The FTSE 100 company I’m writing about today is unknown to most UK investors, despite increasing its dividend every year for 30 years.
However, I think this could soon start to change. In fact, I’m so excited about this opportunity that I recently bought more shares for my personal portfolio. Here’s why.
A £5bn business no one talks about
Irish group DCC (LSE: DCC) was founded in 1976 and floated on the London Stock Exchange in 1994. Since then, the company’s annual operating profit has risen from €21m to €636m. That’s an average growth rate of 12% per year, for 30 years.
Even more impressively, shareholders have seen a corresponding increase in their dividend income. DCC’s payout has risen from 6.1p per share in 1995, to 197p per share last year. That’s also equivalent to an average growth rate of 12% per year.
I can’t think of many other companies with such an impressive record.
What does DCC do?
DCC’s main focus is its energy business. This generates nearly 75% of group profits.
DCC Energy supplies liquid fuels and off-grid gas to business and residential customers in the UK, Western Europe, and US. It’s a big player in many of these markets and is now expanding into renewable energy and broader energy management services.
The remainder of DCC’s profits come from two separate businesses. One of these is healthcare distribution and the other is audio-visual product distribution, mainly in the US.
However, this is about to change. In November, the company announced plans to sell its healthcare and technology units over the next couple of years.
Splitting up makes sense
While DCC Healthcare and Technology are not bad businesses, they don’t have the scale or market leadership the company enjoys in energy. They aren’t as profitable, either.
According to management, DCC Energy generated a return on capital employed of 17.4% last year. Healthcare and Technology each managed less than 10%.
I think a split makes sense. When DCC is focused solely on energy, I think shareholders could benefit from an increase in surplus cash and a higher valuation.
Growth rates may also improve. In 2022, the company set a target to double energy profits by 2030. Progress so far looks promising to me – energy profits rose by 25% between 2022 and 2024.
I think DCC shares are too cheap
DCC’s share price has drifted in recent years. The stock is now around 25% below the record high of £75 seen in 2018. That’s left the stock trading on just 11 times 2025 forecast earnings, with a 3.8% dividend yield.
I think that’s too cheap, but of course there’s no guarantee the market will agree with me.
DCC’s growth strategy involves regular acquisitions. Historically, these have been small and low risk. But the deals are getting larger and more varied. I think that could make them harder to integrate successfully.
As the energy transition gathers pace, other risks could emerge too.
Even so, DCC’s energy products and services are an essential part of daily operations for nearly 2m customers.
I think there’s a good chance this business will remain profitable and successful over the coming decade. I expect to own my shares for many more years.
This post was originally published on Motley Fool
