Badger Meter: Undervalued Divi – GuruFocus.com

Dividend Champions occur in all sizes, while most traders are possibly acquainted with the more substantial names that have been elevating dividends for decades.

One more compact organization that has almost a few a long time of dividend development and appears poised for long term raises because of to its audio business design is Badger Meter Inc. (BMI, Financial).

Business background and outcomes record

Badger Meter manufactures the meters and valves that are utilized to evaluate and handle the move of air, gases and liquids. The enterprise gets the bulk of its profits from municipal drinking water utilities, but Badger Meter’s products and solutions are used in close markets such as chemicals, HVAC and oil and gas. The $2.4 billion corporation generates once-a-year profits of $505 million.

The company described initially-quarter earnings outcomes on April 19. Earnings grew 12.4% to $132.4 million, when earnings for each share of 49 cents in contrast favorably to 47 cents in the prior year.

The water utility business was pretty robust, with profits escalating 15% in contrast to the prior calendar year. This development was owing to a assortment of factors, together with potent get activity, backlog conversion and acquisitions. The business is enduring supply chain disruptions, which was the driving power in gross sales of move instrumentation items coming in flat as opposed to the prior calendar year.

Inflationary pressures also contributed to a 360-foundation place drop in the functioning margin, nevertheless this was compared to a new record in the initially quarter of 2021. The increase in enter fees did impression bottom-line efficiency, but Badger Meter ideas to offset these bills with higher recognized prices. Switching costs are high in this business and the company’s goods are regarded as sector primary, so raising price ranges need to not dent desire. This is supported by Badger Meter viewing its backlog arrive at a new file stage all through the quarter.

Badger Meter has executed very properly in the very long time period, top to a compound yearly progress amount of pretty much 9% for earnings for each share because 2012. This is thanks largely to the company’s highly developed items. For instance, the company’s Beacon and Orion products and solutions mix to allow for water utilities to check operations and detect h2o leaks as they occur. These products have seen greater demand from customers between consumers as they can preserve the utilities on fees.

Wall Road analysts surveyed by Yahoo Finance task earnings per share of $2.18 for 2022, which would mark a practically 5% increase from previous year’s report.

Ranking compared to friends

Badger Meter has leveraged its market-leading engineering into solid fundamentals. The corporation is at the moment running at a extremely higher stage on a selection of metrics, equally in opposition to its individual historical performance as very well as that of the broader industry.

Badger Meter gets a 10 out of 10 from GuruFocus on money toughness, as it scores very well almost everywhere you go. For starters, the corporation has zero personal debt, which spots its income-to-debt ratio earlier mentioned 99.9% of its business group. Because of this, fascination protection is considerable and the Altman Z-Rating ranks as very safe and sound as deficiency of debt really should maintain the business from heading bankrupt. The Piotroski F-Rating is good, reflecting Badger Meter’s money toughness. Finally, the company’s return on invested cash of 15.3% is nearly a few times its weighted ordinary charge of funds of 5.5%.

Badger Meter’s profitability rank is also a excellent 10 out of 10.

The business is above the the vast majority of its peers in each individual classification. Functioning margin, return on equity, return on property and return on invested capital are much better than at minimum 80% of the competitors. Nearly just about every rating is near the best finish of the company’s 10-year historic performance. It is not just leaving the opposition powering Badger Meter is outshining its own historic file.

Badger Meter gets one more significant score on expansion, this time 9 out of 10. The just one area the place the business has been weak in comparison to its peers is on a few-calendar year revenue growth, however this is middle of the pack. Nearly everywhere else the business is forward of two-thirds to 3-quarters of the opposition. A few-yr earnings per share with out nonrecurring goods is primarily potent.

With higher marks virtually throughout the board, Badger Meter receives a GF Rating of 94 out of 100. Based mostly on the fundamentals, the company’s business seems to be in fantastic form, which must assist aid the dividend.

Dividend security evaluation

Badger Meter’s dividend produce is on the low facet at 1%. The inventory has almost never presented substantially in the way of revenue, averaging a yield of just 1.3% considering that 2012. Nevertheless, this is extra of a product of an maximize in share cost than a query of commitment to growing the dividend.

The company’s dividend has a CAGR of 9.7% around the past decade, but this expansion price accelerates to almost 12% when wanting at the previous 5 yrs. This includes an 11.1% maximize for the Sept. 10, 2021 payment date, which prolonged the company’s dividend expansion streak to 29 several years. Shareholders can anticipate the future dividend raise to be declared near the close of August if Badger Meter sticks to its typical agenda.

Badger Meter has managed aggressive dividend raises for the very last 10 years since the company’s business proceeds to broaden. In spite of double-digit typical boosts for the final 10 years, the payout ratios have been in a tight selection.

The business dispersed 76 cents of dividends for each share in 2021 whilst earning $2.08 for a payout ratio of 37%. Shareholders ought to see dividends of at the very least 80 cents for each share this year. Based mostly on analysts’ estimates, the projected payout ratio is also 37%. Both equally figures are extremely shut to the 10-calendar year typical payout ratio of 39% for the firm.

Using free of charge income movement as a lens into dividend basic safety exhibits that distributions are properly covered. In excess of the very last year, Badger Meter has distributed of $23 million of dividends whilst making absolutely free income stream of $60 million for a payout ratio of 38%. This is over the ordinary no cost hard cash movement ratio of 27% because 2018, but nonetheless in a really safe variety.

For the reason that the company at present has zero lengthy-term credit card debt, all obtainable capital can be made use of to protect dividend payments. This need to present an excess layer of protection to Badger Meter’s dividend.

Valuation evaluation

Badger Meter has confronted a hard 12 months together with significantly of the marketplace.

The inventory is down extra than 23% calendar year to day, however this has led to an improvement in Badger Meter’s valuation.

The GF Price chart, which makes use of a variety of metrics to decide reasonable price, displays the inventory is undervalued.

Badger Meter closed on Friday at $81.76. The inventory has a GF Worth of $92.35, resulting in a cost-to-GF Value of .89. Achieving the GF Worth would imply a 13% gain in the share cost.

Last views

Badger Meter is a little corporation, but is pretty considerably a chief in its industry. The company has a portfolio of sophisticated solutions that are in need from customers. This technical benefit has enabled Badger Meter to mature its dividend for a lengthy time period of time. And with reasonable payout ratios and no lengthy-time period personal debt, the company’s dividend is poised to proceed to develop at a rapid tempo.

At the identical time, Badger Meter’s inventory is investing at a price cut to its intrinsic benefit not seen since late 2020. For traders on the lookout for an entry issue into the identify, now could demonstrate to be an option to buy shares of the business at a extra sensible valuation.