CCL Industries shares have upward momentum. This Ontario-based world class manufacturing company produces packaging products for brand-name firms. It also has facilities in the Americas, Europe and Asia. Toromont Industries is another of Canada’s top manufacturing stocks. It builds and services industrial and recreational refrigeration systems and has Caterpillar and Battlefield dealerships throughout Canada.
Since last summer, the shares of CCL Industries Inc. (TSX─CCL.B), a Toronto-based global manufacturer of specialty labels and packaging, have jumped by about 20 per cent.
CCL is expected to earn $8.27 a share in 2015. Based on this estimate, the shares trade at a hefty forward price-to-earnings, or P/E, ratio of 26.9 times. Our Growth Index metric of 1.2 suggests the shares are cheap. (The GI is the EPS 5-year compounded growth rate divided by the P/E ratio.) In 2016, CCL’s earnings are expected to climb by 16.2 per cent to $9.61 a share. Based on this estimate, the P/E ratio is 23.2 times.
CCL acquires top manufacturing stock
On November 6 CCL, which has prospered from past acquisitions, paid $252 million for Scotland-based Worldmark Ltd. Using its own proprietary pressure sensitive materials, Worldmark is a world class manufacturer of labels for designers and brand owners in the technology sector. Worldmark operates six plants in China and one each in Mexico and Hungary. It also has sales offices and prototyping design centres in Silicon Valley, Taiwan “and other strategically important locations”.
In 2015, Worldmark is expected to generate sales of $210 million. In 2016, it’s expected to earn EBITDA of $40 million. (EBITDA, or earning before interest, tax, depreciation and amortization, is used to assess a company’s underlying earnings.) President and chief executive officer Geoffrey Martin said, “Two-thirds of the revenue base is derived in Asia, significantly expanding our presence in this important part of the world. Developing proprietary materials specifically designed for challenging end-use applications has become an important operating model for the Company.”
If CCL accounts for too much of your stock portfolio, consider taking some money off the table. Take profits until CCL again accounts for a comfortable percentage of your portfolio.
If you own no CCL, consider buying some shares for further long-term share price gains and small, but rising, dividends. CCL’s shares have upwards momentum.
Toromont should regain dividend aristocrat status
We hold a high opinion of manufacturing stock Toromont Industries Ltd. (TSX─TIH) and we believe it should be considered a core portfolio holding that we continue to rate as a buy. But, as we have noted previously, Toromont does not currently meet the technical definition of a Canadian “dividend aristocrat.” These are companies that have raised their dividends for at least five years in a row. Toromont paid lower dividends in 2011 and 2012.
A subscriber wrote, “I would quote you from their reports that ‘Toromont has paid dividends since 1969. On February 5, 2015, Toromont announced a 13 per cent increase in its regular quarterly dividend, marking twenty-six consecutive years of increasing dividends.’ You do this company a great disservice and your subscribers likewise by not reporting the facts.”
The thing is, in 2010, Toromont paid dividends of $0.62 a share. In 2011, it paid $0.54 cents a share. In 2012, the company paid $0.48 a share. It has raised its dividend every year since then. There’s more to the story. Toromont’s reduced dividends in 2011 and 2012 reflect the spinoff of Enerflex Ltd. (TSX─EFX). Enerflex paid dividends of $0.18 a share in 2011 and has raised its dividend every year since then.
On this basis Toromont shareholders received growing dividends. But we consider Toromont and Enerflex two separate companies. Toromont remains a buy. Its dividend of $0.68 a share yields a decent 2.3 per cent. We expect it to keep raising its dividends and to officially regain its dividend ‘nobility’. Toromont also remains a buy for long-term share price gains.
Oil and gas services company Enerflex remains a hold. The end of the industry’s downturn is unpredictable and will depend partly on the Organization of Petroleum Exporting Countries (OPEC).
The MoneyLetter, MPL Communications Inc.
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