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This FTSE 100 stock flies completely under the radar, yet boasts one of the best dividend records on the entire blue-chip index.
Its name? DCC (LSE: DCC). Er, who? What? That may partially explain its low profile. The brand force is weak in this one. In an index packed with household names, retail investors could easily let this one slip by unnoticed.
I suspect that’s not the only reason. It isn’t immediately clear to the novice investor what DCC does, and therefore where its prospects lie. Its website merely tells us it “provides solutions the world needs across three transformative sectors: energy, healthcare and technology”. That doesn’t really clarify it for me.
Why did I call DCC a superstar?
That three-way business split doesn’t help either. Nor does share price performance. DCC is down 20% over the past 12 months, and 35% over five years. Hardly the sort of chart that gets investors fired up.
Yet there’s one thing that should make investors sit up and switch on to DCC: it has one of the most dazzling dividend track records on the FTSE 100.
It has increased shareholder payouts every year for the past three decades. I might even call it a dividend superstar.
That record continued after posting full-year results to 31 March on 13 May, when it hiked its annual dividend by 5% to 206.4p. Today, the stock yields 4.4%. That’s not the biggest yield on the index, but it’s well above the FTSE 100 average of around 3.5%.
If the past 31 years is any guide, DCC will continue to increase income for years to come — although, as ever, there are no guarantees.
It’s good to investors
Now DCC plans to simplify its set up. It’s agreed to sell its healthcare division for just over £1bn and will return £800m of that to shareholders, starting with a £100m share buyback.
Clearly, this is a company that puts shareholders front and centre. Always good to see.
Last year it generated free cash flow of £588.8m, with a conversion rate of 84%, suggesting it’s good for its dividend promises.
Management is shifting its focus to energy, which CEO Donal Murphy labels its “largest and highest-returning business”. This may give investors a clearer idea of what they’re buying into.
Another number that interests me is the price-to-earnings ratio, which is just 11.26. That looks like good value.
One for the back burner
This is exactly the profile of a stock I usually like. Yet, I still can’t get worked up to buy it. So I was interested to see what the analysts think.
On 19 May, RBC Capital Markets cut its price target by 200p to 5,200p. Although that’s still 12.5% higher than today’s 4,616p…
Yet, RBC also warned of weak recent trading and macroeconomic risks. It said DCC has defensive qualities, but “isn’t a table thumper”. It added: “There’s a risk the market continues to struggle to value it, as DCC Energy is somewhat of a conglomerate.”
That struck a chord. It explains why I never quite got it. Given recent performance, I don’t think I’ve missed out either. Sometimes even a 30-year dividend record isn’t quite enough.
