Published on July 24th, 2022 by Nikolaos Sismanis
No investor will define what a blue chip stock is in the same way. Usually, the term is used to classify trustworthy companies which can be relied upon in various economic environments. We have added another factor to the mix, defining it as a stock with at least 10 consecutive years of dividend increases. This is because an established track record of annual dividend increases going back at least a decade demonstrates a company’s capability to generate enduring growth and grow its dividend, even in a recession.
As a result, we feel that blue chip stocks are among the safest dividend stocks that investors can buy.
With all this in mind, we created a list of 350+ blue-chip stocks, which you can download by clicking below:
The third installment of the 2022 Blue Chip Stocks In Focus series will analyze C.H. Robinson Worldwide, Inc. (CHRW).
C.H. Robinson Worldwide is one of the most prominent international logistics companies globally, founded by Charles Henry Robinson over a century ago. The American Fortune 500 provider of multimodal transportation services and third-party logistics managed about 20 million shipments and worked with roughly 100,000 customers last year, generating $23.1 billion in total revenues.
Some of C.H. Robinson’s services include freight transportation, transportation management, brokerage, and warehousing. The company also offers truckload, air freight, intermodal, and ocean transportation. What many, including the company’s investors, don’t know is that in addition to transportation and logistics services, C.H. Robinson also provides sourcing services under the trade name Robinson Fresh. These services mainly focus on buying, selling, and marketing fresh fruits and vegetables.
With supply chain constraints remaining in place despite the COVID-19 pandemic easing, the company’s services remain in sky-high demand as its customers are in need of timely and reliable logistics. Thus, C.H. Robinson is currently enjoying increased operating leverage.
The company’s latest results illustrated the current market dynamics, including record demand for logistic services as supply chain bottlenecks endure. In Q1 2022, revenues rose 28.1% to $4.1 billion from $3.2 billion in Q1 2021. Revenue growth was mainly supported by elevated pricing and higher volume across most of the company’s services.
Specifically, the Truckload division reported growth of 19.9% year-over-year. Ocean transportation saw an increase of 63.4%, while air saw a 33.9% increase compared to last year. Finally, LTL experienced a year-over-year rise of 25.3%. These numbers clearly illustrate the current trading environment and C.H. Robinson’s critical role in it.
Source: Investor Presentation
Still, inflationary pressures and wages being on the rise also affected the company’s performance. Operating expenses advanced 17.0% to $560.7 million due to higher personnel expenses, including increased headcount, which rose 15.1%. Still, amid higher margins, operating income totaled $345.5 million, up 54.7% year-over-year. In fact, the adjusted operating margin of 38.1% implies a year-over-year expansion of 630 basis points.
Consequently, net income landed at $270.3 million, up 56.0% for the quarter year-over-year, while Earnings Per Share (EPS) saw a noteworthy advancement of 60.2% to $2.05. We forecast that the company will make $7.36 per share for fiscal 2022. This implies an increase of 16.6% compared to what the company achieved in fiscal 2021.
C.H. Robinson’s top-line growth has averaged close to 5.1% per annum over the past decade. Regarding the past five years, this figure stands at 4.9%. However, driven by favorable dynamics in the logistics industry, as mentioned earlier, the company’s growth has accelerated lately. In fact, revenues grew by north of 42% last year. Over the long run, we expect the company’s revenue growth to normalize and converge towards the industry’s average due to C.H. Robinson’s mature operations.
Source: Investor Presentation
When it comes to its profitability growth, it has been more vigorous compared to the company’s top-line growth as economies of scale are achieved, and operating efficiencies are unlocked over time. For context, earnings per share have increased by 13.6% over the past five years. Continous buybacks over the years have also contributed to EPS growth. We expect EPS to grow by roughly 7% through 2027, assuming that the current industry tailwinds will normalize moving forward.
Source: SEC filings, Author
C.H. Robinson features an extended history of paying dividends and has raised its payout for 22 consecutive years. While the five-year dividend growth rate stands at 2.8%, and the most recent hike was by just 2%, we expect the company to grow the dividend by 4% over the next five years as the company can comfortably afford it.
Competitive Advantages & Recession Performance
One of C. H. Robinson’s most noteworthy competitive advantages is its wide economic moat since building a logistics network from scratch is a very capital-intensive process. Thus, entry into the industry is next to impossible for any smaller potential competitors. And even then, it’s unlikely that an up-and-coming competitor would be able to operate a network as effective and efficient as C. H. Robinson’s, further shielding the company.
The company’s performance during the “Great Financial Crisis” of 2008-2009 demonstrated the mission-critical nature of its operations, with profitability even increasing during that period.
You can see a rundown of C. H. Robinson’s earnings-per-share from 2007 to 2011 below:
- 2007 earnings-per-share of $1.90
- 2008 earnings-per-share of $2.12
- 2009 earnings-per-share of $2.15
- 2010 earnings-per-share of $2.35
- 2011 earnings-per-share of $2.63
In addition, C. H. Robinson has a balanced capital allocation strategy that enhances its shareholder value creation prospects. It can be both opportunistic (e.g., buying back shares when the stock is undervalued) and defensive (e.g., maintaining sufficient amounts of liquidity to drive growth and safeguard the company against harsher market conditions).
Source: Investor Presentation
Based on our expected EPS for the year and C. H. Robinson’s current annualized dividend, the payout ratio stands at a comfortable 30%. Further, the payout ratio has never surpassed the 60% threshold over the past 20 years, which showcases both the resiliency of the company’s profitability and management’s prudent dividend growth policy. Based on our current EPS and DPS growth expectations, the payout ratio is likely to ease further as we advance.
Valuation & Expected Returns
C. H. Robinson has traded at a premium relatively consistently over the past decade. The company features a ten-year P/E average of 20.1. However, we utilize an 18 P/E for our forward fair value estimate to reflect expectations of slower growth moving forward. At the current P/E of 13.9, the company is undervalued based on our fair value estimates. The current dividend yield of 2.2% is also lower than its 5-year dividend yield average of 2.7%, amid a slowdown in dividend growth nonetheless.
If the price-to-earnings multiple expands from 13.9 to 18, future returns would be boosted by 7.2% per year over the next five years. Combined with our EPS & DPS growth estimates, the stock could deliver annualized returns of 16.1% through 2027. Thus, we rate the stock a buy.
Over the past decade, C.H. Robinson Worldwide has proven itself as a high-quality company whose critical operations result in a robust performance even during economic downturns. The company’s 22-year dividend growth track record is a testament to this.
Even though we expect a slow down in earnings and dividend growth moving forward, investors could enjoy significant returns assuming the company resumes trading close to its past valuation multiples.
The Blue Chips list is not the only way to quickly screen for stocks that regularly pay rising dividends.
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- The Dividend Champions List: stocks that have increased their dividends for 25+ consecutive years.
Note: Not all Dividend Champions are Dividend Aristocrats because Dividend Aristocrats have additional requirements like being in The S&P 500.
- The Dividend Contenders List: 10-24 consecutive years of dividend increases.
- The Dividend Challengers List: 5-9 consecutive years of dividend increases.
- The Complete List of Russell 2000 Stocks: arguably the world’s best-known benchmark for small-cap U.S. stocks.
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- The 2022 High ROIC Stocks List: The top 10 stocks with high returns on invested capital.
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