Nordson: A High-Growth Dividend King

Nordson Corporation (NDSN) has a dividend track record that few companies can rival. The company has increased its cash dividend for 54 consecutive years, making it one of just 14 such entities in the entire market with a dividend increase streak of that length.

That puts Nordson among the elite Dividend Kings, a small group of stocks that have increased their payouts for at least 50 consecutive years. 

Dividend Kings have the longest track records when it comes to rewarding shareholders with cash and this article will discuss Nordson’s dividend and valuation outlook.

Business Overview

Nordson was founded back in 1954 in Amherst, Ohio, but the company can trace its roots much further back to 1909 to the US Automatic Company. That enterprise specialized in making screw machine parts for the fledgling automotive industry but in the 1930’s, the company shifted to making more high-precision parts you’d probably associate with the Nordson of today.

Then in 1954, Nordson was started as a division of the US Automatic Company via the acquisition of patents covering the “hot airless” method of spraying paint and other coating materials. The rest, as they say, is history as Nordson has grown to $2B+ in annual revenue with its 7,500 employees all over the world.

Nordson engineers, manufactures and markets unique products used to dispense, apply and control adhesives, sealants, polymers, coatings and other fluids to test for quality as well as to treat and cure surfaces. The company’s products are found all over the world – sold primarily by a direct, global sales force – and offer custom solutions to their customers’ engineering problems. Nordson has built a reputation over the past five decades of quality and value with its wide range of solutions.

NDSN Overview

Source: Q1 earnings slides, page 19

Nordson is split into three business segments: Adhesive Dispensing Systems, Advanced Technology Systems and Industrial Coating Systems. Adhesive Dispensing Systems delivers proprietary precision dispensing and processing products for applications that reduce material consumption as well as increase line efficiency and enhance product durability. This segment primarily serves the consumer non-durable market.

Advanced Technology Systems serves the needs of electronics, medical and high-tech customers by integrating product technology found in the various stages of a production process such as dispensing of material, surface treatment, optical inspection and x-ray testing to ensure quality.

The Industrial Coating Systems segment provides standard and customized equipment used primarily for applying coatings, sealants, paint and other finishes as well as for curing and drying of dispensed material. Industrial Coating Systems primarily focuses on the consumer durable market.

Nordson’s revenue mix is highly diversified as only 30% of it comes from the US. The remainder is from a wide variety of global customers, offering Nordson not only a diverse customer base, but also diversity when it comes to the currencies it operates in. The US is Nordson’s largest in terms of geographic presence but Asia-Pacific and Europe aren’t far behind; Nordson is a truly global company.

Adhesive Dispensing Systems and Advanced Technology Systems both accounted for 44% of revenue in 2017 with Industrial Coating Systems producing the balance of 12%. Within these segments exists a diverse group of customers – no customer makes up more than 10% of total revenue – as well as a wide variety of product types and end markets. The mix of revenue in terms of customers, products and geographies is very strong and offers Nordson benefits when it comes to exposure to downturns in certain economies, industries and currencies.

Growth Prospects

The company’s recent Q1 report showed tremendous growth over the prior year’s comparable quarter, although the company tends to see its heavier volume later in the year as customers nail down what they can spend in terms of capex, somewhat diminishing the importance of the first quarter. Still, Q1 saw sales increase 35% while profit measures such as EBITDA, operating margin dollars and adjusted diluted EPS rose 50% or better.

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