Dividend hike puts Mueller Industries in focus

Mueller Industries (MLI) has attracted fresh attention after its Board approved a 40% increase in the regular quarterly cash dividend to US$0.35 per share, signaling a more generous capital return approach.

The 40% dividend hike comes after a mixed stretch for the stock, with a 1-day share price return of 0.94% and a 30 day share price decline of 12.54%. At the same time, the 1-year total shareholder return of 51.47% and a 5-year total shareholder return above 5x suggest momentum has built meaningfully over time.

If this dividend move has you thinking about where else income and growth could come from, it may be worth scanning our 19 top founder-led companies as a starting list of ideas.

With the stock at US$119.07, a value score of 4, an intrinsic discount of 12.33% and a 17.58% discount to an analyst price target of US$140, is this a genuine opportunity, or is the market already pricing in future growth?

Price-to-Earnings of 17.3x: Is it justified?

On a P/E of 17.3x, Mueller Industries looks priced below both its own estimated fair P/E of 24.3x and the US Machinery industry average of 28.4x.

The P/E ratio compares the current share price to earnings per share. It effectively tells you how much investors are paying for each dollar of earnings. For a manufacturer with a long operating history and established end markets, this is a common yardstick because earnings quality and consistency tend to matter more than rapid revenue expansion.

Here, the company is described as having high quality earnings, with earnings up 26.5% over the past year and profit growth of 15.9% per year over the past 5 years. That growth profile, coupled with a Return on Equity of 23.9%, helps explain why a higher fair P/E of 24.3x is suggested as a level the market could move toward if that track record and forecast 5.7% annual earnings growth continue.

Against peers, the gap is even clearer, with Mueller Industries at 17.3x versus a US Machinery industry average of 28.4x. That is a wide discount for a business whose recent earnings growth exceeded the industry, where the Machinery sector figure was a 1.9% decline over the past year.

Result: Price-to-Earnings of 17.3x (UNDERVALUED)

However, you also need to weigh exposure to cyclical construction and HVAC demand, as well as the risk that higher dividends limit flexibility if conditions become less favorable.

Another angle, same conclusion?

There is also our DCF model, which values Mueller Industries at US$135.82 per share compared with the current US$119.07. That points to the shares trading below the value of expected future cash flows, but it still leaves you asking how much weight to put on any model at all.

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out Mueller Industries for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover 45 high quality undervalued stocks. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Next Steps

If the mixed signals here leave you torn, it is worth checking the underlying data yourself and moving quickly to shape your own view with 4 key rewards and 1 important warning sign

Looking for more investment ideas?

If you are weighing what to do next after Mueller Industries, do not stop here, broaden your watchlist so you are not relying on a single story.

• Target dependable income by scanning companies with steady payouts through our 13 dividend fortresses and see which ones might fit your income goals.
• Hunt for quality at a sensible price using the 45 high quality undervalued stocks, built around companies that pair fundamentals with potential pricing gaps.
• Focus on peace of mind first by checking the 76 resilient stocks with low risk scores and narrow in on businesses with more resilient risk profiles.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.