This article is a guest post written by Ben Reynolds at Sure Dividend. Sure Dividend identifies high quality dividend growth stocks suitable for long-term investors.
C.H. Robinsn (CHRW) is not one of the “big name” dividend growth stocks that are often discussed. Still, the company has rewarded shareholders with rising dividends over a long period of time. C.H. Robinson has quietly paid increasing dividends since 1997. Not coincidentally, 1997 was the year the company first went public. C.H. Robinson was founded in 1905 and has grown to reach a market cap of over $9 billion. At its core, C.H. Robinson is a trucking and 3rd party logistics company. A total of 67% of revenue in the company’s most recent quarter came from truckload and less-than-truckload (referred to as LTL) shipments.
Other sources of revenue for C.H. Robinson are intermodal freight, air freight, ocean freight, sourcing, and customs services.C.H. Robinson’s long dividend streak is evidence the company has a competitive advantage.
Competitive Advantage in Contract Motor Carrier Industry
C.H Robinson’s competitive advantage is its large network of contract motor carriers in North America. The company has the largest pool of contracted motor capacity in North America. . C.H. Robinson’s business is built around working with a large number of small carriers rather than being held captive by a smaller number of large carriers. In 2014, 84% of truckload shipments were done with small carrier companies that have fewer than 100 trucks.
C.H. Robinson uses its extensive network of carriers to reduce prices for its customers through competition among carriers. The company’s competitive advantage has led to solid growth over the last decade.
C.H. Robinson’s Growth Prospects
C.H. Robinson has compounded earnings-per-share at 11.3% a year over the last decade. The company has managed to grow earnings-per-share in double-digits despite being in a “boring” industry.
C.H. Robinson will likely see continued solid growth. The company is targeting earnings-per-share growth of 7% to 12% a year over the next several years.
The company still has a long growth run ahead. Despite C.H. Robinson’s large size in the third party logistics industry, the company controls just 2.2% of the North American truckload industry and 2.3% of the North American LTL industry. In addition to success in North America, C.H. Robinson is also realizing success in Europe. . Management expects Europe to be C.H. Robinson’s fastest growing market with 15%+ annual revenue growth expected on the continent. The company is now the largest 3rd party logistics transportation provider in Europe.
Expected Total Return for C.H. Robinson Investors
C..H Robinson will likely generate robust returns for dividend growth investors going forward. The company currently has a dividend yield of 2.4%. The company’s dividend yield is over the S&P 500’s current dividend yield of 1.9%
C.H. Robinson shareholders should expect total returns of around 9.4% to 14.4% a year over the next several years. Returns will come from earnings-per-share growth (7% to 12%) and dividend growth.
The company is very shareholder friendly. C.H. Robinson is targeting returning 90% of cash flows to shareholders through dividends and share repurchases, which helps account for the company’s excellent expected total returns.
Valuation & Recession Performance
C.H. Robinson’s expected total returns of 9.4% to 14.4% a year are well above the long-term average total returns of the S&P 500 of around 9%. As a result, one would expect the company to have a significantly higher price-to-earnings ratio than the S&P 500.
Interestingly, the company’s price-to-earnings ratio is in line with the S&P 500’s. C.H. Robinson and the S&P 500 both have a price-to-earnings ratio of 20.6. Since C.H. Robinson has higher expected total returns and an equal price-to-earnings ratio as compared to the S&P 500, one would expect C.H. Robinson to carry higher-than-average risk. This does not seem to be the case, however.
C.H. Robinson posted excellent results through the Great Recession of 2007 to 2009. The company’s earnings-per-share through the Great Recession and subsequent recovery are shown below:
- 2007 Earnings-per-share of $1.86
- 2008 Earnings-per-share of $2.08
- 2009 Earnings-per-share of $2.13
- 2010 Earnings-per-share of $2.33
Clearly, C.H. Robinson is not a high-risk business based on the company’s excellent performance over the Great Recession. C.H. Robinson has a debt-to-equity ratio of 1.1 and an A- financial rating on Value Line. The company is not at any risk of over-leverage or insolvency.
Conclusions on C.H. Robinson
C.H. Robinson has a strong competitive advantage that protects its profits and fuels growth.
The company appears fairly valued or slightly undervalued compared to the S&P 500 at current prices. On a historical basis, the company is likely trading around fair value given its solid growth prospects, strong competitive advantage, and shareholder friendly management.
C.H. Robinson is a compelling investment choice for dividend growth investors looking for exposure to the transportation industry.
I hope you like the guest blog post by Ben. I really liked the analysis and will be keeping an eye on CHRW. If you would like to get featured on here, feel free to contact me via the contact page or email me.
1 thought on “C.H. Robinson Worldwide stock analysis”
CHRW is my current company under study, with their annual report out on the coffee table for reading.
The consistency and quality of the ROIC this company generates year after year after year is pretty incredible. I don’t think most people can really grasp or truly appreciate it though.