Zack’s recently raised this chemical company’s rating to ‘Strong Buy’, citing rising earnings estimates. The company beat estimates by $0.34 last quarter.
Stepan Company (SCL)
From DRIP Investor
Stepan (SCL) offers a broad range of basic and intermediate chemicals, including surfactants, specialty products, germicidal elements, and polymers. The company’s products are used in a host of industries, including the food, supplement, oilfield, and pharmaceutical sectors.
While Stepan is probably not a household name with investors—the company is not huge at less than $2 billion in market capitalization—the company has one record that is matched by few companies. The firm has lifted its dividend for 50 consecutive years, the latest increase being a 10% hike late last year.
The track record of dividend growth is especially impressive when you consider the cyclicality of Stepan’s business. The good news is that the firm is enjoying a nice up cycle in its products. Net income increased 6% in 2017 to a record $91.6 million. Fourth-quarter net income advanced nearly 18%. The strong fourth-quarter results, which handily beat the consensus earnings estimate, put a nice charge into the stock, though these shares are still trading at a 12% discount to their 52-week high of nearly $93 per share.
The company should earn at least $5.10 per share in 2018, which would be a roughly 10% increase over 2017 levels. Shareholders should expect at least a 10% dividend hike later this year. In addition to earnings growth, the company’s strong financial position will fund higher dividends. Free cash flow for the firm in 2017 was $101 million versus $92 million the prior year.
Stepan’s stock has experienced big price swings over the years in line with the type of price action common to a lot of cyclical stocks. These shares score extremely well in my company’s Quadrix stock-rating system, with an Overall Quadrix score of 92 (out of a possible 100) and important category scores such as Value (73) and Momentum (77).
I like industrial stocks for gains in 2018, and Stepan has a good chance of outperforming the market this year. The stock represents an interesting cyclical play for DRIP investors who want to add some midcap exposure to a portfolio.
Stepan’s direct-purchase plan permits any investor to buy the first share and every share directly from the company. Minimum initial investment is $250. The firm will waive the minimum if an investor agrees to automatic monthly investment via electronic debit of a bank account of at least $50 for five consecutive months. There is no enrollment fee and no fee to reinvest dividends. Partial dividend reinvestment is available. Optional cash investments will incur a fee of $5 ($2.50 if purchases made with automatic debit from a bank account) plus $0.05 per share.
Selling fees are $15 for a batch sale and $25 for a market or limit-order sale plus $0.12 per share. The plan administrator is Computershare. For enrollment information call (877) 373-6374 or visit www.computershare.com.
Charles A. Carlson, CFA, DRIP Investor, www.dripinvestor.com, 800-233-5922, April 2018