Friday, December 20, 2013

Innophos - Can Phosphates Deliver Dividend Growth?

Innophos is in a range of pretty boring businesses, the cover the phosphate waterfront - Specialty Ingredients, Asphalt Modifiers, Fire Suppressants, Water Treatment, Bakery Leavening, Deli Meats (hungry yet?), Toothpaste Abrasives, and more. I have followed the company for awhile, Todd Wenning wrote it up in his search for dividend growers, and Barron's profiled the company this week and there is a lot of interesting pieces to this puzzle.

The Barron's article highlights some recent issues and a potential catalyst:

The company's manufacturing facility in Mexico has been the source of recurring equipment failures, which has hurt productivity and resulted in high maintenance costs. As recently as the September quarter, a planned maintenance outage took longer to complete than expected, due to the extensive repairs required.

For the past few years, management has been upgrading the facility, and on its Oct. 29 conference call, CFO Mark Feuerbach said that he believes the plant "has turned the corner." Indeed, the plant generated higher production yields in the quarter.

Overall, the key dividend growth qualities looks to be in place.
  • Forward yield 3.3%. 
  • 1 Year Dividend Growth: 24%
  • 5 Year Dividend Growth: 13% 

The balance sheet is not subject to much leverage with a 0.3 Debt/Equity ratio.

The company's price is not that cheap. The P/E is 22 on trailing basis and the P/CF is 14.

Last month, I looked Clorox and it appeared to be quality company at a reasonable price. Innophos stacks up pretty well alongside Clorox.

CompanyFwd Yield1 Yr Div Growth5 Yr Div GrowthP/CF

(Source: Morningstar)

Innophos beats Clorox across the boards, and whereas Clorox debt to equity ratio is a stratospheric 26, Innophos operates much, much more conservatively (0.3 Debt/Equity). Clorox has excellent brands and great long term track record, but on the metrics that matter for dividend growth investors, Innophos looks to be a better buy today.

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