The more I looked into it, the more I liked the company, so I ended up just doing a full dividend stock analysis. If you are interested in a wide moat article, it should be up on the blog within a week.
10-year stock chart
The 10-year returns have been good with an average annual return of 13.7% (12.3% from capital gains and 1.4% from dividends).
It’s been a bit of a choppy ride, but the overall trend and returns are good.
Revenue and earnings
C.H. Robinson Worldwide, Inc. (NASDAQ:CHRW) has very consistent and increasing earnings. In 2009, revenue dropped a bit, but other than that, it’s been all up. Overall, it is an impressive chart.
The same steady trend up emerges when revenue per share and EPS are examined.
C.H. Robinson Worldwide, Inc. (NASDAQ:CHRW) has very impressive revenue charts and equally impressive 10-year annual average growth rates.
All growth rates are above the 8% I like to see.
Dividends
C.H. Robinson Worldwide has increased its dividend for 16 consecutive years in a row with the most recent increase occurring with the dividend recorded in January 2013 when it increased the quarterly dividend by 6.1% from $0.33 to $0.35.
Dividend growth
As you can see from the table below, C.H. Robinson Worldwide, Inc. (NASDAQ:CHRW) shows good average annual dividend growth rates.
Dividend growth has been good, but with the most recent dividend increase of 6.1%, it looks like dividend growth may be slowing.
Dividend sustainability
The 10-year average annual dividend growth has been a bit higher than EPS growth, which suggests that dividend growth may slow down.
Let’s take a look at the payout ratio to see how much room for growth the dividend still has.
The company has been increasing dividends faster than earnings, but because they have a reasonable payout ratio, the dividend is sustainable. It looks like more recently, the payout ratio has been ranging from 35% to 45%. I expect the payout ratio to continue to be in this range.
Estimated future dividend growth
Analysts expect annual EPS growth to be 12.41% for the next five years. Accepting this EPS growth rate and using a payout ratio range of 35% to 45% would result in annual dividend growth ranging from 3% to 8.4%. This would be inline with the most recent dividend increase of 6.1%. With past dividend growth rates quite high, I think dividend growth will be at the higher end of the 3% to 8.4% range, likely around 8%.
The company’s earnings growth goal are shown on their website as follows:
“our long-term compounded annual growth target has been 15 percent for net revenues, income from operations, and earnings per share.”
The company’s high earnings growth targets are another reason why I think dividend growth will be at the higher end of this range.
Competitive advantage & return on equity (ROE)
I would consider C.H. Robinson Worldwide, Inc. (NASDAQ:CHRW) to have a wide moat over the competition. Its impressive ROE chart would support this with an upward trend and a ROE always above the 20% I like to see.
ROE is well above the industry average for Air Delivery & Freight Services. Its competitors also seem to have higher than average ROE’s ranging from FedEx Corporation (NYSE:FDX)’s 11.1% to Expeditors International of Washington (NASDAQ:EXPD)’s 16%. C.H. Robinson Worldwide, Inc. (NASDAQ:CHRW) still blows the competition out of the water with a current ROE of 43.2%.
Debt & liquidity
I want to invest in companies that are fiscally responsible, so it’s important to look at debt levels and see that they are at reasonable levels.
In the past, C.H. Robinson Worldwide had no debt, but in 2012 they took some on. The debt to equity ratio is still very low, so I am not worried. Overall, the company seems to be in good financial health.
Shares outstanding
Shares outstanding have been steadily decreasing, which is a good sign. I’d like to see this trend continue.
Valuation
Morningstar currently rates C.H. Robinson Worldwide, Inc. (NASDAQ:CHRW) a 4 star stock as it is currently priced around its estimated fair value of $73. For Morningstar to rate C.H. Robinson Worldwide as a 5 star undervalued stock, the price would have to fall below their “consider buy price” of $51.10.
I calculate my own target prices and came up with $56. To see the details of this calculation read the full analysis of C.H. Robinson Worldwide.
Other investment options in the same industry
CH Robinson Worldwide shares the industry with Expeditors International of Washington (NASDAQ:EXPD), FedEx Corporation (NYSE:FDX), and United Parcel Service, Inc. (NYSE:UPS).
Expeditors International of Washington (NASDAQ:EXPD) has the best dividend streak coming in at 19 years. It also has the best past annual dividend growth rates of the three. Its reasonable payout ratio of 38% and good estimated annual EPS growth of 11.8% all point to continued strong dividend growth. These are great dividend fundamentals, but the dividend yield is below the minimum 2%-2.5% entry yield I like.
FedEx Corporation (NYSE:FDX) has OK dividend growth rates, but with the lowest payout ratio and highest estimated annual EPS growth, it looks like dividend growth will be improving in the future. Like Expeditors International, the minimum entry yield is too low for me to consider investing right now.
United Parcel Service, Inc. (NYSE:UPS) has a dividend streak of four years, which is the lowest of the three. Its dividend growth rates are all around the 8% or higher that I like to see, but its payout ratio is well above a reasonable level. Its yield is above 2.5%, but because of its high payout ratio and low dividend streak, I won’t be investing. I typically like to invest in U.S. companies when they have a dividend streak around 10 years or more.
From a valuation perspective, Expeditors International looks like the best alternative.
Expeditors International is the only company of the three that has a current dividend yield significantly above its five-year average. It is also the closest of the three to Morningstar’s five star price of $32.90, with a current price roughly 13% higher. Using the current annual dividend of $0.60, the price would have to drop to $24 to get a dividend yield of 2.50%. This would require a significant price drop from current levels, so I won’t be investing in Expeditors International.
Right now, I prefer C.H. Robinson Worldwide because it is closer to my target price and because of the larger dividend yield.
Conclusion
C.H. Robinson Worldwide, Inc. (NASDAQ:CHRW) has a strong competitive advantage and wide economic moat. It has consistent earnings growth and strong dividend growth fundamentals. I expect annual dividend growth to be around 8% going forward. C.H. Robinson Worldwide recently fell below my target price, which is why I was happy to buy shares.
The article Is This Stock a Buy at Today’s Prices? originally appeared on Fool.com and is written by Michael Weber.
Michael Weber owns shares of C.H. Robinson Worldwide. The Motley Fool recommends FedEx and United Parcel Service. The Motley Fool owns shares of Expeditors International of Washington. Michael is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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