This article is about Ingersoll-Rand Plc. (NYSE:IR) and why it's an investment with good growth long term that's 2.51% of The Good Business Portfolio. Ingersoll-Rand Plc. is a leading company in the manufacture of a wide range of industrial and commercial products for climate control and industrial applications. The housing market has been good over the last year and Ingersoll-Rand Plc. revenue lags the housing market by at least 9 months. The following topics will be discussed: The Good Business Portfolio Guidelines, Total Return, Earnings, Company Business, and Takeaways and Recent Portfolio Changes.
Good Business Portfolio Guidelines
Ingersoll-Rand Plc. passes 9 of 10 Good Business Portfolio Guidelines. These guidelines are only used to filter companies to be considered in the portfolio. There are many good business companies that don't break many of these guidelines but will still not be considered for the portfolio at this time. For a complete set of the guidelines, please see my article "The Good Business Portfolio: All 24 Positions." These guidelines provide me with a balanced portfolio of income, defensive and growing companies that keeps me ahead of the Dow average.
Ingersoll-Rand Plc. is a large cap company with a capitalization of $13.40 billion. The next largest company in the industrial machinery sub-industry is Mueller Indus. (NYSE:MLI) with a capitalization of $1.43 Billion much smaller than IR. The size of Ingersoll-Rand Plc. compared to its smaller competitors will allow Ingersoll-Rand Plc. the ability to buy and add smaller companies to continue its good growth going forward.
Ingersoll-Rand Plc. has a dividend yield of 2.5% and its dividend has been increased each of the last five years since the great recession. The payout ratio is low at 32% making the dividend very safe. In February 2016 the dividend was increased from$0.29 to $0.32 an increase of 10.3%. Ingersoll-Rand Plc. has a good dividend growth record over the last five years and should be considered by the dividend growth investor.
Ingersoll-Rand Plc. cash flow is good at $1.07 Billion which leaves Ingersoll-Rand Plc. plenty of cash flow, allowing it to pay its average dividend and have a enough left over for the growth of the company.
I also require the CAGR going forward to be able to cover my yearly expenses. My dividends provide 3.0% of the portfolio as income and I need 2.0% more for a yearly distribution of 5%. Ingersoll-Rand Plc. has a three-year CAGR of 9.0% more than meeting my requirement. Looking back five years $10,000 invested five years ago would now be worth over $14,100 today. This makes Ingersoll-Rand Plc. a good investment for the growth investor with its steady 2.5% dividend while you wait for revenue growth going forward.
Ingersoll-Rand Plc. S&P Capital IQ has a four star buy rating for the company with a price target of $60.00. Ingersoll-Rand Plc is under priced at present and a good choice for the moderate growth investor.
Total Return and Yearly Dividend
The Good Business Portfolio Guidelines are just a screen to start with and not absolute rules. When I look at a company, the total return is a key parameter to see if it fits the objective of The Good Business Portfolio. Ingersoll-Rand Plc. had much higher total return than the Dow baseline in my 37.5 month test period. I chose the 37.5 month test period (starting January 1, 2013) because it includes the great year of 2013, the moderate year of 2014, the small loss year of 2015 and the losing year of 2016 YTD. I have had comments about why I do not compare the total return to the S&P 500 average. I use the Dow average because the Good Business Portfolio has six Dow companies in it and is weighted more to the Dow average than the S&P 500. Modeling the Dow average is not an objective of the portfolio but just happened by using the 10 guidelines as a filter for company selection. The high total return makes Ingersoll-Rand Plc. appropriate for the growth investor with the 2.5% dividend keeping you even with inflation. The dividend is average and easily covered
DOW's 37.5 month total return baseline is 21.91%
37.5 Month total return
Difference from DOW baseline
Yearly Dividend percentage
Click to enlarge
Last Quarter's Earnings
For the last quarter Ingersoll-Rand Plc. reported earnings on February 9, 2016 that beat expected at $0.94 compared to last year at $0.82 and expected at $0.93. Revenue was higher than expected by $20 Million at $3.32 billion. This was a good report showing earnings a little above expected and Mr. market was steady for Ingersoll-Rand Plc. Earnings for the next quarter are released in late April and are expected to be at $0.37 compared to the last year at $0.38 and Ingersoll-Rand Plc. guided for the next quarter at $0.33 - $0.38. Ingersoll-Rand Plc. has a small revenue head wind due to the strong dollar but has good growth potential going forward with its increasing revenue in most of its products. Ingersoll-Rand Plc. guided for the 2016 year at earnings of $3.80-$4.00. The first quarter for Ingersoll-Rand Plc. is all ways the lowest quarter of the year in earnings and revenue.
Ingersoll-Rand Plc. is a diversified, global company that provides products, services and solutions to improve the quality and comfort of air in homes and buildings, transport and protect food and perishables. The Company is also engaged in the design, manufacture, sale and service of a portfolio of industrial and commercial products. The Company focuses on parts, service, used equipment and rentals. Its business segments consist of Climate and Industrial. The Climate segment includes Trane and American Standard Heating and Air Conditioning, which provides heating, ventilation and air conditioning (HVAC) systems; commercial and residential building services, parts, support and controls, and Thermo King transport temperature control solutions. The Industrial segment includes Ingersoll Rand compressed air systems and services, power tools, material handling systems, ARO fluid management equipment, Club Car golf, utility and rough terrain vehicles. Ingersoll-Rand Plc. is part of the industrial companies in the Good Business Portfolio to get diversification into this sector with General Electric (NYSE:GE) doing the big products like generators and Ingersoll-Rand Plc. doing the smaller items like air conditioning controls. Ingersoll-Rand Plc. growth followers about 9 months after the housing market has started recovering, which is about now.
Takeaways and Recent Portfolio Changes
Ingersoll-Rand Plc. is a total return and dividend growth company. Considering Ingersoll-Rand Plc. average dividend and its total return better than the Dow average, Ingersoll-Rand Plc. is a buy for the moderate growth investor. The only negative for Ingersoll-Rand Plc. is the small headwind in the near term due to the strong dollar. If you don't already have a position in an industrial sector Ingersoll-Rand Plc. may be a buy for your portfolio.
Trimmed Hanes Brands (NYSE:HBI) to .3% of the portfolio, last earnings were below expected. The portfolio missed the boat on this company, most of the gain has passed, but it's still a good business long term.
The Good Business Portfolio bought Omega Healthcare Investor Inc. (NYSE:OHI) increasing its percentage of the portfolio to 2.81%. The portfolio needs a little more income and with the stock price down its a no brainer to add to this growing income and growth company.
The Good Business Portfolio generally trims a position when it gets above 8% of the portfolio. The top five positions in the portfolio are: Home Depot (NYSE:HD) at 8.61% of portfolio, Johnson & Johnson (NYSE:JNJ) at 8.65% of the portfolio, Boeing (NYSE:BA) at 7.50% of the Portfolio, Altria (NYSE:MO) at 7.80% of the Portfolio and L Brands Inc. (NYSE:LB) is at 7.18% of the portfolio.
Therefore HD, and JNJ are now in trim position. After the earnings are out on HD it may be trimmed if it's still well above 8% and let the other winners run a bit more.
I have written individual articles on CAB, JNJ, EOS, LB, GE, HOG, OHI and HD and other companies in The Good Business Portfolio, and other companies the portfolio is evaluating. If you're interested, please look for them in my list of previous articles.
Of course, this is not a recommendation to buy or sell, and you should always do your own research and talk to your financial advisor before any purchase or sale. This is how I manage my IRA retirement account, and all opinions on the companies are my own.
Disclosure: I am/we are long JNJ, HOG, BA, LB, HD, MO, OHI, GE, CAB, HBI, IR.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.