Dividend Income With These 3 Business Services Stocks

Published Thu, 17 Dec 2015 19:30 CET by DividendYields.org

Business services companies provide supplementary services to other players in the market. Although the business services sector has suffered from the recession, as smaller businesses have seized operations or have reduced the amount spent on outsourcing, there are businesses that have managed to sustain a competitive advantage and capitalize on corporate profit.

Normally, business services companies occupy a great share of the of the gross domestic product (GDP) and are closely related to how the economy performs. Given the business sector includes a wide variety of different types of businesses that provides services to accommodate other businesses rather than to meet the needs of specific consumer segments, it plays a major role in a country’s overall development. On the other hand, there is no doubt that it is one of the highest fragmented sectors.

This article discusses three business services stocks that can be attractive for investors looking for stable, defensive dividend payers with solid stock and operational performance.

ABM Industries, EMCOR Group and Healthcare Services Group YoY Stock Performance Graph
ABM Industries (NYSE: ABM) is a New York-based leading facilities management services company engaging in the provision of end-to-end integrated facility solutions to commercial, industrial, residential, retail, institutional and governmental facilities across the United States as well as various international locations. The company provides Clinical Engineering, Electrical & Electrical Testing, Energy, EV Charging Stations, Facilities Engineering, Home Energy, HVAC & Mechanical, Integrated Facility, Janitorial Services, Landscape & Turf, Parking & Transportation solutions in urban, suburban and rural areas to properties of all sizes.

Q4 2015 and FY 2015 results: 2015 was a transition year for ABM Industries as the company has entered a transformational phase towards the achievement of its 2020 vision to become a solutions-driven business focused on operational excellence. Its Q4 and FY 2015 results reflect the company’s expectations, including high insurance costs.

Compared to Q4 2014, ABM Industries’ results in the fourth quarter of 2015 are:
  • Revenues $1.35 billion, up 5.7% YoY from $1.28 billion
  • Operating expenses $1.36 billion, up 9.2% YoY from $1.24 billion
  • Operating income -$7.3 million, down 121.7% YoY from $33.7 million
  • Net income $1.5 million, down 92.3% YoY from $19.4 million
  • Gross profit margin 7% from 10%

Compared to FY 2014, ABM Industries FY 2015 results are:
  • Revenues $4.90 billion, up 5.3% YoY from $4.65 billion
  • Operating expenses $4.41 billion, up 6.0% YoY from $4.16 billion
  • Operating income $73.6 million, down 35.9% YoY from $114.8 million
  • Net income $76.3 million, up 0.9% YoY from $75.6 million

Dividend History: ABM Industries has not missed a dividend payment in nearly 50 years and is consistently delivering value to its shareholders. In the FY 2015 has returned more than $67 million in dividends and share repurchases and has raised its quarterly dividend due to exceptional net cash provided by continuing operating activities, up 25.5%. The company’s dividend growth between 2000 and 2015 is 6.5%, while its current annualized dividend of $0.64, yielding 2.24% at a payout ratio of 48%.

Looking Ahead: Moving to 2016, ABM Industries’ management continues to see strong growth in the company’s Air Serv segment due to high client retention rate (98%) and a strong pipeline of business opportunities coming ahead. In addition, the acquisition of Westway Services is expected to boost ABM Industries’ strategic combined with the previous acquisition of Omni Serv in the UK and GBM acquisition in Glasgow. Analysts expect an average 5-year earnings growth of 8% per year and an average EPS of 1.59 through 2018. Up 18.3% from current EPS of $1.34. These statistics bring ABM closer to the 2020 vision that includes distinctive competitive differentiation, effective client penetration and long-term growth.

EMCOR Group (NYSE: EME) is a Connecticut-headquartered, leading mechanical and electrical construction company providing electrical, mechanical, lighting, air conditioning, heating, security, fire protection, and power generation systems services to commercial, residential, industrial and institutional customers across the United States.

Challenging Q3 2015 Results: EMCOR reported revenues of $1.69 billion, up 8.5% YoY from $1.57 billion in the same quarter last year with underlying organic growth of 8.3%. This has been the strongest revenue Q3 ever, as a result of high organic revenue growth in all segments, both in the United States and in the UK. In particular:

  • US electrical construction and facilities services, up 9.4% YoY to $344.4 million from $314.7 million
  • US mechanical construction and facilities services, up 3.9% YoY to $ 587.5 million from $565.2 million
  • US building services, up 0.2% YoY to $428.3 million from $427.6 million
  • US industrial services, up 40.3% YoY to $214.9 million from $172.5 million
  • UK building services, up 11.7% YoY to $97 million from $86.8 million

The gross profit margin remained stable at 14%. On the downside, operating expenses increased 9.1% YoY to $1.63 billion from $1.49, operating income declined 4.9% YoY to $70 million from $73.6 and net income was down 10.4% YoY to $41.9 million from 46.8 million in Q3 2014. EMCOR delivers an annualized dividend of $0.32 per share, yielding 0.66% at a payout ratio of 12%. Its dividend growth between 2011 and 2015 is 60%.

Future Outlook: The building section is about 60% of the company’s performance and EMCOR expects that the current momentum will continue through 2017. In addition, in spite of the lower manufacturing capacity in the oil companies that has led in a contraction in pricing new heat exchangers, EMCOR’s industrial segment has managed to leverage any overhead costs. The management expects that operating margins will be further improved in the coming quarters. Analyst consensus estimates an average EPS of $2.77, up by 7.9% from the current EPS of $2.57 for the next 4 years, and an average earnings growth of 15% annually through 2020.

Name Price ($) 52 wk low 52 wk high 52 wk low % 52 wk high % Market Cap ($ b) P/E D/E Beta Payout Ratio
ABM Industries 28.86 26.71 34.00 8.05% -15.12% 1.59 25.06 0.31 1.01 48%
EMCOR 47.80 39.83 52.37 20.01% -8.73% 3.06 18.95 0.20 1.02 12%
Healthcare Services 36.02 29.21 38.49 23.31% -6.42% 2.59 40.06 0 0.98 80%

Healthcare Services Group (Nasdaq: HCSG) is a Pennsylvania-based company providing administrative, management, and operating services to retirement homes, nursing homes, rehabilitation centers, and hospitals in the United States. Currently, Healthcare Services operates 3700 Healthcare facilities and 900 Dining & Nutrition facilities in 48 states providing its services through its Housekeeping and Dietary segments.

Solid Q3 2015 Results: Healthcare Services manages its balance sheet conservatively and delivers solid financial results. In this third quarter, the company’s revenues are up 12.5% YoY, $360.2 million from 320.1 million, with a remarkable gross profit margin 14% from 1%. In addition, operating expenses were down 6.5% YoY to $332.1 million from $355.1 million, leading to an operating income of $28.1 million, up 19.9% YoY from -$35.03 million and a net income of $17.1 million, up 22.9% YoY from -$22.2 million in the same quarter last year.

Dividend History: Healthcare Services implements a dividend program to deliver value to its shareholders. Currently, the company pays an annualized dividend of $0.72 per share and it is the 50th consecutive dividend payment since 2003, when the program was originally launched. The dividend yields 2% at a payout ratio of 80%, whereas the dividend growth since 2003 is 572.3%.

Future Outlook: Entering Q4 2015 and moving towards the end of 2015, Healthcare Services expects a sustainable top-line growth as the company has successfully shifted its focus to expanding its business seeking to improve its retention rates. Analysts who follow the company expect an average EPS of $1.01, up 12.2% from current EPS of $0.90 up to 2016 and an average earnings growth rate of 18% for the next five years annually.

Stock name Dividend Yield
Abm Industries 2.36
Healthcare Services Group 1.69
Emcor Group 0.46

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