Updated on March 27th, 2024 by Bob Ciura
There are just 68 stocks on the list of Dividend Aristocrats, members of the S&P 500 Index that have raised their dividends for 25+ consecutive years.
We view the Dividend Aristocrats as among the best dividend stocks to buy-and-hold for the long run.
You can download a free list of all 68 Dividend Aristocrats, along with important metrics like dividend yields and price-to-earnings ratios, by clicking on the link below:
Disclaimer: Sure Dividend is not affiliated with S&P Global in any way. S&P Global owns and maintains The Dividend Aristocrats Index. The information in this article and downloadable spreadsheet is based on Sure Dividend’s own review, summary, and analysis of the S&P 500 Dividend Aristocrats ETF (NOBL) and other sources, and is meant to help individual investors better understand this ETF and the index upon which it is based. None of the information in this article or spreadsheet is official data from S&P Global. Consult S&P Global for official information.
Ecolab (ECL) is an example of a company that possesses all of these qualities. Ecolab has a long history of growth, and has increased its dividend for over 30 years.
This article will examine the various factors behind Ecolab’s rise to prominence, as well as our current rating of Ecolab stock.
Business Overview
Ecolab was created in 1923 when its founder Merritt J. Osborn invented a new cleaning product called “Absorbit”. This product cleaned carpets without the need for businesses to shut down operations to conduct carpet cleaning. Osborn created a company revolving around the product, called Economics Laboratory, or Ecolab.
Today, Ecolab is the industry leader and generates annual sales of roughly $15 billion.
Ecolab operates three major business segments: Global Industrial, Global Institutional, and Global Energy, each of roughly equal size. The business is diversified in terms of operating segments and also geography. About 55% of the company’s sales take place outside North America.
Source: Investor Presentation
In mid-February, Ecolab reported (2/13/24) financial results for the fourth quarter of fiscal 2023. Organic sales grew 6% over the prior year’s quarter, mostly thanks to double-digit growth in the Institutional segment and pest elimination.
Thanks to strong price hikes and slightly lower costs of products, adjusted earnings-per-share grew 22%, from $1.27 to $1.55, and exceeded the analysts’ consensus by $0.01. Moreover, thanks to robust pricing and positive sales momentum, management provided guidance for earnings-per-share of $6.10-$6.50 in 2024, implying 17%-25% growth.
It also expressed its confidence in expanding the operating margin from 16% to 20% in the upcoming years.
Growth Prospects
Ecolab grew its earnings-per-share by 10.9% per year during 2011-2019. It incurred a decline in 2020 due to the pandemic and in 2022 due to high inflation. We view these headwinds as temporary and expect 12% average annual growth of earnings-per-share over the next five years.
Source: Investor Presentation
One of the company’s most important growth catalysts is acquisitions. In late 2021, Ecolab acquired Purolite for $3.7 billion in cash. Purolite sells high-end ion exchange resins for the separation of solutions in over 30 countries. It generates annual sales of approximately $400 million.
Ecolab has proven successful at integrating other acquisitions, so we remain positive about the company’s ability to do so in the future. Acquisitions such as these, along with organic investment, have fueled steady earnings growth for decades.
We feel that the company is well-positioned to continue to grow. We expect ECL to grow earnings-per-share by 12% per year over the next five years.
Competitive Advantages & Recession Performance
Ecolab’s many competitive advantages include scale, a strong reputation among its customers, and innovation. Ecolab serves more than 1 million customer locations spread across more than 170 countries. The company is not afraid to spend significant resources on research and development of new products and services.
Management refers to R&D spending as its “innovation pipeline”. Ecolab often spends more than $1 billion on the innovation pipeline. Due in large part to this R&D spend, the company’s number of patents exceeds 9,000.
Ecolab’s R&D investments and intellectual property help the company stay ahead of the competition. Ecolab’s R&D investments have created an incredibly strong business, one that can hold up very well even during economic downturns.
For clear evidence of Ecolab’s competitive advantages, look no further than its performance during the Great Recession:
- 2006 earnings-per-share of $1.43
- 2007 earnings-per-share of $1.66 (16% increase)
- 2008 earnings-per-share of $1.86 (12% increase)
- 2009 earnings-per-share of $1.99 (7% increase)
- 2010 earnings-per-share of $2.23 (12% increase)
Ecolab’s growth during the Great Recession was truly remarkable. Not only did the company generate positive earnings growth in each year of the recession, but in three of those years, it achieved double-digit earnings growth.
Valuation & Expected Returns
Based on the current trading price of $230 and expected earnings-per-share of $6.40, Ecolab has a price-to-earnings ratio of 35.9. The stock has a ten-year average price-to-earnings ratio of 20. We have a target price-to-earnings ratio of 20. If shares of Ecolab were to return to our target valuation by 2029, this would reduce total returns by 11.0% per year.
The stock is in danger of experiencing a contraction of the valuation multiple, which would negatively impact total returns. Ecolab’s dividend is not likely to represent a large portion of total returns. This is because the current dividend yield is just 1.0%. This is lower than the average dividend yield of the S&P 500 Index.
Ecolab’s dividend growth streak now totals 32 consecutive years.
A breakdown of potential five-year returns is as follows:
- 12.0% earnings growth
- 1.0% dividend yield
- 11% valuation reversion
We expect that Ecolab will offer a total annual return of 2.0% through 2029. Basically, we expect that valuation headwinds are quite likely going to wear down most of the company’s potential returns that would emerge from its earnings and dividend growth prospects.
While Ecolab is an attractive dividend growth stock due to its high rate of dividend increases, it is not as appealing for income investors or value investors.
Final Thoughts
Ecolab is not likely to be an attractive stock for investors interested solely in high levels of income. That said, it is a very strong stock for investors interested in a recession-resistant business and dividend growth.
Ecolab has an excellent track record of profitability and growth and is one of the few companies to have a dividend growth streak of at least 25 years. That said, today might not be an ideal time to acquire shares in the company due to the lack of meaningful projected returns over the medium term. Therefore, we rate shares of Ecolab as a Hold.
If you are interested in finding high-quality dividend growth stocks suitable for long-term investment, the following Sure Dividend databases will be useful:
- The Dividend Achievers List: a group of stocks with 10+ years of consecutive dividend increases.
- The Dividend Kings List: considered to be the best-of-the-best among dividend growth stocks, the Dividend Kings are a group of exceptional dividend stocks with 50+ years of consecutive dividend increases.
- The Blue Chip Stocks List: contains stocks on either the Dividend Achievers, Dividend Aristocrats, or Dividend Kings list.
- The Monthly Dividend Stocks List: contains stocks that pay dividends each month, for 12 payments per year.
- The High Dividend Stocks List: high dividend stocks are suited for investors that need income now (as opposed to growth later) by listing stocks with 5%+ dividend yields.
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: