Garmin: good dividend investors, but beware of valuation (NYSE: GRMN)


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In my dividend growth portfolio, I lack exposure to consumer discretionary and consumer staples companies. I always look for companies I own to add more stocks to my portfolio. Nevertheless, I am always on the lookout for additional investments, and new positions that can make my portfolio more diversified.

A company that I have wanted to analyze for some time is Garmin (GRMN) in the consumer discretionary sector. The company has seen its stock prices plunge over the past few months, and this quality company is now very attractive for research. The company is a leader and a well-known brand among athletes and outdoor enthusiasts.

In this article, I will analyze the company using my dividend growth stock analysis methodology. The methodology is described in the graph below. I intend to look at fundamentals, valuation, growth opportunities and risks. I will take into account that past fundamentals may not be helpful as the company has gone through significant changes.

Flow of Khen Elazar

Khen Elazar

According to Seeking Alpha’s company overview, Garmin designs, develops, manufactures, markets and distributes a range of navigation, communication and information devices. Its Fitness segment offers multi-sport watches and smartwatches. Its Aviation segment offers avionics solutions for aircraft, including communication products. The Company’s Marine segment offering includes multifunction displays and navigation products. Its Auto segment offerings include infotainment systems and personal navigation devices

Garmin Logo.svg


Revenues have risen sharply over the past five years after almost a decade of limited growth. The company is experiencing annual growth of almost 10%, fueled by mainly organic growth, aided by a few one-off acquisitions. analyst consensus as seen on Seeking Alpha, expects the company to grow revenue by a mid-to-medium figure.

Data by YCharts

EPS grew at a similar pace to revenue. EPS growth was fueled by revenue growth. The company did not improve its margins significantly and did not buy back shares aggressively. Going forward, the company intends to improve its margins by reducing costs. That’s why, according to analyst consensus, as reported on Seeking Alpha, investors should expect high single-digit or low double-digit annual growth rates over the medium term.

Data by YCharts

The dividend has increased steadily over the past 17 years, despite a short 3-year dividend freeze. The freeze was due to flat EPS which pushed the payout ratio too high. However, the current situation is extremely healthy. The mix ratio is balanced at 42% after June’s 10% rise, and the current yield is modest at 2% offering investors a safe entry point.

Data by YCharts

In addition to dividends, companies also tend to use share buybacks to return cash to shareholders. Garmin hasn’t done this for the past five years, but it’s important to look at the big picture. Over the past decade, the number of shares has not changed dramatically, meaning shareholders have not been diluted due to employee stock options and bonuses.

Data by YCharts


The chart below shows the company trading at 21x expected 2022 EPS. Valuation has been much higher throughout the year after shares traded at 30x earnings in less than six month. The current valuation contains some premium when I take into account the expected growth, but I think the valuation is still fair.

Data by YCharts

The graph below from emphasizes my thesis regarding valuation. The business is expected to grow at a slower pace compared to the average growth rate of the past twenty years. Meanwhile, the current valuation is slightly higher than the average valuation over this period. The company will have to perform well to justify the current premium.

fastgraphs chart

To conclude, Garmin offers investors solid fundamentals. While the company had a difficult period of low growth for nearly a decade, the company is now experiencing steady growth which is expected to continue in the medium term. With that growth story comes a fair bit higher valuation, and it will need to offer investors a good growth story and execution to justify it.


Outdoors and well-being are two trends that go hand in hand. Both are here to stay. People are choosing healthier, more active lifestyles with more outdoor activities. The Covid pandemic was a challenge for the outdoor trend as people were confined, but as the economy recovers so is the outdoor trend. People who are active, out and about working out will continue to drive demand for Garmin wearables.

“That interest, of course, still remains very strong, and we believe, as the industry has signaled, that there is still a lot of growth potential in the wearables market.”

(Cliff Pemble – Garmin CEO, third quarter earnings call)

Navy and Air Force are smaller segments, but they are growing at an extremely rapid rate. More and more people are applying for pilot licenses as well as navigation licenses, and the company is taking advantage of the trend. This is the advantage of diversification enjoyed by Garmin. Both of these segments saw double-digit revenue growth in the third quarter and are expected to be key growth drivers in 2022 as the company receives excellent reviews for its products.

During the quarter, we were ranked number one in avionics product support by Aviation International News for the 18th consecutive year. Being consistently recognized for unparalleled support year after year clearly demonstrates our strategic focus on caring for customers and supporting our products.

(Cliff Pemble – Garmin CEO, third quarter earnings call)

The improving outlook is another positive sign. The company raised its outlook for 2021 during third-quarter reports. Over the past few years, we have seen several upward revisions. Demand for Garmin products is on the rise, and even management itself is struggling to predict demand for its products.


The current safety margin is a major short-term risk. The company is growing at a healthy pace, but the current valuation means the company will need to maintain the pace of growth going forward and execute very well. At this valuation, each shortfall could have a material negative effect on the business.

Another risk is the current market sentiment. Garmin is not a blue-chip mega-cap, and investors are looking for safer investments. In this case, we can see that the stock price continues to decline in the short term even though the current fundamentals remain as strong and even go further. Investing in Garmin could go against the current wave of shifts from growth stocks to value stocks.

In addition, the Federal Reserve intends to raise interest rates this year and next. As interest rates rise, borrowing becomes more expensive. Garmin’s products are mostly discretionary spending, and higher rates could hurt demand for its products. People may be less willing to upgrade their gear.


Garmin is a solid company. The company is surfing on a health and well-being trend. Companies like Coca-Cola (NYSE:KO) adapt to it, while Garmin is already in the middle. The company is increasingly taking advantage of people who engage in outdoor activities using its GPS technology and the ecosystem built around it.

The fundamentals are strong as the business grows across the board. In addition, the trend is expected to continue and transport more people. The future is therefore bright and the risks seem limited. The valuation is a bit rich, but I can understand the premium. Nevertheless, I would recommend that potential investors build their position gradually.


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