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By Josh Kohn-Lindquist

I never cease to be amazed by the number of publicly traded companies that have rather mundane-looking operations yet are home to market-stomping returns.

One of the many examples of this phenomenon is Oil-Dri of America (ODC 2.29%). Oil-Dri is a leading, vertically integrated manufacturer and marketer of sorbent minerals (clay) and related products.

While no part of this business description jumps off the page screaming "market-beating potential," Oil-Dri's stock has tripled in just the last two years. Since 2000, it has nearly tripled the total returns of the S&P 500 index, becoming a 16-bagger.

As promising as these past returns have been, I believe Oil-Dri's future may prove even brighter. Here's what the little-known dividend growth stock does and why it looks positioned to continue beating the market for decades to come.

Meet Oil-Dri

Landing on Forbes' list of "America's Most Successful Small Companies" two years in a row, Oil-Dri finally seems to be attracting some much-deserved attention from the market. The company has mined clay since 1963 and currently has facilities in six states across the U.S., with reserves expected to last at least 40 more years.

Powered by these clay-mining locations, Oil-Dri serves the following markets:

• Pet care (55% of sales): Oil-Dri holds patents on lightweight scoopable litter that it sells under the Cat's Pride, Jonny Cat, and KatKit brands. However, following its acquisition of Ultra Pet in 2024, the company entered the crystal litter niche, whose superior performance is leading to a rapid rise in popularity among cat owners.
• Fluids purification (21% of sales): Oil-Dri's clay products let customers process vegetable oils, edible oils, jet fuel, and biodiesel. They also have adsorbents that remove metals for the renewal diesel market.
• Industrial and sports (10% of sales): If you've ever seen pebbles on the floor of a mechanic's shop or your grandpa's garage, there's a decent chance they were Oil-Dri's granular clay absorbents, which control spills or leaks. Meanwhile, the company's clay helps with drainage on sports fields and also builds up pitching mounds and batter's boxes on baseball diamonds.
• Agriculture and horticulture (8% of sales): Oil-Dri's Agsorb and Verge granules help feed and protect plants and crops alike.
• Animal health (6% of sales): The company's Amlan International unit produces natural feed additives that keep animals healthy and safe from toxins.

While Oil-Dri competes with many peers in these markets, its vertically integrated operations give it an advantage. Furthermore, most of the company's products are recurring purchases and "staples" for the customers it serves, making its sales relatively stable and robust for an industrial company.

Growth options and a "Moneyball" focus

Oil-Dri's combination of promising growth options and rapidly improving profitability are the qualities that have me optimistic about its future.

After acquiring Ultra Pet for $46 million in May 2024, the company expanded into the quickly growing crystal cat litter market. This crystal litter market has nearly quintupled in size since 2018 and saw sales volume grow eight times faster than all other litter types over the last year.

Oil-Dri already maintains a 31% and 79% market share in the branded and private-label lightweight clay litter niches, respectively, and now seeks to recreate the same magic within the crystal litter industry through Ultra Pet. In addition to this potential, the company recently received the first-ever Environmental Protection Agency-approved antibacterial cat litter that kills 99.9% of odor-causing bacteria, further differentiating itself from peers.

Meanwhile, renewable diesel production in the U.S. rose from 800 million gallons in 2020 to 6 billion in 2025, making Oil-Dri's fluid purification products even more critical. When used as a drop-in fuel, this renewable diesel creates up to 80% less greenhouse gas emissions. Oil-Dri has new plants coming online to handle the industry's ballooning demand, which should continue to lead to further growth.

Best yet, for investors, these growth areas aren't being developed at the cost of reduced profitability. In fact, profitability is booming while the company expands.

Much of this comes from the company's focus on improving its sales mix, a process it calls "Moneyball." At Oil-Dri's first-quarter earnings, Chief Financial Officer Susan Kreh touched on this point, explaining: "So it's Moneyball for a mining company, really focusing on products that add value and actually peeling some of the things out of the portfolio that are not profitable."

Thanks to this focus, the company's margins continue to reach new highs unseen for over 20 years.

ODC Gross Profit Margin data by YCharts

This improving profitability helps fund a 1.4% dividend yield that uses only 18% of the company's net income. In other words, Oil-Dri could triple its dividend payments and still use only half of its profits. While management has historically been conservative with dividend increases, its last increase was 7%, hinting that its dividend may rise faster alongside profitability over time.

Trading at just 14 times earnings but growing sales by 10% annually over the last five years -- and 15% in its previous quarter -- Oil-Dri could be a steal if it can prove that this profitability is here for the long term.

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