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Here's Why This Dividend Growth Stock Could Be the Best Buy in a Market Crash

By Jason Hawthorne – Oct 16, 2021 at 6:21AM

Key Points

  • Great companies are often flying under the radar in unsexy industries.
  • Supply chain issues could further demonstrate this company's service advantage.
  • Its recent huge payout increase may be the first of many to come.

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Don't let the paltry yield fool you. This trucker is leaving others behind.

Finding great dividend stocks doesn't always lead you to companies with the biggest payouts. In fact, it's often the companies that appear to have minuscule distributions -- but grow them consistently over time -- that can be the best performers over a decade or more.

A market crash is a rare opportunity to add them to your portfolio at less-than-premium valuations. With that in mind, I think one company stands out in an industry that hasn't gotten a lot of attention until the recent supply chain issues. Transportation company Old Dominion Freight Line (ODFL 4.55%) may be the best dividend stock to buy if the market crashes. Here's why.

18-wheeler on the highway heading into desert mountains.

Image source: Getty Images.

Differentiating itself in the trucking industry through service

Old Dominion is one of the leading less-than-truckload (LTL) carriers in North America. It offers national, regional, and short-distance transport, as well as supply chain consulting services. While the industry is competitive, the company differentiates itself with execution -- namely, maximizing on-time performance and minimizing damage claims. The service metrics have improved dramatically since 2002, resulting in it being named the best national carrier -- marked by the Mastio Quality Award -- for 11 straight years.

Service Metric 2002 2020
On-time service 94% 99%
Cargo claims ratio 1.5% 0.1%

Data source: Old Dominion Freight Lines.

About 70% of its shipments are next or second-day. They are supported by 248 service centers across 48 states. Those centers position the company well as retailers continue to place distribution centers closer to customers to support their e-commerce sales. 

The total trucking market was $43.3 billion in 2019, according to American Trucking Associations. And the company has parlayed its service excellence into significant share gains in every region. Overall, it has climbed from 2.9% to 10.3% share according to management. That's fueled 11.5% compounded revenue growth since 2002. Operating margins have more than doubled over that span. It should be no surprise that over that time shares of Old Dominion are up significantly. But what may blow your mind is that they've risen more than 27,000%!

Chart showing massive rise in Old Dominion's price since 2000.

ODFL data by YCharts

A tiny dividend yield with plenty of room for growth

The performance has allowed the company to boost its dividend more than 325% over the last decade. In February, it announced a 33.3% increase to its quarterly distribution. Raises like that can transform the current 0.3% yield into something more meaningful over time. After all, it currently pays out a mere 9.5% of its earnings to shareholders. That leaves management a lot of room for future increases.

The recent focus on supply chains reinforces why a company like Old Dominion is so critical to the nation's economy. Its financial performance, built on service excellence, represents a competitive advantage that should strengthen its position in tough times. Shares aren't cheap -- trading for almost 20 times trailing 12 months gross profit. That's up about 50% since before the pandemic. 

If the market crashes, shares of Old Dominion Freight Line will be near the top of my list of stocks to buy. The strong market position and management's willingness to boost the annual payout to shareholders are key reasons. I anticipate the current low yield to feel much more substantial a decade from now after many healthy raises.

Jason Hawthorne has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Old Dominion Freight Line. The Motley Fool has a disclosure policy.

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