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Dividend Aristocrats Part 45: Dover Corp (DOV)

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Dover Corp (NYSE:DOV) is a diversified global manufacturer with a market cap of $8.6 billion. The company has the second longest consecutive dividend increase streaks of any business.

Dover has increased its dividend payments for 60 consecutive years. This makes Dover one of just 17 Dividend Kings – dividend stocks with 50+ years of consecutive dividend increases. For the record, American States Water Co (NYSE:AWR) has the longest active dividend increase streak at 61 consecutive years.

Dover stock is currently offering investors a 3.0% dividend yield. The company is experiencing a growth slowdown right now due to low oil prices and weaker-than-expected growth in China.

To understand how these factors effect Dover, the company’s business segments are analyzed below.

Dover

Dover Corp is not very popular among smart money investors and out of some 730 funds tracked by Insider Monkey, only 25 held shares of the company at the end of September, having amassed around 4.80% of the company; a quarter earlier 26 funds held long positions in Dover Corp. Jeffrey Gates’ Gates Capital Management, Richard Pzena’s Pzena Investment Management, and Joel Greenblatt’s Gotham Asset Management are among the most bullish investors in Dover Corp.

Business Overview

Dover operates in four separate segments.  The company’s segments are shown below along with percentage of total earnings generated for the company over the first 3 quarters of fiscal 2015.

– Fluids: 25% of earnings

– Energy: 18% of earnings

– Engineered Systems: 36% of earnings

– Refrigeration & Food Equipment: 22% of earnings

The fluids segment manufactures pumps and fluid transfer devices for the oil and gas, retail fueling, chemical, hygienic, and industrial markets. Key brands in the fluids segment are:

– PSG

– CPC

– Hydro Systems

The energy segment manufactures equipment for the oil and gas industry – especially artificial lift equipment. The segment also manufactures bearings and compressions. Key brands in the energy segment include:

– Cook Compression

– TWG Power

– Quartzdyne

The engineered systems segment is highly diversified; it serves the printing, vehicle, aerospace, and waste management industries. Key brands in the segment are:

– Environmental Solutions Group

– Sargent Aerospace & Defense

– Texas Hydraulics

The refrigeration and food equipment segment provides solutions in refrigeration, electrical, heating and cooling systems, and in food and beverage packaging. Key brands in the segment are:

– Anthony

– Tipper Tie

– Hill Phoenix

Competitive Advantage

Dover’s long streak of steadily rising dividends shows evidence of a durable competitive advantage.

Dover’s competitive advantage comes from its focus on innovation and continuous improvement. The company is able to protect its innovations through patents.

The company’s competitive advantage is evident in its high (and rising) margins.

Dover currently has an operating margin of 23.4% and a net profit margin of 13.8%. Dover’s margins have been steadily increasing over the last decade. In 2004, the company had an operating margin of 14% and net profit margin of 7.5%.

Dover’s increasing margins show the company’s competitive advantages are strengthening as it acquires more bolt-on businesses and further enhances its technology and brand portfolio.

The company has focused on efficiency in recent years.  Examples of this are:

– Combining 4 Hill Phoenix manufacturing facilities into 1 new facility

– Combining 5 energy segment facilities into 1 new facility

– Continuous improvement methodology

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