It was a week and a half ago that I listed my Top 5 or 6 stock picks. I’ve already written of Ross Stores, United Health and Nike. Now, it’s time to write of Rollins Inc. One reader wrote last week, saying, among other things, that, “ROL’s valuation is always unattractive.” I was not aware of this, so naturally, I wanted to look into that, and either confirm or deny it.
But, first, the analysts’ consensus of forward-looking earnings for an average of all 500 issues in the index begins at $3.13 a share, and ends at $4.51 a share for 44% projected earnings growth over the past 10 years. The same 10 years of EPS estimates for ROL starts at $.29 a share, and is now at $.86 a share for nearly 197% growth, or just short of a triple. There was this Global Financial Crisis back in ’08/’09 that caused estimates for the 500 to fall almost 65% from 11/07 to 03/09. With Rollins, there simply is no such EPS drop during the GFC.
With dividend payout for an average of the 500 companies, it starts 10 years ago at .73 a share, and is presently $1.40 a share. That’s a 10-year pay increase of 92%. There was a GFC “pay cut” that began in the summer of ’08, and found no relief until February of 2010. That was a very real cut of 22.5%. Rollins was paying a $.09 a share dividend 10 years ago. It is now at $.46 a share, for a real growth in “pay” of 411%. That’s a 5-fold increase in dividend payout, and with NO cut during the GFC whatsoever!!!
As for price, the 500 appreciated, on average, these past 10 years, by 98.5%. Just under a double… ROL, on the other hand was $6.77 a share, but has appreciated to $36.51, or some almost 440%. That’s better than 5-fold growth, even as the dividend was raised.
The 500 is believed to be capable of growing by 9% each year over the next 1 to 3 years out… if there’s anything to such prognostication. Rollins, on the other hand is thought to be able to continue on an 11% annual growth path. If the 500 is thought to possibly raise dividends on an average of 10% a year, going forward. ROL is actually expected to keep growing theirs by 15% annually.
What of overvaluation? It is! Perhaps by as much as a factor of 2. But the reason is real, and it is simple. Incredible QUALITY. Nearly NO real competition to speak of. They are THEE nation’s pest control people. Their services will always be needed, and as long as places get older, and new ones keep getting built, their services will only become more and more in demand. Further, they have a pricing capability of raising from time to time, as inflation pressure requires it.
Rollins Inc., is one of my safe-dividend growers. Their stair-step dividend payout pattern of steady growth, based upon equally as steady EPS growth just makes ROL a buy-to-hold possibly forever type of company of the very highest quality! I have some. When the time is right, I’ll add more. Do your own homework and diligence, and see if ROL shouldn’t be in your portfolio.
Here’s to your successful investing!
Harold F Crowell