Dover Corporation (DOV) has company history stretching back more than 60 years. It is now a global industrial giant, with 26,000 employees.

Dover is another Dividend Aristocrat found in the industrials sector. You can see all 50 Dividend Aristocrats (by sector) here.

It is a truly rare breed, even among the Dividend Aristocrats. In August, Dover raised its dividend by 5%. This marked 61 years in a row of dividend growth. This makes the company one of only 18 Dividend Kings – stocks with 50+ consecutive years of dividend increases.

According to Dover, it has the third-longest record of consecutive annual dividend increases.

Business Overview

Dover is an industrial manufacturer of equipment, components, specialty systems, and services.

The company operates in four main segments:

• Engineered Solutions (34% of sales)
• Refrigeration & Food Equipment (25% of sales)
• Energy (21% of sales)
• Fluids (20% of sales)

Each business unit performs a different function. Dover’s energy business helps oil and gas companies boost the efficiency of exploration and production.

Source: 2015 Annual Review, page 22

Meanwhile, the engineered systems unit designs and manufactures new technologies to improve safety and efficiency for printing, identification, vehicle service, aerospace and waste handling equipment.

Source: 2015 Annual Review, page 22

Dover’s fluids segment works to improve transfer and dispensing of fluids. Dover’s manufactured products include specialized pumps and tubes.

Source: 2015 Annual Review, page 23

Finally, Dover’s refrigeration and food equipment segment seeks to reduce the cost of ownership of refrigeration, electrical, and heating and cooling systems.

Source: 2015 Annual Review, page 23

Growth Prospects

Dover’s growth has slowed down significantly over the past year. In fact, the company’s earnings-per-share are in decline. Last year, Dover’s total revenue fell 10% to $7.0 billion. There were many reasons for this.

First, the strong U.S. dollar makes exports less competitive and international revenue worth less when it is converted back into U.S. dollars. Unfavorable currency fluctuations decreased Dover’s total revenue by 4% in 2015.

Moreover, the decline in commodity prices has weighed on Dover’s large energy segment. Energy revenue fell 26% last year for the company.

As a result, Dover’s earnings-per-share declined 20% last year.

A driver of Dover’s future growth will be new geographic markets. As it stands now, Dover generates more than 60% of its total revenue from the U.S.

Source: 2015 Annual Report, page 17

Another growth catalyst for the company is acquisitions. Dover has conducted several significant acquisitions over the past few years. From 2013-2015, Dover acquired 21 businesses for $1.7 billion.

Dover continued to acquire companies in 2015. A few of its deals include acquiring Tokheim’s dispenser and system businesses and Wayne Fueling Systems. The Tokheim deal is expected to add $900 million of annual revenue, while Wayne is expected to add about $550 million of annual revenue. Dover also acquired Ravaglioli S.p.A. Group for $274 million.

Bolt-on acquisitions have been one of the only growth drivers for Dover lately. Last year, acquisitions added 4% revenue growth in 2015.

Unfortunately, business conditions have only improved slightly so far this year. Revenue and earnings-per-share declined 5% and 23%, respectively, through the first nine months of 2016. The revenue decline was due to 7% organic revenue decline, and 1% from foreign exchange. Revenue was partially boosted by 3% growth from acquisitions, net of divestments.

Competitive Advantages & Recession Performance

A company such as Dover that has increased its dividend each year for more than six decades, clearly has a sustainable competitive advantage. Dover’s biggest competitive advantage is its efficiencies in manufacturing and distribution.

Dover seeks to maximize productivity by focusing on company-wide efficiency. Management believes its laser-like focus on cost controls will result in free cash flow generation of 11%, as a percentage of annual revenue.

Such a high rate of free cash flow generation will allow Dover to continue to invest strategically in new growth opportunities, including acquisitions. Even in a very difficult climate last year, Dover still produced $795 million of free cash flow.

This will help to drive future growth, once the foreign exchange and commodities markets recover.

• 2007 Earnings-per-share of $3.22
• 2008 Earnings-per-share of $3.67
• 2009 Earnings-per-share of $2.00 (recession low)
• 2010 Earnings-per-share of $3.48 (new earnings-per-share high)

As should be expected, Dover is not a highly recession-resistant company. It has a growing international business, and is exposed to the oil and gas markets. As a result, Dover’s business model is sensitive to swings in the global economy.

The good news is that Dover continued to generate free cash flow and remained profitable, even during the Great Recession. Such resiliency allows the company to continue increasing its dividend every year like clockwork.

Valuation & Expected Total Return

Dover stock trades for a price-to-earnings ratio of 21.6. This is slightly cheaper than the S&P 500, which has an average price-to-earnings ratio of 24.

However, Dover is more expensive than its average price-to-earnings ratio of 16.5.

Dover is cheaper than the S&P 500, but there may be good reason for this discount. Dover’s earnings-per-share are still in decline. Analysts do not expect an earnings recovery until 2017. An average price-to-earnings ratio is typically awarded to companies that are growing at or near the market rate of growth.

From that perspective, Dover looks slightly overvalued.

As a result, it may not be the best time to buy Dover stock. But that does not mean existing shareholders will not earn decent returns moving forward. Future returns will be comprised mainly of earnings-per-share growth and dividends.

A reasonable set of expectations for Dover’s future returns is as follows:

• 4% to 6% earnings-per-share growth
• 2.6% dividend yield

It is difficult to predict if, and when, commodity prices and the strong U.S. dollar will reverse course. Until then, Dover will have a difficult time achieving stronger rates of earnings-per-share growth. As a result, it may be prudent to expect approximately 7%-9% total returns going forward.

Final Thoughts

Dover is a blue-chip industrial company. Even though it operates in a highly cyclical industry, it has proven that it can stand the test of time.

Dover stock has an above-average dividend yield and excellent prospects for continued dividend growth. Its payout ratio is low enough to allow for future dividend increases, even while earnings stagnate.

As a result, Dover stock still appeals to dividend growth investors.