Dividend Aristocrats In Focus: Albemarle Company

Up to date on February sixth, 2023 by Nathan Parsh

Every year, we evaluation all the Dividend Aristocrats. Attaining membership to this group is troublesome. Firms have to be of a sure measurement, belong to the S&P 500 Index, and, most significantly, have not less than 25 consecutive years of dividend progress. There are simply 68 Dividend Aristocrats, proving the exclusivity of the listing.

You possibly can obtain an Excel spreadsheet of all 68 Dividend Aristocrats, together with necessary monetary metrics akin to P/E ratios, by clicking the hyperlink under:

Albemarle Company (ALB) joined this unique membership in 2020. The corporate is reaping sturdy progress from continued demand for lithium. It’s poised to proceed rising for a few years, as demand for lithium is simply set to rise within the years forward.

This text will evaluation the funding prospects of Albemarle.

Enterprise Overview

Albemarle is the world’s largest lithium producer and the second-largest bromine producer. The corporate depends on these two merchandise for practically three-quarters of annual gross sales.

Albemarle produces lithium from the corporate’s salt brine deposits within the U.S. and Chile, the place the prices of manufacturing lithium are very low.

Associated: The Best Lithium Stocks: Industry Coverage From Mining To Batteries

Albemarle additionally produces specialty chemical substances, although this enterprise is predicted to turn out to be a separate wholly owned entity with a separation to be accomplished by early 2024.

The corporate is a worldwide chief in every of its companies.

Albemarle consists of three segments: Lithium & Superior Supplies, Bromine Specialties, Catalysts, and Others. Lithium is utilized in electrical automobiles, batteries, prescribed drugs, and airplanes, amongst different functions. Bromine is utilized in electronics, building, and automotive industries. Lithium continues to drive the corporate’s progress.

On November 2nd, 2022, Albemarle introduced third quarter outcomes for the interval ending September thirtieth, 2022.

Supply: Investor Presentation

Income grew 151.6% to $2.09 billion however was $120 million lower than anticipated. Adjusted earnings-per-share of $7.50 in contrast very favorably to $1.05 within the prior 12 months and was $0.51 above estimates.

Income for Lithium was increased by 318% to $1.5 billion because of a 298% enchancment in pricing and a 20% enhance in quantity as a result of completion of an enlargement within the firm’s operations in Chile and better buyer demand. The corporate expects quantity progress to be within the vary of 20% to 30% for the 12 months. Albemarle accomplished its acquisition of a lithium conversion plant in China on the finish of October, which ought to add to outcomes going ahead.

Revenues for Bromine Specialties elevated 28% to $354.9 million as pricing added 18% and quantity improved 10% because of sturdy demand. Catalysts grew 21.8% to $235.8 million, largely because of a rise in quantity.

Albemarle supplied an up to date outlook for the 12 months as effectively. Income is now anticipated in a variety of $7.1 billion to $7.4 billion, in comparison with $7.1 billion to $7.5 billion. Adjusted earnings-per-share are actually forecasted in a variety of $19.75 to $21.75, in comparison with $19.25 to $22.25. For context, the corporate generated adjusted earnings-per-share of $4.05 in 2021.

Progress Prospects

A significant cause that outcomes are anticipated to be effectively above prior numbers is that Albemarle stands to learn from the elevated gross sales of electrical automobiles, as the corporate’s lithium is used to offer the batteries. Lithium is predicted to be a progress phase over the following 5 years because of rising demand for a variety of functions, together with electrical automobiles and shopper electronics.

This could assist foster progress going ahead.

Supply: Investor Presentation

Power storage is predicted to spike within the coming years as extra customers buy electrical automobiles. Electrical automobiles are projected to account for 22.0% of all new automotive gross sales by 2025, up from simply 4.6% in 2020. Battery measurement can be anticipated to develop.

With this progress will come a major enhance in demand for lithium. Fortuitously, Albemarle’s mines in Chile supply a reasonable supply of lithium. Demand is already strong for lithium.

Albemarle has skilled considerably uneven earnings-per-share efficiency during the last decade. Over the past decade, earnings-per-share are up lower than 2%. For 2022, that progress price is projected to be greater than 400%.

Even at this excessive base, we consider that the corporate can develop earnings-per-share at a price of seven.5% yearly for the following 5 years because of its management positions within the areas of lithium and bromine.

Aggressive Benefits & Recession Efficiency

Regardless of being amongst world leaders in a number of companies, Albemarle isn’t content material to relaxation on its earlier success. The corporate has been energetic in buying companies that strengthen its market share.

Albemarle isn’t a recession-proof firm. Listed under are the corporate’s earnings-per-share throughout and after the final recession:

• 2007 earnings-per-share of $2.41
• 2008 earnings-per-share of $2.40 (0.4% lower)
• 2009 earnings-per-share of $1.94 (19% enhance)
• 2010 earnings-per-share of $3.51 (45% enhance)

The specialty chemical enterprise is closely reliant on demand from prospects. Decrease demand leads to decrease pricing, which negatively impacts Albemarle’s efficiency. It’s probably that the corporate would face the same kind of slowdown throughout the subsequent recession as demand for merchandise dissipates.

That mentioned, the corporate has sturdy aggressive benefits. A key aggressive benefit is that it ranks as the most important producer of lithium on the earth. The steel is utilized in batteries for electrical automobiles, prescribed drugs, airplanes, mining, and different functions. Albemarle can be a prime producer of Bromine, which is used within the electronics, building, and automotive industries. The corporate possesses a measurement and scale that others can’t match.

Buyers keen on investing in Albemarle ought to perceive that possession of the inventory comes with dangers as a result of unstable nature of its trade.

Valuation & Anticipated Returns

Regardless of a 31% enhance within the share worth during the last 12 months, we consider that Albemarle is buying and selling under honest worth. Utilizing our anticipated earnings-per-share of $20.75 for the 12 months, shares have a price-to-earnings ratio of 13.7. Over the past decade, Albemarle has traded with a median price-to-earnings ratio of 24.1.

We’ve a a number of goal of 18x earnings to account for the volatility of earnings and its management place. If the inventory had been to commerce with this goal by 2027, then valuation could be a 5.6% tailwind to annual returns over this time interval.

As well as, the dividend yield is low at 0.6% however extraordinarily well-covered, because the projected payout ratio for the 12 months is simply 8%. The corporate has been profitable at prudently managing its dividend, given the character of its enterprise. The common payout ratio during the last decade is 32%. Albemarle has raised its dividend for 27 consecutive years.

Due to this fact, we challenge that Albemarle will present a complete annual return of 14.0% over the following 5 years, stemming from 7.5% earnings progress, a beginning yield of 0.6%, and a mid-single-digit contribution from a number of expansions.

Ultimate Ideas

Reaching Dividend Aristocrat standing is not any small feat. Albemarle is the dominant participant in its sector and has taken steps to additional enhance its aggressive place. The corporate advantages from low-cost mines and its management place in a number of classes.

The corporate is much from recession-proof and has skilled some earnings declines during the last decade, however this makes the corporate’s dividend progress observe report much more spectacular. Shares yield lower than 1% immediately, though the dividend is rising at a excessive price.

Whereas the corporate can expertise volatility, we price shares of Albemarle as a purchase because of projected returns.

Moreover, the next Positive Dividend databases comprise probably the most dependable dividend growers in our funding universe:

In case you’re in search of shares with distinctive dividend traits, think about the next Positive Dividend databases:

The foremost home inventory market indices are one other strong useful resource for locating funding concepts. Positive Dividend compiles the next inventory market databases and updates them month-to-month: