Dividend Aristocrats In Focus: Ecolab

Up to date on March twenty seventh, 2024 by Bob Ciura

There are simply 68 shares on the checklist of Dividend Aristocrats, members of the S&P 500 Index which have raised their dividends for 25+ consecutive years.

We view the Dividend Aristocrats as among the many finest dividend shares to buy-and-hold for the long term.

You may obtain a free checklist of all 68 Dividend Aristocrats, together with necessary metrics like dividend yields and price-to-earnings ratios, by clicking on the hyperlink beneath:

Disclaimer: Certain Dividend is just not affiliated with S&P International in any method. S&P International owns and maintains The Dividend Aristocrats Index. The data on this article and downloadable spreadsheet is predicated on Certain Dividend’s personal evaluate, abstract, and evaluation of the S&P 500 Dividend Aristocrats ETF (NOBL) and different sources, and is supposed to assist particular person traders higher perceive this ETF and the index upon which it’s primarily based. Not one of the data on this article or spreadsheet is official knowledge from S&P International. Seek the advice of S&P International for official data.

Ecolab (ECL) is an instance of an organization that possesses all of those qualities. Ecolab has an extended historical past of development, and has elevated its dividend for over 30 years.

This text will study the varied elements behind Ecolab’s rise to prominence, in addition to our present score of Ecolab inventory.

Enterprise Overview

Ecolab was created in 1923 when its founder Merritt J. Osborn invented a brand new cleansing product known as “Absorbit”. This product cleaned carpets with out the necessity for companies to close down operations to conduct carpet cleansing. Osborn created an organization revolving across the product, known as Economics Laboratory, or Ecolab.

Immediately, Ecolab is the business chief and generates annual gross sales of roughly $15 billion.

Ecolab operates three main enterprise segments: International Industrial, International Institutional, and International Vitality, every of roughly equal measurement. The enterprise is diversified when it comes to working segments and likewise geography. About 55% of the corporate’s gross sales happen outdoors North America.

Supply: Investor Presentation

In mid-February, Ecolab reported (2/13/24) monetary outcomes for the fourth quarter of fiscal 2023. Natural gross sales grew 6% over the prior yr’s quarter, principally because of double-digit development within the Institutional phase and pest elimination.

Due to robust value hikes and barely decrease prices of merchandise, adjusted earnings-per-share grew 22%, from $1.27 to $1.55, and exceeded the analysts’ consensus by $0.01. Furthermore, because of sturdy pricing and optimistic gross sales momentum, administration supplied steerage for earnings-per-share of $6.10-$6.50 in 2024, implying 17%-25% development.

It additionally expressed its confidence in increasing the working margin from 16% to twenty% within the upcoming years.

Development Prospects

Ecolab grew its earnings-per-share by 10.9% per yr throughout 2011-2019. It incurred a decline in 2020 as a result of pandemic and in 2022 as a consequence of excessive inflation. We view these headwinds as non permanent and anticipate 12% common annual development of earnings-per-share over the following 5 years.

Supply: Investor Presentation

One of many firm’s most necessary development catalysts is acquisitions. In late 2021, Ecolab acquired Purolite for $3.7 billion in money. Purolite sells high-end ion change resins for the separation of options in over 30 nations. It generates annual gross sales of roughly $400 million.

Ecolab has confirmed profitable at integrating different acquisitions, so we stay optimistic in regards to the firm’s potential to take action sooner or later. Acquisitions corresponding to these, together with natural funding, have fueled regular earnings development for many years.

We really feel that the corporate is well-positioned to proceed to develop. We anticipate ECL to develop earnings-per-share by 12% per yr over the following 5 years.

Aggressive Benefits & Recession Efficiency

Ecolab’s many aggressive benefits embrace scale, a robust fame amongst its prospects, and innovation. Ecolab serves greater than 1 million buyer areas unfold throughout greater than 170 nations. The corporate is just not afraid to spend vital sources on analysis and improvement of recent services and products.

Administration refers to R&D spending as its “innovation pipeline”. Ecolab typically spends greater than $1 billion on the innovation pipeline. Due largely to this R&D spend, the corporate’s variety of patents exceeds 9,000.

Ecolab’s R&D investments and mental property assist the corporate keep forward of the competitors. Ecolab’s R&D investments have created an extremely robust enterprise, one that may maintain up very properly even throughout financial downturns.

For clear proof of Ecolab’s aggressive benefits, look no additional than its efficiency in the course of the Nice Recession:

2006 earnings-per-share of $1.43
2007 earnings-per-share of $1.66 (16% enhance)
2008 earnings-per-share of $1.86 (12% enhance)
2009 earnings-per-share of $1.99 (7% enhance)
2010 earnings-per-share of $2.23 (12% enhance)

Ecolab’s development in the course of the Nice Recession was actually exceptional. Not solely did the corporate generate optimistic earnings development in annually of the recession, however in three of these years, it achieved double-digit earnings development.

Valuation & Anticipated Returns

Based mostly on the present buying and selling value of $230 and anticipated earnings-per-share of $6.40, Ecolab has a price-to-earnings ratio of 35.9. The inventory has a ten-year common price-to-earnings ratio of 20. We now have a goal price-to-earnings ratio of 20. If shares of Ecolab have been to return to our goal valuation by 2029, this would cut back whole returns by 11.0% per yr.

The inventory is in peril of experiencing a contraction of the valuation a number of, which might negatively affect whole returns. Ecolab’s dividend is just not more likely to characterize a big portion of whole returns. It’s because the present dividend yield is simply 1.0%. That is decrease than the common dividend yield of the S&P 500 Index.

Ecolab’s dividend development streak now totals 32 consecutive years.

A breakdown of potential five-year returns is as follows:

12.0% earnings development
1.0% dividend yield
11% valuation reversion

We anticipate that Ecolab will supply a complete annual return of two.0% by way of 2029. Principally, we anticipate that valuation headwinds are fairly probably going to put on down many of the firm’s potential returns that may emerge from its earnings and dividend development prospects.

Whereas Ecolab is a gorgeous dividend development inventory as a consequence of its excessive fee of dividend will increase, it’s not as interesting for revenue traders or worth traders.

Closing Ideas

Ecolab is just not more likely to be a gorgeous inventory for traders solely in excessive ranges of revenue. That mentioned, it’s a very robust inventory for traders eager about a recession-resistant enterprise and dividend development.

Ecolab has a superb monitor document of profitability and development and is likely one of the few corporations to have a dividend development streak of not less than 25 years. That mentioned, in the present day may not be a really perfect time to amass shares within the firm as a result of lack of significant projected returns over the medium time period. Subsequently, we fee shares of Ecolab as a Maintain.

In case you are eager about discovering high-quality dividend development shares appropriate for long-term funding, the next Certain Dividend databases might be helpful:

The key home inventory market indices are one other strong useful resource for locating funding concepts. Certain Dividend compiles the next inventory market databases and updates them month-to-month: