Parker Hannifin Corporation (NYSE: PH) is a US motion and control technology company developing products for – inter alia – the industrial manufacturing equipment, oil and gas, industrial and chemical processing, and power generation sectors. Founded in 1917, the corporation is Headquartered in Mayfield Heights, Ohio. Parker is a prominent company in the field, placed 230th in the Fortune 500 rank and 2nd in the industrial machinery industry rank1. It currently has approximately 55,000 employees working across 50 different countries and the Chief Executive Officer is Thomas Williams. The corporation owns a number of subsidiaries both in the US and internationally, and, according to its purpose statement2, places emphasis on achieving a meaningful impact through technological developments.
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Parker is well established as a dividend king, increasing its shareholder dividends steadily on a quarterly basis for the past 65 years4. The company currently trading at $289.91 per share, has a dividend yield of 1.4%, offering an annualised dividend of $4.12. Although there have been fluctuations to the dividend yield percentage over the previous years indicating that the stock has been overvalued, there is a clear steady upward trend to the dividends amount and earnings per share.
Graph 1 – Dividends per share during the past 5 years
Additionally, the long lasting competitive advantage of Parker is depicted in its increased Earnings Per Share over the past year in spite of the market instability that prevailed due to the pandemic.
Graph 2 – Earnings Per share for the past 5 years
Projections and risks
A factor that makes Parker an attractive investment opportunity and contributes to its continuous ability to pay dividends throughout the years is the diversity of products it offers to a wide range of different sectors, which enables it to balance the risks involved in each different sector and maintain sustainable growth even if one sector is underperforming. Similarly, another factor that mitigates risk is the global presence of the company, which makes it invulnerable to individual risks associated with the domestic economic conditions of each country.
The company has concluded a number of acquisitions, including those of LORD in 20195 and CLARCOR in 20176. Furthermore, it is currently bidding to acquire Meggitt, a UK defence and airspace group. However, there is a risk that the progress of this deal will be hindered due to political concerns in the UK, as the government is raising legitimate concerns about the takeover of British companies operating in the defence sector by foreign companies.
A factor that casts uncertainty over the future expansion of the company through acquisitions is the stance of regulators towards the creation of monopolies and oligopolies in global markets. In the US, the Federal Trade Commission has directed its efforts towards enforcing antitrust regulations and ensure that companies do not grow to levels that allow them to control their market sector and prevent competition. Parker already faces minor competition is some areas of its operation, such as the development of critical components of factory equipment, and has already been the subject of an antitrust lawsuit following the acquisition of CLARCOR on the basis that it jeopardised competition in the aviation fuel filtration products industry7. Recently, antitrust lawsuits have been filed against major companies such as Facebook.
Additionally, technological advancements can play a catalytic role in the wider context of the general emphasis placed on the prioritisation of environmental sustainability goals within the economy at a global level. Governments and major financial organisations such as the European Central Bank are taking steps towards mitigating the effects of climate change and pursuing an agenda that encompasses measures for the promotion of environmental policy targets. Christine Lagarde, the President of the ECB, identified climate change as “one of the key components that we take into account going forward”8. As a company focusing on technological breakthroughs, this situation can create an ideal environment for Parker to develop technological advancements that will facilitate sustainability.
Overall, I consider Parker a reliable investment. Investing in a stable profitable dividend king operating in a diverse range of industries is almost as risk-free an investment as opting for a Dividend ETF – albeit without management fees required. Parker may be reinvesting a significant portion of its income in its growth and acquisitions, but is nonetheless expected to retain its status as a dividend king.
Aida Marinaki, King’s College London
- World’s Most Admired Companies, Fortune https://fortune.com/worlds-most-admired-companies/2016/parker-hannifin/
- Leading with Purpose, Parker Hannifin Corporation https://promo.parker.com/promotionsite/parker-purpose/us/en/home
- Parker Hannifin Corporation, Yahoo Finance https://finance.yahoo.com/quote/PH/key-statistics?p=PH
- What Are Dividend Kings?, Erin Gobler https://time.com/nextadvisor/investing/dividend-kings/
- Parker Hannifin Completes LORD Acquisition, Parker Hannifin Corporation https://investors.parker.com/news-releases/news-release-details/parker-hannifin-completes-lord-acquisition
- Parker Hannifin Completes CLARCOR Acquisition, Parker Hannifin Corporation https://www.parker.com/portal/site/PARKER/menuitem.31c35c58f54e63cb97b11b10237ad1ca/?vgnextoid=90cd1603c868a510VgnVCM100000e6651dacRCRD&vgnextchannel=9104fbdc71fd7310VgnVCM100000200c1dacRCRD&newsroom=Y&vgnextcat=News%20Release%20Details&vgnextfmt=EN
- Justice Department Files Antitrust Lawsuit Against Parker Hannifin, Department of Justice of the United States https://www.justice.gov/opa/pr/justice-department-files-antitrust-lawsuit-against-parker-hannifin-regarding-company-s
- Interview with Christine Lagarde, President of the ECB, Martin Arnold https://www.ecb.europa.eu/press/inter/date/2021/html/ecb.in210713~ff13aa537f.en.html