My perfect investment would have a highly competitive business with steadily growing profits and dividends, strong cash flow, high returns on capital, low debt, solid growth prospects and a valuation multiple that leaves room for expansion.

K-Bro Linen (TSX: KBL, OTC: KBRLF) comes close to hitting all these measures.

K-Bro started in the early 1950s as an Edmonton-based cloth-diaper laundering company (remember the days of cloth diapers?). Today, K-Bro is the largest owner and operator of laundry-processing facilities in Canada and provides a full range of linen-processing, management and distribution services to healthcare institutions, hotels and other commercial clients. K-Bro currently has eight processing facilities and one distribution center in Vancouver, Calgary, Toronto and Montréal.

The company generates about 70% of its revenue from healthcare clients (mainly hospitals) and 30% from hospitality clients (mainly hotels). Top healthcare clients include the Vancouver Coastal Health Authority, Alberta Health Services and the St. Michaels hospital in Toronto. Contracts typically range from seven to 10 years for healthcare clients and two to five years for hospitality clients.

A Stable Business

One key characteristic of the business is its stable performance throughout economic cycles. The graph on this page indicates the steadily increasing EBITDA (earnings before interest, taxes, depreciation and amortization) profit margin since the company was first listed in 2005. Management ascribes this stability to healthcare’s steady business, the company’s long-term contracts with major clients (mostly publicly funded healthcare operators) and little client turnover. Conservative business expansion and financing practices complete the picture of an unexciting but stable business.

Future Growth Potential

Although the historical growth pattern indicates revenues and earnings per share growing a healthy 10% per year on average, the company now has about a 15% share of the Canadian healthcare and hospitality linen service market, with three potential sources of additional growth over the next few years:

Organic growth. In 2013 K-Bro signed a long-term contract with Health Shared Services Saskatchewan to construct and operate a processing plant in Regina, and to provide healthcare linen services to the entire province until 2025. The $36 million plant is expected to open by the third quarter of 2015. Estimates indicate that the contract will generate around $10 million of annual revenue (7% of 2014 revenue). Natural volume growth and price increases could add another 2% to 3% to revenue annually.

Outsourcing of public-sector laundry services. Over the past few years, public agencies in Calgary, Edmonton and Saskatchewan outsourced laundry services to the private sector. K-Bro management expects Quebec City and Montreal to award similar outsourcing contracts for hospital laundries by the end of 2015. K-Bro is well placed to capture some of this work, which is valued at almost $20 million per year.

Acquisitions. K-Bro made four acquisitions since 2006 with the last one the operations of Les Buanderies Dextraze, a processing plant for luxury hotels in the greater Montréal area, in 2011. Management says it continues to seek acquisitions although we don’t get the impression that anything is imminent. But given the industry’s fragmented nature, the company’s strong balance sheet and K-Bro’s ready access to capital markets, this may be an attractive way to accelerate growth.

A Dividend Champion Candidate

Based on our criteria for selecting Dividend Champions, K-Bro is a prime candidate. First, the dividend payment track record since the company was listed 10 years ago indicates a steady growth pattern with no omissions or lowering of the monthly dividend. The balance sheet is pristine with net cash holdings at the end of the second quarter 2015. Operating cash flow and free cash flow are sound, and the dividend payout ratio was only 45% in 2014.

The only concern with K-Bro’s Dividend Champion status is the slow growth in the dividend, which averaged 2% per year over the past decade. Given the low payout ratio, we expect the dividend will be raised at least in line with the growth in profits over the next few years.

Investors should note that K-Bro issued 840,000 common shares at the end of 2014 to finance the Regina plant. This increased the share count 12% and will dilute 2015 per-share results as the Regina plant won’t start producing revenue until the last quarter of this year. Earnings per share should be slightly lower in 2015 but then rebound sharply in 2016 and 2017, as the Regina plant comes into full production and other new contracts start to turn profits.

The Right Time to Buy

Although K-Bro is almost the perfect stock, here’s the only drawback: It’s not cheap. The stock currently trades at 11 times earnings value to EBITDA and 25 times the forward price-to-earnings ratio. This represents a premium to its U.S. peers as well as its own valuation history. The 2.5% dividend yield is also on the low end of our range for a company with average growth prospects.

Nevertheless, this is an outstanding business that is suitable for investors who value stability and few surprises from the companies they invest in. Buy K-Bro on dips below C$47 or US$36.