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Nu Skin Enterprises: Dividend Going Up, More To Come?

 December 19, 2012 03:10 PM

(By Mani) Anti-aging company Nu Skin Enterprises, Inc. (NYSE: NUS) said it would increase its quarterly dividend by 10 cents to 30 cents a share, beginning in the first quarter of 2013, bringing its payout ratio to roughly 30 percent on 2013 EPS estimate.

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.

The latest dividend revision represents a 50 percent hike for 2013, and with this planned increase, the company will have increased dividends for each of the 12 consecutive years since it instituted the payment of dividends to stockholders.

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The dividend increase would give a yield of 2.6 percent to shareholders. For the past five years, the company's payout ratio was 34 percent. Nu Skin, on average, has increased its dividend by 21 percent in the past three years and 14 percent in the past five years.

However, there would not be any special dividend in 2012 as there is an unfavorable resolution to Japan customs case which company is still disputing. This would be a modest disappointment for shareholders in light of recent stock underperformance.

The Tokyo High Court recently affirmed the lower court's decision with respect to the company's lawsuit to recover approximately $33 million in customs duties assessed against the company for the period of 2002 through 2005.

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Nu Skin continues to disagree with this decision and has appealed to the Supreme Court of Japan. The recent decision will not impact the company's financial results as it previously paid and recorded as an expense the full amount of this assessment.

Still, the company should have plenty of dry powder for further dividend increases, or a potential special dividend or accelerated share repurchase program if stock remains under pressure, with net cash on the balance sheet of $126 million as of the end of the third quarter.

"For instance, $1bn of new long term debt would bring the company's net debt/EBITDA ratio to ~2.5x on an LTM basis and would enable the company to buyback roughly 34% of shares outstanding or pay one or several special dividends," Deutsche Bank analyst Bill Schmitz wrote in a note to clients.

Shares of Nu Skin trade at 13.5 times its consensus 2013 earnings estimate compared to industry's 19.48 times. Its shares were down about 2 percent in the past one year, compared to 20 percent gains posted by S&P 500. The stock was trading between $36.20 and $62.02 during the past 52-weeks.

Given the future earnings growth, the stock is undervalued. Analysts, on average, are forecasting the earnings growth to continue at 26 percent this year. 15 percent next year and 17 percent in the next five years. On a relative, the industry is expected to grow 2.10 percent, 20.80 percent and 14.46 percent, respectively. The sector's earnings are estimated to increase 5 percent, 5.4 percent and 14.14 percent, respectively.

Nu Skin Enterprises has low debt to equity ratio of 38 percent. If the earnings materialize, as forecast and P/E increases to 19, its share price would exceed at least $100 in the next five years, implying annual return of at least 20 percent in the next five years. The company's average return for the past three years was 78 percent.



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