Printed on August eleventh, 2022 by Josh Arnold
When buyers consider sectors within the inventory market which are liable to have dividend longevity, the know-how sector typically isn’t one which involves thoughts. The tech sector itself isn’t sufficiently old to rival the longest standing dividend streaks present in different sectors, and lots of firms inside IT have enterprise fashions which are too risky to generate sustainable dividends.
Nonetheless, not all tech shares are created equal.
Pc Companies (CSVI) is an IT inventory that has boosted its dividend for a particularly spectacular 50 consecutive years. That makes it stand out not solely amongst different IT shares, however in truth, amongst nearly every other inventory out there in the present day.
It additionally lands Pc Companies on the listing of Blue Chip shares, a bunch of greater than 350 firms which have boosted their dividends for a minimum of 10 consecutive years. These firms have stood the take a look at of time and aggressive threats to return ever-higher quantities of capital to shareholders.
With this in thoughts, we’ve created an inventory of 350+ Blue Chip shares, which you’ll be able to obtain by clicking under:
Along with the Excel spreadsheet above, we’re individually reviewing the highest 50 blue chip shares in the present day as ranked utilizing anticipated complete returns from the Certain Evaluation Analysis Database.
This text within the 2022 Blue Chip Shares In Focus collection will analyze Pc Companies’ enterprise mannequin, development prospects, and complete returns.
Pc Companies is an IT firm that serves principally monetary firms within the US. It provides core processing, digital banking, managed companies, funds processing, regulatory compliance, and different companies to banks and different companies. It has an extended slate of companies that assist smaller monetary establishments with duties that may be cost-prohibitive to offer themselves, and the corporate has created a pleasant area of interest for itself over the a long time.
Pc Companies was based in 1965, produces about $320 million in annual income, and has a market cap of $1 billion in the present day, following sizable weak spot within the inventory in 2022.
The corporate reported first quarter earnings on July eleventh, 2022, and outcomes have been sturdy, producing file income and earnings for the quarter.
Supply: Q1 earnings launch
Income was up 5.7% to $81 million in Q1, with development coming from greater gross sales in digital banking, funds processing, cybersecurity, and doc supply. Excluding contract termination charges, natural income was up 6.1% in Q1.
Working bills have been up 6.4% to $61.6 million, which was because of greater advertising and marketing and journey bills, greater value of products offered on higher volumes in funds processing, digital banking, doc supply, and cybersecurity, in addition to elevated software program and tools bills. These have been partially offset by decrease personnel prices because of decrease profit-sharing plan contributions.
Working revenue was up 3.7% to $19.5 million, slower than the speed of income development because of expense development. That meant working margin was 24% of income, down from 24.5% a yr in the past.
Web revenue was up 2.3% to $14.7 million, or up 3.8% on a per-share foundation at 54 cents for Q1.
Pc Companies has a really spectacular historical past of development, with the previous decade seeing a median annual improve in earnings-per-share of greater than 10%. As well as, the corporate has produced greater earnings yearly in that interval. That monitor file places Pc Companies in uncommon firm, notably amongst firms that serve monetary establishments.
Supply: Annual report
We don’t see that sort of development as sustainable, however we do anticipate 7% annual earnings-per-share development within the years to come back. We imagine the corporate can develop earnings through a mixture of income development, a small measure of margin growth, and to a lesser extent, share repurchases. Pc Companies prioritizes the dividend, then capital expenditures, then share repurchases relating to using its money circulation.
The dividend has grown at greater than 14% on common up to now decade, and once more, we see that degree as unsustainable. Nonetheless, we do assume 10% dividend development is attainable as the corporate continues to develop earnings, and return a lot of its free money circulation to shareholders.
The corporate’s stability sheet can be in terrific form, because it has no long-term debt, however has a $76 million money place as of the tip of the primary quarter. Given this, even when earnings have been to dip quickly, we imagine administration would defend the dividend in any respect prices.
Aggressive Benefits & Recession Efficiency
Whereas Pc Companies is definitely a small operator in what’s a really massive IT sector, it has created a distinct segment with smaller monetary establishments that has served it effectively over the a long time. The corporate competes the place it could be inefficient for greater gamers on condition that the market isn’t that massive. However Pc Companies has carved out a terrific, worthwhile enterprise and it has model recognition consequently.
Recessions aren’t type to banks, and given banks are the corporate’s clients, earnings might be crimped throughout a recession. Nonetheless, Pc Companies’ choices are requirements for its clients, so they can not merely cease cost processing, or different core companies. We due to this fact imagine recession resilience is sort of good for Pc Companies, and the way it’s been in a position to increase its dividend for half a century.
The payout ratio is below 50% of earnings for this yr, and along with the clear stability sheet and sturdy development outlook, we’ve no worries about dividend security going ahead.
Valuation & Anticipated Returns
We assess honest worth for the inventory at 17.4 occasions earnings, however shares commerce in the present day at simply 15 occasions earnings. That suggests we may see a ~3% annual tailwind to complete returns ought to the valuation reflate to normalized ranges.
The dividend yield can be as much as 2.9% in the present day, following dividend raises and inventory value weak spot. That’s about double the S&P 500’s yield, so the inventory is enticing on an revenue foundation as effectively.
Coupled with our 7% development estimate, we see complete annual return potential of 13% within the years to come back, placing the inventory firmly into ‘purchase’ territory.
Pc Companies is definitely not one of many largest dividend shares obtainable in the present day, however we see the area of interest the corporate has carved out as very enticing. It helps long-term earnings development, the administration group could be very shareholder-friendly, and the inventory provides enticing complete return potential.
The dividend improve streak can be at 50 years, placing Pc Companies in rarified firm on that measure, and we see it as enticing for worth buyers, these looking for a excessive yield, and development inventory buyers.
The Blue Chips listing just isn’t the one method to rapidly display for shares that usually pay rising dividends.
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