Legendary investor Peter Lynch popularised the term stalwart. Essentially, it defines a large company with steady and dependable growth and returns.
Two such companies — DuluxGroup Limited (ASX: DLX) and IOOF Holdings Limited (ASX: IFL) — have a lifetime of history in Australia, and in the case of IOOF, even longer! IOOF's origins date back to 1846 from the formation of a friendly society in Melbourne while Dulux originated from a paint business established in Sydney in 1918.
Notwithstanding their long, formidable histories, they are relative youngsters in their current form on the ASX. IOOF Holdings listed on the ASX in 2003 and DuluxGroup was listed in 2010 after its demerger from Orica.
IOOF
IOOF Holdings Limited is a $2.67 billion Australian financial services provider and has many reputable arms to its investment machine. IOOF is set to benefit from the tailwinds of Australia's growing superannuation and annuities industry. According to the last chairman's address to shareholders, the Australian compulsory superannuation system now sits around $1.8 trillion in value and Treasury estimates suggest this could increase to $8 trillion in value by the late 2030s.
IOOF last reported its Funds Under Management, Administration Advice and Supervision (FUMAS) at a whopping $142.9 billion, up from $11.8 billion since listing. Peruse the shareholder lists of many public Australian companies and you will also find IOOF listed as a substantial holder. What is appealing about IOOF is that it has an attractive price earnings to growth ratio (PEG) of 1.32, a 15% return on equity and yields a 5.6% fully franked dividend. Throw a rising local bourse into the mix and IOOF should continue to achieve solid earnings and dividend-per-share growth.
DuluxGroup
DuluxGroup Limited is a $2.25 billion company that most of us would associate with paint production. However, DuluxGroup is much more than that with its stable of steadfast brands such as Cabots, Berger, British Paints, Selleys, Yates and B&D garage doors. These brands have entrenched themselves over many years and are gaining further recognition in a booming housing sector.
DuluxGroup will prosper from a growing population and the inevitable urban expansion with several proposed new estates in Victoria alone. However, it is the 62% of earnings derived from home maintenance and improvement where DuluxGroup really cashes in. The popularity of TV shows such as The Block, House Rules, Better Homes and Gardens and Grand Designs continue to spur on budding renovators and this bodes well for the resilient DuluxGroup.
DuluxGroup offers a solid 3.6% fully franked dividend at current prices and an active dividend reinvestment plan with a 2.5% discount. A current return on equity of 37% and earnings per share growth forecast at around 15% for FY2015 should spur on budding investors too.
Do these stocks belong in your portfolio?
These stalwart companies currently trade around the mid-range of their historical price-to-earnings ratios and investors will be attracted to their reliable earnings and shareholder-friendly dividend-per-share growth.
