Diversified Dividend Compounder ABM Industries Moves Higher

Key Points

• ABM Industries stock is moving higher following a solid report and reiterated guidance. 
• The dividend is 1 attraction, and it is growing: ABM is a Dividend King. 
• Institutional Interest is high, above 90%, and growing. 

ABM Industries NYSE: ABM is no high-profile stock but is a blue-chip name in business services with diversification and dividend growth. The company provides facility maintenance and other services in 6 segments that span sectors and industries. The diversified nature of the business aids growth and helps support the dividend and the dividend growth outlook. The Q2 results were not spectacular, but the stock increased its value following the release. 

Among the drivers of the rally is the dividend. ABM Industries is a Dividend King with the power to compound its yield for many more decades. The company is paying only 30% of its earnings outlook, and there is growth in the forecast. The balance sheet is also sound, leverage is manageable at 2.6X, and the cash flow is healthy. The company may not improve the distribution CAGR, which is running below 5%, but it is sustainable and above the long-term inflation target. 

Another driver of this market is a high and rising institutional interest that begs the question, if the institutions think this is a good buy, does that make it a good buy for regular investors too? The institutions own more than 92% of the stock and have been buying on balance for the last 2 quarters and the last 2 years. That action has put a floor in action at $38, and support rose to buy a dip to $42 earlier this year.

ABM Industries: Growing After All These Years 

ABM Industries is an old company with many decades of growth to its credit. Despite this, the company can still grow and produce $2.0 billion in revenue in Q2. This is up 4.% compared to the prior year and is a quarterly record likely broken next year. The revenue is as expected, which is not a catalyst, but other factors offset that. Aviation was the strongest segment, with a 22% growth offset y 6% and 5% growth in the Education and Manufacturing segments. Technical grew by 15% due to an acquisition; it contracted by 6% otherwise, while Business and Industry contracted by 1%. 

The best news in the report is the margin. The company’s margin contracted compared to last year but less than expected, leaving the adjusted earnings at $0.90 and up $0.01 YOY. That’s a nickel better than expected and helps to support the full-year outlook, which was adjusted. The adjusted is to GAAP results due to a change in the valuation of assets; the adjusted guidance was maintained at the prior level, which again is not a catalyst for a rally, but enough to sustain the dividend and dividend growth outlook. 

ABM Industries Expands Into Electrification 

ABM is entering a new market that should help sustain growth for years. The new segment is electrification and will consolidate existing businesses into the new RavenVolt acquisition. ABM has installed more than 30,000 EV charging stations to date and offers an end-to-end turnkey solution to clients. The need for charging stations is only growing with the adoption of EVs, and it will accelerate before it cools down. 

The price action in ABM has been range bound for the last 2 years, but it is moving upward within the range now. The Q2 report sparked a price surge that could get the market to the top of the range. The next hurdle is $49.50; if the stock can move above there, it should drift to the $52 level and possibly higher. If not, this stock will remain range bound while it pays and grows its dividend.