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Dover Corp (DOV) Could Become One of Buffett’s Favorites (Part 8)

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John Kozey, senior analyst at Thomson Reuters, listed 28 businesses that could become the favorites of legendary investor Warren Buffett. In previous articles, I covered a number of stocks from that list, including Mosaic Co (NYSE:MOS), CSX Corporation (NYSE:CSX), Johnson Controls, Inc. (NYSE:JCI), Archer Daniels Midland Company (NYSE:ADM) and Coca-Cola Enterprises Inc (NYSE:CCE).

Dover Corp (DOV)

In this article, I would like to talk about one more industrial stock in that list, Dover Corp (NYSE:DOV). Since the market hit bottom in March 2009, Dover has advanced significantly, from around $25 per share to nearly $74 per share. Let’s dig deeper to seewhether or not investors should own Dover at its current price.

Business overview

Dover, incorporated in 1947, is considered a global diversified manufacturer of innovative equipment, specialty systems, and support services, operating in four main business segments: Communication Technologies, Energy, Engineered Systems, and Printing & Identification. The majority of its revenue, $3.42 billion or 42.2% of 2012’s total revenue, was generated from the Engineered Systems segment.

The Energy segment ranked second, with $2.17 billion in revenue in 2012, while the Communication Technologies and the Printing & Identification segment contributed nearly $1.52 billion and $996.5 million in revenue, respectively. Among the four segments, the Energy segment enjoyed the highest operating margin at 24.8%. The Engineered Systems operating margin ranked second, with a 14.7% operating margin.

Consistent growing operating performance

Since 2009, Dover Corp (NYSE:DOV) has experienced a consistent increase in its top line, bottom line, and cash flow. Its revenue increased from $5.78 billion in 2009 to $8.1 billion in 2012, while net income rose from $356 million to $811 million during the same period. Its operating cash flow and free cash flow have also been on the rise. Operating cash flow climbed from $796 million in 2009 to $1.27 billion in 2012, while free cash flow advanced from $676 million to $976 million during the same period.

Moreover, Dover Corp (NYSE:DOV) is a dividend paying company which has consistently increased its dividend. In the past ten years, its dividend has experienced an 8.84% annualized growth to $1.33 per share in 2012. Interestingly, at the current dividend payment, its payout ratio seems to be conservative at only 29.4%.

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