It's difficult to find a quiet stock that, behind the scenes, is actually surprisingly dynamic and disruptive. Tennant Co. (NYSE:TNC) fits the bill; its line of business is -- wait for it -- industrial cleaning equipment. However, it's been far from stodgy, and has been a great investment over the last several years. As it quietly scrubs away, it's a solid buy for a long-term portfolio.
Tennant is already a stock in the Prosocial Portfolio, the real-money portfolio I've been managing for Fool.com since late 2010. Since I purchased Tennant in March 2012, it has been one of the very best performers, with a 77% return as of this writing.
The Prosocial Portfolio is designed with stakeholder-friendly, socially responsible companies in mind. Tennant has an odd advantage that put it on my radar: It's tackling the need for environmentally safe cleaning equipment in a world that's getting greener and more environmentally concerned all the time. That's one of many reasons it can provide a smooth ride for investors.
Old company, future-forward viewpoint
Even though it's so forward-thinking, Minnesota-based Tennant has been around since 1870, and it was incorporated in 1909. Given its age, Tennant's strategic viewpoint is even more impressive because it's evolving to adapt to the changing times, which many older companies don't do. Its aim is "designing, manufacturing and marketing solutions that help create a cleaner, safer, healthier world" -- all factors that increasing numbers of people -- and the big institutions its products target -- feel strongly about.
Burnishers. Walk-behind scrubbers. Rider scrubbers. All-terrain litter vacuums. Sweepers that clean up city streets. These aren't the types of products people get jazzed about. However, the company's array of products aren't 100% dull.
For example, Tennant's B5 Battery Powered Burnisher won a 2014 Bronze IDEA (International Design Excellence Awards), a competition that awards aesthetics matched with usefulness across many industries. Judges considered 2,000 entrants from across the world before picking out the winners.
The burnisher delivers performance and productivity, health and safety, and sustainability. This piece of equipment generates no exhaust emissions and uses dust filtration for better indoor air quality.
That award winner isn't the only brand in Tennant's portfolio. Others include Nobles, Green Machines, Alfa Uma Empresa Tennant, and Orbio .
In another example of eco-friendliness put to work in cleaning, the company's Orbio ec-H20 scrubbers utilize water-based technologies that help move the business into a greener realm. Last quarter, sales of those scrubbers increased by 7.6% and surpassed $40 million in quarterly sales, a new record.
To speak to the trends that complement such products, recent deals with entities like the Minnesota Twins are being driven by demand for environmentally safe solutions. Such trends among big business, school systems, hospitals, government, and many more sectors are impossible to ignore.
Tennant also has a fine reputation in other areas. Its proxy statement strikes me as one of the best examples of corporate governance policies that I've found in my years of tracking corporate governance policies. It won a spot on Forbes' list of "100 Most Trustworthy Companies in America" for 2014. The data was compiled by GMI Ratings, which rates companies on strong corporate governance and solid accounting.
A well-burnished business
Sustainability doesn't have to be a big deal for Tennant investors. It's financially strong, too.
Highlights from Tennant's most recent quarter include:
- Increased guidance for the year; expects 6%-8% revenue growth and 15%-24% increase in earnings
- Increased organic revenue growth to 8.9%
- Penned one of its biggest contracts ever
- Asia-Pacific segment generated nearly 20% sales growth
- 25% revenue growth in China; expansion in the western region of the country
- 60-plus products in the pipeline
- Sticking with its goal of $1 billion sales by 2017
Tennant is a profitable company, marching along steadily as it aspires to that sales goal. An outwardly boring company with more than 60 products in its pipeline deserves some serious thought. What makes it even more exciting is that many of its products address trends in sustainability.
Granted, Tennant has been on a run and is priced a bit like a growth stock. It's trading at 23 times forward earnings, and has a PEG ratio of 2.19. Normally, I wouldn't be entirely compelled by these metrics unless we're talking about growth stocks. In this case, though, its forward-looking design and eco-friendly methods make me think that it's setting itself up for more admirable long-term growth than one might expect from a lowly cleaner company.
I like companies with clean balance sheets, and Tennant is by no means overloaded with debt. Its debt-to-capital ratio is a mere 9.5 %. In another sign of financial stability, Tennant pays a dividend, which it has raised annually for 43 years, sweetening the deal for long-term investors. Its forward annual dividend yield is 1.20%.
A squeaky clean stock
Tennant's an oddity, and in a good way. It's no sexy story stock; in fact, it's just the opposite. However, there's some cool factor in its big, green cleaning machines. It's a company that looks out for stakeholders and emphasizes stewardship. Its profitability, sales growth, clean balance sheet, and dividend all reduce its overall risk. Investors can get some good, clean returns investing in Tennant.