Published on October 13th, 2022, by Nikolaos Sismanis
The Dividend Kings are a group of just 45 stocks that have increased their dividends for at least 50 years in a row. We believe the Dividend Kings are among the highest-quality dividend growth stocks to buy and hold for the long term.
With this in mind, we created a full list of all 45 Dividend Kings. You can download the full list, along with important financial metrics such as dividend yields and price-to-earnings ratios, by clicking on the link below:
Each year, we individually review all the Dividend Kings. The next in the series is Computer Services (CSVI).
Computer Services has increased its dividend for 51 consecutive years, including its most recent raise of 7.4% in July 2022. This article will analyze the company in greater detail.
Computer Services provides regional banks with a wide range of services, such as core processing, digital banking, payments processing, and regulatory compliance solutions. It has a market cap of $1.6 billion, making it a small-cap stock.
The company operates two major segments, enterprise banking and business solutions. The enterprise banking group is the larger segment, comprising roughly 62% of total company revenue.
On August 22nd, 2022, Computer Services announced that it agreed to be acquired by Centerbridge Partners and Bridgeport Partners for $58 per share in cash. The transaction was approved unanimously by the board of directors of Computer Services and is expected to close in the fourth quarter.
In early October, Computer Services reported (October 3rd, 2022) financial results for the second quarter of fiscal 2023. The company grew its revenue by 9%, to a new all-time high, and its adjusted earnings-per-share by 8%, from $0.53 to $0.57, fueled by growth in digital banking, payments processing, managed cybersecurity, and document delivery revenues.
Thanks to positive business trends, management expects continued growth in revenues and earnings in the upcoming quarters. However, the company’s remaining time in the public market should be short-lived, thanks to the aforementioned pending acquisition.
Given the high quality and promising growth prospects of Computer Services, as well as the approval of the deal by its board of directors, we expect the acquisition to materialize in the fourth quarter.
Computer Services has grown its sales, earnings, and its dividend for 22, 25, and 51 consecutive years, respectively. Thanks to strong business momentum, management expects to post new all-time highs in the above metrics this year.
Computer Services has grown its earnings-per-share at an 11.3% average annual rate over the last decade. The pandemic did not affect the performance of Computer Services at all.
The impressive growth record of Computer Services is a testament to the strength of its business model. The company signs multi-year contracts with its customers and offers them a wide range of services. It is thus very costly and inefficient for these customers to stop working with the company, particularly given that they pay appreciable early termination fees.
As a result, Computer Services enjoys high renewal rates. In fact, when it loses a customer, the most frequent reason is that the bank has been acquired by another bank that is not a customer of Computer Services.
Thanks to sustained momentum in the core business and no signs of fatigue, we expect it to grow its earnings-per-share by 8.0% per year over the next five years.
Competitive Advantages & Recession Performance
Thanks to its long-term contracts and the recurring nature of its revenues, Computer Services is resilient during recessions. During the Great Recession, it grew its earnings-per-share by 17% in 2008 and another 19% in 2009. On the other hand, its price-to-earnings ratio steeply declined in the Great Recession, when the stock lost half of its market cap in a year.
The company proved resilient once again in the coronavirus crisis, as it posted all-time high revenues and earnings. Those who can focus on the underlying performance and ignore the stock price gyrations could see the company rebound after an economic downturn.
Earnings-per-share performance during the Great Recession is below:
- 2008 earnings-per-share of $1.10
- 2009 earnings-per-share of $1.31 (19% increase)
- 2010 earnings-per-share of $1.43 (9% increase)
It is highly impressive that the company remained profitable and grew EPS each year during the Great Recession. This allowed it to continue increasing its dividend each year during the recession, even when earnings declined. And, thanks to its strong product portfolio, the company kept growing after 2010.
Its resilience held during the coronavirus pandemic. In 2020, Computer Services signed 24 new core partnerships and achieved a 95% retention rate in long-term contracts. This is a testament to its strong business model, which proved resilient in a severe downturn.
Valuation & Expected Returns
Using the current share price of ~$57 and expected earnings-per-share of $2.50 for the upcoming fiscal year, CSVI stock trades for a price-to-earnings ratio of 20.8. Over the past 10 years, the stock has held an average P/E ratio of 16.5. This is our fair value multiple.
However, with a forward P/E ratio of 20.8, this implies the possibility of a valuation headwind over the intermediate term. Returning to our target price-to-earnings ratio by 2027 would reduce annual returns by 2.9% over this period of time.
Aside from changes in the price-to-earnings multiple, future returns will be driven by earnings growth and dividends.
We expect 8% annual earnings growth over the next five years. In addition, CSVI stock has a current dividend yield of 2.0%.
Total returns could consist of the following:
- 8.0% earnings growth
- -6.2% multiple reversion
- 2.0% dividend yield
Computer Services stock is expected to return 2.9% per year through 2027. As a result, we have a sell recommendation on the stock, though the company’s ability to raise dividends through multiple recessions is impressive.
If the company’s acquisition goes through, our sell rating remains relevant as most of the upside to be captured has already been priced in at the stock’s current levels.
Computer Services has an exceptional growth record, while its qualities promise a positive future outlook. However, the stock has become overvalued. As a result, it may offer low-single-digit returns over the next five years.
Our projected returns could be futile should the company’s acquisition close by the end of the year, nonetheless.
The stock could also have significant downside risk whenever it faces an unexpected headwind or recession, although the business is likely to hold up well as it has during previous recessions. Therefore, shares earn a sell rating.
The following articles contain stocks with very long dividend or corporate histories, ripe for selection for dividend growth investors:
- The High Yield Dividend Aristocrats List is comprised of the 20 Dividend Aristocrats with the highest current yields.
- The Dividend Achievers List is comprised of ~350 stocks with 10+ years of consecutive dividend increases.
- The High Yield Dividend Kings List is comprised of the 20 Dividend Kings with the highest current yields.
- The Blue Chip Stocks List: stocks that qualify as Dividend Achievers, Dividend Aristocrats, and/or Dividend Kings
- The High Dividend Stocks List: stocks that appeal to investors interested in the highest yields of 5% or more.
- The Monthly Dividend Stocks List: stocks that pay dividends every month, for 12 dividend payments per year.
- 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 Best DRIP Stocks: The top 15 Dividend Aristocrats with no-fee dividend reinvestment plans.
- The 2022 High ROIC Stocks List: The top 10 stocks with high returns on invested capital.
- The 2022 High Beta Stocks List: The 100 stocks in the S&P 500 Index with the highest beta.
- The 2022 Low Beta Stocks List: The 100 stocks in the S&P 500 Index with the lowest beta.
- The Complete List of Russell 2000 Stocks
- The Complete List of NASDAQ-100 Stocks