Does Watsco belong in your portfolio?

Thanks to today’s purchase, it has a home in mine


Raise your hand if you’ve heard of Watsco?

I bet none of you actually raised your hands (duh … because you’re reading a blog, not sitting in a lecture hall), but I also bet most of you really don’t know what Watsco is or does. I didn’t myself … at least not until I stumbled across it when looking for companies that pay dividends in Januray, April, July and October.

Once I found it, I knew I wanted to own it … which I finally do thanks to today’s purchase (1 share for $140.49).

So, what the heck is Watsco? Glad you asked. In addition to being a small-cap DGI stock, it’s a distributor – one that deals in air conditioning, heating and refrigeration equipment. Don’t take my word for it, though. Here, this is directly from the COMPANY’S WEBSITE:

For over 25 years, Watsco has built a national network of the finest HVAC distribution businesses in the US, and abroad. With over 560 locations, Watsco’s four subsidiaries bring a diverse product base of top-quality HVAC/R equipment and supplies to customers across the US, Canada, Mexico, and the Caribbean.

There ya have it. Bringing cool conditions to places that are hot year-round – corners of the world like Mexico and the Caribbean – sounds like a pretty solid business model to me.

The earnings have been less than amazing as the company has missed Wall Street’s estimates for each of the last three quarters, but I have a feeling about this company for some reason. Heating and cooling is just one of those things pretty much everyone would like to have, and demand is only going to grow as the global climate continues to get more extreme.

Oh, and the dividend is something else.

That’s one helluva dividend you have there, Watsco

So, Watsco pays an annual dividend of $6.40/share, which equates to a yield of moere than 4.5%. That’s more than enough to keep me happy. On top of that, the dividend growth over the course of the last five years has been absolutely insane. How insane? Well, Watsco has increased its payment each of the last five years at an average growth rate of 36.85%.

I know, right? 36.85%! Insane. The annual dividend per share was $2 in 2014. Now, well, as I just mentioned it’s well over $6. That’s some serious growth.

Unfortunately, nothing’s perfect. The payout ratio is pretty high, like 92% high, but I think they can keep the dividend growing – even if it’s at a slightly slower clip – for years to come. The payout ratio makes me think they may need to slow down a bit, but the fact they have almost no debt to speak of (9.13% debt/capital ratio) makes me think the dividend is in good shape.

I can’t wait to see how this one turns out, and maybe buy some more in the near future.

In the meantime, you can ready about my previous purchase HERE if you missed it.

March on!

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