This dividend hero is unstoppable!

Stock up 100% YTD and 30.5% annually in the last decade with 400% dividend growth

The new Focus Stock is one of the best performing Dividend Heroes in 2024 with a stock price that doubled! First some stunning stats: The stock price gained on average 30.5% in the last 10 years, so every year 30.5% higher, that’s unbelievable. To make things even better: the stock is up more than 100% year-to-date in 2024. With this comes a debt free balance sheet and double digit revenue growth for this top ranked dividend hero.

Then the dividend: Our new dividend growth superstar has raised the dividend by 200% in the last five years and 400% in the last decade. Actually, the company hiked the dividend by double digits in each of the last 7 years with a 5 year average growth rate of of 22.7% annually.

The company that we are talking about is……. (subscribe to read the full article).

Comfort Systems USA with ticker symbol FIX has raised its dividend for 12 consecutive years and is the best performing dividend hero in 2024.

Comfort Systems USA, founded in 1997, is a leading mechanical contractor in the U.S. that specializes in HVAC, plumbing, piping, and electrical systems for commercial, industrial, and institutional clients. The company was created through the acquisition of regional mechanical businesses, each bringing strong local expertise. Comfort Systems operates with a unique decentralized model, allowing these regional businesses to retain local control while benefiting from the resources of a national organization. This combination of local relationships and national scale is a key factor in their success.

Shortly after its founding, the company went public in 1998, raising capital to fuel further expansion. Over the years, Comfort Systems has grown both organically and through strategic acquisitions, expanding its services and geographic reach. A major shift in its business strategy came with a focus on maintenance and retrofitting, which provided a stable revenue stream less dependent on new construction. This adaptability has helped the company thrive through economic cycles.

Comfort Systems competes with national firms like EMCOR Group, Johnson Controls, and ABM Industries, as well as smaller local contractors. What sets them apart is their ability to offer comprehensive services—HVAC, plumbing, and electrical systems—under one roof, simplifying projects for clients. Their strong focus on maintenance contracts ensures long-term relationships and steady revenue.

Competitors

Comfort Systems USA faces competition from both national and regional companies in the mechanical and electrical contracting space. Key competitors include:

• EMCOR Group, Inc.: One of the largest providers of mechanical and electrical construction, energy infrastructure, and facilities services.

• Johnson Controls: A global leader in HVAC systems, building controls, and energy efficiency solutions.

• ABM Industries: While more focused on facilities management, ABM also competes in mechanical system installations and maintenance.

• Ferguson PLC: A distributor of plumbing and heating products, which sometimes overlaps with the services offered by Comfort Systems.

Regional contractors can also be fierce competitors, especially on smaller, local projects where relationships and proximity play a key role in winning contracts.

Their competitive edge, or moat, lies in this mix of local expertise with national backing, technical integration across services, and a strong reputation in the market. While competitors have similar offerings, Comfort Systems’ strong regional presence and reputation for quality work give them a distinct advantage, making them a reliable choice for complex mechanical projects across multiple industries.

In short, Comfort Systems USA has grown from a collection of local companies into a national leader in mechanical contracting, driven by its ability to adapt, expand, and maintain strong customer relationships.

VALUATION/FINANCIAL STRENGTH/DIVIDEND GROWTH

So why is the company a Dividend Hero? Comfort Systems USA has now raised its dividend 12 consecutive years with a whopping 5 year average growth rate of of 22.7%. The 2024 dividend was hiked by 20% oto $0.30 quarterly per share and the company did multiple dividend hikes in 2023, 2022 and 2021.

Because of the ever increasing stock price the dividend yield is only 0.3% at a stock price of $414. This makes Comfort Systems USA a typical Dividend Hero with a stock price increasing much faster every year than the super strong double digit dividend growth. We estimate that the company now pays an annual dividend of $43 million to its shareholders compared to a market cap of almost $15 billion.

The great thing about Comfort Systems USA is that they have a super strong balance sheet with a net cash position of $160 million at the end of 2023. The balance sheet is expected to strengthen the next couple of years with an estimated net cash position of more than $1 billion in 2026.

Comfort Systems USA also reports strong revenue growth with an expected increase of 33.8% this year to a record of almost $7 billion. In 2023 the revenue grew by almost 26%, preceeded by a 34.7% growth in 2022.

Strong dividend growth looks guaranteed the next couple of years with Comfort Systems USA generating more than $15 per share in free cash flow annually versus an annual dividend of only $1.20 per share. The valuation is high with an estimated p/e of almost 30 for 2024, but for a high growth company such as Comfort Systems USA this is not excessive.

Comfort Systems USA generated a 25% return on invested capital (ROIC) in 2023 with an EBIT-margin of 8%.

Do you consider buying this stock at current levels? Let us know in the comments!

Disclaimer: The information provided here is for informational purposes only and should not be considered financial advice. Investors should conduct their own research or consult with a financial advisor before making any investment decisions.