Investors seeking stability and consistent returns have often favored dividend stocks for their generate to deliver a passive income stream - and among dividend-paying stocks, Dividend Aristocrats are the elite class. This title refers to members of the S&P 500 Index ($SPX) that have consistently increased their dividend payments each year for at least 25 consecutive years. That kind of payout history generally indicates long-term resilience in a business and prudent financial management, regardless of the broader economic backdrop.
And for investors looking to scoop up Dividend Aristocrats at a discount, it's worth checking out the action in Albemarle Corporation (ALB). While the company declined after issuing a weak demand forecast, analysts are still aligned in the lithium company's corner - and its rock-solid dividend remains intact. Here's a closer look at why ALB might be a bargain worth scooping up right now.
About Albemarle Stock
Albemarle Corporation (ALB) is a global leader in the production of lithium, bromine, and catalyst solutions. Valued at $16.18 billion by market cap, the specialty chemicals company plays a pivotal role in powering the green energy revolution, with lithium being a critical component in the manufacture of batteries for electric vehicles (EVs).
Shares of ALB have underperformed over the past year, mirroring struggles in the broader EV industry. The stock is down 45% over the past 52 weeks.
But for investors looking to pick up shares at a discount, now would appear to be an opportune moment. ALB is now priced at just 2.73x forward sales, marking a healthy discount to its five-year average price/sales multiple of 3.90.
And given its status as a Dividend Aristocrat, ALB offers a regular payout to its investors, too. The company shells out $0.40 per share each quarter, backed by 29 years of consistent growth. That translates to a forward yield of 1.16%, and the company's modest payout ratio - around 7% - suggests that there's plenty of ceiling for continued dividend growth in the future.
Albemarle Beats on Earnings
On Feb. 14, ALB reported Q4 2023 earnings results that surpassed analysts' expectations on both the top line and bottom line. Adjusted EPS came in at $1.85 against expectations of $0.99, representing a major positive surprise, while revenue of $2.36 billion also came in stronger than anticipated.
However, on Feb. 20, Albemarle's President of Lithium, Eric Norris, trimmed the company's forecast for 2030 lithium demand by 10%. Speaking to the Financial Times, Norris attributed the lighter lithium demand forecast to slower EV adoption, saying, “Some models have been delayed, largely out of North America, which is pushing out the length of time of penetration [of EVs] in the US.”
Earlier this year, the company had announced several strategic initiatives aimed at cutting costs, including headcount reductions and the deferment of some organic growth investments. In total, the moves reduced Albemarle's projected capital expenditures for 2024 to $1.6-$1.8 billion, down from the prior $2.1 billion guide. By pushing out spending on select growth projects and deferring its planned Richburg lithium conversion mega-site, ALB aims to allocate capital more efficiently during this transitional period.
Chairman and CEO Kent Masters added more detail on Feb. 26 when he spoke at the 2024 BMO Capital Markets Investor Conference. “In the cuts we made, what we're trying to do is thread a needle between the efficiency of the capital that we're spending… We've taken people out of the organization. We're doing things to focus on cash, to kind of bolster the balance sheet. We've restructured our credit agreements so we have a little more flexibility. So that's what we're trying to do to get through this period that allows us to be efficient and preserve our growth profile,” said Masters, who later added, “I think our biggest issue is the volatility that flows through the P&L.”
What Do Analysts Expect for Albemarle Stock?
Looking ahead, analysts certainly seem to be anticipating a transitional year for ALB. The consensus forecast calls for EPS to crater 76% to $5.31 in 2024, with revenue down 38.6% to $5.91 billion for the fiscal year ending in December.
However, the broader analyst community hasn't backed down from its consensus rating of “Moderate Buy" on this Dividend Aristocrat. Out of the 21 analysts in coverage, 10 call the stock a “Strong Buy,” 1 says it's a “Moderate Buy,” 8 analysts have a neutral “Hold” rating, and just 2 advocate a “Strong Sell.”
The mean price target from this group is $158.23, indicating expected upside of 11.2% from current levels.
The Bottom Line on ALB Stock
While the outlook for lithium demand may be cloudy, the rapid recovery in Albemarle stock off its recent lows suggests that these concerns may be priced into the shares. The company's strict attention to cutting costs and shoring up its balance sheet amid unsteady demand bodes well for a return to future growth, and the commitment to rewarding shareholders via reliable dividend payments remains intact. For investors looking to scoop up this Dividend Aristocrat at a discount, ALB is certainly worth a look at current prices.
On the date of publication, Ebube Jones did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
