Take a New Flyer for gains and dividends

The Investment Reporter has added manufacturing stock New Flyer Industries to its list of Key stocks that it recommends as core portfolio holdings. New Flyer’s earnings are expected to jump this year and next. This should lift its share price and give the company the cash to keep raising its dividends. Even better, its share price is low. New Flyer is a buy.

We’ve added Winnipeg-based manufacturing stock New Flyer Industries (TSX─NFI) to our list of Key stocks. Its profits are expected to jump this year and next. The company remains a buy for long-term price gains plus decent and growing dividends.

New Flyer is the largest transit bus and inter-city bus manufacturer in North America. It operates fabrication, manufacturing, distribution and service centers in Canada and the U.S. The company can help you diversify your portfolio.

Diversify with this Canadian manufacturing stock

The Canadian market offers relatively few world-class manufacturers. We regularly advise you to keep from 10 to 30 per cent of your stock money in each of the five main sectors of the economy—including manufacturing. If your holdings of manufacturing stocks account for less than 10 per cent of your portfolio, then consider investing in New Flyer Industries.

New Flyer has acquired Motor Coach Industries. This company, which manufactures inter-city buses, contributed for just nine days last year. In 2016, it will contribute for a full year. As New Flyer integrates Motor Coach and meets its order backlog, it’s expected to earn much more money this year and next.

New Flyer’s earnings growing quickly

In 2016, New Flyer is now expected to earn US$2.60 a share. This is more than double the adjusted US$1.24 a share that it earned last year. Translate this into loonies and you come up with earnings of about C$3.26 a share. Based on this estimate, New Flyer’s shares trade at a forward price-to-earnings, or P/E, ratio of 11.3 times. This is attractively-low for a company with such fast earnings growth.

In 2017, New Flyer is expected to earn US$3.15 a share. This represents earnings per share growth of over 21 per cent. It works out to about C$3.95 a share. Based on this estimate, the shares trade at an even better forward P/E ratio of 9.4 times.

Dividend paying manufacturing stock

After going public in August, 2005, New Flyer paid monthly dividends for 123 months in a row. It plans to pay quarterly dividends from now on. The company paid its first quarterly dividend of C$0.175 a share on April 15. The yearly rate of 70 cents a share is up by 12.9 per cent from the former 62 Canadian cents a share. The yearly dividend yields a decent 1.9 per cent. We expect the dividend to continue to rise along with New Flyer’s earnings per share.

As cities grow, the need for public transit rises. We expect car-dependent commuters to tire of sitting in gridlock twice a day. In low-density cities, buses are more economical than subways. New Flyer’s buses can also help Canada cut its carbon footprint. The company’s drive systems include battery-electric, electric trolley, clean diesel, diesel-electric hybrid and natural gas. As more drivers leave their cars at home, Canada’s carbon footprint should fall.

 

The Investment Reporter, MPL Communications Inc.
133 Richmond St. W., Toronto, On, M5H 3M8, 1-800-804-8846

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