The time to buy Whirlpool (NYSE: WHR) for its dividend is now. The stock offers a buying opportunity that has been years in the making and will be viewed favorably for years to come. Trading at 9x earnings and yielding over 6.5%, the stock has a limited downside, market-beating yield, and a robust outlook for stock price reversal in 2025.
The company isn’t out of the weeds yet and faces continued market pressure from macroeconomic conditions and competition. However, it is on track to resume earnings growth in fiscal 2025 and produce sufficient cash flow to sustain its healthy balance sheet and return capital to shareholders.
Whirlpool Trades at Rock-Bottom Prices
Whirlpool’s 9x P/E multiple is not the cheapest the stock has traded in recent years but is at the very low end of the range, more than 40% below the 10-year average. The valuation relative to 2025 is even lower because of the earnings growth outlook, which assumes a high-single-digit pace sufficient to sustain distribution health. Assuming the stock can sustain its 9x valuation relative to current year earnings, the stock price should increase over the next 12 months on earnings growth. Even so, the dividend is reliably safe.
Highlights from the Q2 F2024 results include a sequentially wider margin driven by internal efficiencies and the expectation of additional gains in the year’s second half. That’s good news for the dividend and helps ensure its reliability because of improving coverage. The payout ratio is up in 2024 on a decline in earnings power but still manageable at 60% of the 2024 and 55% of the 2025 EPS forecast, with earnings growth expected over the long term.
Whirlpool had a negative cash flow quarter in FQ2, but ultimately, it was a good quarter for investors. The cash burn is due primarily to debt repayments and is less than the previous year. The net result is an expected decline in cash offset by debt reduction that leaves total long-term liability very low. The total long-term liability is about 2.5x equity and less than 0.5x assets, putting the business in a lean operating condition with relatively unimpeded cash flow, capable of sustaining capital returns, including share repurchases. Share buybacks were sufficient to reduce the count in Q2.
Analysts and Institutions Indicate a Price Floor of $100
Analysts and institutional activity helped send WHR shares to their lowest levels since 2020, with declining ratings, reduced price targets, and intermittent selling. However, the balance of institutional activity is bullish in 2024, with them buying on balance in Q1 and Q3 and activity aligning with congestion bands on the price chart. The congestion bands show market support at the $100 to $105 level, aligning with the analysts' consensus suggesting a floor for the market. Assuming the upcoming earnings report aligns with the expectations, analysts may lift price targets and sentiment ratings, providing a tailwind for the stock price.
Whirlpool Reaches Bottom in 2024
The stock price action in WHR reached its bottom in 2024 but has yet to signal a complete reversal. The market is consolidating and shows support at critical moving averages but needs to fire a stronger signal to take on a strongly bullish posture. The Q3 earnings release may trigger that signal. Until then, the downside is limited by the recent lows near $85, which may be retested if the second half is weaker than forecast.
The long-term forecast is for a total price reversal, which may not be completed until 2025. Falling interest rates are expected to reinvigorate the demand for new houses and unstick the existing home market, fueling demand for appliances. In that scenario, the stock price could gain upward of 100%.
