I continue to be amazed at the number of publicly traded companies that operate seemingly mundane businesses and yet generate market-beating profits.
One of the many examples of this phenomenon is oil dry of america (ODC 1.18%). Oil-Dri is a leading vertically integrated manufacturer and distributor of sorbent minerals (clays) and related products.
There's nothing in this business description that jumps off the page and screams “potential to beat the market,” but Oil-Dri's stock price has tripled in the past two years. Since 2000, its total revenue has nearly tripled. S&P500 Index, 16 bagger.
While these past gains have been encouraging, I believe the future may be even brighter for Oil-Dri. Here's what this little-known dividend growth stock does and why we think it will continue to beat the market for decades to come.
Encounter with oil dry
After appearing on Forbes magazine's list of America's Most Successful Small Businesses for two years in a row, it appears Oil-Dri is finally getting the attention it deserves from the market. The company has been mining clay since 1963, currently has facilities in six U.S. states, and reserves are expected to last at least another 40 years.
Utilizing these clay mining locations, Oil-Dri serves the following markets:
- pet care (55% of sales): Oil-Dri holds patents for lightweight, scoopable cat litter sold under the Cat's Pride, Jonny Cat, and KatKit brands. However, after acquiring Ultrapet in 2024, the company entered the niche market of crystal litter, which is rapidly gaining popularity among cat owners due to its superior performance.
- liquid purification (21% of sales): Oil-Dri's clay products allow customers to process vegetable oils, cooking oils, jet fuel, and biodiesel. We also have adsorbents to remove metals for the retrofit diesel market.
- industry and sports (10% of sales): If you've ever seen a pebble on the floor of your mechanic shop or grandpa's garage, chances are it's Oil-Dri's granular clay absorbent to control spills and leaks. There are enough. Meanwhile, the company's clay helps drain playgrounds and can also help build pitching mounds and batter's boxes on baseball diamonds.
- agriculture and horticulture (8% of sales): Oil-Dri's Agsorb and Verge granules help nourish and protect plants and crops alike.
- animal health (6% of sales): The company's Amlan International division produces natural feed additives that keep animals healthy and safe from toxins.
Although Oil-Dri competes with many peers in these markets, its vertically integrated operations give it an advantage. Additionally, most of the company's products are subscriptions and “staples” for the customers it serves, so its sales are relatively stable and strong for an industrial company.
Image source: Getty Images.
Growth options and a focus on “Moneyball”
Oil-Dri's combination of promising growth options and rapidly improving profitability are qualities that make me optimistic about the company's future.
After acquiring Ultrapet for $46 million in May 2024, the company expanded into the rapidly growing crystal cat litter market. This crystal sand market has grown nearly five times in size since 2018, with sales volumes growing eight times faster than all other types of sand last year.
Oil-Dri already maintains 31% and 79% market share in the branded and private label lightweight clay sand niche respectively, and is now looking to recreate the same magic within the crystal sand industry through Ultra Pet . Adding to this potential, the company recently acquired the first-ever Environmental Protection Agency-approved antibacterial cat litter that kills 99.9% of odor-causing bacteria, further differentiating itself from its peers.
Meanwhile, U.S. renewable diesel production is increasing from 800 million gallons in 2020 to 6 billion gallons in 2025, making Oil-Dri's fluid purification products even more important. Using this renewable diesel as a drop-in fuel reduces greenhouse gas emissions by up to 80%. Oil-Dri is commissioning new plants to meet the industry's expanding demands, which should lead to further growth in the future.
What's even better for investors is that these growth areas are not being developed at the expense of lower profitability. In fact, profit margins are skyrocketing. meanwhile The company expands.
Much of that comes from the company's focus on improving its sales mix, a process it calls “Moneyball.” In Oil-Dri's first quarter results, chief financial officer Susan Kreh touched on this point, explaining: “So it's Moneyball for mining companies, where they focus on products that add value and actually take some of the value out of their portfolios.” It's not profitable. ”
Thanks to this effort, the company's profit margins continue to reach the highest levels not seen in more than 20 years.
ODC gross profit margin Depends on the data Y chart
This increase in profitability allows it to earn a dividend yield of 1.4% using only 18% of the company's net income. In other words, Oil-Dri could triple its dividend payments and only use half of its profits. Management has historically been conservative in increasing dividends, but the last increase was 7%, suggesting dividend increases may accelerate over time and with profitability.
Its price-to-earnings ratio is just 14 times, but its sales have grown 10% annually over the past five years, and 15% in the last quarter. If this profitability can be proven to continue over the long term, Oil-Dri could be a steal.
