Badger Meter Hikes Dividend Again – Analyst Blog

Badger Meter Inc. (BMI) maerrked its eighteen consecutive year of dividend increase by announcing a 2 cent hike in its quarterly dividend to 14 cents per share, or 56 cents per share on an annualized basis. This translates to a 16.7% increase from the prior dividend of 12 cents per share. The higher dividend will be paid on September 15, 2010, to shareholders of record as on August 31, 2010.

Badger Meter commands impressive dividend figures compared to the industry. Its dividend yield of 1.27% is higher than the industry average of 1.19%. The company’s 10.8% five-year growth rate of dividend is more than double the industry average of 4.5%. Dividend payout ratio of 28.2% is substantially higher than the industry average of 6%.

Badger Meter competes with Itron Inc. (ITRI) and Roper Industries Inc. (ROP). Itron does not pay any dividend and Roper’s dividend yield of 0.6% and dividend payout ratio of 13.2% are much below those of Badger Meter. Roper’s five-year growth rate for dividend of 11.5% is, however, higher than that of Badger Meter.

The news of the dividend increase follows a record second quarter from Badger Meter. The company delivered all-time high earnings per share of 53 cents, up 2% from 52 cents in the year-ago quarter as well as the Zacks Consensus Estimate of 49 cents. Improved order activity and strong shipments of most of its products, a favorable product mix, stronger U.S. dollar and cost-control measures were instrumental in the company’s record-breaking results, which were partially offset by higher commodity costs.

As of June 30, 2010, Badger Meter had cash and cash equivalents of $2.6 million, down from $13 million as of March 31, 2010. The debt-to-capitalization ratio, however, improved to 1.7% as of June 30, 2010, from 3.4% as of March 31, 2010, and from 5.2% as of December 31, 2009.

Badger Meter’s performance had been adversely affected by global macroeconomic headwinds as well as delayed purchasing decisions by certain customers. But given the stimulus funding, orders have lately shown an improvement as was evident in the second quarter performance.

Badger Meter’s cash flow and balance sheet remain strong, which enables the company to enhance shareholder value by paying dividends as well as engage in new product development and acquisitions. The company believes that its operating cash flows and ability to raise capital will provide adequate resources to fund ongoing operations and new product developments. We see significant long-term growth opportunities for the company as water utility customers upgrade to advanced metering (AMR/AMI) systems from manual meters. 

However, intense competition from other well-established players, heavy dependence on key suppliers and exposure to foreign currency fluctuations provide headwinds for the company’s future growth prospects and profitability. The stock has a Zacks #3 Rank (Hold) rating. We maintain our Neutral recommendation on the stock.

Milwaukee, Wisconsin-based Badger Meter provides liquid flow measurement products and control technologies to utilities and industrial customers. Presently, Badger Meter’s product lines fall into two broad categories –– water applications and specialty applications.