Giant corporations seem to get all the financial media attention. I'm guilty of this, too.
I tend to look for ultra-high quality dividend paying businesses. Companies like Coca-Cola, Procter & Gamble, and Johnson & Johnson are all great businesses with long streaks of raising dividends. They are also mega-cap stocks. The smallest of those three (Coca-Cola) has a market cap of $184 billion. There's certainly nothing wrong with investing in great, extremely established businesses, but not all great businesses are gigantic.
Some great businesses with long dividend histories have flown under the radar of dividend investors for too long.
Here's a company that has a market cap of just $537 million, making it just a fraction of the size of most other businesses that have offered steady dividend increases. Let's get to know it better.
Get To Know Computer Services International
Computer Services International (CSVI) was founded in 1965 and has paid increasing dividends for an amazing 44 consecutive years.
The company provides several services for banks including:
- Document services
- Payment processing
- Core bank processing
- Regulatory compliance
No doubt, Computer Services International operates in a boring industry. Handling document, payment, compliance, and processing services for banks is not flashy -- but it doesn't have to be.
Computer Services International's stock returns speak for themselves. The company has generated total returns of16.8% a year over the last 12 years for shareholders. The company's long dividend streak and excellent total returns speak to Computer Services Interantional's strong competitive advantage.
The company's competitive advantage stems from its trusted reputation and full-service offerings to banks. Computer Services International may be small compared to other dividend stocks, but it is one of the largest players in the regional bank services market. The company continues to make acquisitions in the highly fragmented regional bank service industry.
CSVI data by YCharts
Safety in A Turbulent Industry
The banking industry is known for its turbulence. The financial crisis of 2009 wiped out over-leveraged institutions.
You'd think that Computer Services International would see steep earnings declines during financial crises, but that's not the case.
Computer Services posted excellent results through the Great Recession of 2007 to 2009. The company's earnings-per-share grew each year through this difficult time -- even while the financial sector suffered. The company's services are vital to its customers, even during recessions.
Historical & Future Growth
Computer Services has grown its earnings-per-share at 9.8% a year over the last decade. Dividends have grown even faster, at 15.4% a year over the same time period.
Computer Services uses its stable cash flows to repurchase shares and pay out increasing dividends to its shareholders.
The company has a long growth runway ahead as it slowly consolidates the highly fragmented regional bank services industry. The company regularly makes small bolt-on acquisitions that add to organic growth.
Computer Services has very high switching costs. Once the company gets a customer bank to use its services, it requires significant effort on the part of the bank to switch to a new provider. High switching costs help telecommunications companies like AT&T and Verizon to have low customer cancellations. It is even more difficult for banks using the full host of Computer Services' products to switch, resulting in very long customer relationships.
Valuation
Computer Services International is currently trading for a price-to-earnings ratio of 18.2.
The company has a fairly low price-to-earnings ratio considering its solid growth prospects, stability, and shareholder friendly management. In addition, the company's stock is currently paying a 2.6% dividend yield.
Computer Services International is an overlooked stock that makes a compelling purchase for investors looking for a bank-end way to get exposure to the regional banking industry without exposing oneself to the ups-and-downs associated with that industry.
The company's combination of a below-average price-to-earnings ratio, solid growth prospects, recession-resistance, and above-average dividend yield make Computer Services International a Top 10 stock using The 8 Rules of Dividend Investing.
By Ben Reynolds
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