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Up to date on September twentieth, 2023 by Nate Parsh
Nordson Company (NDSN) has a dividend monitor file that few corporations can rival. The corporate has elevated its money dividend for 60 consecutive years, rating it as one of many longest dividend development streaks in your entire market place.
That places Nordson among the many elite Dividend Kings, a small group of shares which have elevated their payouts for a minimum of 50 consecutive years. You’ll be able to see the total record of all 50 Dividend Kings right here.
Moreover, we created an inventory of all 50 Dividend Kings together with vital monetary metrics equivalent to P/E ratios and present dividend yields. You’ll be able to entry your copy of the Dividend Kings sheet by clicking on the hyperlink under:
Dividend Kings have the longest monitor information on the subject of rewarding shareholders with money, and Nordson isn’t any totally different. Nordson doesn’t have a family identify, and is probably not well-known amongst traders. However the firm actually has an extended and profitable historical past of elevating its dividend.
Nordson has been a high-growth firm for a few years. On this article we’ll look at the enterprise, in addition to its prospects for funding.
Enterprise Overview
Nordson was based in 1954 in Amherst, Ohio, however the firm can hint its roots a lot additional again to 1909 because the U.S. Computerized Firm. That enterprise specialised in making screw machine elements for the fledgling automotive trade however within the 1930’s, the corporate shifted to creating extra high-precision elements you’d most likely affiliate with the Nordson of at present.
Then in 1954, Nordson was began as a division of the US Computerized Firm through the acquisition of patents overlaying the “scorching airless” technique of spraying paint and different coating supplies. The remainder, as they are saying, is historical past as Nordson has grown to about $2.6 billion in annual income, and trades with a market cap of simply over $13 billion.
Nordson engineers, manufactures and markets distinctive merchandise used to dispense, apply and management adhesives, sealants, polymers, coatings and different fluids to check for high quality in addition to to deal with and remedy surfaces. The corporate’s merchandise are discovered all around the world – bought primarily by a direct, world gross sales power – and supply customized options to their clients’ engineering issues. Nordson has constructed a repute over the previous 5 many years of high quality and worth with its big selection of options.
The corporate has a extremely numerous buyer base:
Supply: Investor Presentation
Nordson is cut up into three enterprise segments: Industrial Precision Options, Medical and Fluid Options, and Superior Expertise Options. The primary section is made up of adhesives, coatings, paints, finishes, and sealants. Medical and Fluid Options section comprises merchandise equivalent to plastic tubing, balloons, catheters, fluid connection elements, and syringes. The Superior Expertise Options section is comprised of digital processing methods.
Nordson’s income combine is extremely diversified as roughly 42% of it comes from the U.S. The rest is from all kinds of world clients, providing Nordson not solely a various buyer base, but in addition range on the subject of currencies. We be aware that this opens the corporate’s outcomes as much as foreign money volatility, equivalent to what markets skilled lately.
The U.S. is Nordson’s largest by way of geographic presence, however Asia-Pacific and Europe aren’t far behind. Nordson is a very world firm.
Supply: Investor Presentation
When it comes to product kind, Nordson generates about 51% of its gross sales from elements and consumables, which is a comparatively enticing space of focus as a result of a lot of this income is recurring in nature. Individually, Nordson generates the steadiness of its gross sales from methods.
Development Prospects
From 2010-2019, Nordson greater than doubled its income and grew its earnings per share at an 11.3% common annual charge. The corporate stumbled in 2020, with a 6.6% decline in earnings-per-share. Administration attributed the lackluster efficiency to the difficult world financial atmosphere amid the coronavirus pandemic.
Nonetheless, the corporate remained extremely worthwhile even throughout the worst of the pandemic, and solely skilled a gentle decline in EPS for 2020. Nordson was again to development in 2021, with a particularly spectacular 41% improve in earnings-per-share for 2021. The corporate adopted this up with a 22% enchancment in 2022.
The corporate reported third quarter earnings on August twenty first, 2023, and outcomes have been combined, with the corporate beating bottom-line estimates, however lacking on income.
The corporate reported gross sales of $649 million, which was a 2% decline year-over-year. Natural quantity was down barely for the interval. When it comes to segments, Superior Expertise Options income was down 3%, Medical and Fluid Options fell 4%, and Industrial Precision Options noticed a 1% decline.
Earnings-per-share got here to $2.35 on an adjusted foundation, down about 6% year-over-year. The corporate narrowed steering and now expects adjusted earnings-per-share in a variety of $8.90 to $9.05, in comparison with a previous vary of $8.90 to $9.30. We now count on adjusted earnings-per-share of $8.98 because of this.
We imagine that the long-term development prospects of Nordson ought to stay intact. There are a lot of levers for Nordson’s long-term development. Nordson is a serial acquirer and has been principally from the start when it was began with the acquisition of patents overlaying the recent airless technique of spraying.
Nordson’s monitor file on the subject of acquisitions is an efficient one as the corporate appears to be like for takeover targets that give it some kind of aggressive benefit it doesn’t already possess, with excessive percentages of recurring income and expense synergies.
Development-by-acquisition is a tough endeavor for long-term success however Nordson has confirmed its capacity to take action over the long run. It is a key differentiator for Nordson and shouldn’t be ignored by traders. Nordson has generated sturdy development for a few years, consisting of each inside initiatives in addition to acquisitions.
Supply: Investor Presentation
The mix of acquisitions, natural development and concentrate on steady enchancment drives, not solely high line growth, however margin good points as nicely. Natural income development is pushed by frequently introducing new merchandise and expertise. This regular stream of recent concepts turns into new merchandise and drives natural income development.
As well as, Nordson’s concentrate on rising markets has been a big development driver and can proceed to contribute to development sooner or later. The corporate’s rising markets have produced low double-digit income development on common up to now decade, outpacing Nordson’s core markets of the U.S. and Europe.
The rising center lessons of those rising markets ought to permit Nordson to proceed to see spectacular charges of natural income development in addition to opening up the chance for continued, focused acquisitions in these markets.
Nordson has additionally been within the means of bettering its effectivity by way of what it calls the Nordson Enterprise System. That is basically a set of instruments and finest practices Nordson has collected through the years that’s rooted in Lean Six Sigma ideas and is utilized all through the corporate in all enterprise models. Nordson intently screens and measures outcomes towards benchmarks and this concentrate on effectivity is a development driver through margins.
Nordson has managed to develop its EBITDA margin alongside its income over the past 5 years, and the corporate expects continued development and margin growth by way of 2025.
Supply: Investor Presentation
Because of all of the above development drivers, we count on Nordson to develop its earnings per share at a 8.0% common annual charge over the following 5 years.
Aggressive Benefits & Recession Efficiency
Nordson’s aggressive benefits are various and when mixed, they paint a reasonably rosy image of the corporate’s place. First, Nordson has a powerful world infrastructure that places it in a spot of not solely having a various buyer base, however numerous teams of expertise as nicely.
As well as, its amenities are the place its clients are on this planet (direct presence in 35 nations), and therefore Nordson can react extra shortly to product wants. This additionally affords Nordson a bonus when service is required, because it has individuals close to its clients wherever they’re. That is the kind of factor that drives long run relationships, that are Nordson’s bread and butter.
That brings us to our subsequent level, which is Nordson’s R&D and patents. Nordson solely spends about 3% of its income on R&D however it makes probably the most of it, submitting for dozens of patents every year. As well as, it buys patents and companies with essential merchandise it may well use to complement its current strains.
Furthermore, Nordson’s giant put in buyer base implies that not solely does it have a considerable amount of recurring income, however it’s also far more difficult for rivals to take clients away. Switching prices are excessive for the sorts of issues Nordson sells and, thus, the incumbent in any given house has an enormous benefit. Nordson’s put in base has many benefits and is a major cause why the corporate has remained so profitable.
Nordson’s many aggressive benefits permit it to carry up pretty nicely in recessionary environments; the corporate’s earnings-per-share throughout and after the Nice Recession are under:
- 2007 earnings-per-share of $1.33
- 2008 earnings-per-share of $1.77 (improve of 33%)
- 2009 earnings-per-share of $1.20 (lower of 32%)
- 2010 earnings-per-share of $2.24 (improve of 87%)
Earnings have been risky throughout the recession, however total, Nordson carried out very nicely. There aren’t many corporations with EPS figures that seem like this throughout and after the Nice Recession and particularly, ones that manufacture for a dwelling. Take into account that many merchandise of Nordson require capital bills from its clients, whose budgets are usually slashed throughout recessions.
Nonetheless, Nordson additionally sells issues which are completely important to many companies and thus, when the mud settles, these orders are inclined to materialize. Certainly, Nordson’s recession-resistance is surprisingly good. We noticed the corporate’s resilience to weak financial situations throughout the pandemic-impacted interval of 2020 and 2021 as soon as once more. Amongst industrial corporations particularly, Nordson is kind of resilient to weak financial situations.
Valuation & Anticipated Returns
We count on Nordson to generate earnings-per-share of $8.98 this 12 months. In consequence, the inventory is buying and selling at a ahead price-to-earnings ratio of 25.7.
We take into account a price-to-earnings ratio of 23 to be truthful for Nordson. With shares barely larger than that at present, we see a 2.2% headwind yearly from the valuation.
We additionally count on 8.0% annual EPS development over the following 5 years whereas the inventory can be providing a 1.2% dividend yield. Each of these things will add positively to shareholder returns. Nonetheless, with the yield and valuation headwind largely offsetting one another, we see 6.8% complete annual returns within the years forward.
Nordson’s sturdy free money circulation and disciplined method to acquisitions imply that the dividend could be very nicely lined. It additionally occurs to develop shortly. Nordson has raised its dividend yearly for 60 years. The 2021 and 2022 dividend raises have been 31% and 27%, respectively, so aggressive dividend development is all the time doable from the corporate. Nonetheless, we be aware that the latest improve was for simply 4.6%. Nonetheless, the longevity of Nordson’s dividend development streak is excellent.
A low payout ratio helps the corporate develop its dividend. With a projected payout ratio of 30% this 12 months, the dividend is well-covered with room for continued will increase.
Nordson’s method to spending its money is a bit totally different from different corporations in that, relying upon the 12 months, it could purchase again inventory, make acquisitions, pay down debt or any variety of different issues. Since 2012, Nordson has spent its money in numerous methods from one 12 months to the following, together with greater than half of it over this timeframe on acquisitions. There have been years of excessive ranges of buybacks, and years with none.
General, Nordson’s outcomes could be lumpy however the firm is tremendously profitable in producing development over the long run.
Closing Ideas
Nordson is a high-quality enterprise with a powerful dividend development streak. Nordson isn’t a powerful inventory for prime revenue. That is considerably shocking, provided that it’s a very uncommon Dividend King, however the low payout ratio reveals {that a} beneficiant dividend just isn’t a precedence for administration.
The precedence is rising the enterprise and this firm has finished that exceedingly nicely, producing sector-leading complete returns for shareholders. The dividend will rise for a lot of extra years as a result of Nordson has made it clear over the previous 60 years that it intends to proceed doing so for the foreseeable future.
We see Nordson as a maintain for the time being given anticipated complete returns of lower than 7% yearly.
The next databases of shares comprise shares with very lengthy dividend or company histories, ripe for choice for dividend development traders.
Thanks for studying this text. Please ship any suggestions, corrections, or inquiries to [email protected].
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