Up to date on October twenty second, 2024 by Aristofanis Papadatos
Parker-Hannifin (PH) is in very unique firm with regards to its dividend monitor file. Parker-Hannifin has paid quarterly dividends to shareholders for the previous 70+ years, and it has raised its dividend for 68 years working.
On condition that, Parker-Hannifin has one of many high 5 longest-running dividend improve streaks within the S&P 500 Index.
This superb accomplishment places it within the elite Dividend Kings, a gaggle of shares which have elevated their payouts for no less than 50 consecutive years.
You may see the complete checklist of all 53 Dividend Kings right here.
Moreover, you’ll be able to obtain your free copy of your complete Dividend Kings checklist (together with metrics that matter like price-to-earnings ratios and dividend yields) by clicking on the hyperlink under:
Dividend Kings are one of the best of one of the best with regards to rewarding shareholders with larger money returns every year.
This text will focus on Parker-Hannifin’s qualities which have put it in such uncommon firm.
Enterprise Overview
Parker-Hannifin was based again in 1917 by Artwork Parker, who was an entrepreneurial man in each sense of the phrase.
He used his penchant for fixing engineering issues to file over 160 patents and created the inspiration for what Parker-Hannifin has grow to be immediately.
The corporate continues to embody Mr. Parker’s strategy to fixing the world’s engineering issues, and the system has definitely labored over the previous a number of a long time.
Parker-Hannifin sells a big selection of parts that assist energy the world’s factories and machines. A part of the corporate’s enchantment is its broad diversification when it comes to product classes and choices.
The corporate has a really lengthy and numerous buyer checklist and isn’t reliant upon one or two industries for its income and earnings. Certainly, Parker-Hannifin is without doubt one of the most diversified industrial shares.
Supply: Investor Presentation
Parker-Hannifin’s market capitalization is $82 billion and the corporate has generated $20 billion in income within the final 12 months.
The corporate operates in three main segments referred to as Industrial North America, Industrial Worldwide, and Aerospace Techniques.
The North America enterprise is the most important section of the three. This section gives industrial options to engineering issues on an enormous scale together with valves and fittings, cylinders and actuators, hoses, piping, tubing and a number of different product classes.
The Worldwide enterprise gives the identical form of options to its prospects outdoors the US.
The Aerospace Techniques enterprise focuses on an business the place Parker-Hannifin has a long time of expertise in making the world’s plane extra environment friendly and safer to function.
About two years in the past, Parker-Hannifin acquired Meggitt, a worldwide chief in aerospace and protection movement and management applied sciences for $8.8 billion in money. Meggitt affords expertise and merchandise on each main plane platform and has annual revenues of $2.3 billion.
As the worth of the transaction was 23% of the market capitalization of Parker-Hannifin on the time of the acquisition, the acquisition will definitely be a big development driver for the corporate within the upcoming years.
Development Prospects
Because of its deal with its area of interest markets, Parker-Hannifin has exhibited an admirable efficiency file. The corporate has grown its earnings per share in 8 of the final 9 years, by 15.0% per 12 months on common.
The constant efficiency mixed with the excessive development price of the corporate are testaments to its rock-solid enterprise mannequin.
Parker-Hannifin has achieved this excellent efficiency file primarily due to its capability to accumulate smaller rivals, incorporate their merchandise in its immense international community and obtain nice synergies from these acquisitions.
Parker-Hannifin has all the time maintained a powerful monetary place in an effort to have adequate money for extremely worthwhile acquisitions.
As proven within the chart under, Parker-Hannifin has grown its revenues and earnings per share at a mean annual price of seven% and 14%, respectively, since 2019.
Supply: Investor Presentation
It has additionally expanded its working margin considerably, from 18.6% in 2019 to 24.9% in 2024. Given the sustained enterprise momentum of the corporate and its current acquisition of Meggitt, we count on 9% development of earnings per share over the subsequent 5 years.
Parker-Hannifin reported fourth quarter earnings on August eighth, 2024. Gross sales grew 2% over the prior 12 months’s quarter, to a brand new all-time excessive. It was the seventh quarter after the acquisition of Meggitt.
Adjusted earnings per share grew 11%, from $6.10 to $6.77, primarily due to sturdy demand within the aerospace division.
Parker-Hannifin exceeded the analysts’ consensus by $0.55. Notably, Parker-Hannifin has exceeded the analysts’ earnings-per-share estimates for 36 consecutive quarters, an eye-opening streak.
Because of its sustained enterprise momentum and file backlog, the corporate supplied optimistic steerage for fiscal 2025. It expects 1.5%-4.5% gross sales development and adjusted earnings per share of $26.30-$27.00.
As administration has proved conservative in its steerage for a number of years in a row, we count on earnings-per-share of no less than $27.00, which is the higher restrict of the steerage.
Such a stage of earnings per share will mark 6% development over the prior 12 months. As per multi-year expertise, we count on administration to lift its steerage greater than as soon as within the working fiscal 12 months, which started in July.
Parker-Hannifin has made some vital acquisitions lately, with CLARCOR, Lord, and Unique Metals being three examples. Extra just lately, the corporate accomplished a serious $8.8 billion acquisition of Meggitt.
The corporate’s deal with supportive acquisitions in addition to enchancment in its working effectivity, ought to present it with robust long-term earnings development.
Aggressive Benefits & Recession Efficiency
Parker-Hannifin’s aggressive benefits embody its scale, international distribution community, and its 100+ years of expertise in fixing engineering issues.
The corporate manufactures some comparatively obscure – however very essential – parts of heavy equipment, manufacturing facility gear, plane, and so on. and competitors in lots of of those arenas is mild. Because of this, it enjoys a large enterprise moat and powerful pricing energy.
After all, as an industrial producer, Parker-Hannifin shouldn’t be resistant to recessions. In spite of everything, its prospects want prospects of their very own in an effort to justify manufacturing. Consequently, when a recession strikes, Parker-Hannifin is considerably affected.
Through the Nice Recession, income fell from about $12 billion earlier than the downturn to about $9 billion on the backside.
Naturally, this had a corresponding destructive impression on earnings-per-share in 2009, as proven under:
- 2007 earnings-per-share of $4.67
- 2008 earnings-per-share of $5.53 (18% improve)
- 2009 earnings-per-share of $3.13 (43% decline)
- 2010 earnings-per-share of $3.40 (8.6% improve)
Nonetheless, income recovered to pre-crisis highs by 2011 and the corporate recovered swiftly from that recession.
This firm isn’t beholden to anybody specific business and that diversification of product choices and prospects is what helps it climate financial storms.
Given these elements, we see its dividend as very protected, no matter future financial circumstances.
Valuation & Anticipated Returns
Based mostly on $27.00 in earnings-per-share for this 12 months, shares of Parker-Hannifin commerce for a ahead P/E ratio of 23.7. That is effectively above our truthful worth P/E of 16.4, that means the inventory is overvalued proper now.
We word that Parker-Hannifin has traded with considerably various price-to-earnings multiples prior to now decade. Nonetheless, over the subsequent 5 years, we count on the present valuation to end in a -7.1% annual headwind to complete returns.
Parker-Hannifin’s dividend historical past is clearly very spectacular, and that has been made attainable by the corporate’s excellent free money move era over time.
Even when the worldwide financial system was extraordinarily challenged, Parker-Hannifin posted robust money move. This gives an enormous margin of security for the dividend, and we imagine Parker-Hannifin’s payout is ultra-safe consequently.
If we assume long-term earnings development of 9% and add within the present yield of 1.0%, Parker-Hannifin’s complete anticipated return over the subsequent 5 years is 2.6%.
We proceed to assume Parker-Hannifin has promising prospects forward. Nonetheless, after years of being undervalued by the market, the inventory has rallied 74% within the final 12 months and has grow to be overvalued.
The inventory receives a marginal maintain score. Prospect buyers ought to in all probability look ahead to a decrease entry level.
Last Ideas
Parker-Hannifin shouldn’t be a excessive dividend inventory, and it nearly definitely by no means will likely be. However its dividend monitor file is spectacular, and it seems that it’ll proceed for years to come back.
The corporate makes use of its free money move to reward buyers by way of an honest yield that grows over time, but in addition by means of rising by acquisitions and investing in its enterprise.
The inventory has rallied 74% in 12 months so it now has a marginal maintain score however will probably be upgraded to “purchase” if it incurs a significant correction from its present worth.
Extra Studying
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