1. SDI (SDI, 82 cents)
Market capitalisation: $97 million
Three-year total return: –0.2% a year
Historical FY19 yield: 3.3%, fully franked
Price/Earnings ratio: 13.3 times FY19 earnings
Analysts’ consensus valuation: n/a
SDI might be a little-known stock, but it is one of the ASX’s most successful exporters, exporting more than 90% of its products overseas, to more than 100 countries. SDI is an Australian manufacturing success story, making a wide range of dental equipment and consumables, such as adhesives, alloys, composites, cements and accessories. The company is transitioning its product range as the worldwide market for amalgams – compositions of mercury and other metals for filling teeth – declines, as newer materials such as glass ionomers, composites and professional whitening start to dominate. Five years ago, amalgam products represented 43% of SDI’s global sales, but that proportion has halved to 22%. Aesthetics and whitening products now represent 70% of all sales, with dentists’ equipment amounting to 8%.
SDI has a very strong balance sheet, with no debt, $6.5 million in net cash and $4.8 million of free cash flow generated in FY19, allowing $2.6 million to be ploughed back into R&D, and an ordinary dividend of 2.7 cents a share (up from 2.5 cents in FY18) augmented by a 1-cent special dividend. Analyst coverage of SDI is very thin on the ground, but if SDI repeats that dividend in FY20 it is trading on a fully franked yield of 3.3%. Favourable currency movements – that is, a weakening Australian dollar – could boost SDI’s profit this year.