Water is one of the most vital components of life, asserts Bob Ciura; in this special 5-part report, the editor of Sure Dividend continues his review his current top recommendations in the water sector.
In general, water stocks have simple business models and are resilient to recessions thanks to the essential nature of their business. This article will discuss a top water stock, Mueller Industries (MLI).
Mueller Industries manufactures and sells metal and plastic products around the world through its 3 segments: Piping Systems, Industrial Metals, and Climate.
The Piping Systems segment offers copper tubes, and plumbing-related fittings and it also resells steel pipes, brass, and other metal products to wholesalers in a variety of industries.
The Industrial Metals segment manufactures brass, bronze, and copper alloy rods and other metal products for OEMs in the industrial, construction, HVAC, plumbing, and refrigeration markets.
The Climate segment offers valves, protection devices, and brass fittings for various OEMs in the commercial HVAC and refrigeration markets, high-pressure components, and accessories for the air-conditioning and refrigeration markets.
Mueller has performed extremely well so far in 2022. On July 19th, 2022, Mueller Industries reported Q2 2022 results for the period ending June 25th, 2022. The business saw diluted earnings-per-share of $3.65, which beat analyst estimates of $2.24 by a wide margin. Earnings-per-share grew 90.1% year-over-year from $1.92 of earnings-per-share in Q2 2021.
Net sales increased 13.6% year-over-year to $1.15 billion due to the company’s strong growth in its value-added business and higher average selling prices across the company.
The value-added business grew 33% year-over-year, while Industrial Metals group sales volume declined 4% and international tube sales declined 17% year-over-year. According to management, most of Mueller’s businesses remain at capacity, and the business is seeing healthy backlogs.
Dividend Safety & Expected Returns
Mueller has excellent dividend safety, thanks to the company’s competitive advantages. Mueller has a very strong balance sheet, with more current assets than total liabilities and zero net debt. Mueller has a competitive advantage as the second largest metal fabrication company by market cap. The business has a proven history as an acquirer, while still delivering high returns on capital.
In 2022, we expect Mueller Industries to deliver just about $10 in earnings-per-share based on strong second quarter results and strong third and fourth quarter estimates.
We forecast a 2027 earnings-per-share of about $8.15, marking a 4% annual decline, as earnings-per-share are expected to fall from the high point they’re at today. Over the past 9 years, dividends have grown at 10.6% annually, and over the past 5 years, dividends have grown at 20.1% annually. MLI shares currently yield 1.1%.
The high growth rate is due in part to the company’s own growth, as well as the fact that the dividend is at a low starting point. The company’s 2022 dividend payout ratio is expected to be just 10%, meaning there is lots of room for continued aggressive dividend increases, should management decide to go that route.