Every once in a while investors are given the chance to invest in a company that provides a very unique opportunity. That opportunity is excellent growth to go along with a rock solid dividend and low valuations.
There aren’t too many stocks like this on the TSX, but one of them is quietly posting record breaking earnings and still losing value. Should you be buying this stock today? Lets take a look.
It’s time to take a look at TFI International (TSX:TFII)
TFI International (TSX:TFII) is a transportation and logistics company operating in Canada, the United States and Mexico. The company has over 400 terminals across these three countries and operates in three primary segments: Less-Than-Truckload, Package and Courier, and Truckload and Logistics.
The company is extremely reliable, and over the past five years has consistently grown both revenue and sales. The company has posted double digit earning beats over the last 5 quarters and has beat revenue estimates in three of the last five.
Unfortunately for current investors (and fortunately for prospective investors,) its price hasn’t reflected its record breaking numbers. Since April, TFI has lost 12.64% of its value, and has been trading sideways for the better part of 2019.
TFI’s most recent earnings report saw the company beat earning estimates by nearly 13% and posted record revenue of $1.337 billion. The company has seen a 40% increase in adjusted EPS year over year and revenue has increased 2.5%.
The company is aggressive with its acquisition strategy, and one of its most recent acquisitions of Aulick Industries and its affiliate company ShirAul should provide the company with the ability to expand its specialized truckload business south of the border.
With TFI already providing a strong presence here in Canada, expansion south of the border is crucial and it is clear management is determined to do so.
A Canadian Dividend Aristocrat, TFI International has increased its dividend for 8 years in a row.
It currently yields 2.5% and has been growing its dividend at a double digit pace annually over the last 5 years, with a 5 year dividend growth rate of 10%. With its dividend making up only 35% of free cash flows and the company’s payout ratio sitting at 25%, it is clear that there is a ton of room for this dividend to keep growing in the future.
TFI’s most recent dividend increase was 14%, which is 40% higher than its 5 year growth rate. With more than $200 in free cash flows, the company should be able to maintain its dividend growth and fund further acquisitions with ease.
With record growth and one of the stronger dividends in the country, you’d think TFI would be trading at a premium. However, like I said at the start of this piece the transportation company has lost nearly 13% of its value since April this year. This has left the company trading at extremely reasonable valuations. With a forward price to earnings of only 9.05 and a two year PEG ratio of only 1.20, this stock is by all means cheap, and is one of the main reasons it is one of our top stocks to buy in Canada.
TFI is trading at only 2.10 times book value, and analysts have a 1 year price target of $53.07 on the company, which signals nearly 40% upside from today’s price levels. The company is outpacing the transportation industry with a ROE of 21%, ROA of 8% and a ROCE of 11%.
Trade wars have more than likely been the culprit in the stocks lagging price. However, it may be wise to take advantage of this and buy into a company that can earn you money with both an excellent dividend and exciting growth.
**Daniel Kent is long TFII.TO