Financial Advisor Update

Return to Article

Should You Buy It? Diebold

David Peltier

With more companies cutting their dividends these days, I've paid special attention to the ones that have actually increased their payout in 2009. Diebold (DBD Quote) is one such name, as the company boosted its quarterly dividend on Feb. 11 to 26 cents a share (4.6% yield).

But what makes Diebold stand out from the rest is that management has increased the dividend 56 consecutive years -- the longest current streak in this country.

And it appears that maker of automated teller and electronic voting machines can cover the payment 2.1 times with expected 2009 earnings of $2.19 a share. Free cash flow also came in 26% ahead of reported earnings in 2008. Diebold also has a decent balance sheet with $362.8 million of cash compared with $605.2 million of debt.

But is a good dividend enough reason to buy the stock these days? One of the reasons why the company's yield is so high is because Diebold shares are down nearly 20% year-to-date. The stock closed Wednesday near nine-year lows at $22.63.

With that in mind, I'm here to answer readers' questions: Should you buy it? Does Diebold offer value at current levels or should investors focus elsewhere?

The company posted mixed fourth-quarter results back on Feb. 4. Earnings came in at 40 cents a share, matching the consensus analyst estimate. Revenue fell 6% from the previous year to $823 million, which was $31.6 million below expectations.

Diebold's 2009 earnings guidance of $2.10 to $2.40 a share also came in below the previous consensus analyst estimate. Management's revenue guidance for a 2% to 10% decline is equally wide and shows a lack of visibility.

The company is seeing lower demand from banks for ATM systems, as customers are trying to cut back spending in the midst of the current financial crisis. Diebold is also hurt by the stronger dollar, as the company generates about 26% of its total revenue outside of the U.S. management is targeting $100 million of cost cutting to help offset the lower demand.

Diebold's dividend appears secure, but I believe that readers should hold off from buying the stock at current levels because the demand outlook remains murky because of the macroeconomic environment.

As a result, I believe Diebold shares could reach the high-teens, at which point the attractive dividend yield should help provide a floor for the stock.

Check out David Peltier's "Value Investor" for more stock picks that can weather today's economic downturn. Along with his recommendations, you will also have access to his model portfolio and his expertise on position management and exit strategies -- essentials in succesful value investing. Click here for a special limited-time offer.

Know what you own: Other business equipment companies include Xerox (XRX Quote), Pitney Bowes (PBI Quote), Coinstar (CSTR Quote), Steelcase (SCS Quote), Herman Miller (MLHR Quote) and HNI (HNI Quote). For more on the value of knowing what you own, visit TheStreet.com's Investing A-to-Z section.