Ecolab Inc. (ECL): A High Quality Dividend Aristocrat With Great Growth Potential

Dividend Growth Score

Our Growth Score answers the question, “How fast is the dividend likely to grow?” It considers many of the same fundamental factors as the Safety Score but places more weight on growth-centric metrics like sales and earnings growth and payout ratios. Scores of 50 are average, 75 or higher is very good, and 25 or lower is considered weak.

ECL’s dividend Growth Score is 79, suggesting that the company’s dividend growth potential is excellent. The company has paid cash dividends on its common stock for 79 consecutive years. Most recently, ECL raised its dividend by 6% in December 2015 and has paid more dividends every calendar year since 1986, making it a member of the S&P Dividend Aristocrats Index.

As seen below, ECL’s dividend has compounded at a 14% annual rate over the company’s last 10 fiscal years.

Source: Simply Safe Dividends

ECL’s objective is to increase its dividend in line with earnings growth, which was lower in 2015 due to foreign exchange headwinds, weak energy markets, and sluggish global growth. However, the company continues to believe it can compound earnings at a 15% annual rate going forward.

While this isn’t a stock for investors living off dividends in retirement, its long-term growth prospects are outstanding.

Valuation

ECL trades at about 21x forward earnings and offers a dividend yield of 1.4%, which is somewhat higher than its five year average dividend yield of 1.1%. Throughout its history, ECL has always looked expensive, yet the stock has outperformed the market most years (consistent 15% earnings growth will do that).

Currency headwinds and weak energy markets are impacting ECL’s near-term earnings growth, but the company continues to believe it can achieve 15% annual earnings growth longer term. If true, the stock appears to be very reasonably priced today considering ECL’s quality and offers double-digit total return potential.

However, if energy and industrial markets weaken further, an even better buying opportunity could present itself.

Conclusion

Ecolab Inc. (NYSE:ECL) is a wonderful business with a bright future. The company’s massive service network, breadth of services, strong technology portfolio, recurring revenue, and long-lasting customer relationships will likely serve it well for many years to come. ECL is no doubt one of the best blue chip dividend stocks that long-term dividend growth investors should keep in mind.

Disclosure: None