2021 is already shaping up as a blockbuster year. The profit opportunities have never been this big, observes Mike Larson, growth and income expert and editor of Safe Money Report.
As well as things have gone lately, risk is rising fast. That’s because sentiment is growing euphoric, and rampant speculation is apparent in many corners of the market. That makes it more important than ever to focus on “Safe Money” strategies and investments, while avoiding the temptation to get swept up by the “madness of crowds.”
President Biden says it's time to “Go big or go home.” It’s not just a rallying cry. It’s the message a long list of policymakers and talking-heads are spreading around Washington. And that means “go big” is all but certain to be the law of the land.
In my Bedrock Income portfolio, we are establishing a new position in the HVAC system supplier Watsco Inc. (WSO), one of the rising stars in my Safe Money rankings.
As a South Florida homeowner for more than two decades, I have plenty of experience with the heating, ventilation and air conditioning (HVAC) industry — well, the A/C part of it.
I’ve replaced old units with more efficient new ones. I’ve hired multiple contractors to come out and service units. And I’ve paid many electric bills inflated by cooling costs in the summer months.
Watsco is a Miami-based company at the heart of that business — not just in Florida but around the U.S., Canada, Latin America and the Caribbean too.
It runs a broad network of distribution sites that supply contractors, who then install the products at residential and commercial buildings. The U.S. accounts for almost 90% of its business by geography. Meanwhile, replacement demand (versus new home and commercial construction) accounts for around two-thirds of its business by category.
The housing bubble and bust impacted Watsco significantly in the mid-2000s, with demand soaring then tanking. But those days are long gone — and the company has managed to grow steadily, predictably and profitably over the long
Indeed, sales have grown at a compound annual growth rate (CAGR) of 15% over the last few decades. Core earnings have grown at an 18% CAGR, while dividends have climbed by 23%.
Watsco achieved those results through a combination of internal growth and more than 60 acquisitions since 1989. Third-quarter net income rose 28% to $106 million, while sales rose 10% to $1.54 billion.
Those were fresh quarterly records, as were readings on margins and cash flow. Management also shrunk the debt load, positioning the firm to undertake more acquisitions if it chooses to do so.
As for dividends, Watsco is now paying out $1.775 per share per quarter. That’s good for an indicated yield of 2.8% at recent prices — almost double the indicated yield of the S&P 500 Index.
Throw in the fact WSO has earned a “Buy” grade from our Weiss Ratings system since last June — despite a COVID-19-ravaged economy — and you can see why this stock looks attractive.