Week #12CMCSA
Stock of the Week #12 — Comcast (CMCSA)
92Five-box test: ✓ Pays · ✓ Raises · ✓ Safe · ✓ Undervalued · ✓ Yield that matters
Week twelve, and this one has three stories in it: a stock we bought, a stock we turned down, and forty-four cents that mean more than they look like.
First, the one we said no to
We spent most of this morning on Clorox. On paper it was thrilling: a 5.06% yield, a dividend streak somewhere between 48 and 50 years, and a share price 48% cheaper than its own five-year norm. Morningstar rates it five stars, wide moat, and thinks it's worth $154 against a market price under $99.
It scored 81, Strong. And we passed.
Here's why. Clorox paid $5.00 per share in dividends against $4.81 of earnings. That's a payout ratio of 104%. The company is paying out more than it makes.
There are real reasons for it. Clorox had a rough year: a company-wide software rollout drained retail inventory, sales fell 13% in the final quarter, and it bought Purell in the largest acquisition it has ever made. Analysts expect earnings to recover and the payout to fall back under 70% by 2029. That's probably right.
But we score what's true today, not what's forecast for 2029. Our third box asks one question, is the dividend safe, and a dividend that costs more than the company earns cannot answer yes. Two weeks ago we turned down Campbell's for freezing its dividend from 2021 to 2024. If we buy Clorox after that, the test means nothing. Clorox goes on the watch list, and we'd genuinely like to own it at 68% payout. Not at 104%.
What we bought instead
Comcast (CMCSA). 3.764 shares at $26.695.
It scored 92 — Exceptional, tying T. Rowe Price and McCormick for the highest mark we have ever given, and it adds Communication Services, a sector this portfolio has never owned.
The five boxes
- Pays: 19 years of uninterrupted dividends, never a cut.
- Raises: a 17-to-19 year streak of increases, depending on whose calendar you use.
- Safe: 42.72% of earnings paid out. The dividend is covered 2.3 times over, our first perfect score in this box since Lowe's in week seven.
- Undervalued: today's yield sits 63% above its own five-year median.
- Yield that matters: 4.94%. A hundred dollars buys about $4.94 a year.
Put Comcast and Clorox side by side and you have the cleanest illustration of this test we've ever published. Two companies, both yielding about 5%, both cheap against their own history. One pays out 104% of earnings. The other pays out 43%. Boxes 4 and 5 can't tell those apart, because a struggling company and a bargain both look cheap and both yield a lot. Box 3 is the box that knows the difference.
The honest part
Comcast is not a wonderful business we're getting at a discount. It's a decent business under real pressure that we're getting at a large discount, and you should own it knowing which of those it is.
- Narrow moat, not wide. McCormick and Clorox both earn Morningstar's "wide" rating. Comcast gets "narrow," and they say that advantage is most at risk in exactly the business that matters most, broadband.
- The core business is losing ground. In Morningstar's own words, Comcast's cable business "faces increased pressure from fixed-wireless offerings," adjusting has been "painful," and they "don't expect a turnaround anytime soon." Broadband customers are leaving for fiber and 5G home internet. That is the profit engine, and it is shrinking.
- $85 billion in debt, enough that analysts flag it as a limit on what the company can do next.
- Dividend growth has stalled to about 1.6% a year, down from more than 10% over the past decade.
- A spinoff is coming. Comcast is separating NBCUniversal, its media arm. We'll run whatever lands in our account through the five-box test like any other candidate and tell you what we decide.
So why buy it? Because we are being paid 4.94% to wait, out of earnings that cover the dividend more than twice, by a company that still supplies internet to a large share of American homes. The bear case is that Comcast slowly shrinks. Even in that case, a dividend at 43% of earnings has an enormous amount of room to keep being paid. Compare that with Clorox, where the same 5% yield has no room at all. We're buying the income, and we're honest that we're not buying a compounding machine.
The first forty-four cents
Here's the part we've waited twelve weeks for.
This buy was $100.48, not $100.00. The extra 48 cents was not ours. It was the portfolio's.
Since June, our holdings have paid us $1.77 in dividends: two monthly payments from Realty Income and one quarterly payment from Medtronic. $1.33 of that quietly went into the ADP purchase back in week six. The remaining $0.44 has been sitting in the account, and today it bought 0.0165 shares of Comcast.
Forty-four cents. Two-hundredths of a share. It is almost nothing, and that is exactly why we're showing it to you.
This is what compounding looks like at the beginning: embarrassing. Those 0.0165 shares will pay about two cents a year, forever, and that two cents will buy more shares. Everyone has seen the chart where the line goes vertical after thirty years. Almost nobody shows you week twelve, when the snowball is the size of a marble. This is week twelve. The portfolio bought something with its own earnings for the first time, and from here it never stops.
A correction to our own numbers
While we were recording those dividends, we checked every purchase in our database against the actual brokerage statement, line by line. We found errors. Small ones, but ours.
Five buys were recorded a penny high. Four had cost $99.99 rather than the $100.00 we logged, and the ADP buy in week six was $101.33 rather than $101.34. Together we had overstated the money we'd put in by five cents.
The bigger mistake was in that same ADP purchase. We recorded all $101.33 as our own contribution, when $1.33 of it was actually dividend money. That's the one distinction this whole project exists to make clear, the difference between what we deposit and what the portfolio earns, and we had blurred it in the very first week it happened.
All of it is fixed, and fixed the way we promised: nothing was edited or deleted. Every original entry is still in the database exactly as first recorded, each one now paired with a dated correction explaining what was wrong. You can see the mistake and the fix. Our numbers now match the brokerage statement to the cent, which is how we can tell you with confidence that the $1,200.00 below is precisely the twelve deposits we've made, and the $1.77 is precisely every dividend this portfolio has ever been paid.
We'd rather publish this than quietly change a number.
The numbers on this week's buy
- Invested: $100.48, of which $100.00 was our deposit and $0.48 came from the account ($0.44 of it dividends the portfolio earned)
- Bought: 3.764 shares at $26.695
- New annual dividend income added: about $4.97 per year, our second-largest single-week addition ever
- The portfolio after 12 weeks: $1,200.00 contributed, $1.77 reinvested, worth about $1,201.90, throwing off about $44.19 a year, roughly $3.68 a month
- Lifetime dividends received: $1.77 (it was $0.00 last week, because we hadn't recorded them yet)
Twelve weeks, eleven businesses, a new sector, our highest score, and the first buy this portfolio ever made with money it earned itself. The running totals are on the portfolio page, and the slider lets you drag through time to watch the income grow.
That's week twelve. We turned down a 5% yield that wasn't covered and bought one that was. See you next week for pick number thirteen.
This is not financial advice. We're individual investors sharing our own approach and the reasoning behind our own real decisions, not licensed advisors. We own, or are buying, the stocks we write about in this series. Do your own research and consider speaking with a financial professional before investing. Dividend figures, yields, share counts, and prices are accurate to the best of our knowledge as of the publish date and will change over time.