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Dover's 7% Div Hike Marks 58 Yrs of Increases

Zacks Equity Research

Dover Corporation (DOV) recently announced a 7% (2.5 cents) hike in its quarterly dividend to 37.5 cents from the prior payout of 35 cents. This marks the 58th consecutive year of dividend hike by Dover and places the company in the fourth position with respect to the longest stretch of consecutive annual dividend increases among all publicly traded companies.

The increased dividend will be paid on Sep 16, 2012, to stockholders of record as of Aug 30, 2012. Previously, Dover had increased its quarterly dividend by 11% to 35 cents in Aug 2012.

The increased dividend will hike Dover’s dividend yield from the current 1.60% to 1.72%. Dover outscores its peers like Barnes Group Inc. (B), Gorman-Rupp Co. (GRC) and Graham Corp. (GHM) in terms of dividend yield and dividend growth rate. Dover’s 5-year dividend growth rate of 11.55% is way ahead of the industry average of a negative 1.35%. However, its payout ratio of 26.41% is less than the industry average of 44.80%. Nonetheless, with net margin of 11.13% almost close to industry average of 11.73%, Dover can further improve its payout ratio.

The dividend hike comes on the heels of Dover’s solid second quarter results. Dover reported earnings from continuing operations of $1.36 per share, 24% higher than the prior-year quarter’s earnings of $1.10 per share and beating the Zacks Consensus Estimate of $1.29. Total revenue was $2.2 billion, up 9% year over year, but in line with the Zacks Consensus Estimate.

Dover witnessed solid growth from its businesses serving the consumer electronics and refrigeration markets along with contribution from energy and fluids businesses. Furthermore, Dover’s strategic decision to spin off certain parts of its communication technologies businesses also contributed to the growth. Additionally, revenues were driven by completion of four synergistic acquisitions.

For fiscal 2013, Dover expects revenue growth in the range of 7%-9% on the back of organic revenue growth of 3%-5%, while acquisitions are expected to add 4%. It expects earnings to lie in the band of $5.56-$5.71 per share. The Zacks Consensus Estimate for EPS is at $5.30 per share and for revenues at $8.8 billion.

Dover has strong liquidity to support the dividend increase. The company ended the second quarter with cash and cash equivalents of $606 million and a manageable debt to capitalization ratio of 30.5%. Dover generated $383 million in cash from operations in the first half of fiscal 2013.

Dover will continue to benefit from its active acquisition pipeline, bookings and orders growth. The spin-off of certain part of its communication technologies businesses into a standalone, publicly-traded company will simplify Dover’s business profile and enable it to focus on its key growth spaces - Energy, Fluids, Refrigeration & Food Equipment, and Printing & Identification. The company’s bookings and backlog have increased from the prior-year levels in the second quarter. Dover’s sound balance sheet coupled with solid earnings growth should allow the company to continue its dividend hikes and share repurchases in the years ahead.

Dover currently retains a short-term Zacks Rank #2 (Buy).

N.Y.-based Dover is an industrial conglomerate producing a wide range of specialized industrial products and manufacturing equipment.

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