Dividend Kings In Focus: H.B. Fuller

H.B. Fuller (FUL) has increased its dividend for 51 years in a row. That puts the company among the elite Dividend Kings, a small group of stocks that have increased their payouts for at least 50 consecutive years. You can see the full list of all 30 Dividend Kings here.

H.B. Fuller has remained a relatively small company, trading at a market capitalization of just $2.4 billion. However, a small market cap is not a negative feature when investing; quite the contrary.

Despite its small size, H.B. Fuller has promising growth prospects thanks to the growth potential of the niche market it operates in. The stock has a 1.4% dividend yield, which is lower than the yield of the S&P 500 (1.8%), but there is ample room for many future dividend raises thanks to the markedly low payout ratio of 26% and the growth prospects of the company.

Business Overview

H.B. Fuller is a global market leader in adhesives. It has 72 manufacturing facilities, 30 technology centers, direct presence in 37 countries, and sells its products in 125 countries.

Adhesives is an exceptionally attractive niche market. Adhesives are critical materials in numerous applications but they comprise just a small expense for H.B. Fuller’s customers. Adhesives make up less than 1% of the cost of goods of most customers.

In addition, each adhesive has unique chemistry, with most product formulations including 3-10 chemicals. It is also uneconomical for customers to switch to another supplier. Overall, H.B. Fuller’s customers have to use its essential products without paying much attention to their cost, which is minor compared to their other costs.

Hygiene, health, and consumable adhesives generate 45% of H.B. Fuller’s total revenue, while engineering adhesives and construction adhesives comprise 41% and 14% of total revenue, respectively.

(Click on image to enlarge)

Source: Investor Presentation

As shown in the above chart, engineering adhesives have the greatest EBITDA margin and the highest growth rate. As a result, they constitute the most critical category of adhesives, though the hygiene, health and consumable adhesives are very important as well.

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Disclosure: Sure Dividend is published as an information service. It includes opinions as to buying, selling and holding various stocks and other securities.

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