by Marc Bastow | April 22, 2013 6:15 am
InvestorPlace Dependable Dividend Stock Dover (NYSE:DOV) might not have the same name recognition as dividend stalwarts like Exxon Mobil (NYSE:XOM) or McDonald’s (NYSE:MCD), but it does have one important thing in common — a great track record of consistently increasing dividends (in DOV’s case, 56 years).
And that’s exactly the kind of thing that sets “hidden gems” apart from just “lesser-known stocks.”
Dover was founded in 1925 as the Automobile Rotary Lift Company, and was instrumental in the growth and popularity of the hydraulic passenger elevator. In 1955, Dover split the Rotary Lift business into two divisions: Rotary Lift, focusing on manufacturing automobile lifts, and Dover Elevator Division, which manufactured passenger and freight elevators.
Today, however, Dover is a diversified global manufacturer and servicer that brings in $8 billion annually through its four operating segments: Communication Technologies, Energy, Engineered Systems and Printing & Identification.
How does an $8 billion company manage to become such a bedrock of consistency? For Dover, it has been a combination of solid management, smart acquisitions and stable financial results.
Since 1955, Dover has had only six CEOs; of those six, three previously sold their companies to Dover, and all were presidents of a Dover division.
In that time, Dover has made more than 200 acquisitions — including 25 since 2009 — focused on enhancing offerings in growth spaces including communication tech, energy, fluid solutions, printing & identification, and refrigeration & food service equipment. Thus, the targeted companies have dealt in products such as specialty glass, pumps and filtration systems
The end result for Dover and investors is a growing company, especially following the financial crisis. From 2009 through 2012 the company rebounded nicely, increasing revenues roughly 13% annually since then to last year’s $8.1 billion total. Earnings also have rebounded splendidly, from $357 million in 2009 to $800 million as of 2012. Analysts expect another 14% uptick in earnings for fiscal 2013, and 13% improvement in FY2014.
Click to EnlargeAll of which gets us around to those dividends. With cash and free cash flow levels running close to $2 billion in any quarter, Dover has been able to finance its conversion into a payout-boosting machine: What was a 15-cent quarterly payout in 2004 has more than doubled to its current 35 cents.
While that only translates to a modest yield of slightly more than 2%, DOV’s dividend payout ratio stands at just under 30%, about the average for S&P 500 companies and well under the S&P’s 50% historical average — that means DOV has more than enough room to stretch out that dividend in the future.
As you might expect in a conservatively run group, stock appreciation isn’t mind-blowing — 25% in the past three years, though that’s only about 5 percentage points less than the broader markets in that time. But remember: What we want in our long-term holdings is steady growth and dividends.
Dover provides both.
Marc Bastow is an Assistant Editor at InvestorPlace.com. As of this writing, he was long XOM.
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