Ecolab has been one of my absolute favorites. There were a couple of reasons. First, the line chart for the past 10-years of the analysts’ consensus of forward-looking earnings estimates for ECL has been one of the very best. It starts at about $1.50 a share, and slopes gently up, as smooth as any I’ve ever seen, to better than triple, and be at about $5.00 a share now. Second, this made for the most awesome, stair-step pattern of upward dividend payout, with annual ‘pay raises’ in the teens; beginning with $.35 a share 10 years ago, to $1.32 a share, or a near quadrupling of dividend income.
Yes, ECL was sweet! Now, you may know Ecolab as that hand-cleaning stuff outside the door of every hospital room, and you’d be right, but another of their big businesses has been to produce the stuff that drillers send down their well holes, under pressure, to ‘frack’ shale to release more gas or oil… and, we all know what’s been done to that business in recent times. Oddly enough, I kept watching the EPS day-after-day, and it never seemed to get whacked, so I was going with the analysts and thinking that their other divisions must be taking up any slack somehow.
Well, ECL has paid their most recent dividend, and raised, as was expected. I expected another beautiful dividend increase ‘pay raise.’ That’s not what we got. Ecolab must be anticipating future earnings slowing, as they only raised from $1.32 a share to $1.40 a share, for a truly paltry and pitiful 6.06% increase. That just doesn’t get it with me.
Now, my yield, based upon the average price for all of the shares I have acquired in recent years, presently stands at 1.63%, while current dividend is 1.2%. The wife advocates I be merciful, and give it time. But, I also know that low energy prices, due to the raw energy production situation around the world, barring an escalation of war tensions, are capable of remaining low for quite a long time.
You’ll notice that share price has held up well. It peaked on 10/16 at $122, and is only down by $6, to $116. Nobody’s frettin’ so seriously as to take the price down much. And, I need to remember that my wife has incredibly good ‘blind’ instincts about things. She ‘feels’ the right decision about many matters when she’s not too emotionally involved.
Estimates have been pared back slightly, from a recent new high of $5.10 a share, to the current $4.96… a 2.75% cut-back. No big deal. But, it’s the future anticipated slowing of earnings growth that is going to cause harm, looking forward.
Ecolab is on probation. I believe that my best course of action might well be to start selling an appropriate Call Option at a strike price above the current $116 a share, to generate some extra income from my holding, and to let price possibly get lifted to where my shares get called away, and the cash generated from the possible future sale goes into the Money Fund for future allocation to some other prospect.
The pre-market indicators are off slightly as of 7:30 a.m. EST. No great amount so as to indicate fear of any magnitude.
Here’s to your successful investing!
Harold F Crowell