Dividend stocks are everywhere, but many just downright stink. In some cases, the business model is in serious jeopardy, or the dividend itself isn't sustainable. In others, the dividend is so low, it's not even worth the paper your dividend check is printed on. A solid dividend strikes the right balance of growth, value, and sustainability.
Today we're going to look at one dividend-paying company that you can put in your portfolio for the long term without too much concern. This isn't to say that these stocks don't share the same macro risks that other companies have, but they are a step above your common grade of dividend stock. Check out the previous week's selection.
This week, we'll turn our attention to the world's largest supplier of automobile safety components, Autoliv (ALV -0.03%), and I'll show you why this company could protect your nest egg as well as your occupants from a crash.
Source: IIHS, Wikimedia Commons.
Fasten your seatbelt
It has been nothing short of a wild and bumpy ride for all auto component manufacturers since the recession. Both Autoliv and auto component module supplier TRW Automotive (NYSE: TRW) struggled mightily in 2009, with TRW dipping below $3 per share as auto sales collapsed in the U.S. and abroad.
Auto component suppliers count on a relatively steady auto market to thrive. This means the expectation of steady growth from either domestic stalwarts like Ford (F 0.91%) and General Motors (GM 0.44%), or strong global expansion from the likes of Honda Motor or Toyota. During the recession, however, we saw General Motors file for bankruptcy and eventually reorganize -- nearly taking TRW down with it -- while Ford came close to pulling such a maneuver itself. The end result was practically a 30% drop in annual automotive sales in just a two-year period and a dramatic drop-off in demand for Autoliv and TRW.
The other concern for auto component supplier Autoliv is the somewhat steady stream of legal battle it's bound to fight. As a maker of seatbelts, airbags, and a number of other automotive safety components, it knows that lawsuits are bound to rear their ugly head. In June 2012, for example, Autoliv settled with the U.S. Department of Justice over two counts of antitrust violations involving price fixing from its Japanese subsidiary for $14.5 million. Shareholders need to be willing to understand that Autoliv's expenses will include the need for an experienced legal team.
The Autoliv advantage
In spite of these aforementioned negatives, no publicly traded company has as much pricing power or as diverse a safety product line when it comes to automotive components than Swedish-based Autoliv.
In its most recently reported quarter, Autoliv delivered 9% year-over-year revenue growth to $2.12 billion, which was driven almost in its entirety by organic global growth in Europe, Asia, and even the United States. Organic growth of 8.2% actually outpaced global light vehicle production, according to Autoliv's management, by a factor of 2.5! Autoliv notes that Europe saw a 30% increase in steering wheel orders, whereas China delivered a whopping 17% organic growth -- which is probably no surprise, given that Ford has seen its sales shoot higher by better than 40% in 2013 in China.
One of the smallest, but most intriguing, growth opportunities for Autoliv is actually its active safety segment, which is composed of its automotive radar, night vision, and vision camera with driver assist system. Organic sales in this segment surged by 67% in the most recent quarter as total sales shot higher by 69% to $96 million. The big driver here (pun fully intended) is its partnership with Daimler (MBGA.F 0.49%), as Mercedes' customers are simply welcoming these new devices with open arms in most new S-class models.
The end result has been a steady improvement in profitability and Autoliv's ability to improve cash flow while also paying down its debt. Debt is a mammoth concern in the automotive industry, and Autoliv is currently sitting on a net cash balance of $490 million after its latest quarter.
Show me the money
Of course, what we're really here to do today is to examine Autoliv's impressive and growing dividend, which only adds fuel to the fire as to why this company is so special.
As you might have anticipated, the 2009 recession certainly threw a monkey wrench into Autoliv's dividend payouts, but this glitch aside, it hasn't missed a beat:
Source: Nasdaq.com.
*Based on announced 2014 payout of $0.52.
With the exception of 2009, Autoliv has managed to boost its dividend by 373% over the past 11 years to a recently announced $0.52 per quarter from just $0.11 in 2002. The newly announced 4% increase marks the 17th time in 11 years that shareholders have seen their payout increase and handily puts the bad memories of 2009 in the rearview mirror. Furthermore, with a new yield of 2.3%, Autoliv clearly has to be on the radars of income-seekers.
With a forward P/E under 15 and the company growing its organic sales in the high-single digits globally, as well as boosting its dividend 17 times in 11 years, Autoliv just might be the dividend stock you've been looking to hold for the long run.
