3/8/25
Donaldson Company, Inc. (NYSE: DCI) has been around for over a century, quietly dominating the industrial filtration space. From heavy machinery to food and beverage production, its products keep essential industries running smoothly. While it may not be a household name, it’s a steady performer that has rewarded shareholders with consistent dividends for decades.
For investors looking to build a reliable stream of passive income, DCI is an interesting stock to consider. It doesn’t have the highest yield, but what it lacks in immediate income, it makes up for in stability and growth. With a strong financial position and a commitment to returning cash to shareholders, this is the kind of company that quietly builds wealth over time.
🔍 Key Dividend Metrics
💰 Dividend Yield – 1.56%
📈 5-Year Average Dividend Yield – 1.55%
💵 Annual Dividend per Share – $1.08
💼 Payout Ratio – 30.99% (Plenty of room for future increases)
📆 Ex-Dividend Date – February 13, 2025
📊 Dividend Growth Streak – Over 30 years of consecutive increases
Dividend Overview
Donaldson isn’t the stock you buy if you’re chasing high yields. With a yield of 1.56%, it’s more of a long-term compounding play rather than an income powerhouse. But what makes it attractive is its consistency. This company has paid and increased its dividend year after year, a clear sign of financial discipline and resilience.
The payout ratio sits at just over 30%, which is relatively low. That means the company is only using a small portion of its earnings to fund dividends, leaving plenty of room for future increases. This also gives it flexibility during economic downturns, ensuring that dividends remain stable even if earnings take a temporary hit.
For investors who value predictability over high-yield risk, Donaldson offers a steady and sustainable income stream.
Dividend Growth and Safety
One of the biggest selling points of DCI is its commitment to dividend growth. It has been increasing payouts for over 30 years, making it a dependable choice for long-term income investors. The company generates strong cash flows, ensuring that dividends aren’t just maintained but continue to rise over time.
Why is Donaldson’s dividend so safe?
- The payout ratio is low at 30.99%, which means there’s room for future increases.
- The company’s operating cash flow stands at $430.8 million, comfortably covering dividend payments.
- Filtration is a necessity in many industries, making Donaldson’s revenue streams relatively stable.
Even during economic downturns, businesses still need filtration solutions, keeping cash flow steady. This stability has allowed the company to grow its dividend for decades, and there’s no reason to believe that trend will change anytime soon.
Chart Analysis
Price Action and Trend
The chart shows that Donaldson Company, Inc. (DCI) has been in a downward trend since peaking in late 2024. The stock had a strong run-up before rolling over, with price action consistently making lower highs and lower lows. Recently, DCI has attempted to stabilize, trading near $69.74, but it remains below key moving averages.
Moving Averages
The 50-day simple moving average (SMA) is currently trending downward, reflecting short-term weakness in the stock. It has crossed below the 200-day SMA, a death cross pattern, which is often seen as a bearish signal. This suggests that downward momentum is still in play.
The 200-day SMA is also flattening out and starting to curl lower. This means the longer-term trend, which was previously bullish, is losing strength. For DCI to regain upside momentum, it would need to break back above these moving averages with strong volume.
Volume and Market Participation
Trading volume has been relatively steady, with occasional spikes. Some of the biggest volume bars came during the steep decline in December, signaling that sellers were in control at that time. More recently, volume has picked up again on green days, which could indicate some early buying interest. However, for any potential reversal to gain traction, sustained higher volume is needed.
RSI and Momentum
The Relative Strength Index (RSI) is at 78.35, putting it in overbought territory. Typically, an RSI above 70 suggests that the stock may be overextended to the upside and could be due for a pullback. This means short-term traders may start taking profits soon.
Earlier in the downtrend, RSI stayed below 50, confirming bearish momentum. The recent push higher is a change in character, but it will need to hold above key levels to suggest a real shift in sentiment.
Recent Candlestick Behavior
The last five candles have shown some indecision. While there has been a slight upward move, the wicks on both ends indicate that there is still a battle between buyers and sellers. The most recent candle closed near the middle of its range, which often signals hesitation in the market.
Support and Resistance
The $65 level appears to be a solid area of support where buyers have stepped in recently. On the upside, resistance is likely near the 50-day SMA, which is still trending lower. If the stock can push above that level, the next test would be around $72-$73, where previous support turned into resistance.
A break above these levels with strong volume would suggest that the stock is trying to reverse its downtrend, while failure to push higher could lead to another retest of recent lows.
Analyst Ratings
📉 On December 4, 2024, Morgan Stanley adjusted its stance on DCI by raising the price target slightly from $67 to $68 while maintaining an “underweight” rating. This cautious outlook suggests concerns about the company’s near-term growth prospects or valuation at that time.
📈 On the same day, Robert W. Baird expressed increased confidence in Donaldson by boosting the price target from $81 to $83 and reiterating an “outperform” rating. This positive sentiment reflects expectations of strong performance and potential market share gains.
📉 Earlier, on August 29, 2024, Stifel Nicolaus revised its price target downward from $76 to $71, maintaining a “hold” rating. This adjustment suggests a more cautious approach, possibly due to concerns about valuation or broader market conditions affecting the stock.
📊 As of February 27, 2025, the consensus among analysts is a “hold” rating for DCI, with an average price target of $74. This target suggests a modest potential upside from current levels, indicating that analysts foresee steady but not exceptional growth in the near term.
These mixed ratings and price targets highlight the range of perspectives on Donaldson’s future performance, balancing its historical stability against current market conditions and company-specific developments.
Earnings Report Summary
Donaldson Company, Inc. wrapped up the second quarter of fiscal year 2025 with net sales coming in at $870 million, slightly down from $876.7 million in the same quarter last year. Net earnings also saw a small dip, landing at $95.9 million compared to $98.7 million a year ago. Earnings per share followed the same trend, slipping from $0.81 to $0.79.
For the first half of the fiscal year, the company reported total sales of $1.77 billion, which is a slight improvement over the $1.72 billion recorded in the same period last year. Net earnings for this stretch came in at $194.9 million, up from $190.8 million, and earnings per share edged up from $1.56 to $1.60.
Looking at performance across segments, the Mobile Solutions division had a mixed quarter. While aftermarket sales climbed 8%, both Off-Road and On-Road sales took a hit, down 8.8% and 18.7% respectively. Despite this, overall sales in the segment still managed to grow by 3.4%.
The Industrial Solutions segment was mostly flat, with sales inching up just 0.4%. Within this segment, Aerospace and Defense was a bright spot, jumping 22.7%, but Industrial Filtration Solutions weighed on results with a 3.4% decline.
On the other hand, the Life Sciences division had a standout first half of the year, posting a solid 12.4% sales increase.
Operationally, the company’s second-quarter income came in at $125.5 million, slightly lower than last year’s $129.7 million. Over the first six months, however, operating income edged up to $256.3 million, just above last year’s $254.3 million. Gross profit for the quarter was $305.9 million, down slightly from $308.6 million, while the first half of the year saw gross profit climb to $625.5 million from $609.5 million.
As of January 31, 2025, Donaldson’s total assets were valued at $2.96 billion, with liabilities at $1.42 billion and stockholders’ equity at $1.54 billion.
Cash flow took a bit of a hit, with operating cash flow for the first six months coming in at $163.3 million, down from $225 million in the previous year. Capital expenditures remained steady at $43.9 million, a slight drop from $44.5 million a year ago.
Overall, the report showed steady performance, with pockets of growth and some areas of weakness. The company continues to navigate industry shifts while maintaining financial stability.
Financial Health and Stability
Dividends are only as strong as the company paying them, so it’s important to look at financial health. Donaldson has built a solid balance sheet, balancing debt and cash flow efficiently.
Here’s where the company stands financially:
- Cash on hand: $189.1 million
- Total debt: $577.4 million
- Debt-to-equity ratio: 37.39%
- Current ratio: 1.86 (indicating strong liquidity)
These numbers show that Donaldson is in a healthy financial position. It carries some debt, but it’s well-managed and doesn’t put the dividend at risk. The company also generates enough free cash flow ($334.91 million) to cover both dividends and reinvestments in growth.
With a return on equity of 28.64%, management is putting shareholder capital to good use. That efficiency is reflected in the company’s steady financial performance, making it a reliable pick for long-term investors.
Valuation and Stock Performance
Donaldson is currently trading at $69.74 per share, with a forward P/E ratio of 19.3x. That’s slightly below its historical average, making it reasonably priced compared to its past valuations.
Here’s a closer look at valuation metrics:
- Trailing P/E: 20.31
- Price-to-Book Ratio: 5.37
- Enterprise Value/EBITDA: 13.15
- PEG Ratio: 2.24
While the stock isn’t trading at a bargain, it’s also not excessively overvalued. Donaldson has historically commanded a premium due to its steady cash flow and market position.
In terms of stock performance, it’s been relatively stable. The 52-week range of $65.10 to $78.95 suggests that the stock has pulled back a bit from its highs, potentially creating an opportunity for long-term investors. While it may not deliver explosive growth, it has a track record of delivering solid, market-beating returns over time.
Risks and Considerations
Like any investment, Donaldson comes with some risks. Here are a few things investors should keep in mind:
- Economic Sensitivity: While filtration is a necessity, some of Donaldson’s key markets, such as manufacturing and transportation, can be cyclical. If industrial activity slows down, demand for its products could take a hit.
- Foreign Exchange Exposure: With a global presence, the company is exposed to currency fluctuations, which can impact earnings. A stronger dollar could be a headwind for international sales.
- Margin Pressures: Operating margin is currently at 14.79%, but rising raw material costs and labor expenses could put pressure on profitability.
- Yield Limitation: Investors looking for high current income might find the 1.56% yield too low compared to other dividend stocks in sectors like utilities or REITs.
While these risks are worth considering, Donaldson’s long history of navigating economic cycles suggests that it’s well-prepared to manage them.
Final Thoughts
Donaldson Company is the kind of stock that flies under the radar but consistently delivers results. It’s not a flashy, high-growth stock, nor is it a high-yield income play. Instead, it offers a combination of stability, dividend growth, and financial strength, making it a solid long-term investment for those who appreciate steady compounding.
For investors focused on dependable dividends and long-term capital appreciation, Donaldson has a lot to offer. With a manageable payout ratio, strong cash flows, and a commitment to rewarding shareholders, it’s a stock that fits well into a diversified income portfolio. While it may not be the most exciting name in the market, its reliability is what makes it appealing.
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