WD-40: Holding For Dividend Growth

seekingalpha10-19

We maintain a hold rating on WD-40 Company stock due to its high valuation and slow growth, despite consistent long-term returns.WD-40 shows steady revenue growth, with fiscal Q4 sales up 11% year-...

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Pgiam/iStock via Getty Images The WD-40 Company (NASDAQ:WDFC) stock is one of our longest-held positions. We have maintained a hold rating as shares are still expensive on valuations metrics, while the growth of the company is quite slow right now. But we are not sellers. We think the stock slowly continue to edge higher, and we will continue reinvesting the dividends here for compound growth. A hold has been wise, as the stock has been range bound for a few months. Data by YCharts WFDC stock is not flashy. It is not a high-growth name, nor a high-yield name. What we have here is a very slow-growing name, but one that delivers slow and consistent long-term returns. If there were a sizable pullback toward $225, we would suggest buying. While it is not a big income name, it is a wonderful dividend growth investment.   Seeking Alpha WDFC Dividend History The company just reported Q4 earnings, and nothing we are seeing in the results changes our resolve to hold this long term. The outlook calls for growth in sales that could be double-digits, while margins will approach 55% for the coming year. We like holding on to this position. Let us discuss. Revenue growth continues WD-40 company consistently and slowly grows sales over time. That is undeniable. It enjoys ongoing demand, and internationally there is more room for the company to grow its geographic footprint. The company also enjoys pricing power for its products. In fiscal Q4, WDFC sales were $160 million, up 11% from last year. We were expecting sales of around $155 million, so this was actually a $5 million surprise versus our expectations. This also surpassed consensus by $6.8 million. We were looking for a high single-digit increases in the top line, and we liked the actual print. Fiscal year 2024 was strong for WD-40, with double-digit revenue growth. In fiscal Q4, we saw growth in all regions once again. Overall, net sales by location for fiscal Q4 were 51% in the Americas, 37% in EIMEA, and 12% in the Asia-Pacific region. Regional discussion Sales were up in all regions and performed very well. Sales in the Americas increased 6%. The increase was due primarily to an increase in net sales of Multi-Use Products of $4.2 million or 7% compared to last year and there was sizable growth in Latin America, which saw sales up $5.9 million. U.S. sales dipped $1.7 million. Net sales of WD-40 Specialist products increased $0.6 million, or 6%. Turning to EIMEA, sales growth continues to be strong, rising 16%, and this was a result of both price increases and promotions put into place by the company. We saw strength in France. There was also a 13% increase in Specialist products in the region, along with a 16% increase in Multi-Use products. But pricing was only part of the equation, volume increased as well. The EIMEA distributor sales were notably strong. Asia-Pacific sales have rebounded nicely. Net sales rose 21% versus last year due to increases in the Asia distributor markets. Multi-Use product sales jumped 26% in the region, while Specialist sales were up a strong 24%. Margin power WD-40 Company has a long-term 55% gross margin target. In the guidance for the coming year, margins are targeted at 54-55%. This is strong. WD-40 has seen steady improvements in margin power of late. Gross margin in fiscal Q4 was 54.1% versus 51.4% a year ago. This increase is again a consequence of pricing increases, as well as management cutting costs. The work on general expenses continues to be beneficial. However, selling, general, and administrative expenses were up 27% in the quarter, while advertising spend was up 11% from last year, so the company is buying some of its own sales with these expense increases. With higher sales than expected, and respectable margins, net income rose 1% to $16.8 million. For the fiscal year, net income was up 6%. EPS rose to $1.23 from $1.21 a year ago, this was actually below our expectation for $1.30 in earnings and an $0.08 miss against consensus. For the year, EPS hit $5.11, up from $4.83 last fiscal year. Forward view As we look ahead, the company is buying back shares and continues to boost its dividend. For the fiscal year, the company sees net sales growth of 6-11%. The margin outlook is for 54-55%, improving from 53.4% this past fiscal year. As for earnings, the company sees $5.20 to $5.45 in EPS for the year. That is slow and steady growth at the midpoint from this year's $5.11.  However, at $249 per share, WD-40 Company stock is nearly 47X FWD earnings. That is expensive. If WDFC shares fall to the $225 level, we think new money can consider some buying because the market has assigned a premium valuation to this stock for many years. We continue to hold for dividend growth, share repurchases, and long-term capital appreciation.","kind":null,"is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"analysis","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.29.2","shortVersion":"4.29.2","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2476217217"}