Gorman-Rupp Co. (GRC) is a manufacturing company that began operations more than 90 years ago. It has since grown into a niche industry leader in a variety of pumps and pump systems, with annual revenue of nearly $660 million, and a market cap of $868 million, highlights Ben Reynolds, editor of Sure Dividend.
It generates about one-third of its revenue from outside the US, introducing some diversification, but also currency translation risk. Gorman-Rupp also has an extremely impressive dividend-increase streak of 51 years, making it a member of the highly prestigious Dividend Kings.
Gorman-Rupp reported first-quarter results on April 25. Revenue decreased 0.7% to $159.3 million as a 1.1% increase in domestic sales was more than offset by a 6.2% decline in international sales. Gross profit totaled $48.4 million and represented 30.4% of revenue for the quarter, compared to gross profit of $45.5 million and 28.4% of revenue in the prior year.
A 230 basis point improvement in cost of materials and a 60 basis point improvement from inventory adjustments aided results. Operating income came to $20.4 million, or 12.8% of revenue, up from $19.1 million, or 11.9% of revenue.
Despite weaker results during periods of economic uncertainty, Gorman-Rupp is a Dividend King. The company’s more-than-half-century dividend increase streak means its dividend safety is quite outstanding.
Part of this is due to the company’s long-term earnings growth capacity, but also because the payout ratio is under half of earnings. That combination of a conservative payout ratio and strong long-term earnings growth means we see many years of dividend increases on the horizon.
Shares of the company are trading at 21.3 times expected earnings per share of $1.55 for 2024. This is below our target price-to-earnings ratio of 23, implying a 1.6% annual tailwind to annual results from multiple expansion. Gorman-Rupp is expected to return 15.2% annually over the next five years. Our projection stems from earnings growth of 12%, the starting yield of 2.2%, and a small contribution from multiple expansion.
Recommended Action: Buy GRC.
