Operating in more than one profitable industry reduces Toromont’s risk. It has the potential to offset a downturn in any one industry with an upturn in another.
Toromont Industries Ltd. (TSX—TIH)
Toromont operates through two business segments, The Equipment Group and CIMCO. The Equipment Group includes one of the larger Caterpillar dealerships by revenue and geographic territory, spanning Newfoundland & Labrador, Nova Scotia, New Brunswick, Prince Edward Island, Québec, Ontario and Manitoba as well as most of Nunavut.
CIMCO is a market leader in the design, engineering, fabrication and installation of industrial and recreational refrigeration systems, such as freezers and skating rinks. Both segments offer comprehensive product-support capabilities.
Toromont’s earnings continue to grow. In 2022, its earnings are expected to advance by 15.5 per cent, to $4.62 a share. Based on this estimate, the shares trade at a hefty forward P/E (price-to- earnings) ratio of 22.6 times. In 2023, the company’s earnings are expected to go up by another 8.9 per cent, to $5.03 a share. This works out to a better but still hefty P/E ratio of 20.7 per cent.
Toromont’s growing earnings have enabled it to continue to raise its dividend each year. Indeed, the company has raised its dividend for 33 years in a row. That’s why it is a ‘dividend aristocrat’.
The annual dividend of $1.56 a share provides a modest yield of 1.5 per cent. But we expect the dividend to keep on growing for several reasons.
First, Toromont’s expected earnings per share in 2022 and 2023 significantly exceed the dividend.
Second, Toromont has an excellent balance sheet, In fact, its cash of nearly $796 million greatly exceeds total debt of almost $663 million.
Third, once a company makes it as a dividend aristocrat, it usually remains one.
As we often point out, growing dividends attract investors. That’s because growing dividends can help partly or even fully offset the rising cost of living. And while share price gains come and go, Toromont’s dividends grow year in and year out.
This is an edited version of an article that was originally published for subscribe September 2022/First Report of The MoneyLetter. You can profit from the award-winning advice subscribers receive regularly in The MoneyLetter.
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The MoneyLetter •1/15/23 •