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You may not remember it firsthand (I certainly don’t), but 1954 was a pretty interesting year. “I Love Lucy,” starring Lucille Ball, was the most popular show on TV. The New York Giants beat the Cleveland Indians in the World Series four games to none, the league’s first win since 1933. The Boeing Co. (NYSE: BA) introduced the Boeing 707, bringing commercial aviation into the jet age. And the United States launched the Nautilus, the world’s first nuclear submarine.
That was also the year one of today’s best income-producing stocks began its streak of dividend increases, which has lasted right up to today — 57 years and counting.
I’m talking about Diebold Inc. (NYSE: DBD).
The stock currently pays a $1.12-a-share dividend, good for a yield of 3.7% based on its recent stock price of about $30. Since analysts expect earnings per share (EPS) to grow at a very solid 8% rate for the next three to five years, I see no reason why the company shouldn’t continue its streak of dividend hikes for at least that long.
The main reason why I think Diebold can keep its streak of dividend hikes going is its robust revenue, which totaled nearly $2.8 billion in 2011 and has climbed 8.5% annually for the past 10 years. Analysts project it’ll keep growing at a sturdy 5% pace, bringing the annual total to nearly $3.6 billion by the end of 2016 — almost three times the $1.25 billion in revenue Diebold posted a decade ago. At this pace, analysts say the company’s dividend could climb to $1.43 a share by the end of 2016. But I think this forecast might be a bit conservative, especially after the 8% EPS growth rate projection.
Obviously, strong sales go a long way toward generating sufficient cash for dividends. And in Diebold’s case, the lion’s share of sales should continue to come from the financial self-service (FSS) division that produces ATMs. The FSS unit brought in roughly $2.2 billion, or about 80% of total revenue, in 2011.
Although domestic ATM sales have been strong, rising mainly among regional banks in the past couple of quarters, I believe overseas markets will account for most of the division’s future revenue growth. China and India, in particular, should be excellent sources of growth for the next few years. Diebold is a major force in both markets, boasting more than 27,000 ATMs in India alone. Because ATMs are still far less prevalent in China and India than the United States, I see these two countries as much better growth opportunities.
The company has been doing significant business in Brazil, too. On Nov. 1, 2011, for example, Diebold announced the sale of 2,000 ATMs to Banco Santander Brazil (NYSE: BSBR), the third largest nongovernment-controlled bank in Brazil. A few months earlier, Caixa Economica Federal — one of Brazil’s leading government-owned banks — placed an order with Diebold for 9,600 ATMs. This was one of the largest ATM purchases in history.
Risks to Consider: Diebold depends heavily on ATMs for revenue, so the company is very vulnerable to any slowdown in the ATM market.
Action to Take –> If you want a reliable dividend payer, then consider investing in Diebold Inc. How many companies can say they’ve increased their dividend nearly six decades straight — or that they have a good chance of keeping such a streak going? Not many. Given its such a solid company, now looks like an excellent time to pick up some shares and see your dividend payments increase for years to come.
– Tim BeganySource: StreetAuthority
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