Sure Dividend

Updated on October 26th, 2024 by Felix Martinez

The Dividend Kings consist of companies that have raised their dividends for at least 50 years in a row. Over the decades, many of these companies have become huge multinational corporations, but not all.

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Dover Corporation (DOV) has raised its dividend for 68 consecutive years, one of the longest dividend growth streaks in the stock market.

The company has achieved an exceptional dividend growth record thanks to its strong business model, decent resilience to recessions, and conservative payout ratio, which provides a wide margin of safety during recessions.

Dover is a time-tested dividend growth company. This article will examine its future prospects in greater detail.

Business Overview

Dover is a diversified global industrial manufacturer that offers its customers equipment and components, consumable supplies, aftermarket parts, software, and digital solutions.

It has annual revenues of about $8.4 billion, with just over half of its revenues generated in the U.S., and operates in five segments: Engineered Systems, Fueling Solutions, Pumps & Process Solutions, Imaging & Identification, and Refrigeration & Food Equipment.

The past few years have been difficult for Dover, as the coronavirus pandemic caused a prolonged business deterioration. As its customers are primarily industrial manufacturers, they were significantly impacted by the global recession caused by the pandemic.

However, Dover and its customers rebounded from the pandemic, and Dover is back to growth.

Source: Investor Presentation

Growth Prospects

Dover has pursued growth by expanding its customer base and through bolt-on acquisitions. It routinely executes a series of bolt-on acquisitions, along with an occasional divestment, to reshape its portfolio and maximize its long-term growth.

Source: Investor Presentation

The management team is constantly focused on delivering the most value to shareholders through portfolio transformation, and it has generally been successful. Today, Dover is a highly diversified industrial company with an attractive growth profile.

In addition, Dover is also likely to enhance its earnings per share via opportunistic share repurchases. We expect Dover to generate annual earnings-per-share growth of 8% over the next five years. Growth should be driven primarily by revenue increases, with an additional boost from margin expansion and share repurchases.

Competitive Advantages & Recession Performance

Dover is a manufacturer of industrial equipment, and some investors may think that the company has no moat in its business due to little room for differentiation. However, the company offers highly engineered products, which are critical to its customers. It is also uneconomical for its customers to switch to another supplier because the risk of lower performance is material.

Therefore, Dover essentially operates in niche markets, which offer the company a significant competitive advantage. This competitive advantage helps explain Dover’s consistent long-term growth trajectory.

On the other hand, Dover is vulnerable to recessions due to its reliance on industrial customers. In the Great Recession, its earnings per share were as follows:

• 2007 earnings-per-share of $3.22
• 2008 earnings-per-share of $3.67 (14% increase)
• 2009 earnings-per-share of $2.00 (45% decline)
• 2010 earnings-per-share of $3.48 (74% increase)

Dover survived the Great Recession with just one year of decline in earnings per share, and the company almost fully recovered from the recession in 2010. That performance was certainly impressive. The oil industry’s downturn also impacts Dover during periods of weak oil prices.

To mitigate its exposure to oil prices, Dover spun off its energy division, Apergy, in 2018. This company now trades as ChampionX Corporation (CHX).

Given the impact of recessions and falling oil prices, it is highly impressive that Dover has increased its dividend each year for over six decades. One reason for this is the company’s policy of keeping its payout ratio around 30%. This policy provides a wide margin of safety during rough economic periods. The payout ratio is expected to be around 22% of earnings-per-share for 2024, meaning the dividend is highly secure.

Thanks to its low payout ratio, resilience to recessions, and healthy balance sheet, Dover should continue to raise its dividend for many years.

Valuation & Expected Returns

Dover is expected to generate earnings-per-share of $9.13 for 2024. That means the stock trades for a price-to-earnings ratio of 20.6 times this year’s expected EPS, which is above the fair value estimate of 17. That implies a -4.0% annual headwind to total returns from valuation compression.

Adding 8% expected annual earnings-per-share growth and the 1.1% dividend yield, total returns are expected to reach 5.1%. This puts Dover stock in the hold rating territory.

Final Thoughts

Dover has a long dividend growth record, with 68 consecutive years of dividend raises. This is an impressive achievement, particularly given the dependence of the company on industrial customers, who tend to struggle during recessions.

Dover has consistently grown its earnings per share over the years, primarily thanks to a series of bolt-on acquisitions. Due to the company’s revenue and earnings growth, the stock has generated strong total returns to shareholders.

Dover stock currently has a hold rating with its 5.1%+ projected total returns.

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 High ROIC Stocks List: The top 10 stocks with high returns on invested capital.
• The High Beta Stocks List: The 100 stocks in the S&P 500 Index with the highest beta.
• The 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