Up to date on October twenty fourth, 2024 by Aristofanis Papadatos
Nordson Company (NDSN) has a dividend observe file that few firms can rival. The corporate has elevated its dividend for 61 consecutive years, rating it as one of many longest dividend development streaks in all the market place.
That places Nordson among the many elite Dividend Kings, a small group of shares which have elevated their payouts for no less than 50 consecutive years. You’ll be able to see the complete record of all 53 Dividend Kings right here.
Moreover, we created an inventory of all of the Dividend Kings together with necessary monetary metrics reminiscent of P/E ratios and present dividend yields. You’ll be able to entry your copy of the Dividend Kings sheet by clicking on the hyperlink beneath:
Dividend Kings have the longest observe data in terms of rewarding shareholders with money, and Nordson is not any completely different.
Nordson doesn’t have a family title, and is probably not well-known amongst buyers. However the firm actually has an extended and profitable historical past of elevating its dividend.
Nordson has been a high-growth firm for a few years. On this article we’ll look at the enterprise, in addition to its prospects for funding.
Enterprise Overview
Nordson was based in 1954 in Amherst, Ohio, however the firm can hint its roots a lot additional, again to 1909 because the U.S. Computerized Firm. That enterprise specialised in making screw machine elements for the fledgling automotive business however within the 1930’s, the corporate shifted to creating extra high-precision elements you’d most likely affiliate with the Nordson of at the moment.
Then in 1954, Nordson was began as a division of the U.S. Computerized Firm by way of the acquisition of patents masking the “sizzling airless” technique of spraying paint and different coating supplies. The remaining, as they are saying, is historical past as Nordson has grown to about $2.6 billion in annual income, and trades with a market cap of simply over $14 billion.
Nordson engineers, manufactures and markets distinctive merchandise used to dispense, apply and management adhesives, sealants, polymers, coatings and different fluids to check for high quality in addition to to deal with and treatment surfaces.
The corporate’s merchandise are discovered all around the world – bought primarily by a direct, world gross sales power – and provide customized options to their clients’ engineering issues. Nordson has constructed a popularity over the previous 5 many years of high quality and worth with its wide selection of options.
The corporate has a extremely various buyer base:
Supply: Investor Presentation
Nordson is break up into three enterprise segments: Industrial Precision Options, Medical and Fluid Options, and Superior Expertise Options. The primary section is made up of adhesives, coatings, paints, finishes, and sealants.
The Medical and Fluid Options section comprises merchandise reminiscent of plastic tubing, balloons, catheters, fluid connection parts, and syringes. The Superior Expertise Options section is comprised of digital processing techniques.
Nordson’s income combine is extremely diversified as roughly 44% of it comes from the U.S. The rest is from all kinds of world clients, providing Nordson not solely a various buyer base, but in addition variety in terms of currencies. We word that this opens the corporate’s outcomes as much as foreign money volatility, which markets skilled in recent times.
The U.S. is Nordson’ s largest market when it comes to geographic presence, however Asia-Pacific and Europe aren’t far behind. Nordson is a really world firm.
Supply: Investor Presentation
By way of product kind, Nordson generates about 53% of its gross sales from industrial precision options, which is a comparatively enticing space of focus as a result of a terrific portion of this income is recurring in nature. Individually, Nordson generates the stability of its gross sales from medical fluid options and superior expertise options.
Progress Prospects
Between 2010 and 2019, Nordson greater than doubled its income and grew its earnings per share at an 11.3% common annual charge. The corporate stumbled in 2020, with a 7% decline in earnings per share. Administration attributed the lackluster efficiency to the difficult world financial atmosphere amid the coronavirus pandemic.
Nevertheless, the corporate remained extremely worthwhile even through the worst of the pandemic, and solely skilled a gentle decline in earnings per share in 2020. Nordson returned to development in 2021, with a powerful 41% improve in earnings per share in that 12 months. The corporate adopted this up with a 22% enchancment in 2022.
The corporate reported third quarter earnings on August twenty first, 2024, with the corporate beating the analysts’ estimates in each income and earnings per share.
The corporate reported gross sales of $662 million, which was a 2% improve year-over-year. Natural quantity was down 1% for the interval however income grew due to the impact of acquisitions. By way of segments, Superior Expertise Options income was down 11%, Medical and Fluid Options fell 2%, however Industrial Precision Options loved 10% development.
Earnings per share got here to $2.41 on an adjusted foundation, down about 6% year-over-year. The corporate narrowed steerage and now expects adjusted earnings per share in a spread of $9.45 to $9.65, in comparison with a previous vary of $9.35 to $9.75. We now anticipate adjusted earnings per share of $9.55 in consequence.
We consider that the long-term development prospects of Nordson ought to stay intact. There are a lot of levers for Nordson’s long-term development. Nordson is a serial acquirer and has been mainly from the start when it was began with the acquisition of patents masking the recent airless technique of spraying.
Nordson’s observe file in terms of acquisitions is an efficient one as the corporate seems for takeover targets that give it some kind of aggressive benefit it doesn’t already possess, with excessive percentages of recurring income and value synergies.
Progress-by-acquisition is a tough endeavor for long-term success however Nordson has confirmed its means to take action over the long run. This can be a key differentiator for Nordson and shouldn’t be neglected by buyers. Nordson has generated sturdy development for a few years, consisting of each inside initiatives in addition to acquisitions.
Supply: Investor Presentation
The mix of acquisitions, natural development and give attention to steady enchancment drives, not solely prime line growth, however margin positive factors as properly. Natural income development is pushed by frequently introducing new merchandise and expertise. This regular stream of recent concepts turns into new merchandise and drives natural income development.
As well as, Nordson’s give attention to rising markets has been a major development driver and can proceed to contribute to development sooner or later. The corporate’s rising markets have produced low double-digit income development on common previously decade, outpacing Nordson’s core markets of the U.S. and Europe.
The rising center courses of those rising markets ought to permit Nordson to proceed to see spectacular charges of natural income development in addition to opening up the chance for continued, focused acquisitions in these markets.
Nordson has additionally been within the means of bettering its effectivity by what it calls the Nordson Enterprise System. That is basically a set of instruments and greatest practices Nordson has collected through the years that’s rooted in Lean Six Sigma rules and is utilized all through the corporate in all enterprise models. Nordson intently screens and measures outcomes in opposition to benchmarks and this give attention to effectivity is a development driver by way of margins.
Nordson has managed to develop its EBITDA margin alongside its income during the last 5 years, and the corporate expects continued development and margin growth by 2025.
Supply: Investor Presentation
Because of all of the above development drivers, we anticipate Nordson to develop its earnings per share at a ten.0% common annual charge over the subsequent 5 years.
Aggressive Benefits & Recession Efficiency
Nordson enjoys numerous aggressive benefits, which paint a fairly rosy image of the corporate’s place. First, Nordson has a powerful world infrastructure that places it in a spot of not solely having a various buyer base, however various teams of expertise as properly.
As well as, its amenities are the place its clients are on the earth (direct presence in 35 international locations), and therefore Nordson can react extra rapidly to product wants. This additionally affords Nordson a bonus when service is required, because it has individuals close to its clients wherever they’re. That is the kind of factor that drives long run relationships, that are Nordson’s bread and butter.
That brings us to our subsequent level, which is Nordson’s R&D and patents. Nordson solely spends about 3% of its income on R&D but it surely makes probably the most of it, submitting for dozens of patents every year. As well as, it buys patents and companies with essential merchandise it could use to complement its present traces.
Furthermore, Nordson’s giant put in buyer base signifies that not solely does it have a considerable amount of recurring income, however it’s also way more difficult for opponents to take clients away. Switching prices are excessive for the sorts of issues Nordson sells and, thus, the incumbent in any given house has an enormous benefit. Nordson’s put in base has many benefits and is a main motive why the corporate has remained so profitable for many years.
Nordson’s many aggressive benefits permit it to carry up pretty properly in recessionary environments; the corporate’s earnings per share throughout and after the Nice Recession are beneath:
- 2007 earnings-per-share of $1.33
- 2008 earnings-per-share of $1.77 (improve of 33%)
- 2009 earnings-per-share of $1.20 (lower of 32%)
- 2010 earnings-per-share of $2.24 (improve of 87%)
Earnings have been risky through the recession, however total, Nordson carried out very properly. There are usually not many firms with EPS figures that appear to be this throughout and after the Nice Recession and specifically, ones that manufacture for a dwelling.
Needless to say many merchandise of Nordson require capital bills from its clients, whose budgets are typically slashed throughout recessions.
Nevertheless, Nordson additionally sells merchandise which can be completely important to many companies and thus, when the mud settles, these orders are inclined to materialize. Certainly, Nordson’s recession-resistance is surprisingly good.
We noticed the corporate’s resilience to weak financial circumstances through the pandemic-impacted interval of 2020 and 2021 as soon as once more. Amongst industrial firms specifically, Nordson is kind of resilient to weak financial circumstances.
Valuation & Anticipated Returns
We anticipate Nordson to generate earnings-per-share of $9.55 this 12 months. Because of this, the inventory is buying and selling at a ahead price-to-earnings ratio of 26.2.
We take into account a price-to-earnings ratio of 24 to be truthful for Nordson. With shares barely larger than that at the moment, we see an annualized headwind of 1.7% from the valuation.
We additionally anticipate 10.0% annual EPS development over the subsequent 5 years whereas the inventory can also be providing a 1.2% dividend yield. Each of this stuff will add positively to shareholder returns. Nevertheless, with the yield and valuation headwind largely offsetting one another, we see 9.3% common whole annual returns over the subsequent 5 years.
Nordson’s sturdy free money circulation and disciplined strategy to acquisitions imply that the dividend could be very properly coated. It additionally occurs to develop rapidly. Nordson has raised its dividend yearly for 61 years.
The corporate has grown its dividend by 14.5% per 12 months on common during the last decade and by 14.0% per 12 months on common during the last 5 years. Due to this fact, aggressive dividend development is all the time attainable from the corporate. General, the dividend development streak of Nordson is excellent.
A low payout ratio helps the corporate develop its dividend. With a projected payout ratio of 33% this 12 months, the dividend is well-covered, with ample room for future raises.
Nordson’s strategy to spending its money is a bit completely different from different firms in that, relying upon the 12 months, it could purchase again inventory, make acquisitions, pay down debt or any variety of different issues.
Since 2012, Nordson has spent its money in numerous methods from one 12 months to the subsequent, together with greater than half of it over this timeframe on acquisitions. There have been years of excessive ranges of buybacks, and years with none.
General, Nordson’s outcomes may be lumpy however the firm is tremendously profitable in producing development over the long run.
Ultimate Ideas
Nordson is a high-quality enterprise with a powerful dividend development streak. Nordson isn’t a powerful inventory for top earnings. That is considerably stunning, provided that it’s a very uncommon Dividend King, however the low payout ratio exhibits {that a} beneficiant dividend isn’t a precedence for administration.
The precedence is rising the enterprise and this firm has accomplished that exceedingly properly, producing sector-leading whole returns for shareholders. The dividend will rise for a lot of extra years as a result of Nordson has made it clear over the previous 61 years that it intends to proceed doing so for the foreseeable future.
We see Nordson as a maintain in the meanwhile given anticipated whole returns of 9.3% per 12 months.
The next databases of shares comprise shares with very lengthy dividend or company histories, ripe for choice for dividend development buyers.
Extra Studying
The next databases of shares comprise shares with very lengthy dividend or company histories, ripe for choice for dividend development buyers.
Thanks for studying this text. Please ship any suggestions, corrections, or inquiries to [email protected].