FTSE 250 incumbent Rotork (LSE:ROR) is a leading firm in its marketplace, and hasn’t cut its dividend since 1988. Should I buy the shares for my holdings to attempt to capture future returns?
Leading engineering firm
As a quick introduction, Rotork is an engineering business with a focus on designing, developing, and selling valves, actuators, and instruments that are crucial to the flow of gas and liquids through industrial plants. Most of its business is in the oil and gas sectors, however, it also has a presence in water, waste, chemicals, and the nuclear power industry.
So what’s happening with Rotork shares currently? Well, as I write, they’re trading for 240p. At this time last year, the stock was trading for 349p, which is a 31% decline over a 12-month period.
A FTSE 250 stock with risks
Firstly, I note that Rotork shares look a bit expensive on a price-to-earnings ratio of 26. There is every chance that future growth could already be priced in here. On the other hand, could it be a case of a top company trading at a premium price? The old adage you get what you pay for springs to mind here.
Next, Rotork’s exposure to the gas and oil market is a long-term concern. With global initiatives to move towards electric power and green alternatives, could it see performance and returns affected? What sets my mind at ease here is its diversified business model and access to other industries.
The positives and what I’m doing now
So to the positives. I always refer to performance track records and Rotork’s looks impressive to me. I do understand that past performance is not a guarantee of the future, however. Looking back at the past four years, it has recorded consistent revenue and profit for this period. It even recorded positive trading during the pandemic period.
There aren’t many stocks that can say they haven’t cut their dividend since 1988. Rotork can, however. Now I am aware that dividends can be cut or even cancelled at the discretion of the business at any time. Rotork’s current dividend yield stands at 2.6%. This is higher than the FTSE 250 average, which is just under 2%. Consistent and stable returns is something I want all the stocks in my holdings to offer me.
Finally, I am buoyed by Rotork’s growth journey over the past few decades. I can see that it has managed impressive recent performance, which includes high profit margins and returns, as noted above. It also tells me it has the knowledge, experience, and know-how to navigate macroeconomic issues, such as the ones we have experienced in the past two years and counting.
Despite trading for a premium, I’d add Rotork shares to my holdings. Its position in the market, track record of performance and returns helped me make my decision. I will keep a keen eye on developments as the oil and gas market changes, however, and see how Rotork adapts.