Jay’s POWR Income Stock of the Week: Deluxe (DLX)

Dividend Investing

The market expects interest rates to retreat in 2024 which should be a boon to small and medium sized businesses that have been struggling with high rates. So this may be the perfect time to take a look at a business like Deluxe (DLX – Get Rating) that helps small and medium sized businesses scale and grow. 

Deluxe is a marketing products and services company that provides everything from business checks and treasury management to help with product marketing and digital services. This includes traditional product marketing services across both online and physical marketing, or everything from web design to retail packaging. The company has been around for over 100 years and has quite the diversity of service offerings. 

Deluxe became over extended in the late 2010s growing to over 40 disconnected brands, with falling earnings. But a complete overhaul around 2020 refocused Deluxe into what is now a payments and data company with strong cash flow from the legacy checking business. Currently the legacy checking and printing business represents around 60% of revenue, while the faster growing payments and data business is close to 40%.

The overhaul allowed Deluxe to expand its deep relationships, especially with financial institutions, from providing checking services into more consulting style businesses where Deluxe can provide advisory services in the digital and process improvement areas, as well as technical support. 

Under its new structure the company looks cheap trading at 6.7x projected earnings and 0.4x sales. Commenting on the progress of its new business focus in the latest quarterly update, CEO Barry McCarthy stated, “We are pleased with our third quarter and year-to-date results, as comparable adjusted EBITDA expanded faster than revenue for the third consecutive quarter, putting us on-track for meaningful full- year operating leverage across the business, and demonstrating the true scalability of our portfolio.” 

Deluxe currently pays a solid 5.5% dividend yield. 

Deluxe currently has a B rating in our POWR Ratings where it is ranked above 87% of the companies we track. It is especially strong on the Value component where it has an 85.52% score. 

Deluxe is well positioned to profit from a turn in small and medium sized businesses as rates ease in 2024 and this sector begins to recover. And, the overhaul of its business offerings means the company can now go after new higher margin business with a customer base that is already familiar with its legacy offerings. 

What To Do Next?

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