Updated on February 23rd, 2022 by Quinn Mohammed
Each year, we review all of the Dividend Aristocrats. Attaining membership to this group is difficult. Companies must be of a certain size, belong to the S&P 500 Index and, most importantly, have at least 25 consecutive years of dividend growth. There are just 66 Dividend Aristocrats, proving the exclusivity of the list.
You can download an Excel spreadsheet of all 66 Dividend Aristocrats, including important financial metrics such as P/E ratios, by clicking the link below:
Albemarle Corporation (ALB) joined this exclusive club in 2020. The company is reaping strong growth from continued demand for lithium. It is poised to continue growing for many years, as demand for lithium is only set to rise in the years ahead.
While we view Albemarle stock as fairly overvalued, it is a suitable holding for dividend growth investors, provided investors accept the volatile nature of the lithium industry.
Albemarle is the world’s largest producer of lithium and second-largest producer of bromine. The company relies on these two products for approximately 75% of sales.
Albemarle produces lithium from the company’s salt brine deposits in the U.S. and Chile, where the costs of producing lithium are very low.
Albemarle specializes in producing specialty chemicals. The company is a worldwide leader in each of its businesses.
Source: Investor Presentation
Albemarle is composed of three segments: Lithium & Advanced Materials, Bromine Specialties, Catalysts, and Other. Lithium is used in electric cars, batteries, pharmaceuticals, and airplanes among other applications. Bromine is used in electronics, construction, and automotive industries. Lithium continues to drive the company’s growth.
On 2/6/2022, Albemarle reported earnings results for the fourth quarter and full year 2021. Revenue grew 1.7% to $894 million for the fourth quarter, beating estimates by $2.7 million. Adjusted earnings-per-share in Q4 of $1.01 was a 14% decrease from the prior year, but $0.02 better than expected. For the full year, revenue rose 6.4% to $3.3 billion. Adjusted EPS of $4.05 for 2021 was a 1.7% decline compared to $4.12 earned in 2020.
Lithium sales grew nearly 13% year-over-year to $405 million. Volumes were 5% lower, but prices more than made up for this, up 18% YoY. Revenues for Bromine Specialties were up 10.2% to $290.4 million. Catalysts’ sales were also higher, up 2% to $199 million. Higher freight and commodity costs weigh on results. The company will offset this with cost savings and higher pricing. This segment should see strength long-term due to growth in electronics and automotive end markets.
The company provided guidance for the year of 2022 and expect adjusted EPS of $5.65 to $6.65 on net sales of $4.2 billion to $4.5 billion. At the midpoint of adjusted EPS guidance, this would represent an increase of 52% from the previous year.
Albemarle stands to benefit from the increased sales of electric vehicles as the company’s lithium is used to provide the batteries. Lithium is expected to be a growth segment over the next five years, due to increasing demand for a wide range of applications including electric vehicles and consumer electronics.
Source: Investor Presentation
Energy storage is expected to spike in the coming years as more consumers purchase electric vehicles. Electric vehicles are projected to account for 22.0% of all new car sales by 2025, up from just 4.6% in 2020. Battery size is also expected to grow.
With this growth will come a significant increase in demand for lithium. Fortunately, Albemarle’s mines in Chile offer an inexpensive source of lithium. Demand is already robust for the lithium.
Albemarle has experienced somewhat uneven earnings-per-share performance over the last decade. Over the last decade, earnings-per-share are up less than 2%. But in just the last five years, the growth rate reaches almost 10%.
We believe that the company can grow earnings-per-share at a rate of 10% annually through 2027 due to its leadership positions in the areas of lithium and bromine. Higher demand following a recovery from the COVID-19 pandemic should allow for outsized growth from a low base in 2021. We expect the company to generate earnings-per-share of $6.15 for 2022.
Competitive Advantages & Recession Performance
Despite being among global leaders in multiple businesses, Albemarle isn’t content to rest on its previous success. The company has been active in acquiring businesses that strengthen its market share.
Albemarle is not a recession-proof company. Listed below are the company’s earnings-per-share during and after the last recession:
- 2007 earnings-per-share of $2.41
- 2008 earnings-per-share of $2.40 (0.4% decrease)
- 2009 earnings-per-share of $1.94 (19% increase)
- 2010 earnings-per-share of $3.51 (45% increase)
The specialty chemical business is heavily reliant on demand from customers. Lower demand results in lower pricing, which negatively impacts Albemarle’s performance. It is likely that the company would face a similar type of slow down during the next recession as demand for products dissipates.
That said, the company has durable competitive advantages. A key competitive advantage is that it ranks as the largest producer of lithium in the world. The metal is used in batteries for electric cars, pharmaceuticals, airplanes, mining, and other applications. Albemarle is also a top producer of Bromine, which is used in the electronics, construction, and automotive industries. The company possesses a size and scale that others cannot match.
Investors interested in investing in Albemarle should understand that ownership of the stock comes with risks, due to the volatile nature of its industry.
Valuation & Expected Returns
Using our expected earnings-per-share of $6.15 for the year, shares have a price-to-earnings ratio of 31. Over the last decade, Albemarle has traded with an average price-to-earnings ratio of 24.1.
We have a multiple target of 18x earnings to account for the volatility of earnings and its leadership position. If the stock were to trade with this target by 2027, then valuation would reduce annual returns by 10.3% over this time period
EPS growth and dividends will help offset this, but not nearly enough. Even with expected EPS growth of 10% per year and the 0.8% dividend yield, total returns are expected at negative 0.3% per year. As a result, we rate Albemarle stock a sell on valuation.
Reaching Dividend Aristocrat status is no small feat. Albemarle is the dominant player in its sector and has taken steps to further improve its competitive position. The company benefits from low-cost mines and its leadership position in multiple categories.
The company is far from recession proof and has experienced some earnings declines over the last decade, but this makes the company’s dividend growth track record even more impressive. Shares yield just 0.8% today, although the dividend is growing at a high rate.
Projected returns are in negative territory, which garners a sell recommendation from Sure Dividend.
Additionally, the following Sure Dividend databases contain the most reliable dividend growers in our investment universe:
- The Dividend Contenders List: 10-24 consecutive years of dividend increases.
- The Dividend Challengers List: 5-9 consecutive years of dividend increases.
- The Dividend Champions: Dividend stocks with 25+ years of dividend increases, including those that may not qualify as Dividend Aristocrats.
- The Dividend Achievers: dividend stocks with 10+ years of consecutive dividend increases.
- The Dividend Kings: considered to be the ultimate dividend growth stocks, the Dividend Kings list is comprised of stocks with 50+ years of consecutive dividend increases
If you’re looking for stocks with unique dividend characteristics, consider the following Sure Dividend databases:
- The Complete List of Monthly Dividend Stocks: stocks that pay dividends each month, for 12 payments over the year.
- The Blue Chip Stocks List: this database contains stocks that qualify as either Dividend Achievers, Dividend Aristocrats, or Dividend Kings.
The major domestic stock market indices are another solid resource for finding investment ideas. Sure Dividend compiles the following stock market databases and updates them monthly: