Steady, Dependable Growth in a Mission-Critical Business

Sometimes great investments can be downright boring...

These companies provide products and services necessary for everyday life. Because customers can't live without their products, there's practically a guarantee they'll be back for more.

That provides steady, reliable sales growth for these companies – which in turn leads to steady, long-term increases in the share price. And that's exactly what you get with $7 billion safety-equipment maker MSA Safety (NYSE: MSA)...

MSA's product line starts with classic fire helmets, boots, and turnout gear. The company also makes supplied-air respirators, air-filtration systems, and thermal imaging systems. This part of MSA's business makes up about 35% of sales.

But it doesn't only supply firefighters. Visit a construction site and you'll find that the helmets, fall-protection harnesses, and welding masks likely come from MSA. It also offers devices that can detect flames or sniff out gas leaks for the oil-and-gas industry.

If it's a safety device, MSA probably offers it. And this is a great business to be in...

Put simply, in many instances, MSA's equipment is required. And by required, we mean regulations say this equipment must be purchased and supplied to workers.

You can't have a high-rise worker walking the beams without a harness. And not even the most tightfisted taxpayer would suggest denying a firefighter his helmet.

While the oil-and-gas and construction industries go through economic cycles, many of MSA's other customers do their work steadily every day. Firefighters need good helmets, whether the economy is thriving or not.

MSA equipment is not only required by regulators, but it's also in the best interest of many companies to purchase them. Take MSA's personal protective equipment ("PPE") business, for instance...

According to the National Institute for Occupational Safety and Health, 73% of all fall-related construction-worker deaths happen while workers are not using PPE. Few deaths occur when PPE is in use... Companies want to avoid that legal and emotional nightmare. So they are more willing to purchase high-quality PPE.

MSA's PPE business is its second-largest unit, making up about 30% of sales.

And MSA dominates the competition. It's the No. 1 provider of breathing apparatuses, firefighter helmets, firefighter apparel, flame-and-gas detection, and industrial head protection.

Competition is unlikely to spring up soon. The Silicon Valley ethos of "move fast and break things" doesn't work with safety equipment. These products have been designed, certified, and approved for use by a whole slew of agencies and regulators.

Every new Occupational Safety and Health Administration ("OSHA") rule means more of a "moat" for MSA's business.

And the company has opportunities to grow outside the U.S...

As the developing world gets more developed, worker safety standards there are improving. Places like China and India are increasing regulations to keep their people safe. MSA has a leading position in nearly all core markets across Brazil and Mexico.

The company has also gotten a near-term boost from the COVID-19 pandemic. Last year, Chief Financial Officer Kenneth Krause noted that the company was building a backlog (orders placed but not yet completed) for things like respirators and fire services.

While that will be a boost for MSA in the next couple of quarters as these orders turn into reported sales, its business is built for the long term. And although demand for construction and oil-and-gas equipment fell during much of the pandemic, MSA's diversified business means that it was able to weather the storm without taking too much of a hit.

That's on top of a history of strong financial results...

MSA earns consistently healthy profit margins. On its $1.35 billion in revenue last year, it earned $590 million in gross profits for a margin of 44%. When considering all costs, its net income is $120 million, for a profit margin of 8.9%. And those numbers have been largely steady and growing for the better part of a decade.

The company also has a history of returning capital to shareholders. MSA has raised its dividend for more than 50 consecutive years. Even so, its dividend policy is conservative. It only pays 46% of income out as a dividend, again leaving room for safety and growth.

MSA's business gets a boost from steady, predictable sales of mission-critical equipment. And it loves to return capital to shareholders through an ever-growing dividend. That should be a tailwind for share demand, pushing the stock higher.

Sometimes investing is simple.