ADrunkenMarcus' 'Dividend Growth Portfolio'.

[simoan]

Rotork's results this morning were promising with an 8 percent interim dividend increase. I initiated a position back in 2015-16 when it was looking pretty distressed and topped up further in 2018. It's finally returning to something like its historic form, I think, with dividend growth in the very high single digits or low double digit.

Apropos of nothing other than I am stuck at home recovering from a bout of Covid instead of out walking in Thetford Forest today… Rotork recently appeared in my QARP filter and I opened a starter position yesterday morning at 328p. It will take a few more tranches to make it into a full holding but we’ll see how it goes. Here are the QARP metrics that I based my decision on:

ROCE (TTM) = 26.4
CROCI (TTM) = 20.1
Op Mgn (TTM) = 23.6
Note: all higher than the 5 year averages
Net Debt = 0
FCF conversion = 93.3%
FCF yield = 4.5%
EBIT yield = 5.9%
Div yield = 2.3%

Not going to get rich quick, but I’m not playing that game any more. Good, solid and boring is just fine. I’m also interested in the quality industrials that are being sold off currently on a longer term basis e.g. Spirax and Croda, although the declining profitability metrics are more of a problem in those cases.

All the best, Si

[ADrunkenMarcus]

I hope your Covid recovery goes OK. I had it in 2021 (the worst variant) and tackled it with whisky, red wine and spicy food.

Welcome to the Rotork shareholders' club!

Good metrics on ROCE and CROIC in particular, combined with a dividend well covered by free cash flow and a reasonable IMHO valuation. Rotork's long term track record is good although it has been through a relatively bad decade from c. 2014.

Annual dividend growth seems forecast at 7-8% for 2024, 2025 and 2026 and a starting dividend yield of 2.3% should get to 9-10% total returns. EBIT margin is forecast to continue to expand through 2026. And it has net cash on the balance sheet. I think I would want this sort of dividend (and EPS) growth to be sustained to continue to hold it. However, it does seem to be in the right markets.

Best wishes


Mark.

[simoan]

Good metrics on ROCE and CROIC in particular, combined with a dividend well covered by free cash flow and a reasonable IMHO valuation. Rotork's long term track record is good although it has been through a relatively bad decade from c. 2014.

Annual dividend growth seems forecast at 7-8% for 2024, 2025 and 2026 and a starting dividend yield of 2.3% should get to 9-10% total returns. EBIT margin is forecast to continue to expand through 2026. And it has net cash on the balance sheet. I think I would want this sort of dividend (and EPS) growth to be sustained to continue to hold it. However, it does seem to be in the right markets.

Best wishes


Mark.

Thanks, Mark. I'm fine now although some lingering brain fog. Apologies btw. I note there is another Rotork thread that I missed when I searched for discussion of the company. I'll blame the brain fog!

One of the most impressive aspects for me is that gross margins have (if anything) increased slightly throughout a period of high inflation. This shows that Rotork products are so necessary to its customers that it has been able to raise prices with no effect on the bottom line. That's impressive and shows great pricing power. The forecasts currently show strong revenue growth for FY25 and FY26 which means that if EBIT margins do improve there will be a marked increase in profitability, such is the beauty of such a highly operationally geared business.

On the downside, I note that the senior management are quite new, not only to their posts but also the company i.e. the CEO has been in post two years and with the company for only six. The CFO is brand new and an external appointment. Of course, that can be a good thing but it adds slightly to the risk and uncertainty going forwards - will they decide to leverage the balance sheet and start an acquisition spree?

I await the November trading update with interest and would likely add another lump on good news.

All the best, Si