With all of the crazy swings in the stock market and the economy, it’s nice to come across companies with a proven track record of stability and a desire to return much of their profits back to shareholders in the form of dividends.

Little-known United-Guardian (UG) has been remarkably steady over the years, a solid dividend stock and consistently positive cash flow. The company finished 2009 on a solid note, and is set for a record dividend payout.

Small company with a long history

United-Guardian, which was founded nearly 70 years ago by current chairman Alfred Globus, makes a wide range of cosmetics, pharmaceuticals, medical devices and other industrial products. Many of its products are gels and creams that are used in facial care, medical treatments, and various industrial applications.

The company’s LUBRAJEL line of cosmetic ingredients and medical lubricants accounts for the bulk of the company’s sales.

For such a tiny company — United-Guardian typically has $10 million to $12 million in annual sales — marketing and sales efforts have to be cost-controlled. Management has been seeking out partners to help push its products into new countries and new applications. Those efforts appear to be paying off as it looks as if 2009 sales will show decent growth, even as the broader economy slumped. United-Guardian already derives more than half its sales from foreign markets — mostly in Europe — and management hopes that it can make similar headway in Asia in coming years.

More aggressive payouts

Although United-General always threw off a modest dividend, management decided to get more aggressive with its payouts in 2004, hiking the annual dividend from $0.10 to $0.43. From there, the dividend was raised every two years, and grew to $0.60 in 2009. Its semi-annual dividend is currently $0.32. At current prices, that’s good for a 5.3% yield ($0.64/$12.11) making it a pleasant surprise among high dividend stocks. (Here is another high dividend stock I wrote about recently).

The most recent payout boost is due to signs that sales growth should be quite respectable for the full year: In the first nine months of 2009, sales were +8% higher than year-earlier levels, thanks to a healthy jump in demand for the company’s lubricants. Sales set a record in 2008, and probably will hit a new high again in 2009. And the bottom line is benefiting from a move to lower raw material costs. As a result, profits grew by more than +20% in the first nine months of 2009.

Pending earnings announcement will give us signs that the dividend might be set for another solid boost in 2010 as well. And as noted above, you can count on management to retain a conservative fiscal posture: United-Guardian maintains more than $13 million in net cash and investments on its balance sheet (which is good for about 25% of its market value).

We’re still two months away from the company’s next semi-annual dividend payment, but I think the prospects of a rising payout and sales growth make this an opportune time to get into this high dividend stock.

In light of United-Guardian’s stable operating history, strong balance sheet, healthy dividend and growing sales prospects, I would consider adding this income producer to your portfolio.

Investors should note that this is a very small company and its stock is thinly traded. If you’re interested in buying shares, I would strongly suggest doing it with a limit order, rather than a market order.


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