Up to date on September eleventh, 2023 by Felix Martinez
ABM Industries (ABM) has an incredible monitor document with regards to paying dividends to shareholders. The corporate is a part of the Dividend Kings, a gaggle of shares which have raised their payouts for at the very least 50 consecutive years. You possibly can see all 50 Dividend Kings right here.
We created a full record of all 50 Dividend Kings and vital monetary metrics similar to dividend yields, payout ratios, and price-to-earnings ratios. You possibly can obtain the complete record by clicking on the hyperlink under:
Dividend Kings are the best-of-the-best with regards to rewarding shareholders with money returns. This text will talk about ABM’s dividend security, in addition to its valuation and outlook.
Enterprise Overview
ABM was based again in 1909, and since that point, it has grown into an business powerhouse. ABM Industries is a number one supplier of facility options, which incorporates janitorial, electrical & lighting, vitality options, services engineering, HVAC & mechanical, panorama & turf, and parking. The corporate produces $7.8 billion in annual income and trades at present with a market cap of $2.5 billion.
ABM counts hospitals, universities, public faculties, knowledge facilities, manufacturing vegetation, and airports amongst its lengthy and spectacular consumer record. The corporate’s experience and plenty of many years of expertise in facility administration have earned it a terrific popularity, and thus it’s a true business chief.
ABM’s technique is to compete in industries the place it may well win relatively than competing in all places. ABM has realized by means of the many years the place it may well compete efficiently and the place it can not and has centered its efforts accordingly.
In 2007 ABM’s annual income was about $3 billion, nevertheless it has almost tripled since then, at the moment standing at almost $8 billion. ABM has grown organically partially, however the overwhelming majority of its progress has been acquired. And given strategic route from ABM when it comes to future money utilization, we will count on extra acquisitions because the years go on.
ABM additionally has an distinctive dividend progress document. The corporate has paid greater than 223 consecutive quarterly dividends and has elevated its dividend for 55 consecutive years.
Supply: Investor Presentation
Given the remarkably low payout ratio of ~25% projected for 2023, its long-term progress prospects, and its resilience to recessions, ABM is more likely to maintain elevating its dividend for a few years to come back. As well as, the corporate has purchased again almost 600 thousand shares in current quarters, serving to to drive greater earnings-per-share. This can be a change from prior conduct, the place capital returns have been virtually solely by means of money dividends.
One supply of potential earnings progress going ahead is worldwide enlargement, as ABM entered the U.Ok. market with the GBM and Westway acquisitions previously few years. Going ahead, proceed searching for a number of transactions from ABM when it comes to acquisitions and divestitures because it shifts its combine round additional.
ABM is cut up into six segments that present its prospects a big selection of facility options: Enterprise & Business, Schooling, Aviation, Expertise & Manufacturing, Healthcare, and Technical Options. The corporate’s income streams are extremely diversified, with janitorial companies comprising ABM’s greatest single piece of the pie.
Development Prospects
As we noticed above, ABM’s acknowledged technique is to develop by acquisition. Nevertheless, that’s to not say that it’s ignoring its potential to develop organically. When it has free money circulation to spend, it seems to be first at natural progress. The corporate has deep experience and an awesome popularity right here within the US for services administration and appears to use that the place attainable. Which means going after nationwide accounts first, the place it may well acquire a major quantity of enterprise abruptly in addition to centralizing help companies to enhance margins.
ABM additionally particularly calls out acquisitions in its technique, though it’s behind natural investments and the dividends. Nonetheless, ABM’s current historical past means that acquisitions are an important a part of its total technique and thus, we will count on ABM will proceed to develop by way of acquisitions in addition to organically.
ABM remains to be extraordinarily centered on the US market, which presents potential alternatives for additional worldwide enlargement. ABM may use its vital experience in services administration to achieve entry to world purchasers worldwide. The strikes into the U.Ok. in recent times show ABM is keen to take an opportunity; this can be probably the most vital progress avenue ABM has going ahead.
Supply: Investor presentation
ABM Industries is predicted to be extremely worthwhile once more this 12 months, and following third-quarter earnings, we now count on $3.50 in earnings-per-share for the 12 months. The corporate’s Q3 outcomes confirmed income progress of three.4% year-over-year, hitting $2.0 billion. That was additionally $20 million higher than expectations. Adjusted earnings-per-share got here to 79 cents in Q3, which was ten cents decrease than anticipated.
As famous above, the corporate acquired RavenVolt, an electrical microgrid firm that’s centered on serving to companies and governments obtain sustainability targets. This acquisition is a bit outdoors ABM’s typical acquisition as a result of it isn’t a service supplier.
General, ABM’s progress is more likely to be average because the economic system normalizes. We count on 5% annual earnings-per-share progress over the following 5 years.
Aggressive Benefits & Recession Efficiency
ABM’s aggressive benefit is its dimension and the resultant economies of scale it enjoys. It has a 100+ 12 months historical past of offering facility options for a big selection of shoppers, and that experience is what units ABM aside. It’s a true business chief within the services administration house, and that affords it not solely the power to extra simply appeal to new purchasers, but additionally to develop relationships with those it already has.
As well as, since ABM operates in low-margin companies, smaller opponents are at an obstacle when it comes to leveraging down again workplace and help prices. ABM could also be in some aggressive traces of labor, however it’s actually higher positioned than its opponents to beat a few of these obstacles.
ABM Industries is among the greatest firms in its business, and its historical past of creating acquisitions has enhanced its scale benefits additional. ABM Industries will doubtless proceed to make acquisitions to extend its dimension additional.
Recessions are painful for ABM identical to some other firm, however its efficiency in the course of the Nice Recession was outstanding. ABM’s earnings-per-share in the course of the Nice Recession are under:
2007 earnings-per-share of $0.99
2008 earnings-per-share of $1.10 (11% enhance)
2009 earnings-per-share of $1.33 (21% enhance)
2010 earnings-per-share of $1.34 (0.7% enhance)
Impressively, ABM grew earnings-per-share in annually of the Nice Recession. Only a few firms have been in a position to accomplish this. Furthermore, ABM has proved as soon as once more its resilient nature within the coronavirus pandemic.
Due to a rise in high-margin work orders from resilient prospects, ABM has simply offset the impact of the pandemic on its prospects within the aviation business and schooling. In consequence, it’s poised to develop its earnings per share to an all-time excessive degree this 12 months.
General, ABM enjoys skinny working margins and lackluster progress charges throughout regular financial instances, however it’s exceptionally resilient throughout tough financial durations.
This resilience is essential, because it helps the inventory’s long-term returns and makes it simpler for the shareholders to retain the inventory throughout broad market sell-offs.
Valuation & Anticipated Returns
ABM is predicted to generate earnings-per-share of $3.50 in its fiscal 2023. In consequence, the inventory is at the moment buying and selling at a price-to-earnings ratio of simply 11.2. That is considerably decrease than the common price-to-earnings ratio of ~17.5 for the inventory previously 10 years. We contemplate 16 instances earnings to be an inexpensive estimate of honest worth for this inventory.
ABM’s valuation has plummeted all through 2023, and the inventory is as low-cost because it has been at any level previously decade. If the inventory trades at our assumed honest valuation degree in 5 years, it’ll generate 8% annualized returns because of the enlargement of its earnings a number of.
Furthermore, the inventory is providing a 2.2% dividend yield. This yield is considerably greater than the yield of the S&P 500, however it’s nonetheless a comparatively low yield.
As well as, current dividend raises have been very small, with typical will increase within the 2% or 3% vary. Whereas ABM has a powerful historical past of paying dividends, it lacks a excessive present yield and dividend progress fee.
Lastly, we count on annual EPS progress of 5.0% over the following 5 years. Mixed with a 2.2% dividend and an 8% annualized enlargement of the price-to-earnings ratio, complete annual returns may method 15.2% per 12 months.
Remaining Ideas
ABM is actually not a high-yield revenue inventory or a excessive dividend progress inventory. However what it lacks in pleasure, it makes up for with consistency. ABM’s lengthy and spectacular historical past of paying a dividend ought to be revered, because the Dividend Kings are uncommon compared to the 1000’s of publicly traded shares out there.
ABM’s natural progress is undamaged, and acquisitions add to progress. Development from right here relies upon upon potential worldwide enlargement in addition to continued margin good points. As well as, the corporate has a comparatively new tailwind of share repurchases.
With a really low-cost valuation and affordable progress forward, complete annual returns may very well be robust at 15.2% yearly by means of the following 5 years. ABM is a purchase on account of its excessive anticipated return and lengthy historical past of dividend will increase.
Further Studying
The next databases of shares include shares with very lengthy dividend or company histories, ripe for choice for dividend progress traders.
Thanks for studying this text. Please ship any suggestions, corrections, or inquiries to [email protected].