Updated 3/5/25
For income-focused investors, ABM Industries (NYSE: ABM) presents an intriguing opportunity in the facility services sector. The company has a solid track record of paying dividends, but there are some factors to consider before counting on it as a long-term income play.
- ✅ Dividend yield of 2.02%, slightly above its five-year average of 1.85%
- ❌ Payout ratio at 70.31%, indicating a high portion of earnings goes toward dividends
- ✅ Steady history of dividend payments with no recent cuts
- ✅ Current yield is better than its historical average, which may be appealing for new investors
- ❌ Cash flow supports dividends, but debt levels could create future challenges
ABM has consistently paid dividends over the years, making it a reliable option for income investors. However, its high payout ratio means there is limited room for major dividend increases unless earnings see strong growth.
Company Overview
ABM Industries operates in the facility management space, offering services like janitorial, electrical, mechanical, and parking solutions. The company has a strong institutional investor presence, with nearly 97% of its shares held by large firms, a sign of confidence from professional investors.
Currently, the stock trades at $52.31, with a market cap of around $3.26 billion. While it has shown steady revenue growth, recent earnings suggest that profitability remains a challenge. The stock has fluctuated between $40.70 and $59.78 over the past year, putting it in the mid-range of its trading history.
Dividend Sustainability
A key concern for dividend investors is whether ABM can sustain and grow its payments over time. With a payout ratio exceeding 70%, a large chunk of earnings is already allocated to dividends. Ideally, companies with long-term dividend growth potential keep this figure below 60%, giving them room to reinvest in operations and expand profits.
ABM’s earnings per share currently sit at $1.28, while the company pays out an annual dividend of $1.06 per share. This doesn’t leave much cushion, especially if earnings take a hit.
Looking at cash flow, the company generates about $226.7 million from operations and has free cash flow of $268.45 million. While this is enough to cover dividends, it doesn’t leave much breathing room when considering the company’s total debt load of $1.47 billion. Cash reserves are relatively low at $64.6 million, meaning ABM relies more on cash flow than on savings to fund its dividends.
Dividend Growth and History
ABM has a long history of paying dividends, which is a plus for investors looking for reliability. The company’s current 2.02% yield is slightly higher than its five-year average of 1.85%, making it a more attractive option for those seeking consistent income.
The next ex-dividend date is January 2, 2025, and the upcoming dividend payout is scheduled for February 3, 2025. Investors who want to capture the next dividend should keep these dates in mind.
Historically, ABM has increased its dividend, but the pace has been moderate. Given the company’s high payout ratio and debt levels, future increases may be small unless earnings growth picks up significantly.
Chart Analysis
The price chart for ABM Industries shows a clear uptrend that started around mid-year, with strong momentum carrying the stock to new highs before experiencing a correction. The stock saw a steady climb through the middle of the year, supported by the 50-day moving average (orange line) acting as a key support level. However, as the year progressed, the stock encountered resistance and began to consolidate.
The moving averages provide insight into the stock’s current positioning. The 200-day moving average (blue line) has been in a consistent upward trend, reflecting long-term strength. However, the recent price action has shown the stock hovering around both the 50-day and 200-day moving averages, indicating a period of indecision. The break below the 50-day moving average in late December was followed by a recovery attempt, but the price has struggled to sustain higher levels.
Volume patterns reveal some interesting dynamics. There was a noticeable spike in trading volume around July, coinciding with a strong rally, suggesting institutional accumulation at that time. Since then, volume has tapered off, with occasional surges on both upward and downward moves. The lower volume in recent weeks indicates a lack of conviction in either direction, which often happens during consolidation phases.
The RSI (Relative Strength Index) has been oscillating within a neutral range, with no extreme overbought or oversold conditions. This suggests that while the stock has experienced fluctuations, there hasn’t been excessive buying or selling pressure. The RSI dipped sharply during the correction but has since stabilized, mirroring the stock’s struggle to establish a clear trend.
In the most recent price action, the stock attempted to push higher but was rejected near the 50-day moving average. The last few candles show a mix of indecision, with wicks on both ends, suggesting buyers and sellers are currently battling for control. The price is sitting near a key support level, and whether it holds or breaks will be important in determining the stock’s next move.
Earnings Report Summary
ABM Industries recently released its latest earnings report, giving investors a clearer picture of how the company is performing. The fourth quarter wrapped up with $2.2 billion in revenue, which was a solid 4% increase from last year. Most of this growth came from strong performances in the Technical Solutions and Aviation divisions. Technical Solutions saw a major jump, up 35% thanks to strong demand for its microgrid services and a recent acquisition. The Aviation segment also had a strong quarter, growing 11% due to new contracts and steady demand. On the other hand, the Business & Industry and Manufacturing & Distribution segments had slight declines, but nothing too concerning, while the Education division stayed about the same as last year.
Even with higher revenue, ABM reported a net loss of $11.7 million for the quarter, which works out to a loss of $0.19 per share. A big part of this came from a $59.7 million adjustment related to the company’s RavenVolt acquisition, which actually reflects strong performance from that business. Other factors included higher corporate investments and adjustments in self-insurance from the prior year. When you strip out those one-time items, the company’s adjusted net income was $57.5 million, or $0.90 per share, which was slightly lower than last year’s numbers. Adjusted EBITDA for the quarter came in at $128 million, with a margin of 6.1%.
For the full year, ABM reported $8.4 billion in total revenue, up 3.2% compared to the prior year. The company’s net income for the year was $81.4 million, or $1.28 per share, which was a significant drop from last year’s $251.3 million, largely due to accounting adjustments related to acquisitions and the absence of a government tax credit that boosted earnings in the previous year. However, adjusted earnings per share landed at $3.57, which was pretty close to last year’s $3.50, showing that the company’s core operations remain steady.
ABM was also active in returning value to shareholders, repurchasing $32 million worth of stock in the fourth quarter alone, bringing its total for the year to nearly $56 million. On top of that, the company announced an 18% increase in its dividend, showing confidence in its long-term growth strategy. Looking ahead, ABM expects to see earnings per share between $3.60 and $3.80 in the next fiscal year, with an adjusted EBITDA margin between 6.3% and 6.5%. The company is optimistic about its growth opportunities and is focusing on diversifying its revenue streams to stay competitive.
Analyst Ratings
In recent months, ABM Industries has experienced both upgrades and downgrades from various analysts, reflecting a mixed sentiment in the investment community. The consensus twelve-month price target for the company stands at approximately $55.67, suggesting a modest potential upside from current levels.
Upgrades:
- UBS: On December 19, 2024, UBS raised its price target for ABM Industries from $55 to $56, maintaining a neutral rating. This adjustment indicates a slightly more optimistic view of the company’s valuation.
- Truist Securities: On September 9, 2024, Truist Securities increased its price target for ABM from $49 to $55, reiterating a hold rating. The firm cited improved operational efficiencies as a factor in their revised outlook.
Downgrades:
- Deutsche Bank: On September 8, 2023, Deutsche Bank downgraded ABM Industries from a buy to a hold rating, significantly lowering the price target from $65 to $43. This change was attributed to concerns over rising operational costs and potential margin pressures.
- KeyBanc Capital Markets: On September 11, 2023, KeyBanc reduced its price target for ABM from $51 to $48, maintaining an overweight rating. The adjustment reflects a more cautious stance due to anticipated challenges in the facilities services sector.
These varied analyst perspectives highlight the complexities surrounding ABM Industries’ financial performance and market position, with considerations ranging from operational improvements to cost-related challenges.
Valuation and Financial Stability
When assessing a dividend stock, it’s important to look at overall financial health. ABM’s debt-to-equity ratio is 82.60%, meaning it carries a significant amount of debt compared to its equity. This isn’t necessarily a dealbreaker, but it does raise concerns about financial flexibility.
The company’s profit margin sits at just 0.97%, which is quite thin. Operating margins are better at 6.94%, but still not impressive. With a return on equity of 4.55%, ABM isn’t generating particularly strong returns for shareholders.
On the valuation side, the company trades at a forward price-to-earnings ratio of 13.99, which suggests it’s reasonably priced. However, the trailing P/E ratio of 40.99 indicates that past earnings were lower, making the stock look expensive based on historical profits.
Stock Performance and Market Sentiment
ABM’s stock price has seen a 28.63% increase over the past year, outperforming the broader market’s 13.19% gain. This suggests strong investor confidence, but it also raises the question of whether the stock is fully valued.
The stock’s beta of 1.13 indicates that it moves slightly more than the overall market, meaning it has moderate volatility. Institutional investors own nearly all outstanding shares, which is generally a good sign for stability.
Risks for Dividend Investors
While ABM has been a reliable dividend payer, there are some risks to consider.
- A payout ratio above 70% means the company has limited flexibility to increase dividends unless earnings grow.
- Low profit margins indicate that the company doesn’t have much room for error when it comes to managing costs.
- Debt levels are relatively high, which could become a bigger issue if interest rates remain elevated.
- Economic downturns or contract losses could impact revenue, affecting dividend payments in the future.
Final Thoughts for Income Investors
ABM Industries provides a steady dividend, and its 2.02% yield is slightly better than its historical average. The company has a strong track record of payments, making it a dependable option for income investors. However, its high payout ratio and debt burden suggest that future dividend increases may be slow unless earnings improve.
For those looking for a reliable, moderate-yield dividend stock, ABM fits the bill. However, investors should monitor its financial health and ability to grow profits over time to ensure dividends remain sustainable in the long run.
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