Dividend Kings In Focus: Parker-Hannifin

Up to date on September 18th, 2023 by Aristofanis Papadatos

Parker-Hannifin (PH) is in very unique firm in relation to its dividend observe report. Parker-Hannifin has paid quarterly dividends to shareholders for the previous 70+ years, and it has raised its dividend for 67 years operating.

On condition that, Parker-Hannifin has one of many prime 5 longest-running dividend enhance 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 at the very least 50 consecutive years.

You possibly can see the total record of all 50 Dividend Kings right here.

Moreover, you’ll be able to obtain your free copy of the complete Dividend Kings record (together with metrics that matter like price-to-earnings ratios and dividend yields) by clicking on the hyperlink under:

 

Dividend Kings are the most effective of the most effective in relation to rewarding shareholders with larger money returns annually.

This text will talk about 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 turn out to be as we speak.

The corporate continues to embody Mr. Parker’s strategy to fixing the world’s engineering issues, and the formulation has definitely labored over the previous a number of many years.

Parker-Hannifin sells a wide selection of elements that assist energy the world’s factories and machines. A part of the corporate’s attraction is its broad diversification when it comes to product classes and choices.

The corporate has a really lengthy and various buyer record 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 true at $50 billion and the corporate has generated $19 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 phase of the three. This phase gives industrial options to engineering issues on a large 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 kind of options to its clients exterior the US.

The Aerospace Techniques enterprise focuses on an trade the place Parker-Hannifin has many years of expertise in making the world’s plane extra environment friendly and safer to function.

Parker-Hannifin lately acquired Meggitt, a worldwide chief in aerospace and protection movement and management applied sciences for $8.8 billion in money. Meggitt presents know-how and merchandise on each main plane platform and has annual revenues of $2.3 billion.

As the worth of the transaction is eighteen% of the market capitalization of Parker-Hannifin, the acquisition will definitely be a major development driver for the corporate within the upcoming years.

Progress Prospects

Due to its give attention to its area of interest markets, Parker-Hannifin has exhibited an admirable efficiency report. The corporate has grown its earnings per share in 8 of the final 9 years, by 14.3% 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 report primarily because of its potential to amass smaller opponents, incorporate their merchandise in its immense international community and obtain nice synergies from these acquisitions. Parker-Hannifin has all the time maintained a robust monetary place as a way to have ample money for extremely worthwhile acquisitions.

As proven within the chart under, Parker-Hannifin has greater than tripled its earnings per share since 2016.

Supply: Investor Presentation

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 following 5 years.

Parker-Hannifin reported fourth quarter earnings on August third, 2023. Natural gross sales grew 6% and gross sales grew 22% over the prior 12 months’s quarter, to a brand new all-time excessive. It was the third quarter after the acquisition of Meggitt. Adjusted earnings per share grew 18%, from $5.16 to a report $6.08, because of strong demand in aerospace, which greater than offset the headwind of value inflation.

Parker-Hannifin exceeded the analysts’ consensus by $0.59. Notably, the commercial producer has exceeded the analysts’ EPS estimates for 32 consecutive quarters. Due to its sustained enterprise momentum and report backlog, the corporate supplied sturdy steerage for its earnings-per-share in fiscal 2024. It expects 3%-6% gross sales development and adjusted earnings per share of $21.90-$22.90.

As administration has proved conservative in its steerage for a number of years in a row, we count on earnings per share of at the very least $22.90, 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 boost its steerage greater than as soon as within the operating fiscal 12 months, which started in July.

Parker-Hannifin has made some important acquisitions in recent times, with CLARCOR, Lord, and Unique Metals being three examples. Extra lately, the corporate accomplished a significant $8.8 billion acquisition of Meggitt. The corporate’s give attention to supportive acquisitions in addition to enchancment in its working effectivity, ought to present it with sturdy long-term earnings development.

Aggressive Benefits & Recession Efficiency

Parker-Hannifin’s aggressive benefits embrace its scale, international distribution community, and its 100+ years of expertise in fixing engineering issues.

The corporate manufactures some comparatively obscure – however very crucial – elements 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.

In fact, as an industrial producer, Parker-Hannifin just isn’t proof against recessions. In spite of everything, its clients want clients of their very own as a way to justify manufacturing. Consequently, when a recession does strike, Parker-Hannifin is considerably affected.

In the course of 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 influence on earnings-per-share in 2009, as proven under:

• 2007 earnings-per-share of $4.67
• 2008 earnings-per-share of $5.53 (18% enhance)
• 2009 earnings-per-share of $3.13 (43% decline)
• 2010 earnings-per-share of $3.40 (8.6% enhance)

Nevertheless, income recovered to pre-crisis highs by 2011 the corporate recovered swiftly and strongly from that fierce recession.

This firm isn’t beholden to anyone specific trade and that diversification of product choices and clients is what helps it climate financial storms. Given these elements, we see its dividend as very protected, no matter future financial situations.

Valuation & Anticipated Returns

Based mostly on $22.90 in earnings-per-share for this 12 months, shares of Parker-Hannifin commerce for a ahead P/E ratio of 17.1. That is nicely underneath our honest worth P/E of 15.7, that means the inventory is barely overvalued proper now.

We word that Parker-Hannifin has traded with considerably various price-to-earnings multiples prior to now decade. Nonetheless, over the following 5 years, we count on the present valuation to end in a -1.7% annual headwind to whole returns.

Parker-Hannifin’s dividend historical past is clearly very spectacular, and that has been made doable by the corporate’s excellent free money move era over time.

Even when the worldwide economic system was extraordinarily challenged, Parker-Hannifin posted sturdy money move. This gives an enormous margin of security for the dividend, and we consider Parker-Hannifin’s payout is ultra-safe because of this.

If we assume long-term earnings development of 9% and add within the present yield of 1.5%, Parker-Hannifin’s whole anticipated return over the following 5 years is 8.6%.

We proceed to assume Parker-Hannifin has promising prospects forward. We view the inventory as enticing from a long-term perspective. The inventory receives a maintain ranking however it is going to be upgraded to “purchase” if it incurs a 5% correction from its present worth of $392.

Ultimate Ideas

Parker-Hannifin just isn’t a excessive dividend inventory, and it virtually definitely by no means can be. However its dividend observe report is spectacular, and it seems that it’ll proceed for years to return.

The corporate makes use of its free money move to reward buyers by way of a good yield that grows over time, but additionally by way of rising by acquisitions and investing in its enterprise.

The inventory has rallied ,this 12 months so it now has a maintain ranking however it is going to be upgraded to “purchase” if it incurs a light correction from its present worth.