Here’s why this dividend growth stock might be the best buy in a market crash

Finding great dividend-paying stocks doesn’t always lead to the companies with the biggest payouts. In fact, it’s often the companies that seem to have tiny distributions – but grow them steadily over time – that can perform best over a decade or more.

A stock market crash is a rare opportunity to add them to your portfolio at valuations below the premiums. With that in mind, I think a company stands out in an industry that didn’t get a lot of attention until recent supply chain issues. Transport company Old Domination Cargo Line (NASDAQ: ODFL) may be the best dividend-paying stock to buy if the market crashes. Here’s why.

Image source: Getty Images.

Stand out in the trucking industry through service

Old Dominion is one of the leading partial load carriers (LTL) in North America. It offers national, regional and short-haul transport, as well as supply chain consulting services. Although the industry is competitive, the company differentiates itself through execution, namely by maximizing punctuality of performance and minimizing damage claims. Service parameters have improved significantly since 2002, earning it the title of Best National Carrier – with the Mastio Quality Award – for 11 consecutive years.

Service metric 2002 2020
Hourly service 94% 99%
Freight claim rate 1.5% 0.1%

Data source: Old Dominion Freight Lines.

About 70% of its shipments are the next day or the second day. They are supported by 248 service centers in 48 states. These centers position the business well as retailers continue to bring fulfillment centers closer to customers to support their e-commerce sales.

The total trucking market was $ 43.3 billion in 2019, according to the American Trucking Associations. And the company has turned its service excellence into significant market share gains in every region. Overall, it went from 2.9% to 10.3% share depending on management. This has fueled compound revenue growth of 11.5% since 2002. Operating margins have more than doubled during this period. It is not surprising that during this period Old Dominion shares rose significantly. But what may surprise you is that they have increased by over 27,000%!

Chart showing a massive increase in the price of the Old Dominion since 2000.

ODFL data by YCharts

Minimal dividend yield with plenty of room for growth

This performance has enabled the company to increase its dividend by more than 325% over the past decade. In February, it announced a 33.3% increase in its quarterly distribution. Increases like this can turn the current 0.3% return into something more meaningful over time. After all, it currently pays only 9.5% of its profits to shareholders. This leaves plenty of room for management for future increases.

The recent focus on supply chains reinforces why a company like Old Dominion is so essential to the country’s economy. Its financial performance, based on service excellence, represents a competitive advantage that should strengthen its position in difficult times. Stocks don’t come cheap – they trade almost 20 times after 12 months of gross profit. This is about 50% more than before the pandemic.

If the market collapses, Old Dominion Freight Line stocks will be at the top of my list of stocks to buy. The strong market position and the desire of management to increase the annual payment to shareholders are the main reasons for this. I expect the current low yield to feel much more substantial a decade from now after many healthy increases.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.