Every Thursday we bring you one of our best U.S. stock picks. You will read about stocks making moves you should know about, most often from our newsletter on U.S. investing, Wall Street Stock Forecaster.
On Tuesday, we profiled a Canadian company in the chemical waste business with a high dividend yield (see the article here). Today we report on a U.S. chemical stock that’s not widely known, but also has an admirable record with dividends.
QUAKER CHEMICAL CORP. (New York symbol KWR; www.quakerchem.com) began operating in 1918 and currently operates 34 plants in 21 countries. These facilities make lubricants and chemicals that keep mechanical parts from rusting.
This small-cap stock is riskier than many of our other recommendations, but Quaker has a long history of increasing its earnings—and dividends.
The company’s revenue rose 40.8%, from $544.1 million in 2010 to $765.9 million in 2014. That’s partly because it bought smaller firms that expanded its product lines and geographic reach.
Quaker spent $73.5 million on acquisitions in 2014, the largest of which was Illinois-based grease maker ECLI Products for $53.1 million. ECLI’s clients are in the automotive, aerospace and resource industries.
Quaker also paid $19.1 million for Binol AB, a Swedish firm that makes industrial lubricants from vegetable oils and other renewable sources.
In all, these new businesses added $12.8 million to Quaker’s 2014 sales. However, it gets about 60% of its revenue from outside the U.S., and the higher U.S. dollar cut its revenue by $10.8 million.
Earnings jumped 77.7%, from $31.8 million in 2010 to $56.5 million in 2014. Per-share profits rose 54.2%, from $2.77 in 2010 to $4.27 in 2013, but fell to $4.26 in 2014. Excluding costs to integrate acquisitions, per-share earnings gained 10.9% in 2014.
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Stock advice: Low crude oil prices will reduce Quaker’s costs
Quaker borrowed most of the cash it needed for its acquisitions. As a result, its long-term debt soared from $17.3 million at the end of 2013 to $75.3 million as of December 31, 2014. Even so, that’s equal to just 7% of Quaker’s market cap. The company also ended 2014 with cash of $64.7 million, or $4.87 a share.
Slowing industrial activity, particularly in Europe and South America, could dampen Quaker’s growth. However, the company has built strong relationships with some of the world’s largest manufacturers, including Alcoa, Honda, U.S. Steel and General Motors. That gives it an advantage over its competitors.
Quaker also works closely with clients to customize its products to their needs. In 2014, it spent $22.1 million (or 2.9% of revenue) developing new products, up 2.6% from $21.6 million (or 3.0%) in 2013.
The company needs oil to make its products, so it stands to gain as low crude prices cut its costs. As well, savings from integrating its new businesses should raise its 2015 earnings to $4.30 a share.
The stock trades at 19.3 times that estimate. That seems high, but it’s still reasonable in light of Quaker’s large share of its niche market.
The company has paid dividends for 43 straight years. The current annual rate of $1.20 yields 1.4%.
Recommendation in Wall Street Stock Forecaster: BUY.
Comments
Jean-Pierre
Some years ago I bought Quaker Chemical at $5.00 on your suggestion and it is now worth $96.00 for a gain of more 1500% Thank you. jpr
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Some years ago I bought Quaker Chemical at $5.00 on your suggestion and it is now worth $96.00 for a gain of more 1500% Thank you. jpr