Dividend Aristocrats In Focus: Roper Technologies

Up to date on February 18th, 2022 by Bob Ciura

Roper Applied sciences (ROP) has elevated its dividend payout for 29 consecutive years, and in consequence it is likely one of the Dividend Aristocrats.

The Dividend Aristocrats are a choose group of 66 shares within the S&P 500, with 25+ years of consecutive dividend will increase. We consider the Dividend Aristocrats are among the many finest long-term investments that may be discovered within the inventory market.

You may obtain a full record of all Dividend Aristocrats (together with vital monetary metrics that matter) by clicking on the hyperlink under:

To be able to turn into a Dividend Aristocrat, an organization wants a powerful enterprise mannequin, sturdy aggressive benefits, and the flexibility to face up to world recessions. Clearly, the Dividend Aristocrats are high-quality dividend progress shares. Being a member of the group isn’t any small accomplishment for Roper.

Much more interesting is Roper’s excessive dividend progress charge. The newest improve was a ten% increase.

Even among the many Dividend Aristocrats, dividend hikes of 10% are uncommon, which makes Roper’s dividend will increase over the past decade very spectacular. This text will focus on Roper’s enterprise, progress potential, and valuation.

Enterprise Overview

Roper designs and develops software program, together with each software-as-a-service and licensed know-how, and engineered merchandise and options. Roper has a various portfolio of services, which it supplies to a mess of sectors, together with healthcare, transportation, meals, power, water, and training.

Roper focuses on 4 major enterprise segments:

• Software Software program
• Community Software program and Methods
• Measurement and Analytical Options
• Course of Applied sciences

The Software Software program enterprise contains Aderant, CBORD, CliniSys, Information Innocations, Deltek, Horizon, IntelliTrans, PowerPlan, Strata, and Sunquest as its major merchandise.

The Community Software program and Methods enterprise contains ConstructConnect, DAT, Foundry, Inovonics, iPipeline, iTradeNetwork, Hyperlink Logistics, MHA, RF Concepts, SHP, SoftWriters, and TransCore as its major merchandise.

Measurement and Analytical Options embrace Alpha, CIVCO Medical Options, CIVCO Radiotherapy, Dynisco, FMI, Gatan, Hansen, Hardy, IPA, Logitech, Neptune, Northern Digital, Struers, Techhnolog, Uson, and Verathon.

Lastly, the Course of Applied sciences phase contains AMOT, CCC, Cornell, FTI, Metrix, PAC, Roper Pump, Viatran, and Zetec.

Roper has broadly benefited from the regular enlargement of the U.S. economic system over the previous decade. We consider the corporate can keep a constructive progress trajectory for a few years going ahead.

Progress Prospects

Roper is within the distinctive place of producing robust progress throughout its enterprise, even final yr which was very difficult for the U.S. economic system.

On February 2nd, 2022, Roper reported its This fall–2021 outcomes for the interval ending December 31st, 2021. Quarterly revenues and adjusted EPS had been $1.51 billion and $3.73, indicating a year-over-year improve of 13% and 14%, respectively.

You may see a breakdown of Roper’s efficiency by working phase within the under picture:

Supply: Investor Presentation

The corporate wrapped up FY2021 on a fantastic word. Its companies delivered 9% natural progress enabled by Roper’s ongoing dedication to innovation, continued migration to its recurring income SaaS options, and an bettering macro restoration.

Aided by its EBITDA progress of twenty-two% through the yr and its web debt discount of roughly $1.7 billion, Roper lowered its web debt–to–EBITDA ratio to three.1X from 4.7X initially of the yr. Roper’s administration talked about that the corporate is heading into 2022 with software program recurring income momentum, robust demand, report ranges of backlog, and favorable market situations.

Mixed with its steadiness sheet energy and massive pipeline of excessive–high quality acquisition alternatives, management believes Roper is properly positioned for continued double–digit money circulate progress. Because of this, the company now expects FY–2022 adjusted EPS of $15.25–$15.55 with Q1–2022 adjusted EPS of $3.63–$3.67.

Aggressive Benefits & Recession Efficiency

Over the previous a number of years, Roper pursued an asset-light enterprise mannequin, with a particular give attention to software program and engineered services. The corporate adopted this technique to broaden margins, by lowering capital expenditure wants, whereas additionally producing recurring income. This resulted in a lot stronger money conversion over time.

This supplies Roper with great aggressive benefits. Its excessive margins and operational effectivity present it with masses of cash circulate that may be invested to remain forward of the competitors.

One other aggressive benefit that Roper has is that it’s extremely diversified inside the know-how sector. It owns ~45 impartial companies with management positions in area of interest markets. Moreover, these finish markets are fairly diversified and supply robust recurring income and buyer retention.

Traders also needs to word that Roper is a cyclical enterprise. It has the capability for very robust progress when the economic system is increasing, nevertheless it additionally struggles throughout recessions. Earnings-per-share through the Nice Recession are proven under:

• 2007 earnings-per-share of $2.68
• 2008 earnings-per-share of $3.06 (15% improve)
• 2009 earnings-per-share of $2.58 (16% decline)
• 2010 earnings-per-share of $3.34 (29% improve)

As you may see, Roper will not be a extremely recession-resistant firm. Earnings-per-share declined 16% in 2009. If the economic system had been to enter a recession within the years forward, Roper might see earnings decline.

Whereas Roper’s earnings exhibited volatility, it nonetheless grew general, from 2007 to 2010. Because the U.S. recovered from the Nice Recession, earnings continued to develop. We count on Roper to develop earnings-per-share at a charge of 10% yearly by 2027.

Valuation & Anticipated Returns

Roper is a high-quality firm, with robust progress prospects, due to the excessive degree of demand for its know-how. Due to this fact, it shouldn’t come as a shock that the inventory holds a premium valuation, as shares at the moment commerce for a price-to-earnings ratio of 28.6. Its P/E a number of is above its common valuation over the previous 10 years.

On condition that the corporate is extremely weak to swings within the economic system, now we have a goal price-to-earnings ratio of 28. If shares had been to revert to this goal valuation inside 5 years, annual returns could be decreased by 0.4% over this time. Potential overvaluation is a threat that buyers ought to contemplate earlier than shopping for the inventory.

Nevertheless, this might be offset by earnings-per-share progress (anticipated at 10% per yr) plus the 0.9% dividend yield, leading to whole anticipated returns of 10.5% per yr. This can be a passable projected charge of return for a powerful enterprise.

Ultimate Ideas

Roper has a high-quality enterprise mannequin and 10% annual earnings-per-share progress will not be an unreasonable assumption shifting ahead. The inventory can be a Dividend Aristocrat, and 10%+ annual dividend will increase are additionally potential, due to the corporate’s excessive earnings progress charge.

Roper suits the invoice of a fantastic firm, and whereas the inventory seems to be overvalued, it might nonetheless generate stable returns for shareholders. Roper inventory is a purchase.