Parker-Hannifin (PH) Stock Analysis
Parker-Hannifin (PH) has paid a dividend since 1949 and increased its dividend for 59 consecutive years; qualifying the company as a Dividend King and Dividend Champion. There is some dispute as to why PH is not on some Dividend Aristocrat lists.
Current Dividend: $2.52
Dividend Yield: 1.7%
Cash Dividend Payout Ratio: 30%
Market Capitalization: 20 B
Enterprise Value: 21 B
Why is Parker-Hannifin Still A Dividend King?
Many people are questioning why PH still qualifies as a Dividend King even though they haven’t increased the quarterly dividend since 2014. The consecutive years of increase measurement is not dependent upon the quarterly dividend being increased, but whether the company increases the dividend per share paid per year. In addition it can be calculated according to the the company fiscal year which is July 1st – June 30th for PH. Because of the timing of the increases each fiscal year has been higher. The PH dividend by fiscal year has been: 2014: $1.86, 2015: $2.37, 2016: $2.52. Therefore as long a PH increases their dividend by the 2nd quarter of 2017 they will remain a Dividend King.
Industry: Diversified Industrials
Parker-Hannifin (PH) is a world leader as a manufacturer of motion systems, flow and process control technologies, filtration & engineering materials (approx. 80% of revenues), and aerospace systems (approx. 20% of revenues).
The company manufactures thousands of individual parts in many product groups including hydraulics, automation, fluid connectors, instrumentation, filtration, engineered materials, and aerospace. The company operates in the United States and 49 other countries.
Parker-Hannifin’s diversification across many end markets and countries provides greater stability in what is a cyclical industry. PH controls its distribution system and provides engineering support through a network of over 13,000 independent distributors around the globe. This creates an economic moat that makes it difficult for competitors to match.
PH is especially excelling in the aerospace sector where it is gaining market share in the recurring aftermarket. Again, its worldwide distribution system is providing a competitive advantage that is contributing to its success.
PH competes in a cyclical industry that depends on customers capital expenditure investments. Revenue growth is highly correlated with global GDP growth.
Parker-Hannifin specializes in niche products. The company can use its current superior distribution system to supply high margin value added products to existing customers.
The company has the financial strength to make acquisitions such as the purchase of filter maker Clarcor in December of 2016.
Slowing global growth could have a big impact on Parker-Hannifin’s future growth prospects. Sales increase and decline with the fortunes of global industrial production.
The rapid growth in the Internet of Things (IoT) is causing other industrial companies to enter markets that PH is currently serving. Competition can reduce margins and is a concern that should be monitored.
Dividend Analyzer Checklist
(updated January 2017)
Dividend Safety Score (24/33 points)
Dividend Per Share (ttm): $2.52
Dividend Payout Ratio (ttm): 41%
Dividend Per Share (10 Year Growth): 15.2%
Cash From Operations (CFO) Per Share (ttm): $9.27
CFO Dividend Coverage (CFO / DPS): 3.7 (4/6 Points)
Free Cash Flow (FCF) Per Share (ttm): $8.22
FCF Dividend Coverage (FCF / DPS): 3.3 (5/6 points)
Net Financial Debt: $1108 M
Total Assets: $11971 M
Net Financial Debt / Total Assets: 9% (10/12 points)
Net Financial Debt to EBITDA (ttm): 206%
Total Liabilities to Assets Ratio (Qtr.): 61%
Piotroski Score (1-9) (TTM): (5/9 points)
Profitability & Growth Score (10/33 points)
Revenue (10 Year Growth) *CAGR > 4.14%: 1.9 (0/4 points)
EPS Basic Cont. Operations (10 Year Growth) CAGR > 4.14%: 5.3% (4/4 points)
Cash From Operations (10 Year Growth) CAGR > 4.14%: 2.1 (0/6 points)
Operating Earnings Yield (ttm): 6.1 (2/7 points)
Net Income (ttm): $822 M
Gross Profit (ttm): $2506 M
Total Assets: $11971 M
Gross Profitability Ratio = GP / Total Assets: 21% (4/12 points)
Cash Return On Invested Capital (CROIC)(tttm): 14%
Return on Invested Capital (ROIC): 10%
Return on Invested Capital (ROIC) (5 Year Median): 12%
Return on Invested Capital (ROIC) (10 Year Median): 13%
Valuation Score (19/34 points)
Free Cash Flow Yield (ttm): 5.7 (6/9 points)
EV to EBIT (ttm): 16.0 (4/9 points)
EV to EBITDA (ttm): 12.9 (4/9 points)
PE10: 21.5 (5/7 points)
Price to Sales Ratio (ttm): 1.7
Price to Book Value (ttm): 4.1
Price to Earnings Ratio (P/E) (ttm): 23.8
TOTAL POINTS – (53/100) (50 is an average score)
*Compound Annual Growth Rate (CAGR)
**A Compound Annual Growth Rate of 4.14% = a 50% gain over 10 years.
Last Earning Report: 10/21/16
Estimated Next Earnings Report: 1/26/17
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(updated January 2017)
Type of Investor / Recommendation
Large Diversified Dividend Portfolios / Can Be Considered
Looking For Exposure to Industrials Sector / Can Be Considered
Deep Value Investors / AVOID
Parker Hannifin is ranked #96 (out of 245) overall and #29 (out of 57) in the Industrials Sector by the Dividend Analyzer.
Portfolio Position Disclosures:
DVB Dividend Kings & Aristocrats: None
DVB Dividend Growth: None
DVB High Income: None
Arbor Asset Allocation Model Portfolio (AAAMP): None
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