Abel sold, the index kicked it out, and it fell 73%. Is this a dividend buying opportunity?
Three blows in a single year and the stock 73% below its peak. Yet the company raised its dividend this year, approved $600 million in buybacks, and its cash flow jumped 47%. Who's wrong here: the market or management?
Key points
Berkshire Hathaway under Greg Abel completely sold its position, and a month later the S&P 500 index kicked the stock out too.
Since its November 2021 peak, the price is down 73%, but over the past month it has gained more than 20%.
In the midst of the downturn, the company raised its dividend for the fifteenth consecutive year and approved $600 million in buybacks.
Earnings per share are stagnant, yet operating cash flow jumped 47% to $419.8 million.
Analysts see a price target of $211.57, while Bulios's fair value is 32% lower.
Three verdicts in one year
Few companies receive three such clear signals within five months that big money wants nothing to do with them. Pool Corp $POOL , the world's largest wholesale distributor of pool supplies, has been through the whole ordeal this year.
The first verdict came in May. In its first quarterly filing under Greg Abel, Buffett's successor, Berkshire Hathaway completely sold its stake in Pool. It was one of 16 positions the new leadership closed, while the holding company's cash reached a record $397 billion. The S&P 500 index delivered the second verdict in June, removing the stock. And the market itself wrote the third: on October 7, the stock closed at $152.70, its lowest level in three years and 73.3% below its November 2021 peak.
Then came October 22 and the third-quarter results. The stock jumped as much as 10.6% during the day and gained 20.7% over the past month, reaching $199.08 (closing price on October 23). Still, it remains down 32.2% for the year, while the S&P 500 index has gained 12.3% over the same period.
At its October low, the stock offered a dividend yield of 3.4%; after the rebound, it is now 2.6%. The company has raised its dividend for fifteen consecutive years, most recently in April this year, in the middle of the downturn. Either management is blind, or the market is valuing something other than what the company actually lives on.