Dividend King in Focus: The Gorman-Rupp Company

Up to date on November seventh, 2023

In 2022, The Gorman-Rupp Firm (GRC) introduced that it was growing its quarterly dividend for the fiftieth consecutive yr. Because of this, it joined the Dividend Kings.

The Dividend Kings are a gaggle of simply 51 shares which have raised their dividends for at least 50 straight years.

This group is amongst our favorites for buyers to think about as we imagine their high-quality enterprise fashions which have enabled dividend development for many years are prone to proceed to take action sooner or later.

With this in thoughts, we created a full listing of all 51 Dividend Kings. You’ll be able to obtain the total listing, together with vital monetary metrics akin to dividend yields and price-to-earnings ratios, by clicking on the hyperlink beneath:

This text will look at Gorman-Rupp’s enterprise overview, development prospects, aggressive benefits, and anticipated returns for the subsequent 5 years.

Enterprise Overview

Gorman-Rupp has been in enterprise since 1933. The corporate started as a producer of pumps and pumping techniques and has grown over time to grow to be a number one provider of essential techniques that industrial shoppers rely on to run their companies. The corporate generates income of greater than $500 million yearly and has a market capitalization of $800 million.

Regardless of its measurement, Gorman-Rupp is a key cog for a lot of industrial clients. Its merchandise are utilized in all kinds of finish markets, together with agriculture, air con, building, hearth safety, heating, industrial, liquid dealing with, navy, authentic tools, petroleum, air flow, water, and wastewater.

Supply: Investor Presentation

The corporate’s water-related companies account for over half of annual income, non-water contributes roughly 30%, and restore elements account for the rest.

Gorman-Rupp posted third quarter earnings on October twenty seventh, 2023, and outcomes have been largely consistent with expectations. Adjusted earnings-per-share got here to 25 cents, whereas income rose 8.9% year-over-year to $168 million.

The rise in gross sales was as a consequence of a rise in quantity, in addition to the constructive affect of pricing will increase put into place final yr. Home gross sales rose 10.1%, or $11.7 million, and worldwide gross sales rose 5.2%, or $2 million.

Progress Prospects

Gorman-Rupp’s position in its business is essential as the corporate’s merchandise are vital for these finish markets to carry out their primary features. This makes this relatively small firm a relatively very important piece of the economic sector.

That mentioned, the corporate’s earnings development over the long run is usually correlated to the well being of the economic system. Earnings volatility has been a difficulty as income can swing wildly from yr to yr.

The corporate has been superb at managing prices, which has allowed for steady margins during the last decade, however there are intervals of weak point.

One issue working in Gorman-Rupp’s favor is the getting older infrastructure that plagues its fundamental market of the U.S. The America Society of Civil Engineers charges the nation’s infrastructure as poor. Total, the getting older infrastructure system receives a C- from the group, with significantly poor grades for ingesting water, wastewater, and stormwater techniques.

It’s estimated that $2.6 trillion will likely be required to be spent to repair and enhance water, wastewater, and flood management techniques over the subsequent decade to fulfill the necessity for infrastructure enhancements. This could have Gorman-Rupp well-positioned for years to return.

One other means that Gorman-Rupp makes an attempt to enhance its natural development is thru using strategic acquisitions.

instance of this was the beforehand mentioned Fill-Ceremony buy. Utilizing money available and new debt, Gorman-Rupp paid $525 million for Fill-Ceremony, which was previously a division of Tuthill Company.

Supply: Investor Presentation

Fill-Ceremony’s portfolio consists of high-performance liquid switch pumps, mechanical and digital meters, precision weights, hoses, nozzles, and equipment.

The addition of Fill-Ceremony was made potential as a result of Gorman-Rupp’s steadiness sheet is in remarkably fine condition even after issuing new debt to fund the acquisition. Earlier than this acquisition, the corporate had zero long-term debt on its steadiness sheet. Debt has elevated, however stays manageable given how significant Fill-Ceremony has already been to outcomes.

Aggressive Benefits and Recession Efficiency

Gorman-Rupp has grow to be an business chief due largely to its capacity to supply quite a lot of finish markets the merchandise that it wants. The corporate’s diversified portfolio helps to guard in opposition to declines in anyone space of its enterprise.

Fireplace Suppression is the biggest contributor to gross sales, however that is nonetheless simply round 1 / 4 of the full that Gorman-Rupp’s generates every year.

Supply: Investor Presentation

This diversification may also help to alleviate declines in a sure space.

Nonetheless, Gorman-Rupp isn’t proof against the impacts of a recession. Listed beneath are the corporate’s earnings-per-share totals throughout, and after the Nice Recession:

2008 earnings-per-share: $1.04 (24% lower)
2009 earnings-per-share: $0.70 (33% lower)
2010 earnings-per-share: $0.93 (33% enhance)
2011 earnings-per-share: $1.10 (18% enhance)

Gorman-Rupp suffered vital declines in the course of the Nice Recession. The corporate noticed a rebound shortly after this era because the economic system started recovering and demand improved. The corporate established a brand new excessive for earnings-per-share shortly after the downturn.

On the identical time, the corporate continued to extend its dividend, simply because it had for many years.

Whereas enterprise outcomes will seemingly endure in the course of the subsequent financial downturn, we imagine that the tailwinds to the corporate’s enterprise mannequin will enable for continued dividend development.

Valuation and Anticipated Returns

Shares of Gorman-Rupp are buying and selling at 23.2 occasions our anticipated earnings-per-share of $1.30 for 2023. We imagine honest worth lies nearer to 23 occasions earnings, which suggests a declining P/E may scale back annual returns by roughly 0.3% per yr.

Between natural development and the flexibility so as to add key companies to its portfolio, we forecast that Gorman-Rupp can obtain earnings-per-share development of 10% yearly by way of 2028.

The dividend can even add to the inventory efficiency. Presently, Gorman-Rupp is yielding 2.4%, which tops the typical yield of the S&P 500 Index.

Subsequently, Gorman-Rupp is projected to return 12.1% yearly by way of 2028. This makes the inventory a purchase in our view.

Closing Ideas

The Dividend Kings are an unique listing of firms which have established extraordinarily lengthy histories of dividend development. This feat is so uncommon that there are simply 51 firms assembly the lone requirement of not less than 5 a long time of dividend development.

Gorman-Rupp is a comparatively new addition to this listing. The corporate’s spectacular enterprise mannequin, capacity to make strategic acquisitions and business tailwinds ought to place the corporate to proceed to develop its dividend.

The inventory can be fairly priced and has double-digit whole return potential over the subsequent 5 years, incomes Gorman-Rupp a purchase suggestion.

In case you are considering discovering extra high-quality dividend development shares appropriate for long-term funding, the next Certain Dividend databases will likely be helpful:

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