Amway- a good income stock

Background

Amway (M) Holdings Bhd ('Amway') needs no introduction. It is a direct selling company that uses network marketing to sell its products, which are mainly in the health, beauty & home care sectors.

Valuation

Amway (closed at RM8.89 last Friday) is now trading ta a PE of 18.5 times (based on last 4 quarters' EPS of 48.12 sen). Unlike Nestle which enjoyed steady growth and command a PE of 27 times (go here), Amway is considered fairly valued at this PE multiple. However, Amway pays a very attractive dividend of 66 sen for the past 4 quarters. This gives a dividend yield of 7.4%. The next big dividend proposal would happen on the announcement of its results for QE30/9/2011.

Technical Outlook

Amway is in an intermediate term uptrend (SS) with support at RM8.00-8.10. Its medium-term uptrend line (S1-S1) support is at RM8.70

Conclusion

Based on steady financial performance & good dividend payout, Amway is a good stock for investors who are looking for steady income (such as retirees). A good entry level could be the intermediate term uptrend line support at RM8.00. If you managed to get into this stock at this level over the next 2-3 months, you may even enjoy the handsome dividend that accompanied the results announcement for QE30/9/2011.

Author: Alex Lu