Nordson

High-growth Dividend King

If you want to invest your money successfully over the long term, you need to come up with a suitable strategy. Luckily, the stock market is so diverse that there's a fitting strategy for every type of investor. And even if you decide to invest in dividend stocks, there are still lots of different strategies within that. One investor is more safety-oriented and only invests in solid blue chips and Dividend Kings, another prefers promising growth stocks. By the way, in my eBook "Der Depotplaner" (The Portfolio Planner) I go into various strategies and present possible model portfolios.

But now let's take a look at a solid Dividend King that, in addition to its long payout history, still shows impressive growth. Nordson Corporation is a leading manufacturer of precision dispensing equipment used in many different industries.

The history and business model of Nordson Corp.

In 1872, the Swedish Nord family set off for America. Once they arrived in New York, they quickly decided to move further inland, to Ohio to be exact. There Otto, who had married in the meantime, bought 30 hectares of farmland to feed his family through farming. On January 30, 1884, Walter Godfrey Nord was born. From a young age he had to help out on his parents' farm. He often watched his father toil away at the hard work. So he found it all the more interesting when, little by little, various machines made life easier. He was curious and started tinkering with the equipment. How did these machines work, and how could they be improved and made more efficient? So as a young adult, Walter attended Western Reserve University to study mechanical engineering. Afterwards he moved to Youngstown to take a job as a mechanical engineer. There, within just a few years, he worked his way up to master mechanic. In 1914 he moved with his young family to Amherst to work for the Stone Company.

5 years earlier, the U.S. Automatic Company had also been founded in Amherst, making low-cost screw machine parts for the up-and-coming auto industry. For almost 20 years business ran smoothly, until it had to file for bankruptcy in 1929. Sadly, that wasn't unusual during the Great Depression. Walter Nord, who had saved up some money over the previous years, took control of the U.S. Automatic Company and reorganized it. He switched production to various precision parts that were urgently needed in World War II. By then, Walter's sons Eric and Evan had also joined the family business. After the war, the Nords looked for a product that could drive future growth. In 1954 they finally found it, when they acquired a patent for "hot airless" technology. With it, paints, coatings, or adhesives were sprayed at high pressure through a tiny opening. The three recognized the huge potential of this technology, founded Nordson (Walter Nord & Sons) as an offshoot of U.S. Automatic, and started making and selling airless spray equipment.

Business was excellent, and they were always able to invest in developing and researching new equipment. In the early 1960s, they expanded their business into thermoplastic bonding. They developed machines that applied hot-melt adhesive to packaging. They quickly became the leading manufacturer in this industry and were thus able to expand widely. They opened their first branches in Europe and integrated their old parent company into the successful Nordson Corporation. Today Nordson is active in more than 35 countries and is still the leader in precision dispensing. It develops, manufactures, and markets various equipment for dispensing adhesives, coatings, sealants, and biomaterials. Nordson serves numerous industries, such as packaging, electronics, medical, construction, energy, aerospace, transportation, product assembly and finishing, and many more. To ensure future growth as well, the company tries to grow both internally through new innovations and efficiency gains and externally through fitting acquisitions.

How could Nordson Corp.'s business develop in the future?

First, let's take a rough look at Nordson's latest quarterly numbers. Reported operating profit was 125 million US dollars, which equals adjusted earnings per share of $1.58. Interestingly, this result is exactly the same as in the prior-year quarter. Given an ongoing restructuring and also the continuing Covid-19 pandemic, analysts had expected only $1.28/share. In response to these great quarterly numbers, Nordson's stock jumped and hit a new all-time high in June.

The latest quarterly numbers were great, but Nordson's management still said they had recently seen a decline in orders. In a global crisis like the current one, it's also completely normal for investments to be put on hold. So I wouldn't be surprised if the next quarterly numbers don't look quite as rosy.

Nevertheless, I'm convinced Nordson will get through this "crisis" too and may even come out of it stronger. After all, lucrative acquisition opportunities often arise in times like these. On June 1 of this year, for example, they announced that they had acquired Fluortek Inc. and integrated it into the existing business. Fluortek is a manufacturer of precision plastic tubing needed in the medical industry.

What about the dividend?

Nordson shareholders received their first profit distribution as early as 1964. Since then, the dividend has not only been paid year after year, but also raised. Some Dividend Kings show hardly any dividend growth rates anymore after all those years. Not so with Nordson Corp. - over 10 years, the average growth rate is an impressive 15.4 percent. That makes the current dividend yield of 0.8 percent seem not so low after all. On top of that, the payout ratio of 26 percent is also in a very good range. So they leave enough money in the company to keep growing in the future.

Conclusion:
Nordson Corporation serves a specific niche market and is the leading provider in this industry. The Dividend King's business is definitely boring, and you'll hardly read anything about the company in newspapers and stock magazines. Nevertheless, in my eyes the maker of dispensing systems is a great long-term investment.