Revealed on July thirty first, 2022 by Nathan Parsh
The time period “blue chip” can have a special definition to completely different traders. Usually, this time period is utilized to corporations that meets a sure standards, comparable to an business chief.
To us, a inventory earns the title of blue chip when it has at the very least a decade of dividend progress. A minimal dividend progress streak of 10 years signifies that the corporate’s enterprise mannequin can present regular progress, even underneath troublesome financial situations.
In consequence, we really feel that blue chip shares are among the many most secure dividend shares that traders should purchase.
With all this in thoughts, we created an inventory of 350+ blue-chip shares which you’ll be able to obtain by clicking under:
Along with the Excel spreadsheet above, we are going to individually overview the highest 50 blue chip shares right this moment as ranked utilizing anticipated whole returns from the Certain Evaluation Analysis Database.
This installment of the 2022 Blue Chip Shares in Focus collection will study Polaris Inc. (PII) in higher element.
Enterprise Overview
Polaris was based in 1954 and has grown to turn into a number one firm within the specialised automobile business. The corporate designs and manufactures all kinds of automobiles, together with all-terrain automobiles, bikes, and snowmobiles. Polaris additionally gives equipment and alternative elements for these automobiles by its sellers within the U.S. Polaris has a market capitalization approaching $7 billion and generates annual income of greater than $8 billion.
Supply: Investor Presentation
Polaris reported second quarter earnings outcomes on July twenty sixth, 2022. Income elevated 8% to $2.1 billion whereas adjusted earnings-per-share of $2.42 in contrast unfavorably to $2.70 within the earlier 12 months. Nonetheless, the corporate topped analysts’ estimates for each income and earnings-per-share.
Off-Street, which accounts for practically three-quarters of income, grew 7%. Worth will increase and pre-sold orders greater than offset decrease quantity. Quantity was down primarily due to part availability as provide chains proceed to be a problem for the corporate, although this was a slight enchancment on a sequential foundation.
The corporate’s Marine section led the way in which with 38% progress as this enterprise benefited from elevated demand, larger realized costs, and favorable product combine.
Income for the On-Street section was flat in comparison with the earlier 12 months as provide chain constraints restricted shipments. Powersports aftermarket was larger by 24%.
Polaris supplied revised steering as properly, with the corporate now guiding in the direction of income progress of 13% to 16% for 2022, in comparison with 12% to fifteen% beforehand. Adjusted earnings-per-share are actually anticipated in a spread of $10.10 to $10.30, down from $10.10 to $10.40 beforehand.
Development Prospects
Polaris has a number of components working in its favor. First, the corporate gives well-known manufacturers, comparable to Polaris, Ranger, Slingshot, Sportsman, and Transamerican Auto Elements. These manufacturers are trusted by shoppers searching for high-quality automobiles and alternative elements, giving Polaris a bonus over friends.
Subsequent, the aftermarket enterprise stays very profitable for the corporate. Margins are normally larger for aftermarket services and products.
Third, Polaris has been an aggressive acquirer of corporations to energy its core enterprise. This exercise serves a number of functions, together with including key companies to its portfolio to enhance its product choices. This additionally reduces the variety of would-be opponents that might impression the corporate.
In 2016, Polaris bought Taylor-Dunn Manufacturing, gaining the corporate a foothold within the jeep and four-wheel-drive truck aftermarket elements and equipment business, which is valued at $10 billion yearly. That very same 12 months, Polaris added Transamerican Auto Elements, a number one aftermarket companies firm.
Polaris adopted this up with its 2018 addition of Boat Holdings, which focuses on pontoons and deck boats and additional enhanced the corporate’s Marine enterprise.
Due to its dominate market place and willingness to make use of capital to develop its enterprise, we forecast that Polaris will develop earnings-per-share at an annual price of 4% by 2027.
Aggressive Benefits & Recession Efficiency
The specialty automobile business shouldn’t be with out aggressive pressures. Polaris’ major opponents embody Harley-Davidson (HOG) and Honda (HMC).
That mentioned, the corporate is likely one of the most sought-after producers of specialty automobiles. Polaris ranks quantity in all-terrain automobiles and the quantity two for snowmobiles and bikes within the U.S.
Due to this, the corporate is ready to increase costs with out hindering demand to a big diploma. This was seen within the final quarter the place Polaris’ realized costs elevated year-over-year with demand remaining elevated. Volumes would have been even larger if not for provide chains limiting product availability.
On condition that it operates in a cyclical business, Polaris was impacted by the Nice Recession. Beneath are the corporate earnings-per-share totals earlier than, throughout, and after the final recession.
- 2006 earnings-per-share: $1.36
- 2007 earnings-per-share: $1.55 (14% improve)
- 2008 earnings-per-share: $1.75 (13% improve)
- 2009 earnings-per-share: $1.53 (13% lower)
- 2010 earnings-per-share: $2.14 (40% improve)
- 2011 earnings-per-share: $3.20 (50% improve)
- 2012 earnings-per-share: $4.40 (38% improve)
Initially, Polaris noticed double-digit good points over the last recession, earlier than the corporate’s earnings-per-share suffered a decline 2019. Nonetheless, the Polaris did see an instantaneous turnaround in its enterprise and established a brand new excessive for earnings-per-share in 2010. Outdoors of 2016, the corporate has typically seen larger year-over-year progress charges as Polaris has reached a brand new excessive for earnings-per-share nearly yearly.
On the identical time, the corporate has established a stable dividend progress streak. Polaris has raised its dividend for 26 consecutive years, together with an almost 15% improve for the 2007 to 2009 interval. The corporate’s dividend has a compound annual progress price of 6.1% over the past decade. On account of its lengthy historical past of dividend progress, Polaris qualifies as a Dividend Champion.
Polaris has a projected payout ratio of simply 25% for this 12 months, which ought to present ample room for years of dividend progress going ahead. Shares of the corporate yield 2.2%, above the 1.6% common yield for the S&P 500 Index.
Valuation & Anticipated Returns
Polaris not too long ago traded at $117, that means the inventory is buying and selling at 11.5 instances the midpoint of firm steering for 2022. We have now a five-year goal valuation of 15 instances earnings, which we imagine takes into consideration the standard of the corporate, but in addition its cyclicality.
Subsequently, a number of growth might add 5.5% to annual returns if Polaris have been to commerce with our valuation goal by 2027.
Complete annual returns are projected to be 11.6% over the following 5 years. This return stems from a 4% earnings progress price, 2.2% beginning dividend yield, and a mid-single-digit contribution from a number of growth. Given whole return potential, Polaris earns a purchase suggestion from Certain Dividend.
Closing Ideas
Polaris operates in a distinct segment enterprise that does have sensitivity to the general well being of the financial system. The corporate’s merchandise are largely discretionary gadgets.
That mentioned, Polaris demonstrated throughout the 2007 to 2009 interval {that a} recession isn’t a significant impediment to the enterprise. Earnings-per-share grew in 2008 earlier than struggling a comparatively small decline in 2009. The corporate additionally has a behavior of reaching new highs for earnings-per-share frequently.
Polaris’ dividend progress streak is nearing three a long time and the inventory presents a yield above that of the market common. Greater than that, Polaris’ inventory seems to be poised to ship double-digit returns over the following 5 years, which suggests the inventory could possibly be an excellent possibility for these searching for publicity to the specialty automobile market.
The Blue Chips checklist shouldn’t be the one strategy to shortly display for shares that repeatedly pay rising dividends.
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