Dover Corporation (DOV) is a diversified manufacturer of a broad range of specialized industrial products and manufacturing equipment. The company has grown largely through acquisitions. It has four operating segments: Industrial Products (32% revenue 2009), Engineered Systems (28%), Fluid Management (22%), and Electronic Technologies (18%).
DOV's growth strategy is based on initiatives such as (1) driving organic growth which includes new products, pricing initiatives, gaining market share, customer service; (2) acquisition strategy which includes acquiring and developing platform businesses, growth, innovation, higher-than-average profit margins; (3) expanding globally, and improving operating efficiency.
DOV is a Dividend Aristocrat and member of Broad Dividend Achiever and has been raising dividends for last 56 years. The most recent dividend increase was in August 2009. It remains to be seen if dividend increases in August 2010. My objective here is to analyze if DOV still continues to be a good dividend growth stock and whether it is priced to add more.
Trend Analysis
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 charts and data summary are shown in images below.
Risk Parameter Calculation
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 1.86. This is a medium risk category as per my 3-point risk scale. The negative EPS growth, higher payout ratio, and current high price makes it a medium risk to dividends stocks. A lower payout ratio can make shares a low risk.
Quality of Dividends This section measures the dividend growth rate, duration of growth, consistency over a period of past five years.
Fair Value Calculation
This section determines what price I should pay to buy a given stock
Qualitative Analysis
Dover Corporation founded in 1947, based out of New York, and has been paying and growing dividends since last 56 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.
Conclusion
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 56 years. The stock’s current risk-to-dividend rating is 1.86 (medium risk). This risk increased due to negative EPS growth in 2009 and increase in payout ratio. In addition, the current pricing of $44 is way above by buy range. While I would continue to hold my existing position, I will not be adding any new share lots until EPS grows and payout ratio reduces to its own historical average.
Full Disclosure: Long on DOV.
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