Wednesday, June 30, 2010

Toromont Industries Ltd

I originally bought this stock (TSX-TIH) in 2007 and then bought more in 2008. My total return on my investment in this stock is -1% per year. The reason I invested in this stock was to diversify away from a portfolio of Banks and Utility stock. If I had such a portfolio in the US when we went into the current recession, I would be in a much worse position than I am currently. I am only earning some 2% in dividends on my original investment. This is a stock with a low dividend yield, but a fast growing dividend.

When you look at growth figures for this company over the last 5 and 10 years, most are good to very good. For example, the 5 and 10 year growth figures for Book Value are 15% and 14% per year, respectively. The worse growth figures for the last 5 and 10 years are for revenue per share, which were 3.6% and 8% per year respectively. The main reason for the lower Revenue growth figures is that Revenues declined some 14% in 2009. These figures are good considering we are in a recession.

This is a dividend paying growth company. The company pays a rather low dividend yield, but it is increasing at a good clip. The 5 and 10 year growth in dividend yield is 17.8% and 15.5% per year respectively. In both the last recession and this recession, the increase in dividends dropped substantially, with the increase in 2009 being just 5.4%.

So far this year there has been no dividend increase and they have declared the 3rd dividend to be paid this year. Without a dividend increase, it is expected that the Payout Ratio for dividends from the Cash Flow will be about 30%, and this is higher than normal. However, I noticed that in the last recession, the Payout Ratio from cash flow spiked higher during the recession.

The Liquidity Ratio and the Asset/Liability Ratio are both very good. The Liquidity Ratio for 2009 was 2.57 and for the 1st quarter of 2010, it was 2.01. For the A/L Ratio, the one for 2009 was 2.67 and one for the 1st quarter was 2.05. Yes, they have come in lower recently, as they did in the last recession. However, when for these ratios a ratio of 1.50 and above is good, I see no problems. The last thing is the Return on Equity. The 5 year running average is still over 15% and this is good. However, the ROE for the 1 quarter of 2010 is rather low at 5.3%.

I guess that last thing to mention is that this company did not do as well in the first quarter of this year as it did in the 1st quarter of 2009. As a result, the earnings and cash flow estimates were decreased. I am pleased with my investment in this company and I will continue to hold the shares I currently have. I probably will not buy any more as I do not like any one company to be a too high a percentage of my portfolio. The thing with growth stocks is that even if you start with a modest amount, they can grow faster than the rest of the stocks in your portfolio. I am currently comfortable with the amount I have invested in this company at this point in time.

There are two sections to this company. The Equipment Group is for Caterpillar dealerships. The Compression Group designs, engineers, fabricates and installs compression systems for natural gas, fuel gas and carbon dioxide. This last group also has industrial and recreational refrigeration systems. Its web site is here Toromont. See my spreadsheet at tih.htm

This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. See my website for stocks followed and investment notes. Follow me on twitter.

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