Some of the world’s best investors stick to dividend portfolios. They know that a steady stream of income is a top wealth building strategy. And finding the best deals is vital. So today, we’re going to review another one of the best dividend stocks around. Let’s take a look at Rollins’s dividend history and safety…
Business Overview and Highlights
Rollins (NYSE: ROL) is a $14 billion business based out of Atlanta, GA. They are a North American consumer and commercial services company. They own many subsidiaries, like Orkin Inc., who focus on pest and termite control. They have 13,700 employees, and 500 locations across the United States, Canada, Mexico, Central America, the Caribbean, the Middle East, and Asia. Last year Rollins pulled in $1.8 billion in sales and that breaks down to $133,000 per employee.
In December Rollins instituted a three-for-two stock split. That means for every two shares of common stock held Rollins issued shareholders one additional share. They also declared a quarterly dividend of $0.14 per share, plus a special year-end dividend of $0.14 per share. Dividends were paid on pre-split shares.
Just today, April 23, the board of directors announced a quarterly cash dividend of $0.105 per share payable June 10 to shareholders of record on May 10.
10-Year Dividend History
The company paid investors $0.083 per share a decade ago. Over the last 10 years, the dividend has climbed to $0.465. That’s a 460% increase and you can see the annual changes below…
The compound annual growth is 18.8% over 10 years, but over the last year, the dividend climbed 21.3%. The increase in dividend growth is a good sign. Rollins has been relatively steady with their quarterly dividend payments, occasionally adding special year-end dividends. Rollins might work out as a great income investment. Let’s take a look at the yield…
Current Yield vs. 10-Year Average
Rollins’s long history of paying dividends makes it one of the best dividend stocks around. This also makes the dividend yield a great indicator of value. A higher yield is generally better for buyers. Sustainability is also vital, and we’ll look at that soon.
The dividend yield comes in at 0.97% and that’s below the 10-year average of 1.45%. The chart below shows the dividend yield over the last 10 years…
The lower yield shows that investors have bid up the company’s market value. They might be expecting higher growth and payouts. But more often than not, the dividend yield is mean reverting with share price changes.
Improved Dividend Safety Check
Many investors look at the payout ratio to determine dividend safety. They look at the dividend per share divided by the net income per share. So, a payout ratio of 60% would mean that for every $1 Rollins earns, it pays investors $0.60.
The payout ratio is a good indicator of dividend safety, but accountants can manipulate net income. They adjust for goodwill and other non-cash items. A better metric is free cash flow.
Here is Rollins’ payout ratio based on free cash flow over the last 10 years…
The ratio is volatile over the last 10 years and the trend is up. The last reported year shows a payout ratio of 58.7%. While the increasing payout ratio is not a great sign, there is still wiggle room for Rollins’s board of directors to raise the dividend.
If you’re interested in seeing more dividend research, please comment below. You can also check out our free DRIP calculator. With it, you can uncover the power of dividend reinvestment growth.
Good investing,
Robert
