Is Badger Meter's 33-Year Dividend Growth Streak a Compelling Case for Defensive Investors?

In the world of dividend investing, few names carry the weight of consistency like Badger Meter (NYSE: BMI). For 33 consecutive years, the company has raised its dividend, a streak that now faces the scrutiny of a market increasingly wary of volatility. As of August 2025, BMI's stock price has swung between $181 and $204 in recent weeks, reflecting broader macroeconomic anxieties and sector-specific headwinds. But for defensive investors, the question remains: Is this 33-year streak a testament to resilience, or a sign of complacency in a shifting landscape?

The Numbers Behind the Streak

Badger Meter's Q2 2025 earnings report offers a mixed picture. Revenue rose 10% year-over-year to $238 million, driven by strong demand in its Utility Water Product Line and the SmartCover acquisition. Free cash flow surged 19% to $40.6 million, a critical metric for dividend sustainability. Yet operating margins contracted by 40 basis points, pressured by rising SG&A expenses—largely due to integration costs and deferred compensation. The company's gross margin, however, expanded by 170 basis points to 41.1%, a sign that operational efficiencies are offsetting some of these pressures.

The dividend payout ratio of 29.4% as of May 2025 is a key strength. This is well below the Technology sector average of 40.2%, suggesting ample room for reinvestment or further dividend hikes. With a debt-to-equity ratio of 0.10 and a balance sheet bolstered by $664.5 million in equity, Badger Meter's financial fortress is a hallmark of defensive investing.

Valuation Metrics: A Double-Edged Sword

The company's Price to Free Cash Flow (P/FCF) ratio of 34.64 as of August 2025 is a point of contention. While this is a decline from 43.87 in 2024, it remains elevated compared to historical averages. For context, a P/FCF below 20 is often seen as undervalued, but BMI's ratio suggests investors are paying a premium for its predictable cash flows. The dividend yield of 0.72%—up from 0.58% in 2024—reflects a recent 18% increase in the quarterly payout to $0.40 per share. While this rewards shareholders, it also raises questions about whether the yield is attractive enough to justify the valuation.

Navigating Risks and Opportunities

Badger Meter's business model is inherently defensive. Water infrastructure is a necessity, insulated from cyclical downturns. The company's pivot to digital solutions like BlueEdge—a cloud-based water management platform—has added a recurring revenue stream, enhancing its resilience. However, the integration of SmartCover and the timing of AMI projects introduce near-term uncertainties. CEO Kenneth Bockhorst has acknowledged that project pipelines are robust, but sequential sales are expected to dip in Q3 due to timing shifts.

Tariff-related cost pressures, particularly on copper, also loom large. CFO Robert Wrocklage noted that recent price increases have not fully offset these costs, and future “price/cost neutrality” hinges on the stability of trade policies. For defensive investors, this is a critical risk: while the company's margins are strong, external shocks could erode profitability if not managed.

The Case for Defensive Investors

For income-focused investors, Badger Meter's 33-year dividend growth streak is more than a statistic—it's a promise. The company's conservative payout ratio, low leverage, and durable cash flow generation create a buffer against downturns. Its focus on essential infrastructure and digital innovation positions it to benefit from long-term trends like urbanization and climate resilience.

Yet the stock's recent volatility—swinging from $204.70 to $181.30 in July and August—highlights the need for caution. While the dividend increase to $0.40 per share is a positive signal, the P/FCF ratio suggests the market is already pricing in future growth. Defensive investors must weigh whether this premium is justified, particularly in a low-yield environment where alternatives like bonds or high-dividend equities in other sectors may offer better risk-adjusted returns.

Conclusion: A Streak Worth Protecting

Badger Meter's dividend growth streak is a rare feat in today's market, underpinned by a business model that combines necessity with innovation. The company's ability to generate free cash flow, manage debt prudently, and adapt to digital transformation strengthens its case for defensive investors. However, the recent earnings volatility and valuation premium demand a closer look.

For those willing to accept the current price, BMI offers a compelling mix of income and growth. But for investors prioritizing margin of safety, patience may be warranted until the stock's valuation aligns more closely with its fundamentals. In the end, the 33-year streak is a testament to resilience—but in investing, the future is always a question mark.