Dividend Kings Overview and Valuation Series – H.B. Fuller Company (FUL)

Welcome to this series where I will be reviewing all the Dividend Kings and providing an overview and valuation calculation on the companies. Dividend Kings are a rare breed of Dividend Growth Companies. These companies have managed to raise their dividend for 50 or more years consecutively. Through all types of market swings, economic trouble, wars, recessions, these companies have seen it all and continue to reward shareholders with rising dividend income.

This week’s entry will focus on:

FUL – H.B. Fuller Company

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Overview:

H.B. Fuller Company formulates, manufactures, and markets adhesives, sealants, coatings, polymers, tapes, encapsulants, additives, and other specialty chemical products worldwide. 

The company operates through three segments: 

1. Hygiene, Health and Consumable Adhesives – specialty industrial adhesives such as, thermoplastic, thermoset, reactive, and water-based and solvent-based products.
2. Engineering Adhesives – high performance industrial adhesives such as reactive, light cure, two-part liquids, silicone, polyurethane, film, and fast cure products.
3. Construction Adhesives – products used for tile setting, commercial roofing, heating, ventilation, and air conditioning and insulation applications, as well as caulks and sealants.

H.B. Fuller Company was founded in 1887 and is headquartered in Saint Paul, Minnesota.

(Source: Company Website)

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Metrics:

Dividend Amount: $0.76

Dividend Yield: 1.29%

5 Year Dividend CAGR: 3.97%

Dividend Payout Ratio: 24.52%

Years of Dividend Increases: 52 Years

P/E: 18.96

Analyst 5 Year Earnings Growth Estimate: 15.48%

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Valuation:

Current Price: $58.78 (6/22/22)

DCF (10% RRR): $70.29

P/E Mean Reversion:$55.12

Dividend Yield Theory: $62.30

Average of the three: $62.57

Analyst 1 year Price Target: $103.33

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Commentary:

H.B. Fuller (FUL) calls itself “The world’s largest pure-play adhesives provider” and the company has operations on all continents except Antarctica.  The wide breadth and use of their products allows a stable source of revenue and cash flow to pay for the dividend.

FUL has raised its dividend for 52 years, with the current yield at 1.29% and their 5 year dividend CAGR is 3.97%.  This dividend CAGR is very low and does not keep up with inflation.  The raises are lower than the company’s projected earnings growth rate and the payout ratio is low, suggesting that the company could increase its dividend more aggressively if desired.

The company released Q2 earnings yesterday and stated that they produced a 22% year-over-year organic growth, Earnings per diluted share (EPS) of $0.86 and adjusted diluted EPS of $1.11 up was up 18% year over year, and adjusted EBITDA of $139M, up 14% year over year.

Raw material inputs for their products are increasing in price, pushing down margins in the short term. 

The company’s revenue and net income has generally been flat over the past 5 years but no meaningful growth. The stock has mirrored this flat growth, having increased only 12.13% over the past 5 years, compared to the S&P’s return of 54.20%, significantly underperforming the index.  Over the past year the stock is down 11.35%. 

FUL is a stable company but not much growth. The current price has come down nearly 28% this year, performing worse than the overall market, but does appear to be a decent value, showing it is currently undervalued based on 2 of the three valuation methods shown above.  The dividend and dividend growth is low and the stock price historically underperformed the market, as such this stock does not fit my investment criteria.

Disclosure:  I do not own shares of FUL.