Top Picks 2016: Omnicom Group

01/29/2016 7:00 am EST


Kelley Wright

Managing Editor, Investment Quality Trends

Our Top Pick for growth investing in 2016 is a strategic holding company formed in 1986 by the merger of several leading advertising, marketing, and corporate communications companies, explains dividend expert Kelley Wright, editor of IQ Trends.

Today, with more than 1,500 advertising agencies that specialize in over 30 marketing disciplines that services in excess of 5,000 customers in over 100 countries, Omnicom Group (OMC) is one of the largest providers of advertising and marketing communication services around the globe.

OMC has an S&P Quality Ranking of A+ and has earned the IQT G designation, which represents at minimum a 10% average annual dividend growth over the past 12 years; an outstanding achievement.

In fact, their dividend CAGR (compound annual growth rate) has been 23% and 25% for the last three and five years respectively.

Given that their dividend payout percentage of GAAP earnings is at 57% and 38% of free cash flow suggests there is still room for additional dividend growth.

OMC is a consistent generator of free cash flow and has delivered a return on invested capital between 10% and 15% each year consistently, which suggests the company has an above average moat.

The historically repetitive area of undervalue for OMC is a dividend yield of 2.20%, which, based on the current dividend of $2.00, equals a good value price of $91 per share.

The historically repetitive area of overvalue for OMC is a dividend yield of 1.00%, which, based on the current dividend of $2.00, equals $200 per share or more than 150% upside potential. OMC offers excellent value with strong upside potential.

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