Updated May 11, 2021 by Bob Ciura
Every year we review all Dividend Aristocrats. It is difficult to join this group. Companies must be of a certain size, belong to the S&P 500 index and, most importantly, have dividend growth for at least 25 consecutive years. There are only 65 Dividend Aristocrats, which proves the exclusivity of the list.
You can download an Excel spreadsheet of all 65 Dividend Aristocrats, including key financial metrics like P / E ratio, by clicking the link below:
Albemarle Corporation (ALB) joined this exclusive club in 2020. The company is benefiting greatly from the continued demand for lithium. It is expected to grow for many years to come as the demand for lithium will only increase in the years to come.
While we consider Albemarle stock to be slightly overvalued, it is a suitable position for dividend growth investors, provided investors accept the volatility of the lithium industry.
Albemarle is the world’s largest producer of lithium and the second largest producer of bromine. The company relies on these two products for around 70% of sales.
Albemarle produces lithium from the company’s brine deposits in the United States and Chile, where the cost of producing lithium is very low.
Connected: The Best Lithium Supplies: Industry Coverage From Mining To Batteries
Albemarle specializes in the manufacture of specialty chemicals. The company is a global leader in each of its business areas.
Source: Investor Presentation
Albemarle consists of three segments: Lithium & Advanced Materials, Bromine Specialty, Catalysts and others. Lithium is used in electric cars, batteries, pharmaceuticals, and aircraft, among other things. Bromine is used in the electronics, construction, and automotive industries. Lithium continues to drive the company’s growth.
On 5/.5/ 2021, Albemarle reported Results results for the first quarter. Sales rose by 12.2% Hit $ 829 million Estimated to be $ 72 million. Adjusted result– –Per– –The $ 1.10 stake was a 10% year-over-year increase and $ 0.30 better than expected. Lithium sales previously reversed quarterly Trends and grew 17.8% to $ 279 million. The volume was highuh because of expedited orders.
Revenue for Bromine specialties increased 21.1% to $ 280.4 million due to the demand for all products and the customer mix. While raw material costs were higher, the company did implemented steps to conTax costs. This segment should see strength for a long time– –Maturity due to the growth in electronics and Automotive end markets. Catalysts‘ Sales also returned to growth as revenue increased 6.3% to $ 220.2 million.
Volumes were in several areas despite the February storms on the Gulf Coast have been a headwind to the results. administration previously stated that the first quarter will be the best quarter of the year. The Company reiterated its forecast for the year and continues to expect Adjusted earnings per share of $ 3.25 to $ 3.65 on net sales of $ 3.2 billion to $ 3.3 billionn. In the middle of the adjusted EPS forecast, this would mean a decrease of 16% of the previous year.
Albemarle will benefit from increased sales of electric vehicles as the company’s lithium is used to power the batteries. Lithium is expected to be a growth segment over the next five years as the demand for a wide variety of applications, including electric vehicles and consumer electronics, increases.
Source: Investor Presentation
Energy storage is expected to increase in the coming years as more consumers buy electric vehicles. Electric vehicles are expected to account for 15% of all new car sales by 2025, up from just 3% in 2020. Battery size is also expected to increase.
With this growth, the demand for lithium will increase significantly. Fortunately, Albemarle’s mines in Chile provide an inexpensive source of lithium. The demand for lithium is already robust.
Albemarle has experienced somewhat erratic gains– –Per– –Stock performance over the past decade. Due to the COVID– –19th Pandemic, income– –Per– –Stocks have actually gone down over the past decade. However, with the 2010– –2019 periods, EPS composed at a rate of 5.5% per year.
W.e believe that the company can grow eArnings– –Per– –Share at the rate of 9%. yearly to 2026th due to his leadership positions in the areas of lithium and bromine. H.higher demand for a recovery from the COVID– –19 pandemic should enable oversized growth from a low base in 2021. We expect the company to post earnings per share of $ 3.45 in 2021.
Competitive advantage and recession performance
Although Albemarle is a global leader in several areas of business, it is not content to rest on its past successes. The company has been actively involved in the acquisition of companies that will strengthen its market share.
Albemarle is not a recession-proof company. Below are the company’s earnings per share during and after the last recession:
- 2007 earnings per share of $ 2.41
- 2008 earnings per share of $ 2.40, down 0.4%
- 2009 earnings per share of $ 1.94 (up 19%)
- 2010 earnings per share of $ 3.51, up 45%
The specialty chemicals business is heavily dependent on customer demand. Lower demand translates into lower prices, which has a negative impact on Albemarle’s performance. It’s likely that the company will face a similar slowdown during the next recession as demand for products fades.
However, the company has lasting competitive advantages. A key competitive advantage is that it is considered a the greatest productr of lithium in the world. The metal is used in batteries for electric cars, pharmaceuticals, aircraft, Mining and other uses. Albemarle is also a top producer of bromine, which is used in the Electronics, Construction and Automotive industry.T.The company ownsit a size and scale that others cannot match.
Investors interested in investing in Albemarle should understand that ownership of the stock carries risk due to the volatility of their industry.
Valuation and expected return
Using our expected earnings per share of $ 3.45 for the year, stocks have a price / earnings ratio of 46. In the last For a decade, Albemarle has been trading with an aaverage price– –to– –Earnings quota of 19.6. Without the three Years in which the The rating was very high (2014), 2017 and 2020) the share traded at an average PER of 14.4th.
We have a Multi-target of 12x profit to account for the volatility of the profit. If the stock traded that target through 2026th, then the rating would Reduce annual return by 16.0% over this period
EPS growth and dividends will help offset this, but nowhere near enough. Even with an expected EPS growth of 9% per year and a dividend yield of 1%, a total return of minus 6% per year is expected. As a result, we are pricing Albemarle stock at a sell price.
Achieving Dividend Aristocrat status is no mean feat. Albemarle is the dominant player in its industry and has taken steps to further improve its competitive position. The company benefits from low-cost mines and its leadership position in several categories.
Far from being recession-proof, the company has seen some profit declines over the past decade. That makes the company’s dividend growth track record all the more impressive, however. The stock yield is now only 1%, although the dividend is growing strongly.
The projected returns are negative, resulting in a sell recommendation for Sure Dividend.
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