Dividend Kings In Focus: Dover

Dover Corporation (DOV) has raised its dividend for 66 consecutive years, giving it one of the longest dividend growth streaks in the entire stock market. There are only three companies that have longer dividend growth streaks than Dover.

The company has achieved such an exceptional dividend growth record thanks to its strong business model, its decent resilience to recessions, and its conservative payout ratio, which provides a wide margin of safety during recessions.

Due to its conservative dividend policy, the stock is offering just a 1.8% dividend yield, which is only slightly higher than the broad market’s yield (1.6%). On the other hand, there is a lot of room for more dividend raises down the road. Dover is a time-tested dividend growth company, although the stock seems overvalued right now.

Business Overview

Dover is a diversified global industrial manufacturer, which provides equipment and components, consumable supplies, aftermarket parts, software, and digital solutions to its customers. It has annual revenues of about $7.0 billion, with 57% of its revenues generated in the U.S., and operates in five segments: Engineered Systems, Fueling Solutions, Pumps & Process Solutions, Imaging & Identification, and Refrigeration & Food Equipment.

As shown in the chart below, the total sales of Dover are almost equally split across the five operating segments of the company.

Source: Investor Presentation

Pumps & Process Solutions is the best-performing segment. It grew its organic revenue at a 6% average annual rate in the last two years, before the onset of the pandemic. It has proved the most resilient segment in the first half of this year amid the pandemic, primarily due to the critical nature of its products, which are essential to Dover’s customers. This segment also has the highest operating margin and a significant portion of its revenues (35%) is recurring.

Dover is currently facing a strong headwind due to the coronavirus crisis. As its customers are industrial manufacturers, they have been significantly hurt by the global recession caused by the pandemic. It is thus natural that the pandemic has taken its toll on the performance of Dover.

In the second quarter, its revenue and its orders decreased 16% and 21%, respectively, over the prior year’s quarter. As new orders decreased faster than sales, the backlog fell 8%.

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