1. A Resilient Industry Leader
Rollins is best known for its flagship Orkin brand, leading the pest control industry in the United States with a customer base of over 2 million across 70 countries. The company operates within a $20 billion pest control market, where it has demonstrated an impressive ability to maintain market dominance. Despite being classified as a mature industry with modest growth rates, Rollins has consistently outperformed its peers.
Over the last 15 years, Rollins has averaged annual sales growth of 7%, even during economic downturns like the Great Financial Crisis and the COVID-19 pandemic, where it saw revenue increases of 6% and 12%, respectively. This impressive track record is largely due to the recurring nature of its services, with approximately 80% of sales being generated from ongoing contracts. This stability is reflected in its five-year beta of 0.7, indicating lower volatility compared to the broader market.
2. Robust Mergers and Acquisitions Strategy
Rollins has established itself as a serial acquirer in the fragmented pest control industry, with 32 tuck-in acquisitions completed in 2024 alone. The company is strategically positioned to consolidate its market presence, given that there are over 20,000 smaller operators in the space. Despite holding a leading 13% market share, Rollins has ample room for growth through further acquisitions.
What makes Rollins’ M&A strategy particularly appealing to investors is its ability to generate consistent cash flow while integrating new acquisitions. The company boasts an impressive 34% return on invested capital (ROIC) over the past decade, ranking it among the best compounders in the market. High ROIC stocks typically outperform their peers, making Rollins an attractive option for growth-focused investors.
3. Strong and Growing Dividend Payments
Rollins has been a reliable dividend payer, increasing its quarterly dividend payment more than fourfold since 2014. Recently, the company announced a 10% hike in its upcoming dividend, further underscoring its commitment to returning capital to shareholders. Currently, Rollins uses only 54% of its free cash flow to fund its dividends, ensuring that its payouts remain sustainable.
Though the stock’s 1.3% dividend yield may seem modest, long-term investors who purchased shares a decade ago now enjoy a yield of approximately 7% based on their initial investment. This illustrates the power of dividend growth investing and the potential rewards for those who hold onto their investments over the long haul.
Why Investors Should Take Notice
Despite being perceived as an expensive stock, Rollins’ resilient operations, successful M&A strategy, and growing dividends present a unique value proposition. The company’s ability to adapt and thrive in various economic conditions, coupled with its focus on shareholder returns, makes it a strong contender for investors looking to benefit from a stable business model with growth potential.
For those considering an investment in Rollins, the current market dynamics could make this an opportune time to enter, especially as the company continues to solidify its position as an industry leader in pest control
