Dividend growth investors are arguably best-served by building a diversified portfolio of quality stocks in industries poised for promising future growth.
Investors would have to look long and hard to find a stock that better fits this description than the small-cap medical devices stock LeMaitre Vascular (LMAT 1.07%). The stock just announced a 13.6% boost in its quarterly dividend per share to $0.125.
But is this under-the-radar small-cap stock currently a buy? Let's take a closer look at LeMaitre's fundamentals and valuation to decide.
The fundamentals remain robust
LeMaitre makes devices, such as angioscopes and catheters, for the treatment of peripheral vascular disease. The company posted impressive growth in 2021. Net sales totaled $154.4 million, which represents a 19.4% growth rate over the year-ago period. What factors were behind LeMaitre's solid sales growth in 2021, despite COVID-19-related interruptions in elective procedures throughout the year?
One contributor was the company's $90 million acquisition of the vascular graft brand known as Artegraft in June 2020. LeMaitre benefited from a full year of contributions from the brand in 2021. Artegraft's products are used in lower-extremity bypass and arterial trauma procedures. The extra six months of revenue from Artegraft and price increases in January 2021 were responsible for about 56% of the total revenue growth for the year -- or $14.1 million.
Increased net sales for LeMaitre's bovine carotid patches, carotid shunts, and allograft services accounted for about 24% of the company's net sales growth for the year -- or $6.1 million.
Higher net sales for valvulotomes contributed to another $3.4 million of net sales growth, which works out to approximately 14% of net sales growth. The eponymous LeMaitre valvulotome is used in coronary artery bypass procedures and in-situ peripheral bypass procedures.
LeMaitre translates its foreign sales back into U.S. dollars, which have recently weakened against many other currencies. And since roughly 40% of the company's net sales are derived outside the U.S., its net sales grew by $2 million. This chipped in the remainder of LeMaitre's net sales growth.
LeMaitre's diluted earnings per share (EPS) surged 20.2% higher year over year to $1.25 in 2021. Aside from its higher net sales base, two factors explain the company's earnings growth. First, LeMaitre's net margin increased 100 basis points to 17.4% during the year. LeMaitre's increased profitability was partially offset by a 4.9% increase in its weighted average share count to 21.5 million for the year.
Looking at 2022, LeMaitre is forecasting around $164 million in revenue. This would equate to 6% growth over 2021. And the company is also anticipating about $1.40 in diluted EPS for the year, which works out to 12% growth compared to 2021. Simply put, LeMaitre's growth outlook remains encouraging based on its guidance for this year.
Image source: Getty Images.
A balance sheet with no long-term debt
The proceeds from shares issued by LeMaitre last July were used to shore up its balance sheet by fully repaying its long-term debt. Now that the company has no long-term debt and a record $70 million cash and short-term marketable securities balance, it has the flexibility to execute smaller acquisitions to drive earnings higher for one.
This significant liquidity also explains why LeMaitre announced a $20 million share buyback program in late February. This will help reduce its outstanding share count by 2% at the current $47 share price, which will also boost the company's diluted EPS.
Strong dividend growth should persist well into the future
If LeMaitre's healthy outlook for 2022 and fortress-like balance sheet weren't enough, the stock also has a dividend payout ratio that should allow for payout raises in the future.
That's because LeMaitre's payout ratio in 2021 was just 35.2%. This gives the company room to grow its payout in line with or slightly ahead of its earnings. And since I anticipate LeMaitre will generate low double-digit annual earnings growth over the medium term, I believe similar dividend growth is a realistic assumption going forward.
Paired with the stock's nearly market-matching 1.1% dividend yield, LeMaitre offers a lot to like for dividend investors with time to allow their income to compound.
The valuation doesn't appear to be excessive
A stock of LeMaitre's quality is rarely cheap. And while the stock is by no means currently a bargain, it still looks to be a buy.
That's because LeMaitre's forward price-to-earnings (P/E) ratio of 30.8 is only moderately higher than the medical devices industry average forward P/E ratio of 26.9. Since LeMaitre is arguably superior to its industry peers, this 14% premium seems to be justified.
