HB Fuller Co (FUL): A Small Cap Stock With Big Long-term Dividend Growth Potential

Valuation

Based on management’s 2016 earnings guidance of $2.40 – $2.60 per share, FUL’s stock trades at a forward price-to-earnings multiple of about 16.2. FUL also has a dividend yield of 1.3%, which is slightly higher than its five-year average dividend yield of 1.1%.

If management can successfully compound the company’s earnings per share by 15% per year through 2020, the stock could deliver double-digit annual returns with nice dividend growth along the way. Considering today’s market environment, we believe FUL’s valuation is relatively attractive.

Conclusion

With nearly 50 consecutive years of dividend growth under its belt, H.B. Fuller should be considered a blue chip dividend stock despite its relatively small size. We like the strategic direction that management is taking the company to improve margins and believe that the 2020 version of H.B. Fuller will be much more profitable than the company we know today. The adhesives market provides an excellent source of reliable cash flow as well, and H.B. Fuller’s diversification by customer and end market should continue serving it well.

Although FUL’s dividend yield is relatively low today, we think there is potential for double-digit annualized growth over the next five years and believe the stock’s current valuation is reasonable.

Disclosure: None