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The Top 5 Dividend Kings, Part 4: H.B. Fuller
05/21/2020 5:00 am EST
Investors looking to get more defensive in their portfolios should consider high-quality dividend growth stocks, such as the Dividend Kings, a group of less than 30 stocks that have each raised their dividends for at least 50 consecutive years, explains Ben Reynolds, editor of Sure Dividend.
H.B. Fuller (FUL) is a Dividend King with a long history of dividend increases. While the stock’s current yield of 1.8% is not very impressive on the surface, the company offers regular dividend increases on an annual basis which meaningfully grow shareholders’ dividend income.
H.B. Fuller has increased its dividend for 51 years in a row, including a recent raise in April, and will likely continue its annual dividend increases even in a severe recession. The combination of dividends and high earnings growth could generate strong returns to shareholders in the years to come.
H.B. Fuller is a global manufacturer of adhesives, sealants, and other specialty chemical products. The company generates annual revenue of $2.9 billion, and the stock has a market capitalization of approximately $2 billion. The company operates three reporting segments: Construction Adhesives, Engineering Adhesives, and Hygiene, Health and Consumables Adhesives.
In late March, H.B. Fuller reported (3/25/20) first-quarter results for fiscal 2020. Organic revenue declined 1.3% for the quarter, but would have been up 1% after stripping out currency and divestitures. Adjusted earnings-per-share of $0.34 was flat from the same quarter last year.
The coronavirus crisis is likely to have a negative impact on H.B. Fuller. It is not immune to recessions; during the Great Recession, its earnings-per-share plunged 79% in 2008.
But the company remained profitable during the recession, which allowed it to continue increasing its dividend. And, its earnings-per-share quickly returned to growth as the U.S. economy recovered from the downturn.
Meanwhile, the company has a positive long-term growth outlook. According to the company, the $50 billion adhesives market has grown at a 3.8% compound annual growth rate over the past 38 years.
It is also a highly fragmented market, with the top five industry players controlling less than 35% of the market. This presents large operators like H.B. Fuller with a significant competitive advantage, as smaller manufacturers cannot compete with its global reach.
We expect 12% annual EPS growth through 2025, and shares have a current dividend yield of 1.8%. Fuller shares trade for a P/E of 15.7x, virtually on par with our fair value estimate of 15x. Fuller stock has total expected returns of nearly 13% per year over the next five years.
H.B. Fuller has a fairly low current yield of 1.8%, but the company makes up for a relatively unimpressive yield with consistent dividend increases each year.
The company also holds significant long-term growth potential as it is a global leader in a highly fragmented industry. For all these reasons, we consider H.B. Fuller to be one of our top-ranked Dividend Kings for long-term dividend growth investors.
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