Dover Corporation (DOV) is a diversified manufacturer of a broad range of specialized industrial products and manufacturing equipment. The company has evolved largely through acquisitions, with 79 acquisitions costing approximately $4.1 billion completed between January 2000 and December 2008. It has four operating segments: Industrial Products (33% revenue 2008), Engineered Systems (26%), Fluid Management (24%), and Electronic Technologies (17%). Risk Parameter Calculation Fair Value Calculation Conclusion
DOV's growth strategy is based on initiatives such as driving organic growth (new products, pricing initiatives, gaining market share, customer service), acquisition strategy (acquire and develop platform businesses, growth, innovation, higher-than-average profit margins), expanding globally, and improving operating efficiency.
DOV is a Dividend Aristocrat and member of Broad Dividend Achiever and has been raising dividends for last 55 years. The most recent dividend increase was in August 2009. My objective here is to analyze if DOV still continues to be a good dividend growth stock and how does it rate on my scale of risk-to-dividends.
Here I am looking at trends for past 10 years of corporation’s revenue and profitability. These parameters should show consistently growth trends. The trend chart is shown in image below.
Here I use the corporation’s financial health to assign a risk number for measuring risk-to-dividends. The risk number for risk-to-dividends is 1.57. This is a low risk category as per my 3-point risk scale. The ability to keep its margins, consistency and sustainability of FCF, low payout factor, and low leverage makes it a low risk to dividends stocks.
Quality of Dividends
This section measures the dividend growth rate, duration of growth, consistency over a period of past five years.
This section determines what price I should pay to buy a given stock
• Net present value (NPV) price based on 15 year DCF: $30.4
• Average high yield price calculated based on past 10 years: $35.5
• Pricing based on past 10 year relative price-to-earnings ratio. $45.1
• Pricing based on price-to-earnings ratio of 12: $38.8
• Graham number: $23.3
The range of fair value is calculated as $30.5 to $34.6.
Dover Corporation founded in 1947, based out of New York, and has been paying and growing dividends since last 55 years. What surprised me is Dover’s ability continuously grow and sustain itself with so many different acquisitions and divestitures. This demonstrates that it keeps adapting to changes in the market place.
I like DOV diversified revenue stream and geographical presence. Overall, it is a US based company that will provide hedge against dollar fluctuation and proxy for foreign developed/emerging markets. It has been raising dividends for last 55 years. The stock’s current risk-to-dividend rating is 1.57 (low risk). The current pricing of $37.73 is very close to my buy range. I would be willing to go long, as per my allocation levels, when it falls in my buy range.
Full Disclosure: No position at the time of writing.
Risk Parameter Calculation
Fair Value Calculation