Stepan Co. (SCL) has a dividend track record that few companies can rival. This year will be Stepan’s 50th consecutive year of increasing dividends, making it one of just 25 companies in the entire market with a dividend increase streak of that length.
That puts the company among the elite Dividend Kings, a small group of stocks that have increased their payouts for at least 50 consecutive years.
Dividend Kings are the best of the best when it comes to rewarding shareholders with cash and this article will discuss Stepan’s dividend and valuation outlook.
Business Overview
Stepan traces its origins back to 1932 when it was founded by 23-year old Alfred C. Stepan Jr, known at the time as Chemical Distributors. The fledgling enterprise’s first product was a chemical that controlled road dust on Illinois’ country thoroughfares, sold from a rented desk at Chicago’s North Pier Terminal.
The company is still headquartered in Illinois and manufactures basic and intermediate chemicals, including surfactants, specialty products, germicidal and fabric softening quaternaries, phthalic anhydride, polyurethane polyols and special ingredients for the food, supplement and pharmaceutical markets.
It has expanded from that desk at the North Pier Terminal to a truly global reach with its 18 manufacturing sites in 11 countries throughout North and South America, Asia and Europe. Stepan also boasts global R&D centers, a worldwide distribution network and a broad portfolio of products to meet a diverse group of customer needs.
Stepan is organized into three distinct business lines: surfactants, polymers and specialty products. These businesses serve a wide variety of end markets, meaning that Stepan isn’t beholden to a handful of industries; an important trait during an economic downturn.
Source: Robert W. Baird & Co 2017 Global Industrial Conference Presentation
The surfactants business is Stepan’s largest by revenue, accounting for about two-thirds of total sales. A surfactant is an organic compound that contains both water-soluble and water-insoluble components. Surfactants are key ingredients in consumer and industrial cleaning compounds such as detergents, cleansing agents, emulsifiers, foaming or defoaming agents, viscosity builders, degreasers and others.
Stepan offers a broad range of surfactant chemicals and creates custom surfactants and formulated blends to meet unique customer demands. These surfactants are used in a wide variety of applications such as a foaming agent for shampoo, agents used in oil recovery and emulsifiers for agricultural insecticides.
Source: Robert W. Baird & Co 2017 Global Industrial Conference Presentation
The polymers business is Stepan’s second-largest by revenue, producing about 30% of the company’s total. The polymers division is further broken down into three segments: polyester polyols, powder coating resins, and phthalic anhydride. Polyester polyols are used in a wide variety of both polyurethane and polyisocyanurate applications. Stepan produces a full range of aromatic and aliphatic polyester polyols for use in rigid foams, as well as many coatings, adhesives, sealants and elastomers applications.
Polyester resins are designed with either hydroxyl or carboxyl functionality and combine with various curatives to form durable, attractive, environmentally friendly powder coatings. The company’s RUCOTE resins can enhance the quality, performance, and visual appeal of finishes on a wide variety of products.
Phthalic anhydride is an important part of Stepan’s Polymers division. In addition to being used in many of its polyester polyol chemistry, phthalic anhydride is a key raw material for plasticizers and unsaturated polyester resins.
