We received dividend payments from Parker-Hannifin (PH). After 2 years, Parker-Hannifin declared a +4.80% increase in dividends from $0.63 to $0.66 per share. In Dec 2016, Parker-Hannifin (PH) and CLARCOR Inc. (CLC) announced that Parker will acquire CLARCOR for approximately $4.3 billion in cash. CLARCOR, headquartered in Franklin, Tennessee, is a diversified marketer and manufacturer of mobile, industrial and environmental filtration products. The acquisition will add a broad array of industrial air and liquid filtration products and technologies to Parker’s filtration portfolio. Parker expects to benefit from an increased recurring revenue streams after the acquisition. Parker plans to finance the transaction using cash and new debt and it will have no effect on dividends, thus, dividend payments will still be continuously paid to investors.
Due to the acquisition news and the firm’s strong earnings as a result of cost-efficiency measurements and improving market demand, Parker-Hannifin’s stock price has been gaining momentum since Dec 2016. The stock price is up by +20% after announcing the news.
The dividend yield is +1.6% Since Jan 2016, the dividend yield has a downward trend and is also close to a 2-year low as a result of the increasing stock price. If the downward trend for dividend yield will continue, then we expect that Parker-Hannifin may not provide an annual dividend increase by next year.
The Dividend Payout Ratio of Parker-Hannifin is 0.40. Since Q1 2014, the dividend payout ratio has an increasing trend. Despite the acquisition, the firm reported that the transaction is not expected to impact Parker’s dividend payout target of approximately 30 percent of net income. The target goal of the company is 0.30 but the current ratio is 0.40, thus, there is a high probability that there might be no annual dividend increase by next year.
The dividend growth rate between 3yrs to 10yrs time period is +15% to +16%; however, the recent dividend growth is only +4.80% As we analyzed the dividend yield and dividend payout ratio for 2016, the yield is too low and the ratio is above the 0.30 company target, thus, the result is a lower dividend growth rate.
Based from our analysis, if the low dividend yield and high dividend payout ratio will continue, then we expect that by next year, the dividend will still be $0.66 per share. If there will be an increase, the dividend growth rate might just be below +5%