Nordson Corporation (NASDAQ:NDSN) has the 14th longest dividend growth streak among U.S. public companies with 52 consecutive years of increases, but many investors have never heard of this dividend king.
The company has sticky customer relationships, a large base of recurring revenue, extremely diversified end markets, low payout ratios, and even trades at about 15 times forward earnings. These are the types of businesses we like to own in our Top 20 Dividend Stocks portfolio.
Among the hedge funds and other institutional investors followed by Insider Monkey, NDSN is not very popular. However, during the third quarter of 2015, the stock gained some popularity and the number of funds with long positions went up to 17 from 10. However, the aggregate value of their holdings stood at $73.45 million and represented 1.90% of the company at the end of September. Chuck Royce’s Royce & Associates, Greg Poole’s Echo Street Capital Management, and Robert Rodriguez and Steven Romick’s First Pacific Advisors ranked among the largest shareholders of NDSN in the Insider Monkey database.
Business Overview
NDSN was founded in 1954 and manufactures products used for dispensing adhesives, coatings, sealants, biomaterials, and other materials; for fluid management; for test and inspection; and for UV curing and plasma surface treatment. The company serves virtually every end market including packaging, nonwovens, electronics, medical, appliances, energy, transportation, construction, and general product assembly.
Approximately 42% of NDSN’s revenue is recurring in the form of parts and consumables (e.g. tips, connectors, cartridges, valves, tubing), with another 36% from sales of standard products and the remaining 22% from sales of engineered systems.
By geography, NDSN derived 31% of its fiscal year 2015 revenue from the U.S., 28% from Europe, 27% from Asia Pacific, 8% from the Americas, and 6% from Japan.
By end market, roughly 39% of NDSN’s sales are from consumer non-durables, 18% from consumer durables, 9% circuit board assembly, 8% electronic components, 8% medical, 7% industrial, 6% automotive, and 5% semiconductor.
Segments
Adhesives Dispensing (50% of sales, 23.4% operating margin): products to melt, filter, pump, transport, dispense, and deposit adhesives, polymers and other materials in the manufacturing of a wide range of goods (e.g. food and beverage packaging, diapers, labeling, medical devices, cars, furniture, etc.).
Advanced Technology (35% of sales, 20.4% operating margin): precision dispensing, fluid management, test, inspection, and surface treatment products for electronics, medical, and general industrial markets (e.g. smartphones, tablets, solar panels, LEDs, medical devices, semiconductor packaging, printed circuit boards).
Industrial Coating (15% of sales, 16% operating margin): precision equipment and systems to apply and cure paints, sealants, coatings, cold materials, and other materials to a wide range of products (e.g. appliances, lawn equipment, automobile sealing, pipe coating, electronics, etc.).
Business Analysis
NDSN’s solutions help customers increase uptime, boost productivity (better product yields and faster line speeds), improve efficiency (reduce consumption of materials), and ultimately achieve a lower total cost of ownership.
The cost of NDSN’s solutions make up a small proportion of a manufacturer’s total factory and product cost but deliver a high return on investment through the efficiencies and reliability they provide. For example, NDSN’s technology might help a manufacturer produce 10% more volume out of its existing capacity by enhancing production speed. Essentially, manufacturers are happy to pay a reputable company like NDSN to make sure their production lines are operating smoothly and cost effectively.
With roots tracing back over 100 years, NDSN has built up a sizable installed base with thousands of customers. NDSN’s solutions are literally installed and serviced at a customer’s manufacturing facility, creating switching costs. To replace NDSN with another vendor would require halting production and retooling each production line. Few vendors also have the global sales and service capabilities that NDSN had built up over the last 50+ years when it started expanding internationally (the company is in over 35 countries today).
