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C.H. Robinson Worldwide, Inc. (CHRW): Is This Stock a Buy at Today’s Prices?

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C.H. Robinson Worldwide, Inc. (NASDAQ:CHRW)Lately, I’ve been working on an article about companies with strong competitive advantages. Part of the research for this involved making a list of dividend growth stocks that have a wide moat rating from Morningstar. As a part of the article, I was planning on doing a brief summary of some companies that were close to a five star rating. During this process, I stumbled across C.H. Robinson Worldwide, Inc. (NASDAQ:CHRW).

The more I looked into it, the more I liked the company, so I ended up just doing a full dividend stock analysis. If you are interested in a wide moat article, it should be up on the blog within a week.

10-year stock chart

The 10-year returns have been good with an average annual return of 13.7% (12.3% from capital gains and 1.4% from dividends).

It’s been a bit of a choppy ride, but the overall trend and returns are good.

Revenue and earnings

C.H. Robinson Worldwide, Inc. (NASDAQ:CHRW) has very consistent and increasing earnings. In 2009, revenue dropped a bit, but other than that, it’s been all up. Overall, it is an impressive chart.

The same steady trend up emerges when revenue per share and EPS are examined.

C.H. Robinson Worldwide, Inc. (NASDAQ:CHRW) has very impressive revenue charts and equally impressive 10-year annual average growth rates.

All growth rates are above the 8% I like to see.

Dividends

C.H. Robinson Worldwide has increased its dividend for 16 consecutive years in a row with the most recent increase occurring with the dividend recorded in January 2013 when it increased the quarterly dividend by 6.1% from $0.33 to $0.35.

Dividend growth

As you can see from the table below, C.H. Robinson Worldwide, Inc. (NASDAQ:CHRW) shows good average annual dividend growth rates.

Dividend growth has been good, but with the most recent dividend increase of 6.1%, it looks like dividend growth may be slowing.

Dividend sustainability

The 10-year average annual dividend growth has been a bit higher than EPS growth, which suggests that dividend growth may slow down.

Let’s take a look at the payout ratio to see how much room for growth the dividend still has.

The company has been increasing dividends faster than earnings, but because they have a reasonable payout ratio, the dividend is sustainable. It looks like more recently, the payout ratio has been ranging from 35% to 45%. I expect the payout ratio to continue to be in this range.

Estimated future dividend growth

Analysts expect annual EPS growth to be 12.41% for the next five years. Accepting this EPS growth rate and using a payout ratio range of 35% to 45% would result in annual dividend growth ranging from 3% to 8.4%. This would be inline with the most recent dividend increase of 6.1%. With past dividend growth rates quite high, I think dividend growth will be at the higher end of the 3% to 8.4% range, likely around 8%.

The company’s earnings growth goal are shown on their website as follows:

“our long-term compounded annual growth target has been 15 percent for net revenues, income from operations, and earnings per share.”

The company’s high earnings growth targets are another reason why I think dividend growth will be at the higher end of this range.

Competitive advantage & return on equity (ROE)

I would consider C.H. Robinson Worldwide, Inc. (NASDAQ:CHRW) to have a wide moat over the competition. Its impressive ROE chart would support this with an upward trend and a ROE always above the 20% I like to see.

ROE is well above the industry average for Air Delivery & Freight Services. Its competitors also seem to have higher than average ROE’s ranging from FedEx Corporation (NYSE:FDX)’s 11.1% to Expeditors International of Washington (NASDAQ:EXPD)’s 16%. C.H. Robinson Worldwide, Inc. (NASDAQ:CHRW) still blows the competition out of the water with a current ROE of 43.2%.

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