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A Long-Term Wealth Creation Machine

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This company's Cash Return on Investment (‘CRI’) key operating metric is used to measure the performance and value of the company's operating businesses and potential acquisitions. By applying CRI principles throughout the organization, Roper can focus investment on areas that will increase shareholder value, drive cash flow growth, and minimize physical assets.

Summary

  • The company’s total investment return since going public in 1992 grossly exceeds that of the S&P 500.
  • Consistently increases its dividend but is more of a growth stock than an income stock.
  • Unique business strategy enables it to generate free cash flow that is fairly similar to operating cash flow.
  • Business model now allows it to use working capital as a source of cash instead of a use of cash.

Introduction

Investors interested in looking for a higher growth company which consistently increases its dividend annually may be interested in the company analyzed in today’s article.

Many readers will be unfamiliar with this company. It is, however, a very interesting company with a business formula that enables it to turn most of its operating cash flow into free cash flow.

This company generated just over $4.6B in Net Revenues for the fiscal year ending December 31, 2017 and Net Revenues and Net Earnings have grown ~42% and ~80% respectively from fiscal 2013 to fiscal 2017. If we exclude a one-time net income tax benefit from The Tax Cuts and Jobs Act of 2017, Net Earnings growth was ~40% versus ~80%.

Business operations are reported in the following 4 segments based upon common customers, markets, sales channels, technologies and common cost opportunities.

  1. RF Technology - provides radio frequency identification (“RFID”) communication technology and software solutions. FY2017 net revenues of $1.86B: 40.4% of total net revenues.
  2. Medical & Scientific Imaging - offers products and software in medical applications, and high performance digital imaging products. FY2017 net revenues of $1.41B: 30.6% of total net revenues.
  3. Industrial Technology - produces primarily water meter and meter reading technology, fluid handling pumps, and materials analysis solutions. FY2017 net revenues of $0.784B: 17.0% of total net revenues.
  4. Energy Systems & Controls - principally produces control systems, testing equipment, valves and sensors. FY2017 net revenues of $0.551B: 12.0% of total net revenues.

This company has been one of the best performing Dividend Aristocrats (a company with a track record of increasing dividends for at least 25 consecutive years) but differs from your typical dividend growth stock and is more of a growth stock.

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By |July 13th, 2018|General Investing|Comments Off on A Long-Term Wealth Creation Machine

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