Dover Corp: Thriving Manufacturer With Plenty of Room for Increased Yield

Jul.22.11 | About: Dover Corp (DOV)

Dover Corporation (NYSE:DOV) is one of those companies that makes things. They make a lot of things. Dover manufactures industrial products and supplies. The company could be considered a proxy for the broader economy. Therefore, Dover is fairly cyclical depending on economic expansion for growth. The company operates in four segments.

  • The Industrial Products segment develops and manufactures material handling equipment such as winches; utility, construction, and demolition machinery attachments.
  • The Engineered Systems segment provides products and services for the refrigeration, storage, packaging, and preparation of food products. It also produces products for marking and coding systems.
  • The Fluid Management segment manufactures polycrystalline diamond cutters used for drilling oil and gas wells and many other products used in the oil and gas exploration and production industry.
  • The Electronic Technologies segment designs and manufactures electronic test, material deposition, and manual soldering equipment as well as other specialty electronic components.

The fact that Dover is dependent on the health of the economy could make you assume that they are struggling in this sputtering economy. That makes sense, but you would be wrong. In fact, Dover seems to be thriving. In the first quarter, Dover reported earnings of $0.96 per share, beating estimates by $0.02. The company reported $2 billion in revenue versus $1.6 billion in the first quarter of 2010. Based on the strength of business, Dover raised its full year guidance.

In the first quarter, all segments reported double-digit revenue growth and higher margins. Overall, revenue increased 24% and orders increased 27%. Dover reports second quarter earnings on Friday. Analysts expect Dover will earn $1.15 per share on $2.1 billion revenue.

Shares of Dover trade are near their 52 week high. Shares closed Thursday at $66.36. The stock is up nearly 51% over the last twelve months.

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Dover trades at 16.5 times current earnings and nearly 15 times projected earnings. Cash flow has increased nearly 11% annually over the last five years. Shares trade at 13 times cash flow. Dover has increased revenue 6.8% annually over the last five years and earnings 12%.

The company pays a quarterly dividend of $0.275, for a yield of 1.64%. That represents a payout ratio of only 26%, indicating that Dover has room to increase its yield. The company has increased dividends at an annualized rate of 10% over the last five years.

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As of the first quarter, Dover had not experienced any slowdown in business. Admittedly this report was before the recent "soft patch" in economic data. I will be looking for continued strength across all business segments when Dover reports earnings today. The company is growing its international sales and sells to a very active oil and gas drilling sector.

Although not cheap, shares do seem to be fairly priced. If Dover reports strong earnings and revenue today, that should signal the all-clear to buy. I rate Dover a long-term buy based on the continued strength of its business segments, solid management, and the possibility of stronger economic growth in the second half of the year.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.