Central Securities (CET) has put income policy in the spotlight after declaring a semi-annual distribution of $3.00 per share, offering investors a choice between cash and additional stock.
Central Securities is trading at $55.13, with short-term share price returns slightly softer over the past month and quarter, while the year-to-date share price return of 8.67% and a 1-year total shareholder return of 14.21% suggest momentum has been building over a longer stretch. This is reinforced by very strong 3- and 5-year total shareholder returns of 74.62% and 65.86%, which help frame this latest $3.00 distribution as part of a longer income and compounding story rather than a one-off event.
Scan income-focused opportunities beyond Central Securities by reviewing the hand-picked 8 dividend fortresses, which combine yield with more robust payout profiles.
Central Securities now sits on a strong long term return record, and the latest $3.00 payout has already nudged the share price. Is most of the easy upside already booked, or does the valuation still leave room ahead?
Preferred P/E of 7.5x: Is it justified?
Central Securities looks inexpensive on a simple yardstick, with a P/E of 7.5x against a last close of $55.13, while peers in US capital markets trade on far richer earnings multiples.
The P/E ratio compares what you pay today per share to the profits that Central Securities has recently produced, which is especially relevant for an investment company where earnings are a key output of its portfolio and fee structure. For this sector, it is a quick way to see how the market is assessing the reliability and quality of those profits.
Here, the discount is clear. Management has delivered average earnings growth of 8.6% per year over the past 5 years, although profit growth over the last year slowed to 1.5% and margins are now lower than a year ago. Recent results also include a large one off gain of $181.6m, which can make the latest earnings look less repeatable and can influence how investors treat the current P/E.
The comparison with peers is stark. Central Securities trades on a 7.5x P/E versus a 14.2x peer average and a much higher 36.7x for the wider US capital markets industry. Those gaps suggest the market is pricing the stock at a heavy discount to both close comparables and the broader group, even after accounting for the slower recent earnings growth and the one off item in the last 12 months.
See what the numbers say about this price — find out in our valuation breakdown.
Result: Price-to-earnings of 7.5x (UNDERVALUED)
Still, the recent slowdown in earnings growth and reliance on a large one off gain leave Central Securities exposed if portfolio results or income distributions disappoint.
Find out about the key risks to this Central Securities narrative.
Another View on Central Securities’ Value
The earnings multiple paints Central Securities as cheap, yet the SWS DCF model goes even further. On that framework, CET at $55.13 trades about 64% below an estimated future cash flow value of $153.21. If both signals are right, how long does that gap persist?
Our DCF model relies on long term cash flow assumptions rather than recent profits. This approach can help readers stress test the income story that CET has been building through distributions and portfolio returns. Look into how the SWS DCF model arrives at its fair value.
Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out Central Securities 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 39 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
Mixed signals in Central Securities' story today. Make time to review both sides of the argument and weigh the 2 key rewards and 3 important warning signs.
Looking for more Central Securities sized ideas?
If you stop with Central Securities, you risk missing other opportunities that fit your style. Put a shortlist together now and give your future self options.
- Target strong income potential by reviewing the 8 dividend fortresses, which pair yield with sturdier payout histories.
- Hunt for quality at a discount by scanning the 39 high quality undervalued stocks, which combine solid fundamentals with lower implied expectations.
- Strengthen downside protection by focusing on the 29 resilient stocks with low risk scores, which show more resilient balance sheets and business profiles.
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