Dividend Growth Stock Overview: Brady Corporation

Brady Corporation manufactures warning signs like these worldwide.
Photo courtesy Michael Schubart/flickr.com.

About Brady Corporation

Brady Corporation manufactures identification and workplace safety products for customers around the world. The company serves a variety of markets, including healthcare, industrial and electronic manufacturing, chemical production, and the food and beverage industries. The company has 7,200 employees worldwide and is celebrated its 100th anniversary in 2014.

Brady has two primary business segments: Identification Solutions (IDS) and Workplace Safety (WPS). IDS produces identification and high performance signage, including wristbands and labels used in hospitals, custom wristbands used at theme parks, concerts and festivals, labeling systems and lockout/tagout devices. The bulk of the IDS products are produced under the Brady brand, but other trademarked brands the company owns include Electromark and Identicard. The IDS segment produced about two-thirds of Brady’s fiscal 2014 (ended July 31, 2014) sales and over 70% of its profits. 70% of segment sales were within in the Americas, while the remaining 30% was split between the Europe, Middle East and Africa, and Asia-Pacific regions.

The WPS segment produces safety and compliance products, including first aid supplies, asset identification tags and traffic signs. About 50% of the segment sales were in the Europe, Middle East and Africa region, with the Americas and Asia-Pacific regions accounting for 30% and 20% of segment sales, respectively. WPS has a variety of brand names that are used to market its products; among these are Emedco (safety & facility identification), Securimed (first aid supplies), Runelandhs (office equipment) and Carroll (wire identification).

Fiscal year 2014 continued a transition period for Brady, as the company experienced continued losses. While sales were up nearly 6% to $1.2 billion, the company lost $48.1 million. This was a reduction from fiscal 2013’s loss of $138.3 million, but still represented a loss of 95 cents per Class A share. Due to the losses, there is no meaningful dividend payout ratio.

In its annual report, the company stated that the loss was due to an impairment charge of nearly $150 million resulting from the $300 million acquisition of PDC, a manufacturer of identification products for the healthcare sector. Without the impairment charge, the company would have shown a profit in both fiscal 2013 and fiscal 2014.

The WPS segment is also suffering from increased competition. As its competitors move to sales from e-commerce sites, prices for the types of products that Brady sells are becoming more transparent, resulting in reduced sales. WPS sales were down nearly 5% from 2013 to 2014.

Two bright spots for the company are the increased sales in the IDS segment, mostly resulting from the acquisition of PDC, and the refocusing on its core business, exemplified by the partial divestment of the company’s Die-Cut business line. The European and Asian portions of the Die-Cut business, which manufactures parts for the electronics industry, was sold in part during fiscal 2014.

The company is also undergoing a restructuring to consolidate some of its 50 manufacturing facilities in the Americas and the Europe, Middle East and Africa regions. The company expects the restructuring to result in pre-tax savings of $10 million a year.

Brady has an active share repurchase program, having bought back 288,000 shares of Class A stock between May 1 – July 31, 2014. The current program is authorized to buy back an additional 966,000 shares.

Brady Corporation is a member of the S&P Mid Cap 400 index and trades under the ticker symbol BRC.

Brady Corporation’s Dividend and Stock Split History

Brady Corporation Dividend Growth

Brady Corporation dividend growth has slowed since 2010, with an annualized growth rate of less than 3%.

Brady Corporation has increased its dividend payout since 1986. The company traditionally increases dividends in the 4th quarter of the calendar year, announcing them in September, with the stock going ex-dividend in October. In September 2014, Brady announced a 2.6% dividend increase to an annualized rate of 80 cents per share. I’m expecting Brady to announce its 30th annual dividend increase in September 2015.

The company has two classes of shares. The Class A shares are publicly traded, but are non-voting shares, while the Class B shares do not trade publicly but have 100% of the voting rights. The company must pay 1.665 cents per Class A share annually before paying any other dividends. After that, dividends are split equally between the Class A and Class B shares.

After building a decent dividend growth record, the company sharply slowed the rate of dividend increases beginning in 2010. Since then, Brady has increased the annual dividend by half a cent a year, giving the company a 5-year compounded annual dividend growth rate (CADGR) of 2.8%. Longer term, Brady’s CADGR is better, with a 10-year compounded rate of 6.3% and a 20-year compounded rate of 9.9%.

Since beginning its record of dividend growth, Brady has split its stock three times: a 2-for-one split in November 1986, a 3-for-1 split in December 1995, and a 2-for-1 split in January 2005.

Over the 5 years ending on December 31, 2014, Brady stock barely moved, ending 2009 at $26.08 and 2014 at $26.75. This dramatically underperformed both the 13.0% annualized return of the S&P 500 and the 14.9% annualized return of the S&P Mid Cap 400 index during this time.

Brady Corporation’s Direct Purchase and Dividend Reinvestment Plans

Brady Corporation has both direct purchase and dividend reinvestment plans. You must be a current shareholder in order to participate in either plan. This will require purchasing your initial shares through a broker, and then transferring them into the plan. The dividend reinvestment plan does not allow you to reinvest part of your dividends – you must either reinvest all or none of them.

Overall, the fee structure of the plans is favorable to investors. There are no fees when purchasing shares, either directly or through dividend reinvestment. When you make additional purchases through the direct purchase plan, you must invest at least $100.

You’ll only be charged fess when you sell your shares. The sales fee is between $15 and $30, depending on the type of sell order you place, and you’ll also pay a commission of 12 cents per share. To have the proceeds directly deposited to your account, you’ll pay an additional fee of $5. All fees will be deducted from the sales proceeds.

Helpful Links

Brady Corporation’s Investor Relations Website

Current quote and financial summary for Brady Corporation (finviz.com)

Information on the direct purchase and dividend reinvestment plans for Brady Corporation

 

Share this post:

Recent Posts

Comments are closed.