of capital. Nu Skin Enterprises is currently trading at a P/E of 15.1, which is inside the value corridor (defined by the five orange lines) of a maximum P/E of 18. If the earnings materialize as forecast, Nu Skin Enterprises’s True Worth valuation would be $80.59 at the end of 2017, which would be a 13.5% annual rate of return from the current price, including assumed dividends.
Earnings Yield Estimates
Discounted Future Cash Flows: All companies derive their value from the future cash flows (earnings) they are capable of generating for their stakeholders over time. Therefore, because Earnings Determine Market Price and dividend income in the long run, we expect the future earnings of a company to justify the price we pay.
Since all investments potentially compete with all other investments, it is useful to compare investing in any prospective company to that of a comparable investment in low risk Treasury bonds. Comparing an investment in Nu Skin Enterprises to an equal investment in 10-year Treasury bonds illustrates that Nu Skin Enterprises’ expected earnings would be 7.7 times that of the 10-Year T-Bond Interest. (See EYE chart below). This is the essence of the importance of proper valuation as a critical investing component.
This report presents essential “fundamentals at a glance” on Dividend Contenders Nu Skin Enterprises, illustrating the past and present valuation based on earnings achievements as reported. Future forecasts for earnings growth are based on the consensus of leading analysts. Although with just a quick glance you can know a lot about the company, it’s imperative that the reader conduct his or her own due diligence in order to validate whether the consensus estimates seem reasonable or not.
Summary & Conclusions
The Fast Graphs™ tool shows Nu Skin’s stock price has recently traded near its intrinsic value after being over-priced. Nu Skins sales have continued to grow at an attractive rate over the past 15 years. In contrast to its recent Price/Sales ratio peak of 2.06 on 02/29/2012, Nu Skin is currently trading at a Price/Sales ratio of 1.49, which is high for recent years. This may be a stock to research and watch as it has just now come back into the value corridor and could be a good dividend play. As always, we recommend you conduct your own thorough due diligence.
Disclosure: No position at the time of writing.
Disclaimer: The opinions in this document are for informational and educational purposes only and should not be construed as a recommendation to buy or sell the stocks mentioned or to solicit transactions or clients. Past performance of the companies discussed may not continue and the companies may not achieve the earnings growth as predicted. The information in this document is believed to be accurate, but under no circumstances should a person act upon the information contained within. We do not recommend that anyone act upon any investment information without first consulting an investment advisor as to the suitability of such investments for his specific situation. A comprehensive due diligence effort is recommended.