Amphenol: The Dividend Compounder I'm Watching Like A Hawk

Core Viewpoint - Amphenol Corporation has demonstrated exceptional performance with a 19% annual return over the past 20 years, positioning it as a leading compounder in the industrial sector [3][19]. Company Overview - Amphenol Corporation has a market capitalization of $47 billion and operates in various sectors including industrial, automotive, IT, defense, and mobile devices, with over 60% of sales generated outside North America [5][6]. - The company has a strong history of mergers and acquisitions, having acquired more than 50 companies in the last decade, which has contributed to its growth strategy [5][6]. Recent Performance - In the second quarter, Amphenol achieved record revenues of $3.61 billion, reflecting an 18% increase in U.S. dollars and an 11% organic growth rate [7][8]. - The operating income reached $769 million with an operating margin of 21.3%, a 90 basis points improvement from the previous year [7][8]. - The company generated $528 million in free cash flow, representing 95% of adjusted net income, and maintained a net debt of $4.1 billion with a net leverage ratio of 1.2x [9][8]. Shareholder Distributions - Amphenol currently pays a quarterly dividend of $0.165 per share, translating to a yield of 1.0%, with a five-year dividend CAGR of 13.6% [12][14]. - The company announced a 50% dividend increase during the 2Q24 earnings call, indicating a commitment to shareholder returns despite a low yield [12][14]. Future Growth & Valuation - The company recorded orders of $4.1 billion in the second quarter, indicating a book-to-bill ratio of 1.12x, suggesting strong future demand [15]. - Amphenol is pursuing additional acquisitions, including the purchase of CommScope's Outdoor Wireless Networks and Distributed Antenna Systems businesses for $2.1 billion, expected to enhance profitability [15][17]. - Analysts project Amphenol's EPS to grow by 17% this year, followed by 16% and 15% growth in the subsequent years [17]. Valuation Concerns - The stock is currently trading at a blended P/E ratio of 38.4x, significantly above its 10-year normalized P/E ratio of approximately 27x, indicating that much of the growth is already priced in [18][21]. - Despite the high valuation, the company is viewed as a strong long-term investment opportunity due to its robust business model and growth prospects [19][20].